M/s Pace Industries (P) Ltd., New Delhi V. DCIT, New Delhi

ITA 6829/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3663 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 29-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI O. P. KANT, ACCOUNTANT MEMBER I.T.A. NO.6829/DEL/2015 ASSESSMENT YEAR: 2012-13 PACE INDUSTRIES (P) LTD., (FOR ERSTWHILE PACE SERVICES PVT. LTD.) L2A, HAUZ KHAS ENCLAVE, NEW DELHI. V. DY. COMMISSIONER OF INCOME TAX, CIRCLE-19(2), NEW DELHI. TAN/PAN: AAACN 0017F (APPELLANT) (RESPONDENT) APPELLANT BY: MS. MEENAL GOYAL, CA & SHRI DEEPAK JAIN, ADV. RESPONDENT BY: SHRI RAVI KANT GUPTA, SR.D.R. DATE OF HEARING: 31 01 2018 DATE OF PRONOUNCEMENT: 31 01 2018 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE IMPUGNED ORDER DATED 04/11/2015, PASSED BY THE LD. CIT (APPEALS)-7, NEW DELHI FOR THE QUANTUM OF ASSESSMENT PASSED U/S.143(3) FOR THE ASSESSMENT YEAR 2012-13. 2. THE ASSESSEE AGGRIEVED BY DISALLOWANCE OF 7,46,3 89/- MADE U/S.14A OVER AND ABOVE DISALLOWANCE OFFERED BY THE A SSESSEE FOR A SUM OF RS.11,59,336/- IN TERMS OF RULE 8D. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY ENGAGED IN THE BUSINESS OF INVESTMENT IN SH ARES, STOCKS, MUTUAL FUNDS, PLACEMENT OF INTER-CORPORATE DEPOSITS AND OTHER ALLIED I.T.A. NO.6829/DEL/2015 2 ACTIVITIES. THE ASSESSING OFFICER ON THE PERUSAL OF THE BALANCE-SHEET NOTED THAT ASSESSEE HAD MADE INVESTMENT IN SHARES A MOUNTING TO RS.392.55 CRORES AND DURING THE YEAR THE ASSESSEE H AS EARNED DIVIDEND INCOME OF RS.5,63,13,150/- WHICH WAS CLAIMED AS EXEMPT. FOR THE PURPOSE OF DISALLOWANCE U/S.14A, THE ASSESS EE HAS ALLOCATED SUM OF RS.11,59,336/- AND ADDED BACK IN THE COMPUTA TION OF INCOME. THE ASSESSING OFFICER, HELD THAT THE DISAL LOWANCE HAS TO BE WORKED OUT IN TERMS OF RULE 8D AND AFTER REFERRING T O THE CIRCULAR NO.14/2006 DATED 28 TH DECEMBER, 2006, HE HELD THAT ASSESSING OFFICER HAS TO APPLY RULE 8D WHICH IS MANDATORY IN T ERMS OF SUB- SECTION(2) OF SECTION 14A; AND ACCORDINGLY COMPUTED OUT THE DISALLOWANCE AT RS.1,96,40,182/-. SINCE, THE ASSESS EE ITSELF HAD CLAIMED TOTAL EXPENDITURE OF RS.30,30,067/- (EXCEPT AUDIT FEES AND FILING FEES) IN THE P & L ACCOUNT AND LOOKING TO TH E FACT THAT ASSESSEE HAS ITSELF DISALLOWED EXPENDITURE OF RS.11,24,342/-, HE RESTRICTED THE DISALLOWANCE AT RS.19,05,725/- AND MADE ADDITION OF RS.7,46,389/- I.E. (19,05,725 11,59,336). 4. LD. CIT (A) TOO HAS CONFIRMED THE SAID ADDITION ON THE GROUND THAT IN THE APPEAL FOR THE ASSESSMENT YEAR 2 010-11 SIMILAR DISALLOWANCE WAS UPHELD. 5. BEFORE US, LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THOUGH APPEAL FOR THE ASSESSMENT YEAR 2010-11 IS PE NDING BEFORE THE TRIBUNAL, HOWEVER HERE IN THIS CASE THE ASSESSING OF FICER WAS NOT JUSTIFIED IN MAKING FURTHER DISALLOWANCE U/S.14A, WHE N THE ASSESSEE HAVING REGARD TO THE ACCOUNTS MAINTAINED AND THE NA TURE OF EXPENDITURE DEBITED, ITSELF HAS DISALLOWED SUM OF R S.11,59,336/- FOR THE PURPOSE OF SECTION 14A. SHE DREW OUR ATTENTION T O THE SUBMISSION MADE BY THE ASSESSEE BEFORE THE LD. CIT (A) WHICH HA S BEEN INCORPORATED BY THE LD. CIT(A) FROM PAGES 2 TO 4 AN D POINTED OUT THAT I.T.A. NO.6829/DEL/2015 3 THE ASSESSEE HAS GIVEN THE DETAILS OF EXPENSES TO S HOW THAT THESE EXPENSES WERE DIRECTLY RELATED TO THE RUNNING OF THE COMPANY AND WITHOUT RECORDING THE SATISFACTION ON THE NATURE OF ACCOUNTS MAINTAINED, THE LD. ASSESSING OFFICER COULD NOT HAV E DISALLOWED THE EXPENDITURE OVER AND ABOVE WHAT HAS BEEN OFFERED BY THE ASSESSEE. 6. ON THE OTHER HAND, LEARNED DEPARTMENT REPRESENTA TIVE, STRONGLY RELIED UPON THE ORDER OF THE ASSESSING OFF ICER AND LD. CIT(A) AND SUBMITTED THAT IN THE ASSESSMENT ORDER THE ASSE SSING OFFICER HAS MENTIONED THAT HE IS NOT SATISFIED WITH THE CORRECT NESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE IN RELATION TO EXEMPT INCOME; AND ONCE HE HAS RECORDED HIS SATISFACTION, THEN DIS ALLOWANCE HAS TO BE MADE IN ACCORDANCE WITH RULE 8D. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDER. ADMI TTEDLY, IN THIS CASE THE ASSESSEE HAS DEBITED TOTAL EXPENDITURE FOR SUMS AGGREGATING TO RS.32,67,687/-. FROM THE SAID EXPENDITURE, THE A SSESSEE HAS DISALLOWED SUM OF RS.11,030/- TOWARDS DEMAT CHARGES AND ENTIRE EXPENDITURE RELATED TO SALARY OF DIRECTORS OF RS.11 ,48,306/-. THE OTHER EXPENDITURES DEBITED IN THE P & L ACCOUNT REL ATES TO SALARY AND WAGES OF THE STAFF AND OTHER ADMINISTRATIVE EXPENSES . ONE OF THE MAJOR EXPENDITURE SHOWN IN THE P&L ACCOUNT IS DONATI ON OF RS.10 LAC AND AUDITORS REMUNERATION OF RS.2,24,720/-. OSTENSIBLY THE EXPENDITURE OF DONATION CANNOT BE SAID TO BE RELATA BLE TO EARNING OF EXEMPT INCOME. LOOKING TO THE NATURE OF EXPENDITURE DEBITED AND THE ACCOUNT OF THE ASSESSEE, WE FIND THAT ASSESSING OFFI CER HAS NEITHER EXAMINED THE ACCOUNTS MAINTAINED BY THE ASSESSEE NO R THE EXPENDITURE DEBITED IN THE P & L ACCOUNT. WITHOUT R ECORDING HIS SATISFACTION ON THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE DISALLOWED/OFFERED, AO CANNOT RESORT TO APPLY RULE 8D I.T.A. NO.6829/DEL/2015 4 MECHANICALLY IN TERMS OF SUB-SECTION (2) OF SECTION 14A. THE ASSESSING OFFICER CAN ONLY PROCEED TO DETERMINE THE EXPENDITURE INCURRED FOR THE PURPOSE OF EXEMPT INCOME ONLY WHEN ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS MAINTAINED BY THE ASSESSEE IS NOT SATISFIED ABOUT THE CORRECTNESS OF THE CLAIM OF THE EXPENDITURE OF SUCH EXEMPT INCOME. THUS, IF NO SUCH SATISFACTION IS RECORDED THEN HE CANNOT PROCEED TO COMPUTE THE DISALLOWANCE. THIS IS THE MANDATE OF SECTION 14A(2). THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF HT MEDIA LTD. VS. PCIT IN ITA NO.548 & 549/2015 , JUDGMENT DATED 23.08.2017 AFTER CONSIDERING THE VARIOUS JUDG MENTS AND ANALYSIS OF THE PROVISION OF THE LAW HELD THAT, IN O RDER TO DISALLOW THE EXPENDITURE, THE ASSESSING OFFICER HAS TO FIRST REC ORD ON EXAMINING THE ACCOUNT THAT HE WAS NOT SATISFIED WITH THE CORRE CTNESS OF THE ASSESSEES CLAIM WHICH WAS MANDATORILY REQUIRED TO BE DONE IN TERMS OF SECTION 14A(2) READ WITH RULE 8D(1)(A). THUS, WHE N ASSESSING OFFICER HAS NOT RECORDED HIS SATISFACTION IN TERMS OF SECTION 14A(2) READ WITH RULE 8D(1), THEN NO FURTHER DISALLOWANCE C AN BE MADE BY THE ASSESSING OFFICER BY INVOKING RULE 8D; AND ACCO RDINGLY, THE DISALLOWANCE OF RS.7,46,389/- IS DIRECTED TO BE DEL ETED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JANUARY, 2018. SD/- SD/- [O.P. KANT] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 31 ST JANUARY, 2018 PKK: