M/s. Selene Infrastructure Ltd., New Delhi V. ITO, New Delhi

ITA 6650/DEL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 7563 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 14-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 17-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN GOFRU
• Keywords: Earning of tax free income
• Section: 14A; 147

Judgement Text

ITA NO. 6650/DEL/2013 ASSTT. YEAR: 2010-11 1 BEFORE IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI SHRI L.P. SAHU, ACCOUNTANT MEMBER AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER ITA NO. 6650/DEL/2013 ASSESSMENT YEAR: 2010 -11 SELENE INFRASTRUCTURE LTD. VS. ITO M-62 & 63, FIRST FLOOR, WARD-8(1) CONNAUGHT PLACE NEW DELHI 110001 PAN AAKCS1105R (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.C. SRIVASTAVA, ADV. SHRI DAKSHA BHARDWAJ, ADV. DEPARTMENT BY: SHRI SHRAVAN GOFRU , SR. DR DATE OF HEARING : 14.03.2016 DATE OF PRONOUNCEMENT : 06. 06.2016 O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE HAS BEEN DIRECTED AGAINST THE ORDER OF THE CIT(A)-XI, NEW DELHI DATED 12.9.2013 PASSED IN FIRST APPEAL NO. 76/2012-13 FOR ASSTT. YEAR 2010-11. ITA NO. 6650/DEL/2013 ASSTT. YEAR: 2010-11 2 2. THE GROUND NO. 4 AND 5 OF THE ASSESSE ARE O F GENERAL IN NATURE AND OTHER EFFECTIVE GROUNDS FOR ADJUDICATION READ AS FOLLOWS :- 1.THE CIT(A) HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFIC ER (HEREIN AFTER REFERRED TO AS AO) AMOUNTING TO RS. 3,37,282/- U/ S 14A READ WITH RULE 8D 2. THE CIT(A) HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE IN CONFIRMING THE ADDITION MADE BY THE AO U/S 14A READ WITH RULE 8D WITHOUT APPRECIATING THE FACT THAT THE LD. AO PROCE EDED TO APPLY RULE 8 WITHOUT RECORDING HIS DISSATISFACTION ON THE CORREC TNESS OF THE DISALLOWANCE MADE BY THE APPELLANT ITSELF. 3.THE CIT(A) HAS ERRED ON FACTS AND CIRCUMSTANCES O F THE CASE IN CONFIRMING THE ADDITION MADE BY THE AO U/S 14A READ WITH RULE 8D WITHOUT APPRECIATING THE SUBMISSION OF THE APPELLAN T THAT WHILE CONSIDERING THE AVERAGE INVESTMENT FOR THE PURPOSE OF CLAUSE (III) OF RULE 8D, THE INVESTMENT WHICH HAS GIVEN RISE TO THE INCOME AND WHICH DOES NOT FORM PART OF THE TOTAL INCOME, IS TO BE CO NSIDERED. 3. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AN D CAREFULLY PERUSED THE RELEVANT MATERIALS PLACED ON RECORD BEFORE THE TRIBUNAL. THE LD. COUNSEL FOR THE ASSESSEE PLACING RELIANCE ON THE DE CISION OF HONBLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF M AXOPP INVESTMENT LTD. VS. CIT DATED 18.11.2011 PASSED IN ITA NO. 687/2009 SUBMITTED THAT PRIMARY SATISFACTION HAS NOT BEEN RECORDED BY THE A O AS PER PROVISION OF SECTION 14A OF THE INCOME TAX ACT, 1961 ( FOR SHOR T THE ACT) CHALLENGING THE SUO MOTO DISALLOWANCE MADE BY THE A SSESEE AND THERE IS NO SATISFACTION TO DISMISS THE CORRECTNESS OF THE E XPENDITURE CLAIMED BY ITA NO. 6650/DEL/2013 ASSTT. YEAR: 2010-11 3 THE ASSESSEE. THE CO-COUNSEL POINTED OUT THAT THE A SSESSEE HAS NOT CLAIMED ANY EXEMPT INCOME AND THE ASSESSEE HAS SUO MOTO DISALLOWED RS. 31,553/- U/S 14A OF THE ACT, HENCE NO FURTHER D ISALLOWANCE AND ADDITION CAN BE MADE U/S 14A READ WITH RULE 8D OF T HE IT RULES, 1962. 4. THE LD. DR REPLIED THAT THE CIT(A) RECORDED REQUIRED SATISFACTION ALLEGING THE CORRECTNESS OF THE CLAIM OF THE ASSESS EE UNDER COTERMINOUS POWERS GIVEN BY THE ACT. HE DRAWN OUR ATTENTION TOW ARDS PARA 9 AND 9.1 OF THE FIRST APPELLATE ORDER AND CONTENDED THAT THE CIT(A) RECORDED REQUIRED SATISFACTION WHILE UPHOLDING THE ACTION OF THE AO. 5. THE LD. COUNSEL ALSO PLACED REJOINDER TO TH E ABOVE CONTENTIONS OF THE LD. DR, AND SUBMITTED THAT THE RECORDING OF SAT ISFACTION HAS TO BE MADE BY THE AO AND THE CIT(A) CANNOT FILL THE GAP B Y USING COTERMINOUS POWERS AND THESE POWERS CANNOT BE EXTENDED TO FILL THE PERVERSITY AND ILLEGALITY IN THE ASSESSMENT ORDER. 6. ON A CAREFUL CONSIDERATION OF THE ABOVE RIVA L CONTENTIONS AT THE OUTSET, WE NOTE THAT UNDISPUTEDLY THE ASSESSEE DID NOT CLAIM ANY EXEMPT INCOME DURING THE PERIOD AND THE ASSESSEE AL SO MADE SUO MOTO DISALLOWANCE OF RS. 31,553/-. HOWEVER, THE AO WITHO UT ALLEGING THE CORRECTNESS AT THE SUO MOTO DISALLOWANCE ON EXPENDI TURE CLAIMED BY THE ASSESSEE MADE ADDITION U/S 14A READ WITH RULE 8D (2 )(III) OF THE RULES. IN OUR HUMBLE UNDERSTANDING SUBSECTION (2) OF SECTI ON 14A OF THE ACT ITA NO. 6650/DEL/2013 ASSTT. YEAR: 2010-11 4 MANDATES THE MANNER IN WHICH THE AO HAS TO DETERMIN E THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF TOTAL INCOME. AS PER RATIO LAID DOWN BY HONBLE HIG H COURT OF DELHI IN THE CASE OF MAXOPP (SUPRA) AND AS PER MANDATE OF SU BSECTION (2) SECTION 14A OF THE ACT, WE WOULD FIND THAT THE AO I S REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ONLY IF TH E AO, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF EXPENDITURE AS WELL AS ABOUT THE CORRECTNE SS OF THE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE. THIS REQUIREMENT IS MANDATORY TO BE COMPLIED BY THE AO AND THE CIT(A) BY USING COTER MINOUS POWERS DURING FIRST APPELLATE PROCEEDING CAN NOT FILL THE GAP BY RECORDING REQUIRED SATISFACTION WHICH WAS NOT RECORDED BY THE AO IN THE ASSESSMENT ORDER. 7. IN THE PRESENT CASE THE AO HAS DEALT THIS ISSUE IN LAST PAGE OF THE ORDER AND FROM THIS RELEVANT OPERATIVE PART IT IS A MPLY CLEAR THAT THE AO HAS NOT ANY SATISFACTION ALLEGING AND DISMISSING THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESEE. HOWEVER F ROM PARA 9 AND 9.1 OF THE FIRST APPELLATE ORDER, WE NOTE THAT CIT( A) HAS NOTED THAT THE AO HAS NOT RECORDED REQUIRED DISSATISFACTION ON THE CORRECTNESS OF THE ASSESEES CLAIM BUT HE ALSO FURTHER NOTE THAT THE A RGUMENT OF THE APPELLANT ASSESSEE THAT AO HAS NOT RECORDED HIS D ISSATISFACTION ON THE ITA NO. 6650/DEL/2013 ASSTT. YEAR: 2010-11 5 CORRECTNESS OF THE APPELLANTS CLAIM IN RESPECT OF E XPENDITURE RELATABLE TO EARNING OF TAX-FREE DIVIDEND INCOME BECOMES REDUNDA NT. BUT WE DECLINE TO ACCEPT THIS ANALOGY ADOPTED BY THE CIT(A ) BECAUSE AS PER PROVISION OF SUBSECTION (2) OF SECTION 14A OF THE D ISSATISFACTION ABOUT THE CORRECTNESS OF THE CLAIM OF EXPENDITURE HAS TO BE RECORDED BY THE AO AND THIS OMISSION BY THE AO CANNOT BE FILED BY T HE CIT(A) DURING FIRST APPELLATE PROCEEDINGS . THE SUB-SECTION (2) O F SECTION 14A READS AS FOLLOWS :- 14A. EXPENDITURE INCURRED IN RELATION TO INCOME NO T INCLUDIBLE IN TOTAL INCOME.(1)FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER TH IS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE A SSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS A CT. (2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUN T OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTA L INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSES SING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB-SECTION (2) SHALL ALSO AP PLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURR ED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT: PROVIDED THAT NOTHING CONTAINED IN THIS SECTION SHALL EMPOW ER THE ASSESSING OFFICER EITHER TO REASSESS UNDER SECTION 147 OR PASS AN ORD ER ENHANCING THE ASSESSMENT OR REDUCING A REFUND ALREADY MADE OR OTHERWISE INCREAS ING THE LIABILITY OF THE ASSESSEE UNDER SECTION 154, FOR ANY ASSESSMENT YEAR BEGINNIN G ON OR BEFORE THE 1ST DAY OF APRIL, 2001. 8. IN VIEW OF ABOVE MANDATE OF THIS PROVISION IT IS AMPLY CLEAR THAT FOR MAKING ANY DISALLOWANCE U/S 14A OF THE ACT THE AO SHALL DETERMINE THE AMOUNT OF TOTAL EXPENDITURE INCURRED BY THE ASS ESSEE WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER HIS ACT IN ACCO RDANCE WITH SUCH ITA NO. 6650/DEL/2013 ASSTT. YEAR: 2010-11 6 METHOD AS MAY BE PRESCRIBED I.E. UNDER RULE 8D OF T HE INCOME TAX RULE, 1962. AT THE SAME TIME SECOND SUBSEQUENT PART OF SUB SECTION (2) OF SECTION 14A OF THE ACT IMPOSES PRECONDITION THAT BEFORE SUCH DETERMINATION OF DISALLOWANCE THE AO HAS TO RECORD THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES N OT FORM PART OF TOTAL INCOME UNDER THE ACT. BUT THIS MANDATORY REQUIREMEN T, IF NOT FULFILLED BY THE AO, CANNOT BE DONE, TO FILL OMISSION OF THE A O BEFORE THE CIT(A). IT IS ALSO PERTINENT TO NOTE THAT IN THE PRESENT CA SE THE ASSESSEE SUO MOTO DISALLOWED RS. 31553/- AND THE AO HAS NOT RECO RDED ANY FINDING TO SHOW THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM AS WELL AS SUO MOTO DISALLOWANCE, MADE BY THE ASSESSEE AND THU S THE AUTHORITIES BELOW CANNOT VALIDLY MAKE ANY DISALLOWANCE AND CONS EQUENT ADDITION U/S 14A OF THE ACT. 9. IT IS ALSO RELEVANT TO MENTION THAT IN THE P RESENT CASE THE ASSESSEE HAS NOT CLAIMED ANY EXEMPT INCOME AND THUS IN VIEW OF RATIO LAID DOWN BY HONBLE JURISDICTIONAL HIGH COURT OF DELHI IN TH E CASE OF CHEMINVEST LIMITED VS CIT VI VIDE ITA NO. 749/2014 ORDER DA TED 2.9.2015 NO DISALLOWANCE CAN BE MADE. THE RELEVANT OPERATIVE PA RA 23 OF THIS JUDGMENT READS AS UNDER :- ITA NO. 6650/DEL/2013 ASSTT. YEAR: 2010-11 7 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREINB EFORE THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EXP RESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF TH E ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE P URPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID IN COME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS R ECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 10. FINALLY, RESPECTFULLY FOLLOWING THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT OF DELHI IN THE CASE OF CHEMINVEST LTD. (SUPRA), WE HOLD THAT NO DISALLOWANCE U/S 14A OF THE ACT CAN BE MADE WHER E THERE IS NO EXEMPT INCOME. IN VIEW OF ABOVE FINDINGS GROUND NO. 1,2 & 3 OF THE ASSESEE ARE ALLOWED AND CONSEQUENTLY ADDITION MADE BY THE AO AND CONFIRMED BY THE CIT(A) IS DEMOLISHED. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6 TH JUNE, 2016. SD/- SD/- (L.P. SAHU) (CH ANDRA MOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED 6 TH JUNE, 2016 VEENA COPY OF ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT REGISTRAR, ITAT