ACIT, Circle-15(1), New Delhi V. LG Chemical India Pvt. Ltd., New Delhi

ITA 6402/DEL/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6864 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Appeal Filed On: 18-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NAINA SOIN KAPIL SENIOR
• Assessee Lawyers: VISHAL KALRA SHRI S S TOMAR
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH D : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.4164/DEL./2016 (ASSESSMENT YEAR : 2011-12) ITA NO.5013/DEL./2016 (ASSESSMENT YEAR : 2013-14) ITA NO.6402/DEL./2017 (ASSESSMENT YEAR : 2014-15) ACIT, CIRCLE 15 (1), VS. M/S. LG CHEMICAL INDIA PV T. LTD., NEW DELHI. 3B, 3 RD FLOOR, ARJUN NAGAR, SAFDARJUNG ENCLAVE, NEW DELHI 110 029. (PAN : AAACL1995J) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI VISHAL KALRA, ADVOCATE SHRI S.S. TOMAR, ADVOCATE REVENUE BY : SMT. NAINA SOIN KAPIL, SENIOR DR DATE OF HEARING : 25.07.2019 DATE OF ORDER : 29.07.2019 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : SINCE COMMON QUESTIONS OF FACTS AND LAW HAVE BEEN R AISED IN THE AFORESAID APPEALS, THE SAME ARE BEING DISPOS ED OFF BY WAY OF COMPOSITE ORDER TO AVOID REPETITION OF DISCUSSION. ITA NO. 4164 & 5013/DEL./2016 ITA NO. 6402/DEL/2017 2 2. APPELLANT, ACIT, CIRCLE 15 (1), NEW DELHI (HEREI NAFTER REFERRED TO AS THE REVENUE) BY FILING THE PRESENT APPEAL S OUGHT TO SET ASIDE THE IMPUGNED ORDERS DATED 10.05.2016, 18.07.2016 & 01. 08.2017 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-5, NEW DEL HI QUA THE ASSESSMENT YEARS 2011-12, 2013-14 & 2014-15 RESPECT IVELY ON THE IDENTICAL GROUND THAT :- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT (A)-05, NEW DELHI HAS ERRED IN DELETING THE ADDITION OF RS.63,16,500/- MADE BY THE AO, U/S 14A OF THE I.T. ACT, 1961 IN VIEW OF THE CBDT CIRCULAR NO.5/2014 DATED 11.02.2014. 3. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE ISSUE AT HAND ARE : DURING ASSESSMENT PROCEEDINGS, ASSESSING OFFICER (AO) NOTICED THAT THE ASSESSEE HAS MADE INVESTMENT IN LG POLYMERS INDIA PVT. LTD. IN AYS 2011-12, 2013-14 & 2014-15, THE AVERAGE OF WHICH HAS BEEN COMPUTED AT RS.1,26,33,00,000/-. AO BY INVOKI NG THE PROVISIONS CONTAINED UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) READ WITH RULE 8D OF THE INCOME-TAX RULES, 19 62 (FOR SHORT THE RULES) AND RELYING UPON THE CBDT CIRCULAR NO.5/201 4 DATED 11.02.2014 AND DAGA CAPITAL MANAGEMENT PVT. LTD. 312 ITR (AT) 01 (DELHI)(SB) AND CHEMINVEST LTD. VS. ITO (2009) 317 ITR (AT) 86 (DELHI)(SB) , MADE DISALLOWANCE OF RS.63,16,500/- EACH FOR AYS 2011- 12, 2013-14 & 2014-15. 4. ASSESSEE CARRIED THE MATTER BY WAY OF APPEALS BE FORE THE LD. CIT (A) WHO HAS DELETED THE ADDITION MADE BY THE AO U/S 14A OF THE ACT BY ITA NO. 4164 & 5013/DEL./2016 ITA NO. 6402/DEL/2017 3 PARTLY ALLOWING THE APPEALS. FEELING AGGRIEVED, TH E REVENUE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEALS. 5. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. LD. DR FOR THE REVENUE CHALLENGING THE IMPUGNED ORDERS RELIED UPON THE ORDERS PASSED BY THE AO AS WELL AS ON CBDT CIRCULAR NO.5/2014 DATED 11.02.2014. HOWEVER, ON THE OTHER HAND, IN ORDER TO REPEL THE ARGUMENTS ADDRESSED BY THE LD. DR FOR THE REVENUE, LD. AR FOR THE ASSESSEE CONTENDED THAT WHEN NO DIVIDEND/EXEMPT INCOME HAS BEEN EARNED BY THE ASSESSEE DURING THE YEARS UNDER ASSES SMENT, NO DISALLOWANCE CAN BE MADE U/S 14A OF THE ACT AND FUR THER CONTENDED THAT THE IDENTICAL ISSUE HAS BEEN DECIDED BY THE COORDIN ATE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2010-11 IN ITA NO.1819/DEL/2015 ORDER DATED 03.05.2016 . 7. UNDISPUTEDLY, NO DIVIDEND/EXEMPT INCOME HAS BEE N EARNED BY THE ASSESSEE DURING THE YEARS UNDER ASSESSMENT AND THIS FACT IS PROVED FROM THE AUDITED BALANCE SHEET AS ON 31.03.2011, 31 .03.2013 & 31.03.2014, AVAILABLE AT PAGES 1 TO 12, 36 TO 55 AN D 84 TO 101 OF THE PAPER BOOK RESPECTIVELY. IT IS SETTLED PRINCIPLE O F LAW THAT WHEN THERE IS NO DIVIDEND/EXEMPT INCOME EARNED BY THE ASSESSEE DU RING THE YEAR UNDER ASSESSMENT, NO DISALLOWANCE U/S 14A CAN BE MA DE. MOREOVER, IN ITA NO. 4164 & 5013/DEL./2016 ITA NO. 6402/DEL/2017 4 AY 2010-11, IDENTICAL ISSUE HAS BEEN DECIDED BY THE COORDINATE BENCH OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE BY FOLLOW ING THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CHEMINVEST VS. CIT 61 TAXMANN.COM 118 (DEL.) . 8. IN THESE CIRCUMSTANCES, AO PROCEEDED TO INVOKE P ROVISIONS CONTAINED U/S 14A R/W RULE 8D ON THE BASIS OF CONJE CTURES AND SURMISES IN MECHANICAL MANNER BY HOLDING THAT THE EXPENSES M AY NOT BE DIRECTLY INCURRED FOR EARNING TAX FREE INCOME BUT THE EXPENS ES WHICH CAN BE ATTRIBUTED TO SUCH INCOME ARE TO BE DISALLOWED AND RELIED UPON THE CBDT CIRCULAR NO.5/14 DATED 11.02.2014, WE ARE OF T HE CONSIDERED VIEW THAT DISALLOWANCE U/S 14A CANNOT BE MADE IN ME CHANICAL MANNER PARTICULARLY WHEN NO INVESTMENT HAS BEEN MADE BY TH E ASSESSEE DURING THE YEARS UNDER ASSESSMENT NOR ANY DIVIDEND/EXEMPT INCOME HAS BEEN EARNED. 9. HONBLE DELHI HIGH COURT IN CASE OF THE PR. CIT VS. IL&FS ENERGY DEVELOPMENT COMPANY LTD. (2017) 399 ITR 48 3 (DELHI) DECIDED THE IDENTICAL ISSUE BY DISCUSSING CIRCULAR (SUPRA) IN FAVOUR OF THE ASSESSEE AND THE RATIO OF THE JUDGMENT (SUP RA) FOR READY PERUSAL IS EXTRACTED AS UNDER :- SECTION 14A OF THE INCOME-TAX ACT, 1961, READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 - EXPENDITURE INCURRED I N RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME (CBDT CIRCULA R V. RULE 8D) - ASSESSMENT YEAR 2011-12 - WHETHER CBDT CIRCUL AR NO.5/2014 DATED 11-2-2014 CANNOT OVERRIDE EXPRESS P ROVISIONS OF SECTION 14A, READ WITH RULE 8D - HELD, YES - WHETHE R WHERE NO EXEMPT INCOME WAS EARNED IN RELEVANT ASSESSMENT YEA R, MERELY ITA NO. 4164 & 5013/DEL./2016 ITA NO. 6402/DEL/2017 5 BECAUSE TAX AUDITOR HAD SUGGESTED IN TAX AUDIT REPO RT THAT THERE OUGHT TO BE SUCH DISALLOWANCE, IT COULD NOT BE A GR OUND TO MAKE DISALLOWANCE IN TERMS OF SECTION 14A, READ WITH RUL E 8D - HELD, YES [PARA 23] [IN FAVOUR OF ASSESSEE] 10. SO, FINDING NO ILLEGALITY OR PERVERSITY IN THE DELETION OF DISALLOWANCE MADE BY THE AO U/S 14A BY LD. CIT (A), ALL THE AFORESAID APPEALS FILED BY THE REVENUE ARE HEREBY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 29 TH DAY OF JULY, 2019. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 29 TH DAY OF JULY, 2019 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-5, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.