M/s. Bry Air (Asia) Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 6396/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91163 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-06-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 08-06-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 02-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARWINDER KAUR
• Assessee Lawyers: S K MURGAI
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A; 6; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH. T .S. KAPOO R, ACCOUNTANT MEMBER I.T.A .NO S . - 6396 & 6397 /DEL/201 3 (ASSESSMENT YEAR S - 200 6 - 07 & 2007 - 08 ) BRY AIR (ASIA) PVT. LTD., 20, RAJPUR ROAD, NEW DELHI - 110054. PAN - AAACB4050A (A PPELLANT) VS DC IT, CIRCLE - 3(1), C.R.BUILDING, NEW DELHI - 110002 . (RESPONDENT) APPELLANT BY SH.S.K.MURGAI RESPONDENT BY SMT. PARWINDER KAUR, SR. DR ORDER PER DIVA SINGH, JM BOTH THESE APPEALS HAVE BEEN FILED BY THE ASSESSEE ASSAILING THE CORRECTNESS OF THE SEPARATE ORDERS DATED 20.09.2013 AND 25.09.2013 OF CIT(A) - V I, NEW DELHI PERTAINING TO 200 6 - 0 7 & 2007 - 08 ASSESSMENT YEAR S ON IDENTICAL GROUNDS. BOTH THESE APPEALS ARE BEING DECIDE BY A COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. AN ADJOURNMENT PETITION WAS MOVED BY THE ASSESSEE SEEKING TIME HOWEVER, CONSIDERING THE MATERIAL AVAILABLE ON RECORD, THE SAME WAS REJECTED AND THE A PPEAL WAS ARGUED BY THE SR. MANAGER (FINANCE & TAXATION) WHO WAS PRESENT IN SUPPORT OF THE PETITION MOVED. SINCE THE GROUNDS RAISED IN BOTH THE APPEALS ARE IDENTICAL, WE REPRODUCE THE SAME FROM ITA NO. - 6396/DEL/2 013 WHICH READ AS UNDER: - 1. THAT THE LD. CIT (A) - VI HAS ERRED BOTH IN FACTS AND IN LAW WHILE SUSTAINING THE DISALLOWANCE OF RS. 8,14,806/ - AS AGAINST RS. 11,61,464/ - MADE BY THE ASSESSING OFFICER. 2. THAT THE LD. CIT(A) - VI ARBITRARILY AND WITHOUT ANY B ASIS HAS ERRED IN FACTS AND IN LAW BY HOLDING 5% OF THE TOTAL EXEMPT INCOME AS EXPENDITURE DISALLOWABLE UNDER SECTION 14A. 3. THAT THE ORDER PASSED BY THE LD.CIT(A) IS BAD IN LAW AND AGAINST THE FACTS OF THE CASE. DATE OF HEARING 08 .0 6 .2015 DATE OF PRONOUNCEMENT 16 .0 6 .2015 I.T.A .NOS. - 6396 & 6397/DEL/2013 PAGE 2 OF 5 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, DELETE OR AMEND ANY OF THE GROUNDS OF APPEAL ON OR BEFORE THE DISPOSAL OF THE PRESENT APPEAL. 3. THE RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY IN THE YEAR UNDER CONSIDERATION DECLARED AN INCOME OF RS.5,49,22,464/ - BY WAY OF FILING ITS RETURN. THE SAID RETURN WAS PICKED UP FOR SCRUTINY. TAKING NOTE OF THE FACT THAT THE COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF ENVIRONMENTAL C ONTROL S YSTEMS HAD CLAIMED A DIVIDEND INCOME OF RS. 1,62,96,113/ - AS EXEMPT INCOME , T HE AO REQUIR ED T HE ASSES SEE TO EXPLAIN WHY PROPORTIONATE DISALLOWANCE OF ADMINISTRATIVE AND MANAGEMENT EXPENSES INCURRED FOR EARNING THE EXEMPT INCOME SHOULD NOT BE MADE. REJECT ING THE ASSESSEE S EXPLANATION , HE MADE A DISALLOWANCE OF RS.4,86,688/ - U/S 14A OF THE INCOME TAX ACT, 1961. 4 . IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY , THE ASSESSEE GOT PARTIAL RELIEF HOWEVER, NOT SATISFIED WITH THE SAME THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL . THE RELEVANT FINDING IS EXTRACTED HEREUNDER: - 7.9. .. .. THE APPELLANT HAS MADE A NET INVESTMENT IN SHARES AND MUTUAL FUNDS TO THE EXTENT OF RS.4,80,44,113/ - IN THE F.Y.2005 - 06 (RS.12,84,62,063/ - AS ON 31.03.2006 AND RS.8,04,17,950/ - AS ON 31.03.2005) BUT AT THE SAME TIME ITS ADMINISTRATIVE AND OTHER OVERHEADS HAVE ALSO INCREASED BY OVER 20% DURING THE SAME PERIOD. THEREFORE, IT WOULD BE REASONABLE TO TAKE 5% OF THE TOTAL EXEMPTED INCOME FOR THE PURPOSE OF DISALLOWANCE U/S 14A. HENCE, 5% OF THE EXEMPTED INCOME TO WHICH AN Y PROVISION OF SECTION 10 APPLY IN THE INSTANT CASE I.E.RS.1,62,96,113/ - CLAIMED TO BE EXEMPT DIVIDEND U/S 10(34)/10(35) SHOWN AS DIVIDEND INCOME IS HEREBY TAKEN TO BE DISALLOWANCE U/S 14A OF THE I.T. ACT, 1961 I.E RS.8,14,806/ - . 7.10. THE APPELLANT PART LY SUCCEEDS IN MITIGATING ITS GRIEVANCE AND THE APPELLANT SHALL GET A RELIEF OF RS.3,46,658/ - (11,61,464/ - ( - ) 8,14,806/ - ) ON THIS GROUND OF APPEAL AND ADDITION TO THE EXTENT OF RS.8,14,806/ - U/S 14A OF I.T.ACT IS HEREBY CONFIRMED. THE AO IS DIRECTED TO G IVE NECESSARY APPEAL EFFECT IN THIS REGARD. 5. A PERUSAL O F THE RECORD SHOWS THAT THE ASSESSEE BEFORE THE CIT(A) ON FACTS HA D MADE THE FOLLOWING SUBMISSIONS: - 4.1. THE APPELLANT COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF DEHUMIDIFIERS AND IS SELLING THE PRODUCTS IN INDIA AND OVERSEAS. THE SURPLUS FUNDS ARE INVESTED BY THE COMPANY IN MUTUAL FUNDS WHICH ARE BEING MANAGED BY CITI BANK AND ABN A M RO BANK. THE APPELLANT COMPANY DOES NOT MAKE ANY PAYMENT TO THE BANKS FOR THE SAID SERVICES SINCE TH E BANKS GET COMMISSION DIRECTLY FROM THE FUND HOUSE, A PRACTICE WHICH IS PREVALENT IN THIS INDUSTRY. THE OBSERVATIONS I.T.A .NOS. - 6396 & 6397/DEL/2013 PAGE 3 OF 5 OF ASSESSEE OF ASSESSING OFFICER THAT THE BANK/FINANCIAL INSTITUTION MUST ALSO HAVE LEVIED ITS CHARGES/FEES IS TOTALLY INCORRECT AND WITH OUT ANY BASIS. 5.1. IN THE ARGUMENTS ADVANCED, RELIANCE HAD BEEN PLACED UPON THE FOLLOWING DECISIONS : - (I). CIT VS HERO CYCLES LTD. 323 ITR 518 (P&H); (II). GODREJ AND BOYCE MFG. CO. LTD. VS DCIT 328 ITR 81 (BOM.) 6. IN THE SAID BACKGROUND IT WAS ARGUED BY THE LD. AR THAT ON FACTS, NO DISALLOWANCE SHOULD HAVE BEEN MADE. 6.1. REL IANCE WAS PLACED ON THE JUDGEMENT OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. VS DCIT 328 ITR 81 (BOM.) AND VARIOUS OTHER DECISIONS RELIED UPON BEFORE T HE CIT(A). THE LD. SR. DR PLACED RELIANCE UPON THE IMPUGNED ORDER FOR BOTH THE YEARS. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON A CONSIDERATION THEREOF, WE FIND THAT THE ISSUE OF RETROSPECTIVITY OF THE AMEND MENT HAS BEEN ADDRESSED BY THE HON BLE BOMBAY HIGH COURT IN T H E CASE OF GODREJ AND BOYCE MFG. CO. LTD. (CITED SUPRA) WH I CH OVER - RULED THE THEN PREVALENT VIEW LAID DOWN BY THE SPECIAL BENCH IN THE CASE OF DAGA CAPITALS MANAGEMENT PVT. LTD. 119 TTJ 289 (MUM. ). CONSIDERING THE FACT THAT THE ISSUE SPECIFICALLY FOR THE YEAR UNDER CONSIDERATION HAS BEEN CONSIDERED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT [2012] 347 ITR 272 (DEL.) WHICH HAS LAID DOWN CERTAIN GUIDELINES ON THE BASIS OF W HICH THE ISSUE HAS TO BE CONSIDERED , WE DEEM IT APPROPRIATE TO SET ASIDE THE FINDING ARRIVED AT BY THE CIT(A) AND T H E AO AND RESTORE THE ISSUE BACK TO THE FILE OF THE AO TO DECIDE T H E I S S U E A F R E S H D I R E C T I N G H I M TO PASS A SPEAKING ORDER IN ACCORDANCE WITH LAW AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. THE SPECIFIC DIRECTION OF THE HON BLE HIGH COURT IN MAXOPP INVESTMENT QUA THE ISSUE IS EXTRACTED HEREUNDER FOR READY - REFERENCE : - 42. THUS, THE FACT THAT WE HAVE HELD THAT SUB - SECTIONS (2) & (3) OF SECTION 14A AND RULE 8D WOULD OPERATE PROSPECTIVELY (AND, NOT RETROSPECTIVELY) DOES NOT MEAN THAT THE ASSESSING OFFICER IS NOT TO SATISFY HIMSELF WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WITH REGARD TO SUCH EXPENDITURE. IF HE IS SATISFIED THAT THE ASSESSEE HAS CORRECTLY REFLECTED THE AMOUNT OF SUCH EXPENDITURE, HE HAS TO DO NOTHING FURTHER. ON THE OTHER HAND, IF HE IS SATISFIED ON AN OBJECTIVE ANALYSIS AND FOR COGENT REASONS THAT THE AMOUNT OF SUCH EXPENDITURE AS CLAIMED BY THE I.T.A .NOS. - 6396 & 6397/DEL/2013 PAGE 4 OF 5 ASSESSEE IS NOT CORRECT, HE IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. IT WOULD BE APPROPRIATE TO RECALL THE WORDS OF THE SUPREME COURT IN WALFORT (SUPRA) TO THE FOLLOWING EFFECT: - THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON - TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14 A.' SO, EVEN FOR THE PRE - RULE8D PERIOD, WHENEVER THE ISSUE OF SECTION 14A ARISES BEFORE AN ASSESSING OFFICER, HE HAS, FIRST OF ALL, TO ASCERTAIN THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE ASSESSING OFFICER WILL HAVE TO VERIFY THE CORRECTNESS OF SUCH CLAIM. IN CASE, THE ASSESSING OFFICER IS SATISFIED WITH THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITUR E, AS THE CASE MAY BE, THE ASSESSING OFFICER IS TO ACCEPT THE CLAIM OF THE ASSESSEE INSOFAR AS THE QUANTUM OF DISALLOWANCE UNDER SECTION 14A IS CONCERNED. IN SUCH EVENTUALITY, THE ASSESSING OFFICER CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPEND ITURE FOR THE PURPOSES OF SECTION14A(1). IN CASE, THE ASSESSING OFFICER IS NOT, ON THE BASIS OF OBJECTIVE CRITERIA AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO. HAVING DONE SO, THE ASSESSING OFFICER WILL HAVE TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. HE IS REQUIRED TO DO SO ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. 8 . IT WA S A COMMON STAND OF THE PARTIES BEFORE THE BENCH THAT THE FACTS AND CIRCUMSTANCES AND POSITION OF LAW IN ITA NO. - 6397/DEL/2013 IS IDENTICAL TO THE FACTS AND CIRCUMSTANCES CONSIDERE D IN ITA NO. - 6 3 96/DEL/20 13 AND THE DECISION IN ITA NO. - 6 3 97/DEL/2013 W OULD APPLY TO THE SAID YEAR ALSO , WE FIND THAT THE STAND OF THE PARTIES ON SIMILARITY OF FACTS AND CIRCUMSTANCES IS CORRECT. AC CORDINGLY THE ISSUE IN ITA NO. - 6 3 97/DEL/2013 IS ALSO RESTO RED BACK TO THE FILE TO THE AO WITH SIMILAR DIRECTIONS. 9 . IN THE RESULT THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 1 6 T H OF JUNE 2015. S D / - S D / - (T.S.KAPOOR) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 1 6 / 06/2015 *AMIT KUMAR & ANIL KUMAR VERMA * I.T.A .NOS. - 6396 & 6397/DEL/2013 PAGE 5 OF 5 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI