M/s. Ahmednagar Forgings Ltd., New Delhi V. DCIT, New Delhi

ITA 997/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3846 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 18-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AGAINST COMMON DATED PASSED
• Keywords: Search and seizure; Earning of tax free income
• Section: 143(3); 153A; 14A; 15

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A: NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA NOS.:-996, 997, 998/DEL/2015 ASSESSMENT YEARS: 2005-06, 2007-08, 2011-12 O R D E R PER AMIT SHUKLA, J.M. THE AFORESAID APPEALS HAVE BEEN FILED BY THE ASSESSEE AGAINST COMMON ORDER DATED 28.11.2014, PASSED BY THE LD. CIT (APPEALS) XXX, NEW DELHI FOR THE QUANTUM OF ASSESSMENT PASSED U/S 15 3C/143(3) FOR ASSESSMENTS YEARS 2005-06, 2007-08 AND 2011-12. IN A LL THE APPEALS THE ONLY ISSUE WHICH HAS BEEN RAISED RELATES TO DISAL LOWANCE MADE U/S M/S. AHMEDNAGAR FORGINGS LTD. C/O M/S. RRA TAX INDIA D-28, SOUTH EXTENSION, PART-1, NEW DELHI 110 049 PAN AACCA3454H VS. DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 14, NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY: DR. RAKESH GUPTA, ADVOCATE SHRI DEEPASH GARG, ADVOCATE DEPARTMENT BY : SHRI SANDIP KUMAR CIT (DR) DATE OF HEARING 22/01/2018 DATE OF PRONOUNCEMENT 24/01/2018 ITA NOS. 996,997,998 /DEL/2015 AHMEDNAGAR FORGINGS LTD. VS. DCIT 2 14A. THE QUANTUM OF DISALLOWANCE WHICH HAS BEEN CHAL LENGED BY THE ASSESSEE BEFORE US FOR THE AFORESAID MENTIONED YEARS ARE AS UNDER:- ASSESSMENT YEAR DISALLOWANCE MADE U/S 14A 2005-06 RS. 5,0 0,000/- 2007-08 RS. 5,0 0,705/- 2011-12 RS. 3,6 9,090/- 2. BEFORE US LD. COUNSEL FOR THE ASSESSEE, DR. RAKESH GUPTA SUBMITTED THAT SO FAR AS THE APPEALS FOR THE ASSESSMENT YE ARS 2005- 06, 2007-08 ARE CONCERNED, THE ASSESSEE BESIDES CHAL LENGING THE SAID DISALLOWANCE ON MERITS, IS ALSO CHALLENGING THE ADDITI ON ON THE GROUND THAT SAME IS BEYOND THE SCOPE OF ASSESSMENT U/S 153A, I N AS MUCH AS, FOR THESE YEARS THE ASSESSMENTS HAD ATTAINED FINALIT Y AND REMAINED UNABATED AT THE TIME OF SEARCH; AND THEREFORE, WITHOUT THEI R BEING ANY INCRIMINATING MATERIAL FOUND DURING THE COURSE OF SE ARCH, NO ADDITION COULD HAVE BEEN MADE. FOR THE ASSESSMENT YEAR 2005-06 , HE POINTED OUT THAT THE ORIGINAL RETURN OF INCOME WAS FILED ON 31 .10.2005. SUCH RETURN OF INCOME WAS ALSO SUBJECTED TO SCRUTINY AND AS SESSMENT ORDER U/S 143(3) WAS MADE VIDE ORDER DATED 28.12.2007. THE REAFTER, A SEARCH AND SEIZURE ACTION U/S 132(1) WAS CONDUCTED ON 22.3.2011 AND AT THE TIME OF SEARCH THE ASSESSMENT FOR ASSESSMENT YEAR 2005-06 HAD ATTAINED FINALITY AND REMAINED UNABATED IN TERMS OF SE CTION PROVISO TO ITA NOS. 996,997,998 /DEL/2015 AHMEDNAGAR FORGINGS LTD. VS. DCIT 3 SECTION 153A. SIMILARLY FOR THE ASSESSMENT YEAR 2007- 08, HE SUBMITTED THAT THE REGULAR RETURN OF INCOME WAS FILED ON 1.11.2007 WHICH WAS DULY PROCESSED U/S 143(1). AT THE TIME OF S EARCH, I.E., ON 22.3.2011, THE SAID ASSESSMENT WAS PENDING AND THEREFO RE, FOR THIS YEAR ALSO THE ASSESSMENT REMAINED UNABATED. IN BOTH TH E YEARS, THE AO HAS MADE THE DISALLOWANCE U/S 14A AND WITHOUT THER E BEING ANY INCRIMINATING MATERIAL OR EVIDENCE FOUND DURING THE COURSE OF SEARCH, HE HAS PROCEEDED TO MAKE THE DISALLOWANCE ON THE BASI S OF INVESTMENT IN THE EQUITY SHARES SHOWN IN THE BALANCE SHEET FROM WHICH HE HAS INFERRED THAT THE EXPENSES SHOULD BE DISALLOWED AS THE INVESTMENT IN EQUITY SHARES ARE LIABLE TO YIELD EXEMPT INCOME AND TH E DISALLOWANCE HAS BEEN MADE PURELY ON ADHOC AND ESTIMATE BASIS. FOR THE ASSESSMENT YEAR 2007-08, THE ASSESSEE ITSELF HAD DISAL LOWED APPROXIMATELY RS. 50,000/- IN THE RETURN OF INCOME FO R THE PURPOSE OF SECTION 14A, WHEREAS AO WITHOUT THERE BEING ANY INCRI MINATING MATERIAL FOUND DURING THE COURSE OF SEARCH HAS PROCE EDED TO WORK OUT THE DISALLOWANCE AFTER APPLYING RULE 8D WHICH ADMITTED LY WAS NOT APPLICABLE IN THE ASSESSMENT YEAR 2007-08. THUS, THE A DDITION MADE IN THESE TWO ASSESSMENT YEARS ARE BEYOND THE SCOPE OF ASSESSMENT U/S 153A, IN VIEW OF THE JUDGMENTS OF HONBLE DELHI H IGH COURT IN THE CASE OF CIT VS. KABUL CHAWLA (2016) 380 ITR 573; AND CIT VS . MEETA GUTGUTIA, (2017) 395 ITR 526. ITA NOS. 996,997,998 /DEL/2015 AHMEDNAGAR FORGINGS LTD. VS. DCIT 4 3. AS REGARDS THE DISALLOWANCE OF 14A IN THE A SSESSMENT YEAR 2011-12, HE SUBMITTED THAT, THIS IS THE ASSESSMENT OF SEA RCH YEAR AND IN THE RETURN OF INCOME THE ASSESSEE HAD DECLARED DIV IDEND INCOME OF RS. 14,028/- WHICH WAS CLAIMED AS EXEMPT AND FOR THE PURPOSE OF DISALLOWANCE U/S 14A, THE ASSESSEE ITSELF HAS SUO-MO TO OFFERED THE DISALLOWANCE OF RS. 1 LAC WHICH IS FAR MORE THAN THE EXEMPT INCOME EARNED. THE AO MECHANICALLY APPLIED RULE 8D HAD PRO CEEDED TO DISALLOW RS. 3,69,090/-. HE SUBMITTED THAT NOW IN WAKE OF THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PVT. LTD. (2015) 372 ITR 694 , DISALLOWANCE CANNOT EXCEED THE EXEMPT INCOME. THUS, THE DISALLOWANCE ALREADY OFFERE D BY THE ASSESSEE IS ALREADY FAR MORE THAN THE DIVIDEND INCOME AND THERE FORE, NO ADDITION/DISALLOWANCE SHOULD BE MADE OVER AND ABOVE THE DISALLOWANCE OFFERED BY THE ASSESSEE. 4. ON THE OTHER HAND LD. CIT (DR) STRONGLY RE LIED UPON THE ORDER OF THE AO AND THE LD. CIT (A). 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO PERUSED THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDER QUA THE ISSUE OF DISALLOWANCE U/S 14A MADE IN AFORESAID ASSESSMENT YE ARS IMPUGNED BEFORE US. SO FAR AS THE ADDITION MADE IN THE ASSESSME NT YEAR 2005-06 AND 2007-08 IS CONCERNED, THE LD. COUNSEL HAS CHALLE NGED THE VALIDITY ITA NOS. 996,997,998 /DEL/2015 AHMEDNAGAR FORGINGS LTD. VS. DCIT 5 OF THE SAID ADDITION ON THE GROUND THAT SAME IS BEYOND THE SCOPE OF SECTION 153A RELYING UPON THE PRINCIPLE LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE AFOREMENTIONED JUDGM ENTS. FROM THE FACTS AS CULLED OUT FROM THE IMPUGNED ASSESSMENT ORDER IT IS SEEN THAT; FOR THE ASSESSMENT YEAR 2005-06, THE RETURN OF INC OME FILED ON 3.10.2005 U/S 139(1) WAS SUBJECT TO SCRUTINY AND ASS ESSMENT U/S 143(3) WAS COMPLETED VIDE ORDER DATED 28.12.2007. A S STATED IN THE IMPUGNED ASSESSMENT ORDER ITSELF THAT IN THE REGULAR ASS ESSMENT ORDER PASSED U/S 143(3) CERTAIN ADDITION INCLUDING THE DISAL LOWANCE U/S 14A WAS MADE AGAINST WHICH ASSESSEE HAD NOT FILED ANY APP EAL. THIS INTER - ALIA MEANS THAT THE SAID ASSESSMENT ORDER DATED 28.12.2007 HAD ATTAINED FINALITY. ON THE DATE OF SEARCH, I.E., ON 22. 3.2011, OSTENSIBLY THE SAID ASSESSMENT ORDER CANNOT BE RECKONED AS ABATED ASSESSMENT IN TERMS OF 2 ND PROVISO TO SECTION 153A. ONCE IT IS AN UNABATED ASSESSMENT, THEN THE ADDITION WHICH CAN BE MADE IN THE A SSESSMENT FRAMED U/S 153A WOULD ONLY BE WITH REGARD TO INCRIMI NATING MATERIAL OR DOCUMENT FOUND DURING THE COURSE OF SEARCH. THIS PRINCIPLE IS NOW WELL SETTLED BY CATENA OF JUDGMENTS INCLUDING THOSE OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF KABUL CHAWA LA (SUPRA) AND MEETA GUTGUTIA (SUPRA). THE AO HAS MAINLY RESORTED T O MAKE ADHOC ESTIMATE OF RS. 5 LACS WHICH ADMITTEDLY IS NOT BASED ON ANY MATERIAL OR EVIDENCE FOUND DURING THE COURSE OF SEARCH BUT MEREL Y ON THE PERUSAL ITA NOS. 996,997,998 /DEL/2015 AHMEDNAGAR FORGINGS LTD. VS. DCIT 6 OF THE RECORDS/ BALANCE SHEET ALREADY CONSIDERED BY TH E AO. THUS, THE DISALLOWANCE OF RS. 5 LACS MADE IN THE ASSESSMENT YE AR 2005-06 IS DIRECTED TO BE DELETED. 6. SIMILARLY FOR THE ASSESSMENT YEAR 2007-08, THE REGULAR RETURN OF INCOME FILED ON 1.11.2007 HAD ATTAINED FINALITY ON TH E DATE OF SEARCH AND THE SAID ASSESSMENT IN TERMS OF SECOND PROVISO TO SECTION 153A REMAINED UNABATED. IN THIS YEAR ALSO THE AO HAS PROC EEDED TO MAKE THE DISALLOWANCE AFTER INVOKING RULE 8D WHICH AGAIN IS NOT BASED ON ANY MATERIAL OR INCRIMINATING DOCUMENT FOUND DURING TH E COURSE OF SEARCH. THUS, SUCH DISALLOWANCE IS BEYOND THE SCOPE OF SECTION 153A AND ACCORDINGLY, THE SAME IS DIRECTED TO BE DELETED, IN THE LIGHT OF PRINCIPLE LAID BY THE HONBLE JURISDICTIONAL HIGH CO URT. 7. LASTLY, IN THE ASSESSMENT YEAR 2011-12, IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 14 ,028/- ONLY AND AS AGAINST THIS THE LD. AO HAS PROCEEDED TO MAKE THE DISALLOWANCE AT RS. 3,69,090/- AFTER APPLYING RULE 8D MECHANICALLY. THE LD. COUNSEL, DR. RAKESH GUPTA HAD POINTED OUT THAT TH E ASSESSEE ALREADY HAD OFFERED SUO-MOTO DISALLOWANCE OF RS. 1 LAC FOR THE PURPOSE OF SECTION 14A EVEN THOUGH DIVIDEND INCOME WAS TO THE TUNE OF RS. 14,028/-. IN VIEW OF THIS ADMITTED FACT AND FOLLOWING TH E BINDING JUDICIAL PRECEDENT IN THE CASE OF JOINT INVESTMENT PVT. LTD. (SUPRA), WE ITA NOS. 996,997,998 /DEL/2015 AHMEDNAGAR FORGINGS LTD. VS. DCIT 7 HOLD THAT THE DISALLOWANCE OF EXPENDITURE U/S 14A CAN NOT EXCEED THE EXEMPT INCOME. ACCORDINGLY, WE DIRECT THE AO TO DELETE THE DISALLOWANCE MADE OVER AND ABOVE WHAT HAS BEEN OFFER ED BY THE ASSESSEE FOR THE PURPOSE OF DISALLOWANCE U/S 14A. 8. IN THE RESULT APPEAL OF THE ASSESSEE FOR ALL TH REE ASSESSMENT YEARS I.E., 2005-06, 2007-08 AND 2011-12 ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH JANUARY, 2018. SD/- SD/- ( O.P. KANT) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 24/01/2018 VEENA COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI