Virgo Marketing Pvt. Ltd., New Delhi V. ITO, Ward- 26(4), New Delhi

ITA 6805/DEL/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 5275 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2001-2002
• Appeal Filed On: 26-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRIT LAL
• Keywords: Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: SMC NEW DELHI BEFORE SHRI H. S. SIDHU, JUDICIAL MEMBER I.T.A. NOS. 6804 & 6805/DEL/2018 ASSESSMENT YEARS: 2000-01 & 2001-02 VIRGO MARKETING PVT. LTD. VS. ITO, WARD 26(4), C/O RRA TAXINDIA, BULANDSHAHR D-28, SOUTH EXTENSION, PART-I, NEW DELHI 49 (PAN: AWWPM3839K) (ASSESSEE) (RESPONDENT) ASSESSEE BY :SH. P.C. YADAV, ADV. REVENUE BY : SH. AMRIT LAL, SR. DR. ORDER THESE APPEALS ARE FILED BY THE ASSESSEE AGAINST THE RESPECTIVE ORDERS PASSED BY THE LD. CIT(A)-9, NEW DELHI RELATI NG TO ASSESSMENT YEARS 2000-01 & 2001-02 ON THE FOLLOWING GROUNDS. GROUNDS RAISED IN ITA NO. 6804/DE/2018 (AY 2000-01) THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE O RDER PASSED BY THE LD. CIT (APPEAL) IS BAD BOTH IN THE EYES OF LAW AND ON FACTS. THAT THE LD. CIT (APPEAL) HAS ERRED IN LAW AND ON F ACTS IN CONFIRMING THE ADDITION OF RS. 18,43,898/- MADE U/S 14A,DESPITE TH E FACT THAT RULE 8D WAS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATIO N. THAT THE LD. CIT (APPEAL) HAS ERRED IN LAW AND ON F ACTS IN CONFIRMING THE ADDITION OF RS. 18,43,898/- MADE U/S 14A, DESPITE T HE FACT THAT NO BORROWED FUNDS WERE USED IN MAKING THE INVESTMENT. 2 THAT THE LD. CIT (APPEAL) HAS ERRED IN LAW AND ON F ACTS IN CONFIRMING THE ADDITION OF RS. 18,43,898/- MADE U/S 14A, DESPITE T HE FACT THAT THE INVESTMENT HAS BEEN MADE MUCH PRIOR TO THE BORROWIN G OF FUNDS. THAT THE IMPUGNED APPELLATE ORDER IS ARBITRARY, ILL EGAL, BAD IN LAW AND IN VIOLATION OF RUDIMENTARY PRINCIPLES OF CONTEMPORARY JURISPRUDENCE. THAT THE APPELLANT CRAVES LEAVE TO ADD/ALTER ANY/AL L GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. GROUNDS RAISED IN ITA NO. 6805/DE/2018 (AY 2001-02) THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE OR DER PASSED BY THE LD . CIT (APPEAL) IS BAD BOTH IN THE EYES OF LAW AND ON FACTS. THAT THE LD. CIT (APPEAL) HAS ERRED IN LAW AND ON F ACTS IN CONFIRMING THE ADDITION MADE ULS 14A,DESPITE THE FACT THAT RULE 8D WAS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION. THAT THE LD. CIT (APPEAL) HAS ERRED IN LAW AND ON F ACTS IN CONFIRMING THE ADDITION OF RS. 15,85,000/- OUT OF ADDITION OF RS. 16,86,393/- MADE U/S 14A, DESPITE THE FACT THAT NO BORROWED FUNDS WERE U SED IN MAKING THE INVESTMENT. THAT THE LD. CIT (APPEAL) HAS ERRED IN LAW AND ON F ACTS IN CONFIRMING THE ADDITION OF RS. 15,85,000/- OUT OF ADDITION OF RS. 16,86,393/- MADE U/S 14A, DESPITE THE FACT THAT THE INVESTMENT HAS BEEN MADE MUCH PRIOR TO THE BORROWING OF FUNDS. 3 THAT THE IMPUGNED APPELLATE ORDER IS ARBITRARY, ILL EGAL, BAD IN LAW AND IN VIOLATION OF RUDIMENTARY PRINCIPLES OF CONTEMPORARY JURISPRUDENCE. THAT THE APPELLANT CRAVES LEAVE TO ADD/ALTER ANY/AL L GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 2. SINCE THE GROUNDS OF APPEAL RAISED IN BOTH THESE APPEALS ARE SIMILAR AND IDENTICAL, HENCE, WE HAVE HEARD BOTH THE APPEA LS TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAK E OF CONVENIENCE, BY DEALING WITH ITA NO. 6804/DEL/2018 (AY 2000-01) AND THE RESULT THEREOF WILL APPLY MUTATIS MUTANDIS TO OTHER APPEAL BEING ITA NO. 6805/DEL/2018 (AY 2001-02). 3. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE STATED THAT THE LEGAL ISSUE IN DISPUTE IN BOTH THE APPEALS IS THAT WHETHER RULE 8D IS APPLICABLE IN THE CASE OF THE ASSESSEE OR NOT FOR T HE ASSESSMENT YEARS 2000-01 & 2001-02? HE FURTHER STATED THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN VIEW OF THE DECISION DATED 31.01.2018 OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ESSAR TELEHOLDINGS L TD. REPORTED IN (2018) 101 CCH 0021 (SC). HE FURTHER STATED THAT TH E AO HAS MADE THE ADDITION U/S. 14A OF THE I.T. ACT, 1961 READ WITH R ULE 8D OF THE I.T. RULES, 1962 FOR THE ASSESSMENT YEARS IN DISPUTE. BUT RUL E 8D WAS PROSPECTIVE IN OPERATION AND COULD NOT HAVE BEEN APPLIED TO ANY ASSESSMENT YEAR PRIOR TO ASSESSMENT YEAR 2008-09. HE FURTHER STATE D THAT THE ASSESSEES CASE IS FOR ASSESSMENT YEAR 2000-01 AND 2001-02. TH EREFORE, RULE 8D IS 4 NOT APPLICABLE IN THE CASE OF THE ASSESSEE. IN SUPP ORT OF HIS CONTENTION, HE FILED THE COPY OF DECISION DATED 31.01.2018 OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ESSAR TELEHOLDINGS LTD. REPORTED IN (2018) 101 CCH 0021 (SC) AND REQUE STED TO FOLLOW THE SAME AND DELETE THE ADDITION IN DISPUTE IN BOTH THE ASSESSMENT YEARS BY ALLOWING THE APPEALS OF THE ASSESSEE. 4. LD. SR. DR RELIED UPON THE ORDERS OF THE REVENUE AUTHORITIES. 5. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE OR DERS OF THE REVENUE AUTHORITIES ALONGWITH THE DECISION DATED 31.01.2018 OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ESSAR TELEHOLDINGS LTD. REPORTED IN (2018) 101 CCH 0021 (SC). I HAVE ALSO GONE THROUGH THE IMPUGNED ORDER PASSED BY THE LD. FIRST APPELLATE AUTHORITY WHO HIMSELF IN PARA NO. 5.6 AT PAGE NO. 1 0 (WHICH IS ATTACHED WITH APB PG. 13) HAS MENTIONED THAT NO DOUBT, THE AO ERRED IN MAKING A DISALLOWANCE UNDER RULE 8D, SINCE THE SAME WAS NOT APPLICABLE DURING THE YEAR UNDER CONSIDERATION, HE DID NOT MAKE ANY REFER ENCE TO THE ACCOUNTS OF THE ASSESSEE, WHICH IS SPECIFIC MANDATE OF SECTI ON 14A. BUT IN PARA NO. 5.7 OF THE IMPUGNED ORDER, LD. CIT(A) HAS HELD THAT HOWEVER, PROVISION OF SECTION 14A AS AVAILABLE DURING THE REL EVANT AY 2000-02 WAS VERY MUCH APPLICABLE EVEN WITHOUT ADVENT OF RULE 8D WHICH IS, APPORTIONMENT OF EXPENDITURE IN RESPECT OF EXEMPT I NCOME WAS TO BE DONE AND DISALLOWED.... 5 5.1 IT IS AN ADMITTED FACT THAT THE ISSUE INVOLVED IN THIS APPEAL IS RELATING TO ADDITION MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D WHICH IS SQUARELY COVERED IN FAVOUR OF THE ASSESS EE IN VIEW OF THE DECISION DATED 31.01.2018 OF THE HONBLE SUPREME CO URT OF INDIA IN THE CASE OF COMMISSIONER OF INCOME TAX VS. ESSAR TELEHO LDINGS LTD. REPORTED IN (2018) 101 CCH 0021 (SC) WHEREIN IT WAS OBSERVED IN THE HEADS NOTES AS UNDER:- INCOME-EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME-APPLICABILITY OF RULE- RETROSPECTIVE VIS-A-VIS PROSPECTIVE EFFECT-AO HELD T HAT ASSESSEE COMPANY WAS IN RECEIPT OF BOTH TAXABLE AND NON-TAXABLE DIVIDEND INCOME-ACCORDINGLY DIVIDEND ON INVESTMENT EXEMPT U/S 10(23G) WAS CONSIDERED BY AO FOR PURPOSE OF DISALLOWANCE U/ 14A AND RULE 8D-AO HELD THAT, SUB-SECTION (2) AND SUB-SECTION (3) OF S ECTION 14A INSERTED WITH EFFECT FROM 01.04.2007 WOULD APPLY TO ALL PENDING ASSESSMENTS AND RULE 8D WAS RETROSPECTIVELY APPLICABLE-CIT(A) PARTLY ALLOWED AP PEAL OF ASSESSEE-TRIBUNAL ALLOWED ASSESSEE'S APPEAL HOLD ING THAT RULE 8D WAS ONLY PROSPECTIVE AND IN YEAR UNDER CONSIDERATION RULE 8D WAS NOT APPLICABLE-HIGH COURT AFFIRMED TRIBUNAL'S ORDER AND DISMISSED APPEAL OF REVENUE- WHETHER RULE 8D OF INCOME TAX RULES IS PROSPECTIVE IN OPERATION AS HELD BY HIGH COURT OR I T IS 6 RETROSPECTIVE IN OPERATION .AND SHOULD ALSO BE APPL ICABLE IN ASSESSMENT YEAR IN QUESTION AS CLAIMED BY REVENU E- HELD, MACHINERY PROVISION OF TAXING STATUTE HAD TO GIVE EFFECT TO ITS MANIFEST PURPOSES-BUT APPLICABILITY O F MACHINERY PROVISION WHETHER IT WAS PROSPECTIVE OR RETROSPECTIVE DEPENDED ON CONTENT AND NATURE OF STATUTORY SCHEME-METHODOLOGY FOR DETERMINING AMOUNT OF EXPENDITURE IN ADDITION TO INCOME NOT INCLUDABLE IN TOTAL INCOME WAS FOR FIRST TIME PRESCRIBED BY RULE 8D AS WAS ENVISAGED IN SECTION 14A SUB-SECTION (2) AND SUB - SECTION (3)- MEMORANDUM OF EXPLANATION EXPLAINING PROVISIONS OF FINANCE ACT, 2006 HAD CLEARLY MENTIONE D THAT SECTION 14 SUB-SECTION (2) AND SUB-SECTION (3) SHOULD BE EFFECTIVE WITH EFFECT FROM ASSESSMENT YEA R 2006-07 ALONE WHICH WAS INDICATOR THAT PROVISION WA S INTENDED TO OPERATE PROSPECTIVELY-METHODOLOGY AS PROVIDED UNDER RULE 8D WAS NEITHER WELL-KNOWN NOR WELL-SETTLED MODE OF COMPUTATION-NEW MODE OF COMPUTATION WAS BROUGHT IN PLACE BY RULE 8D-NO AO EVEN IN HIS IMAGINATION COULD HAVE APPLIED METHODOL OGY WHICH WAS BROUGHT IN PLACE BY RULE 8D, THUS RETROSPECTIVE OPERATION OF RULE 8D COULD NOT BE ACCEPTED-RULE 8D WAS PROSPECTIVE IN OPERATION AND COULD NOT HAVE BEEN APPLIED TO ANY ASSESSMENT YEAR 7 PRIOR TO ASSESSMENT YEAR 2008-09-REVENUE'S APPEAL DISMISSED. 5.2 KEEPING IN VIEW OF THE AFORESAID DISCUSSIONS A ND RESPECTFULLY FOLLOWING THE AFORESAID PRECEDENT, THE ADDITION IN DISPUTE FOR THE ASSESSMENT YEAR 2000-01 IS DELETED AND ACCORDINGLY THE APPEAL OF THE ASSESSEE IS ALLOWED. 5.3 FOLLOWING THE CONSISTENT VIEW AS TAKEN IN ASSES SMENT YEAR 2000-01 IN PARA NOS. 5.1 & 5.2 AS AFORESAID, THE ADDITION I N DISPUTE IN THE ASSESSMENT YEAR 2001-02 IS DELETED AND APPEAL FOR T HIS ASSESSMENT YEAR IS ALSO ALLOWED. 6. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASS ESSEE STAND ALLOWED. ORDER PRONOUNCED ON 05/11/2019. SD/- [H.S. SIDHU] JUDICIAL MEMBER DATE 05/11/2019 SRB COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES