SICPA INDIA PRIVATE LIMITED,NEW DELHI V. DCIT CIRCLE 23(2), NEW DELHI

ITA 244/DEL/2024

AI Insights

The case involves multiple appeals by SICPA India Private Limited and the Revenue against the orders of the CIT(Appeals)-24, New Delhi, concerning the assessment years 2016-17, 2017-18, and 2018-19. The primary issue was the disallowance under Section 14A of the Income Tax Act, which pertains to expenses incurred in relation to income not includible in total income. The Revenue's appeal for AY 2017-18 was dismissed as not maintainable due to the monetary threshold not being met as per CBDT Circular No.17/2019. For the other appeals, the Tribunal referenced a previous decision in the assessee's own case, which had similar facts and ruled in favor of the assessee, leading to the decision to allow the appeals and delete the disallowances.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 34305 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Assessment Year: 2016-2017
• Other Referred Cases: Eicher Motors Ltd. vs. CIT, HT Media Ltd. vs. PCIT, Godrej & Boyce Manufacturing Company Ltd. vs. DCIT, Avshesh Mercantile (P) Ltd. vs. ITO, Delite Enterprises Pvt. Ltd.
• Laws Referred To: Income Tax Act, Rule 8D
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PRAMOD KUMAR
• Assessee Lawyers: AKASH SINGHAL
• Keywords: Capital Gains; Rectification of order; Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

"ITA Nos.244, 260, 261 & 386/Del/2024 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G” NEW DELHI BEFORE SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER AND SHRI M BALAGANESH, ACCOUNTANT MEMBER आ.अ.सं/.I.T.A No.261/Del/2024 िनधा\tरणवष\t/Assessment Years:2018-19 SICPA INDIA PRIVATE LIMITED 308-312, Mercantile House 15, K.G. Marg, New Delhi. PAN No.AADCS6121L बनाम Vs. Additional Joint Deputy ACIT, Income Tax Department, National e-Assessment Centre, Delhi. अपीलाथ\u0014 Appellant \u0016\u0017यथ\u0014/Respondent आ.अ.सं/.I.T.A No.244/Del/2024 िनधा\tरणवष\t/Assessment Year:2016-17 SICPA INDIA PRIVATE LIMITED 308-312, Mercantile House 15, K.G. Marg, New Delhi. PAN No.AADCS6121L बनाम Vs. DCIT, Circle 23(2), C.R. Building, ITO, I.P. Estate, New Delhi. अपीलाथ\u0014 Appellant \u0016\u0017यथ\u0014/Respondent आ.अ.सं/.I.T.A No.260/Del/2024 िनधा\tरणवष\t/Assessment Year:2017-18 SICPA INDIA PRIVATE LIMITED 308-312, Mercantile House 15, K.G. Marg, New Delhi. PAN No.AADCS6121L बनाम Vs. DCIT, Circle 23(2), C.R. Building, ITO, I.P. Estate, New Delhi. अपीलाथ\u0014 Appellant \u0016\u0017यथ\u0014/Respondent & आ.अ.सं/.I.T.A No.386/Del/2024 िनधा\tरणवष\t/Assessment Year:2017-18 DCIT, Central Circle-06, Third Floor, ARA Centre, Jhandewalan Extension, New Delhi. बनाम Vs. SICPA INDIA PRIVATE LIMITED 308-312, Mercantile House 15, K.G. Marg, New Delhi. PAN No.AADCS6121L अपीलाथ\u0014 Appellant \u0016\u0017यथ\u0014/Respondent ITA Nos.244, 260, 261 & 386/Del/2024 2 Assessee by Shri Akash Singhal, CA Revenue by Shri Pramod Kumar, Sr. DR सुनवाईक\bतारीख/ Date of hearing: 07.03.2025 उ\u000eोषणाक\bतारीख/Pronouncement on 07.03.2025 आदेश /O R D E R PER C.N. PRASAD, J.M. All these four appeals are filed by the Assessee and Revenue against different orders of the Ld. CIT(Appeals)-24, New Delhi for the assessment years 2016-17, 2017-18 & 2018-19. 2. In so far as the Revenue’s appeal is concerned i.e. ITA No.386/Del/2024 for the AY 2017-18 Ld. Counsel submits that dispute in Revenue’s appeal is with respect to disallowance u/s 14A of Rs.77,90,200/- as per rectification order dated 21.01.2020 and the Revenue impact in this appeal is less than Rs.60 lakhs and therefore in view of Board Circular appeal of the Department is not maintainable. The case of the Department would not fall in the exceptions provided in the above Board Circulars. This appeal is not maintainable to which the Ld. DR fairly agreed. 3. The Ld. Counsel for the assessee further submits that the Revenue in the grounds of appeal filed before the Tribunal had stated that the disallowance is to the tune of Rs.7,79,02,000/- ITA Nos.244, 260, 261 & 386/Del/2024 3 which is not the correct amount as per the rectification order. The disallowance u/s 14A is only Rs.77,90,200/- on which the Revenue effect is less than Rs.60 lacs. 4. The Ld. DR could not controvert the submissions made by the Ld. Counsel. Perusal of the rectification order suggests that the total addition in dispute u/s 14A is Rs.77,90,200/- and the Revenue effect on this disallowance is certainly less than Rs.60 lacs. Therefore, in view of the Circular of CBDT Vide Circular No.17/2019 dated 08.08.2019 this appeal is dismissed as not maintainable. 5. Coming to the other three appeals of the assessee the issue is in respect of disallowance of section 14A and the Ld. Counsel for the assessee submits that in the absence of recording of satisfaction no disallowance could have been made u/s 14A read with Rule 8D by the Assessing Officer. 6. Ld. Counsel further submits that identical issue came up before the Tribunal in assessee’s own case in ITA No.9604/Del/2019 for the AY 2008-09 and the Tribunal by order dated 18.08.2023 deleted the disallowance in the absence of proper satisfaction recorded by the Assessing Officer. ITA Nos.244, 260, 261 & 386/Del/2024 4 7. Heard rival submissions, perused the orders of the authorities below. Perusal of the assessment orders for the AY 2016-17, 2017- 18 and 2018-19 would suggest that the Assessing Officer mechanically applied Rule 8D without recording any satisfaction on the incurring of expenses by the assessee even though the assessee had filed a detailed submission explaining why there is no expenditure incurred in earning dividend income. As a matter of fact we observe that for the AY 2018-19 the assessee in its submission before the Assessing Officer stated that it had not earned any exempt income during that year. We observe that an identical issue came up for adjudication in assessee’s own case for the AY 2009-10 to 2011-12 wherein the Tribunal held as under: “21. AO/CIT(A) made disallowance of Rs.40.79 lakhs, Rs.45.60 lakhs & Rs.4.71 lakhs for AYs 2009-10, 2010-11 & 2011-12 respectively by invoking the provisions contained u/s 14A of the Act r/w Rule 8D(2)(iii) of the Rules. Undisputedly, assessee earned exempt income to the tune of Rs.5.22 crores, Rs.5.24 crores & Rs.3.24 crores for AYs 2009-10, 2010-11 & 2011-12 respectively by investing in debt oriented mutual funds. The assessee has come up with pointed argument that since primary business of assessee company is manufacturing and selling of printing inks and its entire manpower is engaged in carrying out main activities and only idle funds have been invested in pre- decided investment avenues to earn the reasonable income, thus has not incurred any additional expenses to earn the dividend income. It is also the case of the assessee company that it has earned taxable income by way of capital gains during the year under assessments and brought on record details thereof. It is also argued by the ITA Nos.244, 260, 261 & 386/Del/2024 5 ld. AR for the assessee that no proper satisfaction has been recorded by the AO before invoking the provisions contained under Rule 8D and relied upon the decisions of Eicher Motors Ltd. vs. CIT 398 ITR 51 (Del.) and HT Media Ltd. vs. PCIT 399 ITR 576 (Del.). However, on the other hand, ld. DR for the Revenue relied upon the orders passed by the AO as well as ld. CIT (A). 22. First of all, when we examine the satisfaction recorded by the AO for all the three assessment years i.e. 2009-10, 2010-11 & 2011-12 in order to invoke the provisions contained under Rule 8D, no satisfaction has been recorded by the AO that the working provided by the assessee company that no expenditure has been incurred to earn the dividend income except with general observations that, \"a company cannot earn dividend without its existence and management. Investment decisions are very complex in nature which are generally taken by management personnel or other professional experts employed for the purpose for which administrative, managerial and administrative expenses are incurred.\" 22.1 To our mind, this is no satisfaction rather AO proceeded on the basis of assumptions and guesswork. In AY 2011-12, AO while invoking the provisions contained under Rule 8D recorded that, \"since the assessee has not maintained any separate books of account for accounting of expenses incurred in relation to income not includible in its total income the amount of expenses actually incurred cannot be ascertained from the assessee's books of account satisfactorily and proceeded to invoke the provisions contained u/s 14A of the Act r/w Rule 8D of the Rules.\" 23. Hon'ble Apex Court in Godrej & Boyce Manufacturing Company Ltd. vs. DCIT - 394 ITR 449 (SC) thrashed the issue in controversy as to invoking of the provisions contained under Rule 8D of the Rules by observing as under :- \"37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the ITA Nos.244, 260, 261 & 386/Del/2024 6 Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable.\" 24. Hon'ble Delhi High Court in case of HT Media Ltd. vs. Pr. CIT (supra) also held that broad and general nature of observation made by the AO are not enough to invoke the provisions contained under Rule 8D. So, we are of the considered view that when AO has failed to comply with the mandatory provisions of section 14A (2) of the Act r/w Rule 8D(1)(a) of the Rules to record a valid satisfaction, provisions contained under Rule 8D(2)(iii) cannot be invoked. 25. Moreover, it is categoric case of the assessee company that it has invested in debt oriented mutual fund as is evident from page 41 of the paper book for AY 2009-1-. So, this investment has earned taxable income in the capital gain in which case provisions contained under section 14A are otherwise not attracted. 26. Identical issue has been decided by the coordinate Bench of the Tribunal in favour of the assessee in case of Avshesh Mercantile (P) Ltd. vs. ITO 148 TTJ 607 (ITAT Mumbai) by following the judgment of Hon'ble Bombay High Court in Delite Enterprises Pvt. Ltd. (ITA No.110 of 2009) by returning following findings :- ITA Nos.244, 260, 261 & 386/Del/2024 7 \"22. We have heard the rival submissions and also perused the relevant material on record. It is observed that the proceeds of premium notes (OCPN) on which the impugned redemption premium was paid by the assessee had been invested in the shares/debentures of RUPL and although the dividend income and income from long term capital gain from the said investment was exempt from tax u/s 10(23G), perusal of the copy of relevant Notification issued u/s 10(23G) placed at page No. 24 of the paper book, shows that such exemption was initially granted only for the specific period i.e. assessment year 1999- 2000 to 2001- 2002. No doubt, the said exemption was further extended upto assessment year 2004-05 as submitted by the learned DR, a perusal of the copy of relevant notification placed at page No. 29 of the paper book clearly shows that such extension was granted subject to satisfaction of certain conditions. Keeping in view all these uncertainties and contingencies, we are inclined to agree with the contention of the learned counsel for the assessee that the premium paid by the assessee on redemption of premium notes (OCPN) utilized for making investment in the shares/debentures of RUPL cannot be regarded as expenditure incurred exclusively in relation to earning of exempt income so as to invoke the provisions of section 14A. Moreover, the said investment had the potential of generating taxable income also as explained by the learned counsel for the assessee in the form of short term capital gains etc. In this regard, the learned DR has submitted that no such taxable income however was actually earned by the assesses during the years under consideration. The learned counsel for the assessee on the other hand has pointed out that no exempt income from the said investment was also actually earned by the assessee in the years under consideration. He has also relied on the decision of coordinate bench of this Tribunal in the case of Delite Enterprises Pvt. ITA Nos.244, 260, 261 & 386/Del/2024 8 Ltd. (supra) as affirmed by the Hon'ble Bombay High Court stating that in the similar facts and circumstance, disallowance made under section 14A was held to be not sustainable.\" 27. So, an amount of Rs.89.68 lakhs, Rs.32.44 lakhs and Rs.17.76 lakhs in AY 2009-10, 2010-11 & 2011-12 respectively earned by the assessee as capital gain from debt oriented mutual funds cannot be placed in the category of exempt income u/s 14A of the Act and in these circumstances, Rule 8D(2) cannot be invoked. 28. Moreover, AO himself has excluded the investment from which non-exempt income has been earned by the assessee company in AY 2011-12 for purpose of computing average investment under Rule 8D(2)(iii) of the Rules. 29. So, we are of the considered view that disallowance made by the AO and sustained by the ld. CIT (A) u/s 14A of the Act r/w Rule 8D(2)(iii) of the Rules is not sustainable, hence ordered to deleted. Consequently, Ground No.3 of AY 2009-10, Ground No.1 of AY 2010-11 & Grounds No.1 & 2 of AY 2010-11 in assessee's appeals are allowed.” 8. Following this order, the Tribunal decided the issue for AY 2008-09 in ITA No.9604/Del/2019 dated 18.08.2023 deleting the disallowance made u/s 14A read with Rule 8D(2)(iii) of the I.T. Rules. 9. Facts being identical respectfully following the orders of the Tribunal in assessee’s own case, we direct the Assessing Officer to delete the disallowance made u/s 14A read with Rule 8D of the I.T. Rules. ITA Nos.244, 260, 261 & 386/Del/2024 9 10. In the result, appeals of the Assessee are allowed and the appeal of the Revenue is dismissed. Order pronounced in the open court on 07.03.2025 Sd/- Sd/- (M BALAGANESH) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 07.03.2025 *Kavita Arora, Sr. P.S. Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order Assistant Registrar, ITAT: Delhi Benches-Delhi "