M/s. Unitech Infra- Con Ltd., New Delhi V. DCIT, New Delhi

ITA 6679/DEL/2015

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3154 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2010-2011
• Appeal Filed On: 17-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Keywords: Rule 8D; Set aside
• Section: 14A; 250; 251

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH: G: NEW DELHI) BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI ANADEE NATH MISSHRA, ACCOUNTANT ME MBER ITA NO:- 6679/DEL/2015 (ASSESSMENT YEAR: 2010-11) M/S UNITECH INFRA - CON LTD., 6, COMMUNITY CENTRE SAKET, NEW DELHI PAN-AAACU7635G VS DY. COMMISSIONER OF INCOME TAX, CIRCLE-18(1), NEW DELHI APPELLANT RESPONDENT APPELLANT BY MS. KANIKA JAIN, ADV RESPONDENT BY SH. S.S. RANA, CIT ( DR ) ORDER PER ANADEE NATH MISSHRA, AM [A] THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAI NST IMPUGNED APPELLATE ORDER DATED 21.10.2015 OF LEARNED COMMISS IONER OF INCOME TAX (APPEALS)-22, NEW DELHI. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. THAT ORDER MADE U/S 250 OF THE INCOME TAX ACT DA TED 21.10.2015 BY THE LEARNED CIT(A)-22 IS ERRONEOUS IN NATURE AS HE HAS CONFIRMED THE ORDER OF LD. AO WHO MADE ADDIT IONS U/S 14A IN THE TOTAL INCOME OF THE ASSESSEE COMPANY. 2. THAT ADDITION U/S 14A OF THE ACT WAS MADE BY MAK ING DISALLOWANCE OF RS. 7,10,476/- AGAINST THE TOTAL EX PENDITURE OF RS. 8,69,681/- WHICH IS QUITE UNJUSTIFIED AND IS BA D IN LAW. 3. THAT THE LEARNED CIT(A) HAS ERRED IN LAW BY AFFI RMING THE DISALLOWANCE MADE BY AO AMOUNTING TO RS. 7,10,476/- OVER AND ABOVE THE DISALLOWANCE ALREADY MADE BY THE ASSE SSEE COMPANY UNDER SECTION 14A OF THE ACT, IGNORING THE BASIC FACT THAT NO EXPENSES HAD BEEN INCURRED FOR EARNING EXEM PT INCOME. ITA NO: - 6679/DEL/2015 PAGE | 2 [A.1] THE ASSESSEE ALSO FILED AN ADDITIONAL GROUNDS OF APPEAL DURING APPELLATE PROCEEDINGS IN INCOME TAX APPELLATE TRIBU NAL WHICH ARE AS UNDER:- 1. WHETHER THE LD. AO HAS GRAVELY ERRED IN MAKING A DISALLOWANCE / ADDITION UNDER SECTION 14A OF THE AC T WITHOUT COMPLYING WITH THE EXPRESS LEGAL MANDATE OF RECORD ING OF SATISFACTION BEFORE MAKING THE IMPUGNED DISALLOWANCE/ADDITION? 2. WHETHER THE LD. CIT(A) CAN CURE THE DEFECT OF NO N- COMPLIANCE OF THE EXPRESS LEGAL MANDATE BY THE LD. AO IN NOT RECORDING OF SATISFACTION BEFORE MAKING DISALLOWANC E UNDER SECTION 14A OF THE ACT; BY SUPPLYING REASONS/SATISF ACTION IN THE APPELLATE ORDER? [B] THE ONLY ISSUE INVOLVED IN THIS APPEAL IS DISAL LOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE INCO ME TAX ACT READ WITH RULE 8D OF I.T. ACT. THE ASSESSEE HAD SUO MOTO MADE A DISALLOWANCE OF AN AMOUNT OF RS. 1,59,205/- UNDER S ECTION 14A OF THE I.T. ACT. THE ASSESSING OFFICER, HOWEVER, COMPU TED A FURTHER DISALLOWANCE AMOUNTING TO RS. 7,10,476/-. THE TOTAL EXPENDITURE DEBITED IN THE PROFIT AND LOSS ACCOUNT WAS RS. 8,69 ,681/- OUT OF WHICH THE APPELLANT HAD MADE A SUO MOTO DISALLOWANC E OF RS. 1,59,205/- WHICH LEFT A BALANCE AS OF RS. 7,10,476/ -. AFTER THE FURTHER AFORESAID DISALLOWANCE OF RS. 7,10,476/-, T HE TOTAL AMOUNT OF ALL THE EXPENSES CLAIMED BY THE ASSESSEE AS PER PROFIT & LOSS ACCOUNT (RS. 8,69,681) STOOD DISALLOWED BY THE ASSE SSING OFFICER. ITA NO: - 6679/DEL/2015 PAGE | 3 THE ASSESSEE FILED APPEAL BEFORE THE COMMISSIONER O F INCOME TAX (APPEALS). DURING APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A), THE ASSESSEE SUBMITTED THAT ALL THE EXPENSES DEBITE D IN A PROFIT AND LOSS ACCOUNT STOOD ENTIRELY DISALLOWED AS A RESULT OF AFORESAID DISALLOWANCE OF RS. 7,10,476/- MADE BY THE ASSESSIN G OFFICER AND PLEADED THAT THIS WAS NOT JUST. THE ASSESSEE ALSO R ELIED ON SEVERAL DECIDED PRECEDENTS DURING APPELLATE PROCEEDINGS BEF ORE THE LEARNED CIT(A), WHICH INCLUDED THE FOLLOWING DECISIONS:- 1. WIMCO SEEDINGS LTD. VS. DCIT. 107 ITD 267 (DEL) 2. IMPULSE (INDIA) (P) LTD. VS. ACIT, 22 SOT 368( DEL). 3. MARUTI UDYOG LTD. VS. DCIT, 92 ITD 119 (DEL). 4. CIT VS. WALFORT SHARE AND STOCK BROKERS (P) LTD . 326 ITR 1 (SC). 5. CIT VS. CALCUTTA AGENCY LTD. [195] 19 ITR 191. 6. SARASWATI INDUSTRIAL SYNDICATE LTD. VS. CIT [19 82] 136 ITR 361. 7. THE PRINTERS HOUSE PVT. LTD. IN ITA NO. 227/200 9 DATED 16.04.2009. 8. CIT VS. HINDUSTAN TIN WORKS LIMITED IN ITA NO. 55/2009 DATED 13.02.2009. 9. DESIGN CO. LTD. (PRESENTLY KNOWN AS PBC VENTURE S LTD.) IN ITA NO. 803/2008 DATED 15.07.2008. 10. MAHARASHTRA SEAMLESS LTD IN ITA NO. 4063/D/200 6 FOR ASSESSMENT YEAR 2003-04 DATED 16.12.2010. 11. CLP POWER INDIA (P) LTD. VS. ITO IN ITA NO. 49 9/AHD/2007 FOR ASSESSMENT YEAR 2003-04 DATED 31.10.2011.12. 12. BOMBAY HIGH COURT IN THE CASE OF M/S GODREJ AN D BOYCE MGF. CO. LTD. VS. DCIT REPORTED IN 328 ITR 81. 13. MAXOPP INVESTMENT LTD. VS. CIT IN ITA NO. 687/ 2009 DATED 18.11.2011. [B.1] HOWEVER, THE LEARNED CIT(A) HELD THAT THE EN TIRE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF I.T. ACT READ WITH RULE 8D OF INCOME TAX RULES (I.T. RULES FOR SH ORT) WAS IN ITA NO: - 6679/DEL/2015 PAGE | 4 ACCORDANCE WITH PROVISIONS OF LAW; AND UPHELD THE D ISALLOWANCE AMOUNTING TO AFORESAID RS. 7,10,476/-MADE BY THE AS SESSING OFFICER. AGGRIEVED, THE ASSESSEE HAS FILED THIS PRE SENT APPEAL IN INCOME TAX APPELLATE TRIBUNAL (ITAT FOR SHORT) AGAI NST THE ORDER OF LEARNED CIT(A). [C] AT THE TIME OF HEARING BEFORE US, THE LEARNED C OUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO SECTION 14A(2) OF IN COME TAX ACT AND CONTENDED THAT THE ASSESSING OFFICER CAN TAKE RECOU RSE TO RULE 8D OF INCOME TAX RULES FOR COMPUTING THE DISALLOWANCE UNDER SECTION 14A OF INCOME TAX ACT ONLY IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE QUANTUM OF DISALLOWANCE SUO MOTO MADE BY THE ASSESSEE UNDER SECTION 14A OF INCOME TA X ACT. SHE FURTHER CONTENDED THAT THE RULE 8D OF INCOME TAX RU LES DOES NOT COME INTO OPERATION AUTOMATICALLY. SHE FURTHER SUBM ITTED THAT RULE 8D IS TRIGGERED ONLY WHEN THE ASSESSING OFFICER IS NOT SATISFIED WITH CORRECTNESS OF THE ASSESSEES CLAIM ON ACCOUNT OF S UO MOTO DISALLOWANCE MADE BY THE ASSESSEE UNDER SECTION 14A . SHE FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS NOT EXPRES SED, IN SPEAKING MANNER, THE REASONS IN DETAIL FOR HIS DISSATISFACTI ON WITH CORRECTNESS OF THE CLAIM OF THE ASSESSEE REGARDING SUO MOTO DISALLOWANCE UNDER SECTION 14A OF THE INCOME TACT A CT. IN VIEW OF THESE FACTS, SHE CONTENDED THAT THE FURTHER DISALLO WANCE OF AFORESAID RS. 7,10,476/-. FOR THIS PURPOSE, THE LEA RNED COUNSEL FOR ITA NO: - 6679/DEL/2015 PAGE | 5 THE ASSESSEE RELIED ON ORDER OF COORDINATE BENCH OF ITAT DELHI IN THE CASE OF AZIMUTH INVESTMENTS LTD. VS. ACIT 2016 SCC ONLINE ITAT 2948. [C.1] ON THE OTHER HAND, CIT(DR) APPEARING FOR REVE NUE SUPPORTED THE ORDERS OF THE ASSESSING OFFICER AND THE LEARNED CIT(A). HE ALSO PLACED RELIANCE ON THE FOLLOWING PRECEDENTS. 1. INDIABULLS FINANCIAL SERVICES LTD. VS. DICT [201 6] 76 TAXMANN.COM 268 (DELHI) 2. GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. D CIT [2017] 81 TAXMANN.COM 111 (SC)/[2014] 247 TAXMAN 361 (SC)/ [2017] 394 ITR 449(SC)/[2017] 295 CTR 121 (SC) 3. PUNJAB TRACTORS LTD. VS. CIT [2017-TIOL-353-HC- P&H-IT] 4. AVON CYCLES LTD. VS. CIT [2015] 53 TAXMANN.COM 297 (PUNJAB & HARYANA)/[2015] 228 TAXMAN 368 (PUNJAB & HARAYANA )(MAG.) 5. NAHAR SPINNING MILLS LTD. VS. CIT [2017] 82 TAX MANN.COM 154 (PUNJAB & HARYANA). 6. DY. CIT VS. VIRAJ PROFILES LTD. 156 ITD 72/46 I TR 626/177 TTJ 466 7. NYK LINE INDIA LTD. VS. ACIT [175 TTJ 180 / 132 DTR 7]. 8. SUPER AUTO FORGE (P.) LTD. VS. ACIT (156 ITD 46 7). 9. VIPIN MALIK VS. ACIT (45 ITR 589). [C.2] WE HAVE HEARD BOTH SIDES AND PERUSED THE MAT ERIALS ON RECORD AND CONSIDERED THE PRECEDENTS BROUGHT TO OUR ATTENTION BY BOTH SIDES AND ALSO THE PRECEDENTS REFERRED TO IN T HE RECORDS. WE FIND FROM PERUSAL OF THE ASSESSMENT ORDER THAT ALTH OUGH THE ASSESSING OFFICER HAS INVOKED RULE 8D OF INCOME TAX RULES; HE HAS NOT PASSED SPEAKING ORDER AS TO WHY HE IS NOT SATIS FIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. HE HAS NO T POINTED OUT THE ITA NO: - 6679/DEL/2015 PAGE | 6 DEFECTS OR INACCURACIES IN THE COMPUTATION OF SUO M OTO DISALLOWANCE MADE BY THE ASSESSEE UNDER SECTION 14A OF I.T. ACT, IN SPEAKING MANNER. HE HAS ALSO NOT GIVEN DETAILED REA SONS, IN A SPEAKING MANNER, WHY HE IS NOT SATISFIED WITH THE C ORRECTNESS OF THE ASSESSEES CLAIM IN RESPECT OF SUO MOTO DISALLOWANC E MADE BY THE ASSESSEE UNDER SECTION 14A OF INCOME TAX ACT. THE A SSESSING OFFICER HAS MERELY STATED IN A CRYPTIC SUMMARY AND NON SPEAKING MANNER THAT THE DISALLOWANCE WORKED OUT OF ASSESSE E AT RS. 1,59,205/- IS NOT AS PER PROVISIONS ON RULE 8D AND IS THEREFOR E NOT CORRECT. HE SEEMS TO BE OF THE VIEW THAT IF T HE DISALLOWANCE SUO MOTO MADE BY THE ASSESSEE IS NOT IN ACCORDANCE WITH RULE 8D OF I.T. RULES, THEN IT IS NOT CORRECT. HOWEVER, THIS VIEW I S ERRONEOUS, WHEN WE PERUSE SECTION 14A(2) OF I.T. ACT. THE ASSESSING OFFICER CAN INVOKE RULE 8D OF I.T. RULES ONLY AFTER ESTABLISHIN G WITH DETAILED REASONS, THROUGH A SPEAKING ORDER, THAT THE AMOUNT DISALLOWED SUO MOTO BY THE ASSESSEE IS NOT SATISFACTORY. THE ASSES SING OFFICER HAVING FAILED TO DO THIS, THERE IS JUSTIFICATION FO R APPLYING RULE 8D IS COMPLETELY ABSENT. IN THE ABSENCE OF A SPEAKING ORD ER BY THE ASSESSING OFFICER ON WHY HE INVOKED THE JURISDICTIO N UNDER RULE 8D OF INCOME TAX RULES, WE ARE OF THE VIEW THAT FURTHE R DISALLOWANCE OF RS. 7,10,476/- MADE BY THE ASSESSING OFFICER LACKED STATUTORY CREDENTIALS UNDER SECTION 14A(2) OF INCOME TAX ACT. FOR THIS VIEW, WE RESPECTFULLY FOLLOW THE ORDER OF COORDINATE BENC H OF ITAT BENCH ITA NO: - 6679/DEL/2015 PAGE | 7 DELHI IN THE CASE OF AZIMUTH INVESTMENTS LTD. VS. ACIT (SUPRA) IN WHICH IT WAS HELD AS UNDER:- '7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE PERUSED THE RECORD OF THE CASE. THE SHORT ISSUE IS WHETHER THE BASIC FUNCTIONS ASSIGNED TO THE ASSESSING OFFICER I N THE ACT CAN BE DISCHARGED BY CIT(A) WHILE EXERCISING HIS COTERM INOUS POWER OR NOT. SECTION 14A(2) READS AS UNDER -: '14A(2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MA Y BE PRESCRIBED, IF THE ASSESSING OFFICER, HAVING REG ARD 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 N OT FORM PART OF THE TOTAL INCOME UNDER THIS ACT.' 8. A BARE READING OF THE AFOREMENTIONED PROVISION M AKES IT CLEAR THAT THE SATISFACTION IS TO BE RECORDED BY AS SESSING OFFICER AND BY NO OTHER AUTHORITY. UNDER SECTION 251 LD. CI T(A) IN AN APPEAL AGAINST AN ORDER OF ASSESSMENT IS EMPOWERED TO CONFIRM, REDUCE, ENHANCE OR ANNUL THE ASSESSMENT BU T IF THE ASSESSMENT ORDER SUFFERS FROM JURISDICTIONAL ERRORS THEN LD. CIT(A) HAS NO POWER TO CORRECT SUCH JURISDICTIONAL ERRORS. THE COTERMINOUS POWERS VESTED IN CIT(A) DOES NOT IMPLY THAT HE CAN CLOTHE HIMSELF WITH POWERS TO CORRECT THE JURIS DICTIONAL DEFECTS IN THE ASSESSMENT ORDER. IT IS WELL SETTLED LAW THAT WHERE THE VERY INITIATION OF ASSESSMENT PROCEEDINGS BY THE AO WAS INVALID THEN LD. CIT(A) CANNOT DIRECT FOR MAKIN G A FRESH ASSESSMENT. THE CIT(A) SHOULD ANNUL THE ASSESSMENT WHERE THE ASSESSMENT PROCEEDING IS A NULLITY IN THE SENSE THAT THE AO HAD NO JURISDICTION AB INITIO TO TAKE THE PROCEEDIN G. IN THE PRESENT CASE THE AO COULD TAKE UP THE ISSUE REGARDI NG DISALLOWANCE U/S 14A ONLY AFTER RECORDING SATISFACT ION. NON- RECORDING OF SATISFACTION RESULTS INTO CREEPING OF ILLEGALITY IN THE ASSESSMENT ORDER AND NOT A MERE IRREGULARITY. THE J URISDICTION OF RECORDING SATISFACTION FOR INVOKING SECTION 14A LIES WITH THE ASSESSING OFFICER AND ONCE HE HAS NOT RECORDED SUCH SATISFACTION THEN THE SAID BASIC FUNCTION OF AO WHI CH CLOTHES HIM JURISDICTION TO MAKE DISALLOWANCE U/S 14A CANNO T BE USURPED BY LD. CIT(A). WE, THEREFORE SET ASIDE THE ORDER OF LD. CIT(A). ITA NO: - 6679/DEL/2015 PAGE | 8 WE ALSO TAKE GUIDANCE FROM THE ORDER OF HONBLE S UPREME COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING C OMPANY LTD. VS. DCIT & ANOTHER [2017] 394 ITR 449 (SC) IN WHICH IT WAS HELD AS UNDER:- SUB SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 MERELY PRESCR IBE A FORMULA FOR DETERMINATION OF EXPENDITURE INCURRED IN RELATI ON TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WHERE THE ASSESSING OFFICER IS NOT SATISF IED WITH THE CLAIM OF THE ASSESSEE. WHETHER SUCH DETERMINATION I S TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR TO THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LA W POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSI NG OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS P LACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQUISITE S ATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSES SEE (QUOTED FROM HEADNOTES) [C.2.1] IN VIEW OF THE FOREGOING, THE FURTHER DISAL LOWANCE OF RS. 7,10,476/- MADE BY THE ASSESSING OFFICER UNDER SECT ION 14A OF I.T. ACT, READ WITH RULE 8D OF I.T. RULES IS HEREBY DELE TED. FOR STATISTICAL PURPOSES, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 15.11.2019. SD/- SD/- (AMIT SHUKLA) (ANADEE NATH MISSHRA) JUDICIAL MEMBER ACCOUNTANT MEM BER DATED:15.11.2019 SH