Harparshad and Company Pvt. Ltd., New Delhi V. Addl. CIT, Special Range- 4, New Delhi

ITA 6588/DEL/2017

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 0581 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 01-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: C NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NO.6588/DEL./2017 ASSESSMENT YEAR: 2013-14 M/S. HARPARSHAD AND COMPANY PVT. LTD., C/O- ESCORTS LTD., CORPORATE CENTRE, 15/5, MATHURA ROAD, FARIDABAD VS. ADDL. CIT, SPECIAL RANGE-4, NEW DELHI PAN :AAACH0131J (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORD ER DATED 10/08/2017 PASSED BY THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-35, NEW DELHI [IN SHORT THE LD. CIT(A)] FOR ASSESSMENT YEAR 2013-14 RAISING FOLLOWING GROUNDS: 1 (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(A) ERRED IN NOT RESTRICTING THE DISALLO WABLE AMOUNT U/S 14A AT THE REVISED CLAIM OF RS.98,02,608/- NOT CONSIDERED BY THE ASSESSING OFFICER DURING ASSESSMENT PROCEEDINGS , AS AGAINST THE ORIGINAL AMOUNT OF RS. 1,31,45,543/- SHOWN IN T HE RETURN OF INCOME. APPELLANT BY SHRI VED JAIN, ADVOCATE SHRI ASHISH GOEL, CA RESPONDENT BY SHRI F.R. MEENA, SR.DR DATE OF HEARING 16.12.2020 DATE OF PRONOUNCEMENT 16.12.2020 2 ITA NO. 6588/DEL./2017 (II) THAT THE LEARNED CIT(A) ERRED IN NOT APPRECIAT ING THE JUSTIFICATION PROVIDED BY THE APPELLANT FOR THE ACT UAL DISALLOWABLE AMOUNT U/S 14A AT RS.98,02,608/- AND PROCEEDED TO R EJECT THE CLAIM WITHOUT SPECIFYING ANY REASONS. (III) WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE L EARNED CIT(A) ERRED IN NOT RESTRICTING THE DISALLOWANCE U/S 14A T O THE EXEMPT INCOME CLAIMED AT RS. 1,11,49,211/-. 2. THAT THE APPELLANT RESERVES TO ITSELF, THE RIGH T TO ADD, ALTER, AMEND, SUBSTITUTE AND/OR WITHDRAW ANY GROUND(S) OF APPEAL ON OR BEFORE THE DATE OF HEARING. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSE SSEE DERIVES INCOME MAINLY FROM ROYALTY, FINANCING AND INVESTMEN T IN SECURITIES AND MUTUAL FUND UNITS. FOR THE YEAR UNDE R CONSIDERATION, THE ASSESSEE FILED RETURN OF INCOME ON 27/09/2013 DECLARING TOTAL INCOME OF 19,68,43,670/-. THE RETURN OF INCOME FILED BY THE ASSESSEE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICES ISSUED UNDER THE INCOME-TAX ACT, 1961 (IN S HORT THE ACT) WERE ISSUED AND COMPLIED WITH. THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT WAS PASSED ON 03/03/2016 AFTER MA KING CERTAIN DISALLOWANCES. AGGRIEVED, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A), WHO PARTLY ALLOWED THE APPEAL OF THE ASSESS EE. AGGRIEVED, WITH THE ADDITIONS SUSTAINED, THE ASSESSEE IS IN AP PEAL BEFORE THE TRIBUNAL, RAISING THE GROUNDS AS REPRODUCED ABOVE. 3. BEFORE US, BOTH THE PARTIES APPEARED THROUGH VIDEOCONFERENCING FACILITY. WE HAVE HEARD RIVAL SUBM ISSION OF THE PARTIES ON THE ISSUE IN DISPUTE AND PERUSED THE REL EVANT MATERIAL ON RECORD. 4. IN THE CASE, IN THE RETURN OF INCOME FILED, THE AS SESSEE COMPUTED DISALLOWANCE UNDER SECTION 14A OF THE ACT AT 3 ITA NO. 6588/DEL./2017 1,31,45,543/- IN ACCORDANCE WITH THE METHODOLOGY PR ESCRIBED IN RULE 8D OF THE INCOME-TAX RULES, 1962 (IN SHORT TH E RULES). HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDING , THE ASSESSEE REVISED ITS CLAIM OF THE DISALLOWANCE TO 98,02,608/-. ACCORDING TO THE ASSESSEE, DISALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES, SHOULD BE RESTRICTED TO THE AMOUNT OF EX PENDITURE RELATED TO EXEMPT INCOME CLAIMED IN THE PROFIT AND LOSS ACCOUNT. THIS REVISED CLAIM OF DISALLOWANCE UNDER SECTION 14 A WAS NOT ACCEPTED BY THE ASSESSING OFFICER AND HE FOLLOWED T HE COMPUTATION STRICTLY IN ACCORDANCE WITH RULE 8D OF THE RULES. THE LD. CIT(A) ALSO HELD THAT DISALLOWANCE HAS BEEN MAD E CORRECTLY BY THE ASSESSING OFFICER IN ACCORDANCE WITH SECTION 14 A READ WITH RULE 8D OF THE RULES. BEFORE US, THE LEARNED COUNSE L OF THE ASSESSEE HAS PLEADED THAT IN VIEW OF THE DECISION O F THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PR IVATE LIMITED VS CIT, REPORTED IN 372 ITR 694 (DELHI), THE DISALLO WANCE UNDER SECTION 14A OF THE ACT CANNOT EXCEED THE EXEMPTED I NCOME EARNED. ACCORDINGLY, HE SUBMITTED THAT DISALLOWANCE MIGHT BE RESTRICTED TO THE EXEMPTED INCOME OF 1,11,49,211/- EARNED BY THE ASSESSEE. THE RELEVANT FINDING OF THE HONBLE H IGH COURT IN THE CASE OF JOINT INVESTMENT PRIVATE LIMITED (SUPRA ) IS REPRODUCED AS UNDER: 9. IN THE PRESENT CASE, THE AO HAS NOT FIRSTLY DIS CLOSED WHY THE APPELLANT/ASSESSEES CLAIM FOR ATTRIBUTING RS.2,97, 440/- AS A DISALLOWANCE UNDER SECTION 14A HAD TO BE REJECTED. TAIKISHA SAYS THAT THE JURISDICTION TO PROCEED FURTHER AND DETERM INE AMOUNTS IS DERIVED AFTER EXAMINATION OF THE ACCOUNTS AND REJEC TION IF ANY OF THE ASSESSEES CLAIM OR EXPLANATION. THE SECOND ASPECT IS THERE APPEARS TO HAVE BEEN NO SCRUTINY OF THE ACCOUNTS BY THE AO - AN ASPECT WHICH IS COMPLETELY UNNOTICED BY THE CIT (A) AND TH E ITAT. THE THIRD, AND IN THE OPINION OF THIS COURT, IMPORTANT ANOMALY WHICH WE CANNOT BE UNMINDFUL IS THAT WHEREAS THE ENTIRE TAX EXEMPT INCOME IS 4 ITA NO. 6588/DEL./2017 RS.48,90,000 /- , THE DISALLOWANCE ULTIMATELY DIRECTED WORKS OUT TO NEARLY 110% OF THAT SUM, I.E., RS.52,56,197/-. BY N O STRETCH OF IMAGINATION CAN SECTION 14A OR RULE 8D BE INTERPRET ED SO AS TO MEAN THAT THE ENTIRE TAX EXEMPT INCOME IS TO BE DISALLOW ED. THE WINDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14A, AND I S ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME . THIS PROPORTION OR PORTION OF THE TAX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS HAS HAPPENED IN THIS CASE. 5. RESPECTFULLY, FOLLOWING THE FINDING OF THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PRIVATE LIMIT ED (SUPRA), WE RESTRICT THE DISALLOWANCE TO THE EXTENT OF THE EXEM PTED INCOME OF 1,11,49,211/-. THE GROUND OF APPEAL IS, ACCORDINGLY , PARTLY ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH DECEMBER, 2020. SD/- SD/- (AMIT SHUKLA) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 16 TH DECEMBER, 2020. RK/- (D.T.D.S.) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI