ACIT, Circle- 17(1), New Delhi V. MLV Credits Holding & Leasing Ltd., New Delhi

ITA 6668/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5485 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 03-11-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAURAV PUNDIR
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI E BENCH: NEW DELHI (THROUGH VIDEO CONFERENCING ) BEFORE SHRI R.K.PANDA, ACCOUNTANT MEMBER & SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.6668/DEL/2017 ASSESSMENT YEAR : 2013-14 ACIT, CIRCLE-17(1), NEW DELHI VS M/S MODERN MVL CREDITS HOLDING & LEASING LTD. F-79,/18, SAINIK FARM, NEW DELHI-110062 PAN-AAACM9072H APPELLANT RESPONDENT APPELLANT BY SH. GAURAV PUNDIR - SR. DR RESPONDENT BY SH. ARUN KISHORE, C.A. DATE OF HEARING 16.09.2021 DATE OF PRONOUNCEMENT 21 .09.2021 ORDER PER KUL BHARAT, JM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 25.08.2017 OF THE LEARNED CIT(A)-28, NE W DELHI, RELATING TO ASSESSMENT YEAR 2013-14. THE REVENUE H AS RAISED FOLLOWING GROUNDS OF APPEAL:- 1. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) IS LEGALLY JUSTIFIED IN DELETING DISALLO WANCE OF RS. 2,12,03,476/- U/S 14A OF THE INCOME TAX ACT (THE ACT) WITHOUT CONSIDERING LEGISLATIVE INTENT OF INTRODUCING SECTION 14A OF THE ACT BY THE FINANCE A CT ITA NO. 6668/DEL/2017 2 | P A GE 2001 AS CLARIFIED BY THE CBDT CIRCULAR NO. 5/2014 DATED 10.02.2014? 2. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CASE, LD. CIT(A) IS LEGALLY JUSTIFIED IN NOT HOLDING THAT APPLICATION OF RULE 8D OF THE INCOME TAX RULE, 1962 (THE RULE) TO COMPUTE QUANTUM OF DISALLOWANCE U/S 14A OF THE ACT IS MANDATORY? 3. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) IS LEGALLY JUSTIFIED IN DELETING DISALLOWANCE OF RS. 2,12,03,476/- U/S 14A OF THE AC T WITHOUT CONSIDERING RATIO DECIDENDI AS UPHELD IN CA SES OF CIT VS. WOLFORT SHARE AND STOCK BROKERS P. LTD. [2010] 326 ITR 1 (SC) AND MAXOPP INVESTMENT VS. CIT (2012) 347 ITR 272 (DELHI) ON APPLICATION OF PROVIS IONS OF SECTION 14A OF THE ACT? 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALT ER OR FORGO ANY GROUND/(S) OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2. THE ONLY EFFECTIVE GROUND IS AGAINST THE DELETI ON OF ADDITION OF RS.2,12,03,476/- MADE BY INVOKING PROVI SIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTE R THE ACT). 3. FACTS GIVING RISE TO THE PRESENT APPEAL ARE THA T THE RETURN OF INCOME DECLARING TOTAL LOSS OF RS.36,84,7 65/- WAS FILED ITA NO. 6668/DEL/2017 3 | P A GE ON 29.03.215 THROUGH ELECTRONIC MODE. THE CASE OF T HE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND THE ASSESSM ENT U/S 143(3) OF THE ACT WAS FRAMED VIDE ORDER DATED 28.03. 2016. THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT INVOK ED THE PROVISIONS OF SECTION 14A OF THE ACT AND COMPUTED T HE DISALLOWANCE UNDER RULE-8D OF THE INCOME TAX RULES, 1962 (HEREINAFTER THE RULES) OF RS.2,12,03,476/-. 4. AGGRIEVED AGAINST THIS, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A), WHO AFTER CONSIDERING THE SUB MISSIONS DELETED THE DISALLOWANCE. THE LD. CIT(A) WHILE DELETI NG THE DISALLOWANCE NOTICED THE ASSESSEE HAD EARNED MEAGER SUM OF RS.148 AS EXEMPT BUT NO EXPENDITURE AGAINST EARNING SUCH INCOME HAS BEEN CLAIMED. 5. AGGRIEVED BY THIS ORDER, THE REVENUE IS IN APPE AL BEFORE THE TRIBUNAL. 6. THE LD. DR VEHEMENTLY ARGUED THAT THE LD. CIT(A ) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE. THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER HAS DISALLOWED EXPENDITU RE IN ACCORDANCE WITH PROVISIONS OF SECTION 14A OF THE ACT WHICH IS ITA NO. 6668/DEL/2017 4 | P A GE JUSTIFIED. FURTHER RELIANCE IS PLACED ON THE JUDGME NT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. WOLFORT SHARE AND STOCK BROKERS P. LTD. [2010] 326 ITR 1 (SC) AND MAXOPP IN VESTMENT VS. CIT (2012) 347 ITR 272 (DELHI) 7. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE OP POSED THE SUBMISSION AND SUBMITTED THAT THERE IS NO DISPU TE WITH REGARD TO THE FACT THAT THE ASSESSEE HAS EARNED ONL Y A SUM OF RS.148/-. HE SUBMITTED THAT NO EXPENDITURE WAS INCU RRED FOR EARNING EXEMPT INCOME. HE SUBMITTED THAT EVEN IF A NY DISALLOWANCE WAS TO BE MADE THAT OUGHT TO HAVE BEEN RESTRICTED TO THE EXTENT OF EXEMPT INCOME. IN SUPPORT OF THIS CO NTENTION, THE LEARNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANC E ON THE JUDGMENT OF HONBLE SUPREME COURT RENDERED IN THE C ASE OF CIT VS RAJENDRA PRASAD MOODY AND JUDGMENT OF HONBLE SU PREME COURT IN THE CASE OF CHEMINVEST LTD. VS CIT 378 ITR 33(SC). 8. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E RECORDS MATERIAL AVAILABLE ON RECORD AND GONE THROU GH THE ORDER OF THE AUTHORITIES BELOW. THE LD. CIT(A) HAS DECIDE D THE ISSUE BY OBSERVING AS UNDER:- ITA NO. 6668/DEL/2017 5 | P A GE 6. I HAVE CONSIDERED THE FACTS OF THE CASE, BASIS OF DISALLOWANCE MADE BY THE ASSESSING OFFICER AND SUBMISSIONS OF APPELLANT. AS IT IS CLEAR FROM THE ASSESSMENT ORDER AS WELL AS SUBMISSIONS OF APPELLAN T THAT THE ASSESSEE HAS EARNED A MEAGER SUM OF RS.148/- AS EXEMPT BUT NO EXPENDITURE AGAINST IT HAS BEEN CLAIM ED BY IT WHICH CAN BE MADE SUBJECT MATTER OF SECTION 14A OF THE ACT. HOWEVER, ASSESSING OFFICER HAS TAKEN INTO CONSIDERATION THE INVESTMENT BY APPELLANT DURING TH E YEAR AS WELL AS THE PRECEDING YEAR AND BY APPLYING THE PROVISIONS OF SECTION 14A OF THE ACT R.W. RULE 8D, MECHANICALLY WORKED OUT THE DISALLOWANCE AT RS.2,12,03,476/-. DURING THE APPELLATE PROCEEDINGS , FOR NOT DISALLOWING ANY EXPENDITURE, APPELLANT HAS RELI ED ON MANY DECISIONS OF DIFFERENT COURTS. IN SUCH SITUA TION, WHEN THE FACTS OF THE CASE ARE TO BE INTERPRETED IN THE LIGHT OF DECISIONS OF VARIOUS COURTS, FIRSTLY WE HAVE TO GO THROUGH THE RATIOS OF DECISIONS OF JURISDICTIONAL H IGH COURT WHICH ARE BINDING ON US. IN A CASE CIT VS I.P. SUPP ORT SERVICES INDIA (P) LTD. REPORTED IN 378 ITR 240, WH ILE DEALING THIS ISSUE, HON'BLE JURISDICTIONAL HIGH COU RT HAS HELD THAT IT IS ERRONEOUS PREMISE THAT THE INVOCATI ON OF SECTION 14A IS AUTOMATIC AND COMES INTO OPERATION A S SOON AS THE DIVIDEND INCOME IS CLAIMED AS EXEMPT. IT IS FURTHER HELD THAT FOR MAKING DISALLOWANCE U/S 14A, THE PRE- CONDITION IS SATISFACTION OF ASSESSING OFFICER THAT VOLUNTARY DISALLOWANCE MADE BY ASSESSEE IS UNREASONABLE AND UNSATISFACTORY AND IN ABSENCE OF SUCH SATISFACTION, DISALLOWANCE IS NOT JUSTIFIED. IT IS FURTHER HELD B Y HON'BLE COURT IN ANOTHER CASE NAMELY CIT VS OM PRAKASH KHAI TAN 376 ITR 390 THAT EVEN IF SATISFACTION IS RECORDED, NO DISALLOWANCE CAN BE MADE IF NO NEXUS BETWEEN EXPENDITURE INCURRED AND INCOME NOT FORMING PART OF TOTAL INCOME HAS BEEN ESTABLISHED BY AO. IN THE CASE ITA NO. 6668/DEL/2017 6 | P A GE CHEMINVEST LTD VS CIT 378 ITR 33, HON'BLE COURT, AF TER REVERSING THE DECISION OF SPL. BENCH, OPINED THAT I F NO EXEMPTED INCOME WAS EARNED BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR AND SINCE THE GENUINENESS OF EXPENDITURE INCURRED WAS NOT IN DOUBT, NO DISALLOWA NCE COULD BE MADE U/S 14A OF THE ACT. IN A RECENT DECIS ION DATED 16.08.2017 IN THE CASE OF II & FS ENERGY DEVELOPMENT VS. PR. CIT-04 ITA NO. 520/2017, JURISDICTIONAL HIGH COURT HAS AGAIN DELIBERATED ON THE ISSUE AND AFTER DISCUSSING THE DECISION OF CIT VS. RAJENDRA PRASAD MOODY OF HON'BLE SUPREME COURT (SUPRA) & CBD T, CIRCULAR NO. 5/2014, DATED 11.02.2014, ALONG WITH T HE OTHER DECISIONS, HAS AFFIRMED THE FINDINGS OF ITS E ARLIER DECISION IN THE CASE OF CHEMINVEST VS. CIT 378 ITR 33 AND HELD THAT NO DISALLOWANCE U/S 14A OF THE ACT IS CAL LED FOR IN THE YEAR IN WHICH THE ASSESSEE HAS NOT EARNED IN COME WHICH WAS EXEMPT. IT IS FURTHER HELD BY HON'BLE COU RT THAT THE CBDT CIRCULAR DATED 11.02.2014 CANNOT OVERRIDE THE EXPRESS PROVISIONS OF SECTION 14A R.W. RULE 8D OF T HE IT ACT. THERE ARE SEVERAL OTHER DECISIONS OF DIFFERENT COURTS AND TRIBUNALS, AS MENTIONED BY APPELLANT IN ITS SUBMISSIONS, WHEREIN IT HAS BEEN HELD THAT IF THERE IS NO EXEMPT INCOME CLAIMED BY ASSESSEE, NO DISALLOWANCE OF ANY EXPENDITURE CAN BE MADE U/S 14A OF THE ACT. NOW , IN THE LIGHT OF THESE DECISIONS, THE CASE OF APPELLANT HAS TO BE EXAMINED. FIRST AND FOREMOST,, THE AO SHOULD HAVE A GIVEN THE DETAILS OF ANY EXEMPT INCOME EARNED BY APPELLAN T AND EXPENDITURE INCURRED AGAINST IT WITH COGENT REASONS BY REJECTING THE CLAIM OF ASSESSEE BEFORE COMPUTING TH E DISALLOWANCE U/S 14A OF THE ACT. HOWEVER, THE SAME HAS NOT BEEN DONE BY HIM. HE HAS NOT EVEN CARED TO MENT ION THE FIGURE OF EXEMPT INCOME EARNED BY APPELLANT DUR ING THE YEAR. HE HAS GIVEN ONLY A GENERAL OBSERVATION ABOUT THE APPLICABILITY OF PROVISIONS OF SECTION 14A IN THE A SSESSMENT ITA NO. 6668/DEL/2017 7 | P A GE ORDER IN THE CASE OF APPELLANT AND MECHANICALLY COM PUTED THE DISALLOWANCE ON THE BASIS OF INVESTMENT MADE BY APPELLANT IN THE SHARES DURING AND PRECEDING YEAR. THE AO HAS ALSO NOT BEEN ABLE TO ESTABLISH ANY NEXUS BETWE EN THE EXEMPT INCOME, IF ANY EARNED BY APPELLANT AND ANY EXPENDITURE INCURRED TO EARN THIS INCOME. HE HAS SI MPLY COMPUTED THE DISALLOWANCE ONLY ON THE GROUND THAT N O EXPENDITURE HAD BEEN DISALLOWED BY APPELLANT IN ITS COMPUTATION AGAINST THE RECEIPTS NOT FORMING PART O F TOTAL INCOME WHEREAS THERE ARE INSIGNIFICANT AMOUNT OF RE CEIPTS WHICH ARE NOT PART OF TOTAL INCOME WHEREAS THE APPE LLANT HAS DEMONSTRATED WITH THE FACTS AND FIGURES THAT MA JOR PART OF THIS INVESTMENTS HAVE GONE TOWARDS EARNING THE TAXABLE INCOME. IN SUCH SITUATION, THE LEGAL REQUIR EMENTS OF SECTION 14A OF THE ACT ARE NOT FULFILLED BY THE AO FOR MAKING ANY DISALLOWANCE AS PER THIS SECTION AS HELD BY HON'BLE JURISDICTIONAL HIGH COURT IN DIFFERENT CASE S, AS MENTIONED ABOVE. HENCE, THE ACTION OF AO IS NOT JUS TIFIED AND SUSTAINABLE. IN VIEW OF THIS DISCUSSION, THE DISALLOWANCE OF RS. 2,12,03,476/- MADE BY AO IS HER EBY DELETED AND GROUNDS TAKEN BY APPELLANT ARE ALLOWED. 9. THE REVENUE COULD NOT CONTRADICT THE FINDING TH AT THE ASSESSEE HAS ONLY EARNED EXEMPT INCOME TO THE TUNE OF RS.148/-. THE REVENUE HAS ALSO NOT REBUTTED THE FINDING THAT NO EXPENDITURE WAS INCURRED IN EARNING FOR THE DIVIDEND INCOME. IT IS ALSO CONTENDED THAT THE ASSESSING OFFICER HAS NO T DEMONSTRATED THE NEXUS BETWEEN EXPENSES INCURRED WIT H THE EARNING OF THE EXEMPT INCOME. THE HONBLE SUPREME C OURT IN THE ITA NO. 6668/DEL/2017 8 | P A GE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LTD. VS DCIT 11 [2017] 7 SCC 421 HELD THAT WHAT CANNOT BE DENIED IS THAT THE REQUIREMENT FOR ATTRACTING THE PROVISIONS OF SECTIO N 14A(1) OF THE ACT IS PROOF OF THE FACT THAT THE EXPENDITURE SOUGH T TO BE DISALLOWED HAD ACTUALLY BEEN INCURRED IN EARNING TH E DIVIDEND INCOME. WE FIND THAT IN THE PRESENT CASE, NO SUCH FINDING HAS BEEN RECORDED BY THE ASSESSING OFFICER. THEREFORE, NO INTERFERENCE IS CALLED FOR. THE GROUND RAISED BY THE REVENUE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DI SMISSED. ABOVE DECISION WAS PRONOUNCED IN THE OPEN COURT ON CONCLUSION OF VIRTUAL HEARING ON 21.09.2021. SD/- SD/- (R.K.PANDA) (KUL B HARAT) ACCOUNTANT MEMBER JUDICIA L MEMBER DELHI/DATE 21/09/2021. F{X~{T F{X~{T F{X~{T F{X~{T COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI