ACIT, New Delhi V. M/s Fortis Health Management Ltd., New Delhi

ITA 6442/DEL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4522 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 04-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: R M MEHTA
• Keywords: Earning of tax free income
• Section: 143(3); 142(1); 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 6442 / DEL/201 5 A.Y. : 20 1 2 - 1 3 ACIT, CIRCLE 9(2), NEW DELHI ROOM NO. 4115, CR BUILDING, I.P. ESTATE, NEW DELHI 110 002 VS. M/S FORTIS HEALTH MANAGEMENT LTD., C/O ESCORTS HEART INSTT. & RES. CENTRE, OKHLA ROAD, NEW DELHI 110 025 (PAN: AABCF2101R) (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. ARUN KUMAR, SR. DR ASSESSEE BY : SH. R.M. MEHTA, CA ORDER PER H.S. SIDHU, JM THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE IMPUGNED ORDER DATED 10/9/2015 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-3, NEW DELHI O N THE FOLLOWING GROUNDS:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.1,33,61,751/- MADE BY AO U/S. 2 14A OF THE INCOME TAX ACT, 1961 READ WITH RULES 8D OF THE INCOME TAX RULES. 2. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEND A NY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARIN G. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE C OMPANY FILED ITS E-RETURN OF INCOME ON 30.9.2012 DECLARING TOTAL LOSS AT RS. 3,81,04,910/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICE U/S. 143(2) OF THE INCOME TAX A CT, 1961 DATED 19.8.2013 WAS ISSUED AND SERVED UPON THE ASSES SEE. DUE TO CHANGE OF JURISDICTION, FRESH NOTICE U/S. 143(2) & 142(1) OF THE ACT DATED 6.1.2015 WAS ISSUED AND SERVED UPON THE ASSESSE E COMPANY. IN RESPONSE, THE A.R. OF THE ASSESSEE COMPANY ATTENDE D AND FURNISHED THE DETAILS AS CALLED FOR. THE ASSESSEE CO MPANY IS ENGAGED IN THE BUSINESS OF PROVIDING HEALTHCARE SERV ICES. THE BOOKS OF ACCOUNTS WERE PRODUCED WHICH HAVE BEEN EXA MINED ON TEST CHECK BASIS. FOR THE YEAR UNDER CONSIDERATION, THE AS SESSEE COMPANY HAS SHOWN INVESTMENT IN EQUITY SHARES AT RS. 534,47,00,402/- ON 31.3.2012. AO OBSERVED IT IS UNDERSTAND THAT INVESTMENT IN EQUITY SHARES YIELD TAX FREE DIVIDEN D INCOME OR LONG TERM CAPITAL GAIN OR SHORT TERM CAPITAL GAIN ON WHICH TAX IS CHARGED AT THE RATE LESS THAN THE NORMAL RATE OF TAXAT ION. HE FURTHER OBSERVED THAT THE INVESTMENT HAS BEEN ENHANCED A S 3 COMPARED TO THE LAST YEAR. THEREFORE, THE SAME HAS B EEN EXAMINED IN VIEW OF THE PROVISIONS OF SECTION 14A OF THE ACT W HICH STIPULATES THAT ANY EXPENSES ATTRIBUTABLE TO THE EARNING OF INCOME WHICH IS EXEMPTED FROM TAXATION UNDER THE ACT, SHALL NOT BE AL LOWED AS DEDUCTION. ACCORDINGLY, THE ASSESSEE WAS ASKED VIDE NOTE SHEET ENTRY DATED 21.1.2015 TO FILE A REPLY AS TO WHY DISALL OWANCE U/S. 14A OF THE ACT SHOULD NOT BE MADE IN ACCORDANCE WITH RULE 8D IN RESPECT OF INVESTMENT SHOWN IN BALANCE SHEET, INCOME F ROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME FOR TAX ATION UNDER THE ACT. IN RESPONSE, TO THE SAME, THE ASSESSEE STATE D THAT THE INVESTMENT IS MADE IN PREFERENCE SHARE OF SUBSIDIAR Y COMPANY AND NO DIVIDEND IS RECEIVED. THEREAFTER, THE AO OBSERVE D THAT BY VIRTUE OF THIS SECTION NO DEDUCTION SHALL BE ALLOWED IN RESP ECT OF EXPENDITURE INCURRED BY THE ASSESSEE ON ACCOUNT OF IN COME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE CBDT HAS NOTIFIED RULE 8D TO AVOID AD-HOC DISALLOWANCE TO IMPA RT VISIBILITY TO THE EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME. MO REOVER, PROCEDURE FOR COMPUTATION OF DISALLOWANCE HAS BEEN P ROVIDED IN SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE I T AC T. THE ITAT, SPECIAL BENCH, NEW DELHI IN THE CASE OF M/S CHEMINVE ST LTD. ITA NO 87/DEL/2008 HAS ALSO HELD THAT THE DISALLOWANCE U/S 14A IS TO BE MADE EVEN IF NO INCOME HAS RESULTED OR EARNED BY TH E ASSESSEE IN 4 THE YEAR UNDER CONSIDERATION. THEREFORE, IN VIEW OF THE SPECIFIC PROVISIONS FOR QUANTIFICATION OF DISALLOWANCE AS CO NTAINED IN SUB- SECTIONS (2) AND (3) OF SECTION 14A, WHICH ARE PROCED URAL, THE DISALLOWANCE IS STRICTLY TO BE MADE IN TERMS OF THE S PECIFIC PROVISIONS OF RULE 8D. THE ASSESSEE HAS OFFERED THE TOTAL DIVIDE ND INCOME AS DISALLOWANCE U/S 14A BUT IT IS NOT ACCEPTABLE AS COMPU TATION UNDER RULE 8D. THE ASSESSEE HAS NOT ESTABLISHED WITH THE NE CESSARY DOCUMENTARY EVIDENCE THAT IT HAD NOT INCURRED ANY INTER EST EXPENDITURE FOR THE INVESTMENT WHICH HAS YIELDED DIVID END OR SHALL YIELD SUCH INCOME AND ANY OTHER EXPENDITURE FOR EARN ING EXEMPTED DIVIDEND INCOME. THE ASSESSEE HAS INCURRED INTEREST EXPENDITURE AND OTHER EXPENDITURE DURING THE YEAR AS WELL AS EARL IER YEARS AND THE EXACT QUANTUM OF EXPENDITURE FOR THE YEAR AS WELL AS EARLIER YEARS COULD NOT BE WORKED OUT. THE DISALLOWANCE U/S - 14A AND AS PER RULE 8D IS BEING MADE IN THE ASSESSEE'S CASE YEA R AFTER YEAR AS NOTED FROM THE ASSESSMENT ORDERS OF THE PREVIOUS YEARS . THIS YEAR AS WELL, THE ASSESSEE HAS EARNED DIVIDEND INCOME. TH EREFORE, THE DISALLOWANCE WAS MADE AS PER RULE 8D UNDER SEC-14A OF THE ACT AT RS. 1,33,61,751/- AND DEDUCTION OF DISALLOWANCE MADE BY THE ASSESSEE U/S. 14A RS. 88,83,863/- IN THE COMPUTATION OF INCOME AND ASSESSED THE INCOME OF THE ASSESSEE AT RS. 2,47,43 ,159/- VIDE ORDER DATED 30.1.2015 PASSED U/S 143(3) OF THE ACT. 5 3. AGGRIEVED BY THE ASSESSMENT ORDER DATED 30.1.2015, ASSESSEE FILED APPEAL BEFORE THE LD. FIRST APPELLATE A UTHORITY WHO HAS PARTLY ALLOWED THE APPEAL OF THE ASSESSEE VIDE O RDER DATED 10.9.2015 AND DELETED THE ADDITION OF RS. 1,33,61,75 1/- MADE U/S. 14A OF THE ACT. 4. LD. DR RELIED UPON THE ORDER OF THE AO AND REITERA TED THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL AND REQ UESTED THAT THE APPEAL OF THE REVENUE MAY BE ALLOWED. 5. LD. COUNSEL OF THE ASSESSEE HAS RELIED UPON THE OR DER OF THE LD. CIT(A) AND STATED THAT LD. CIT(A) HAS PASSED A W ELL REASONED ORDER WHICH DOES NOT NEED ANY INTERFERENCE, HENCE, H E REQUESTED THAT THE APPEAL OF THE REVENUE MAY BE DISMISSED. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECO RDS AVAILABLE ON RECORD ESPECIALLY THE IMPUGNED ORDER. WE FIND FORCE IN THE ASSESSEES COUNSEL SUBMISSION THAT ASSESSEE COMPA NY MADE CERTAIN INVESTMENTS WHICH WERE IN THE NATURE OF GROWTH FUNDS. THE AO MADE THE ADDITION WITHOUT CONSIDERING THE FACT THAT THESE INVESTMENTS ARE NOT IN NATURE OF EARNING EXEMPT INC OME BUT THE TAXABLE INCOME. IT WAS FURTHER STATED THAT THE INVESTMEN TS MADE IN SUBSIDIARY COMPANY HAVE BEEN MADE FOR LONG TERM PERS PECTIVE AND THE SAME WILL BE SOLD ONLY IF THERE IS MATERIAL APPRE CIATION IN THE VALUE OF SHARES. THERE IS NO DIVIDEND OR ANY OTHER EXEMPT INCOME HAS BEEN EARNED FROM SUCH INVESTMENTS DURING THE YEAR UNDER REFERENCE. IN THIS CASE NO ADMINISTRATIVE EXPENSES H AVE BEEN INCURRED TO EARN SUCH INCOME. WE FURTHER FIND THAT T HE VARIOUS HONBLE HIGH COURTS HAVE UNIFORMLY HELD THAT NO DISAL LOWANCE U/S. 14A CAN BE MADE IF THERE IS NO EXEMPT INCOME AND IN THAT CONTEXT OVERRULED THE DECISION OF SPECIAL BENCH, NEW DELHI I N THE CASE OF 6 CHEMINVEST LTD. VS. ITO REPORTED IN 317 ITR 86. WE N OTE THAT IN THIS CASE IN HAND, THERE IS NO INCOME WHICH IS EXEMPTE D FROM THE TAX DURING THE YEAR. HENCE, THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION OF RS. 1,33,61,751/- MADE BY THE AO U/S. 14 A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962, WHICH DOES NOT NEED ANY INTERFERENCE ON OUR PART, THEREFORE, WE AFFIRM THE IMPUGNED ORDER ON THE ISSUE IN DISPUTE INVOLVED IN GROUND NO. 1 AN D ACCORDINGLY REJECT THE SAME. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/09/2017. SD/- SD/- (L.P. SAHU) [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 05/09/2017 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES