DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 8(2), MUMBAI V. ASSOCIATE HOLDINGS PRIVATE LIMITED, MUMBAI

ITA 7255/MUM/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 4055 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-03-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 21-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANADI VARMA
• Assessee Lawyers: NEHA PARANJPE A RS
• Keywords: Earning of tax free income; Rule 8D
• Section: 153A; 14A; 201; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES A , MUMBAI BEFORE S HRI SHAMIM YAHYA (AM ) AND SHRI RAM LAL NEGI (JM) ITA NO. 7255/MUM/2017 ASSESSMENT YEAR: 2011 - 2012 THE DY. CIT, CC - 8(2), 6 TH FLOOR, ROOM NO. 658, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 4 00020 VS. M/S ASSOCIATE HOLDINGS PRIVATE LIMITED, 85 - A, ASSOCIATE HOUSE, MUSTAFA BAZAR, MUMBAI PAN: AAACA5289N (APPELLANT) (RESPONDENT) CO NO. 29 /MUM/2019 (ARISING OUT OF ITA NO. 7255/MUM/2017 ) ASSESSMENT YEAR: 201 1 - 2012 M/S ASSOCIATE HOLDING S PRIVATE LIMITED, 85 - A, ASSOCIATE HOUSE, MUSTAFA BAZAR, MUMBAI PAN: AAACA5289N VS. THE DY. COMMISSIONER OF INCOME TAX, CIRCLE 8(2), ROOM NO. 658, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) REVENUE BY : SHRI ANADI VARMA ( CIT D R) ASSESSEE BY : SHRI K. GOPAL & MS. NEHA PARANJPE (ARS) DATE OF HEARING: 06 /03 /201 9 DATE OF PRONOUNCEMENT: 08 / 03 /201 9 O R D E R PER RAM LAL NEGI, JM THESE ARE THE A PPEAL AND CROSS OBJECTION FILED BY THE REVENUE AND THE ASSESSEE RESPECTIVELY, AGAINST THE ORDER DATED 30.10.2017 PASSED BY THE 2 ITA NO. 7255/MUM/2017 & CO 29 /MUM/2019 ASSESSMENT YEAR: 2011 - 12 C OMMISSIONER OF INCOME TAX (APPEALS) (FOR SHORT THE CIT (A)) - 50 , MUMBAI , FOR THE ASSESSMENT YEAR 2011 - 1 2 , WHEREBY THE LD. CIT ( A) HAS PARTLY ALLOWED THE APPEAL FILED BY THE ASSESSEE AGAINST ASSESSMENT ORDER PASSED U/S 153 R.W.S 143 (3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). ITA NO. 7255/MUM/2017 (ASSESSMENT YEAR: 2011 - 2012 ) 2. BRIEF FACTS OF THE CASE ARE THAT A SEAR CH AND SEIZURE ACTION U/S 132 OF THE ACT WAS CARRIED OUT ON 24.02.2014 IN THE CASE OF THE ASSESSEE. IN RESPONSE TO NOTICE U/S 153A THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION DECLARING LOSS AT RS. ( - ) 51 , 62,460 / - . T HE AO COMPLETED THE ASSESSMENT U/S 153A READ WITH SECTION 143 (3) OF THE ACT AND DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS. 58,77,110/ - AFTER MAKING ADDITION OF RS. 1,10,39,577/ - U/S 14A READ WITH RULE 8D (2) OF THE INCOME TAX RULES. THE ASSESSEE C HALLENGED THE ASSESSMENT ORDER BEFORE THE CIT (A). THE LD. CIT (A) AFTER HEARING THE ASSESSEE RESTRICTED THE ADDITION TO RS. 50,545/ - I.E. EXEMPT INCOME EARNED DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE REVENUE IS IN APPEAL AG AINST THE SAID FINDINGS OF THE LD.CIT(A). 3 . THE REVENUE HAS CHALLENGED THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) BY RAISING THE FOLLOWING EFFECTIVE GROUND OF APPEAL : - WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) ER RED IN RESTRICTING THE DISALLOWANCE U/S 14A TO THE EXTENT OF EXEMPT INCOME AND THEREBY DELETING THE ADDITION OF RS. 1,09,89,032/ - MADE BY THE ASSESSING OFFICER IGNORING THE FACT THAT THE ASSESSING OFFICER HAS RIGHTLY MADE A DISALLOWANCE U/S 14A AS PER WORK ING OF RULE 8D OF THE INCOME TAX ACT, 1962. 3 ITA NO. 7255/MUM/2017 & CO 29 /MUM/2019 ASSESSMENT YEAR: 2011 - 12 4. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) RELYING ON THE ASSESSMENT ORDER PASSED BY THE AO SUBMITTED THAT SINCE THE AO HAS WORKED OUT THE DISALLOWANCE AS PER THE PROVISIONS OF SECTION 14A READ W ITH RULE 8D OF THE RULES, THE LD. CIT (A) OUGHT TO HAVE CONFIRMED THE ADDITION MADE BY THE AO. THE LD. DR FURTHER CONTENDED THAT RULE 8D PRESCRIBES THE METHOD FOR DETERMINING THE EXPENDITURE INCURRED IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF TH E TOTAL INCOME WHERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. 5. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSESSEE RELYING ON THE ORDER PASSED BY THE LD. CIT (A) SUBMITTED THAT SINCE THE ORDER PASSED BY THE LD. CIT (A) IS IN ACCORDANCE WITH THE PRINCIPLES OF LAW LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CH EMINVEST LTD. VS. CIT 378 ITR 33 (DEL) AND IN JOINT INVESTMENT PVT. LTD. VS. COMMISSIONER OF INCOME TAX 372 ITR 694 (DEL) , THERE IS NO INFIRMITY IN THE S AID ORDER AND THE APPEAL FILED BY THE REVENUE DESERVES DISMISSAL. 6. WE HAVE GONE THROUGH THE ENTIRE MATERIAL ON RECORD IN THE LIGHT OF THE RIVAL CONTENTIONS OF THE PARTIES. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE LD. CIT (A) HAS WRONGLY RESTRICT ED THE DISALLOWANCE MADE U/S 14A READ WITH RULE 8D TO THE EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE PREVIOUS YEAR. THE LD. CIT (A) HAS RESTRICTED THE DISALLOWANCE TO THE EXEMPT INCOME BY FOLLOWING THE DECISIONS OF THE HONBLE HIGH DELHI COURT . THE OP ERATIVE PART OF THE ORDER OF THE LD. CIT (A) READS AS UNDER: - 5.3 I HAVE CONSIDERED THE STAND OF THE A.O AS WELL AS THE SUBMISSIONS OF THE APPELLANT. IT HAS BEEN EXPLAINED BY THE LD. A/R THAT DURING THE YEAR THE APPELLANT HAS RECEIVED EXEMPT INCOME OF RS. 50,545/ - . AS PER DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. AS WELL AS OTHER JUDICIAL PRONOUNCEMENTS RELIED BY THE LD. A/R. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, AS WELL AS JUDICIAL PRONOUNCEMENTS, THE ADDITION MA DE U/S 14A FOR THE 4 ITA NO. 7255/MUM/2017 & CO 29 /MUM/2019 ASSESSMENT YEAR: 2011 - 12 PRESENT ASSESSMENT YEAR IS RESTRICTED TO THE EXEMPT INCOME OF RS. 50,545/ - . 7. IN THE CASE OF CHEMINVEST LTD. V S. COMMISSIONER OF INCOME TAX (SUPRA) THE HONBLE DELHI HIGH COURT HAS HELD THAT SECTION 14A WILL NOT APPLY IF NO EXEMPT INCO ME IS RECEIVED OR RECEIVABLE DURING THE PREVIOUS YEAR. IN THE CASE OF JOINT INVESTMENT P. LTD. VS. COMMISSIONER OF INCOME TAX ( SUPRA ), THE HONBLE DELHI HIGH COURT HAS LAID DOWN THE PRINCIPLE OF LAW THAT THE DISALLOWANCE U/S 14 A READ WITH RULE 8D CANNOT E XCEED THE EXEMPT INCOME. THE RELEVANT PARA OF THE ORDER OF THE HONBLE HIGH COURT READS AS UNDER: - 9. IN THE PRESENT CASE, THE AO HAS NOT FIRSTLY DISCLOSED WHY THE APPELLANT/SSESSEES CLAIM FOR ATTRIBUTING RS. 2,97,440 AS A DISALLOWANCE UNDER S. 14A H AD TO BE REJECTED TAIKISHA ENGG. INDIA LTD. (SUPRA) SAYS THAT THE JURISDICTION TO PROCEED FURTHER AND DETERMINE AMOUNTS IS DERIVED AFTER EXAMINATION OF THE ACCOUNTS AND REJECTION IF ANY OF THE ASSESSESS CLAIM OR EXPLANATION. THE SECOND ASPECT IS THERE A PPEARS TO HAVE BEEN NO SCRUTINY OF THE ACCOUNTS BY THE AO AN ASPECT WHICH IS COMPLETELY UNNOTICED BY THE CIT (A) AND THE TRIBUNAL. THE THIRD, AND IN THE OPINION OF THIS COURT, IMPORTANT ANOMALY WHICH WE CANNOT BE UNMINDFUL IS THAT WHEREAS THE ENTIRE TAX E XEMPT INCOME IS RS. 48,90,000, THE DISALLOWANCE ULTIMATELY DIRECTED WORKS OUT TO NEARLY 110 PER CENT OF THAT SUM, I.E. RS. 52,56,197. BY NO STRETCH OF IMAGINATION CAN S. 14A OR R. 8D BE INTERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EXEMPT INCOME IS TO BE D ISALLOWED. THE WINDOW FOR DISALLOWANCE IS INDICATED IN S. 14A, AND IS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME. THIS PROPORTION OR PORTION OF THE TAX EXEMPT INCOME SURELY CANNOT SWALLOW T HE ENTIRE AMOUNT AS HAS HAPPENED IN THIS CASE. 8. IN THE PRESENT CASE, THE ASSESSEE HAS EARNED THE EXEMPT INCOME OF RS. 50,445/ - DURING THE PREVIOUS YEAR, AGAINST WHICH THE AO MADE DISALLOWANCE OF 5 ITA NO. 7255/MUM/2017 & CO 29 /MUM/2019 ASSESSMENT YEAR: 2011 - 12 RS. 1,10,39 , 577/ - U/S 14A READ WITH RULE 8D. IN THE FIRS T APPEAL THE LD. CIT(A)HAS RESTRICTED THE DISALLOWANCE TO THE AMOUNT OF EXEMPT INCOME. UNDER THESE CIRCUMSTANCES, WE ARE OF THE CONSIDERED VIEW THAT THE ORDER PASSED BY THE LD. CIT (A) IS IN ACCORDANCE WITH THE PRINCIPLES OF LAW LAID DOWN BY THE HONBLE HI GH COURT IN THE CASE OF JOINT INVESTMENT PVT. LTD. VS. CIT (SUPRA). HENCE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT (A). WE ACCORDINGLY UPHOLD THE FINDINGS OF THE LD. CIT (A) AND DISMISS THE SOLE GROUND OF APPEAL OF THE REVEN UE. CO NO. 29 /MUM/2019 (ASSE SSMENT Y EAR: 2011 - 2012 ) THE ASSESSEE HAS FILED THE CROSS OBJECTION AGAINST THE IMPUGNED ORDER ON THE FOLLOWING EFFECTIVE GROUND S : 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE LAW, THE LEARNED ASSESSING OFFIC ER ERRED IN INVOKING SECTION 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D OF INCOME TAX RULES, 1962 WITHOUT RECORDING THE REQUIRED SATISFACTION REGARDING THE CORRECTNESS OF THE CLAIM MADE BY THE RESPONDENT ASSESSEE? 2. WHETHER ON THE FACTS AND CIRCUMSTA NCES OF THE CASE AND IN THE LAW, THE LEARNED COMMISSIONER OF INCOME TAX (A) - 50, MUMBAI ERRED IN NOT APPRECIATING THE FACT THAT SECTION 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D OF INCOME TAX RULES, 1962 IS NOT APPLICABLE AT THE THRESHOLD SINCE THE RESPONDENT ASSESSEE DID NOT INCUR ANY EXPENDITURE IN RELATION TO THE EXEMPT INCOME. 2. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ASSESSEE DOES NOT WANT TO PRESS THE CROSS OBJECTION FILED AGAINST THE ORDER PASSED BY THE LD. CIT (A). HE NCE, WE DISMISS THE CROSS OBJECTION FILED BY THE ASSESSEE AS NOT PRESSED. 6 ITA NO. 7255/MUM/2017 & CO 29 /MUM/2019 ASSESSMENT YEAR: 2011 - 12 IN THE RESULT, APPEAL FILED BY THE REVENUE AS WELL AS THE CROSS OBJECTION FILED BY THE ASSESSEE, ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH MARCH , 2019 . SD/ - SD/ - ( SHAMIM YAHYA ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 08 / 03/2019 ALINDRA PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI