ACIT, CENTRAL CIRCLE- 17, NEW DELHI v. ERA INFRASTRUCTURE (INDIA) LTD., NEW DELHI

ITA 797/DEL/2018 | 2014-2015
Pronouncement Date: 10-03-2021 | Result: Dismissed

Appeal Details

RSA Number 79720114 RSA 2018
Assessee PAN RUARY2014W
Bench Delhi
Appeal Number ITA 797/DEL/2018
Duration Of Justice 3 year(s) 1 month(s) 8 day(s)
Appellant ACIT, CENTRAL CIRCLE- 17, NEW DELHI
Respondent ERA INFRASTRUCTURE (INDIA) LTD., NEW DELHI
Appeal Type Income Tax Appeal
Pronouncement Date 10-03-2021
Appeal Filed By Department
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 10-03-2021
Assessment Year 2014-2015
Appeal Filed On 01-02-2018
Judgment Text
AGGRIEVED BY THE ORDERS DATED 23/11/2017 IN APPEAL NUMBERS 147 AND 369/16-17 PASSED BY THE LEARNED COMMISSIONE R OF INCOME TAX ITAS-797 798/DEL/2018 2 (APPEALS)- 27 DELHI (LD. CIT(A)) IN THE CASE OF ERA INFRASTRUCTURE (INDIA) LTD (THE ASSESSEE) FOR THE ASSESSMENT YEARS 2013- 14 AND 2014-15 REVENUE PREFERRED THESE APPEALS. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY IS ENGAGED IN THE BUSINESS OF DEVELOPING INFRASTRUCTURE FACILI TIES. THEY HAVE FILED THEIR RETURN OF INCOME FOR THE ASSESSMENT YEARS 201 3-14 AND 2014-15 AND WHILE COMPUTING THE TAXABLE INCOME OF THE ASSES SEE FOR BOTH THE YEARS LEARNED ASSESSING OFFICER MADE AN ADDITION O F RS. 3 61 53 268/- AND RS. 4 46 76 162/- FOR THE ASSESSMENT YEARS 2 013-14 AND 2014-15 RESPECTIVELY BY INVOKING THE PROVISIONS UNDER SECTI ON 14A OF THE INCOME TAX ACT 1961 (FOR SHORT THE ACT) READ WITH RULE 8D OF THE INCOME TAX RULES1962 (THE RULES). 3. CASE OF THE ASSESSEE ALL THROUGH THE PROCEEDINGS IS THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME DURING THE YEAR AND THEREFORE THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES HAVE NO APPLICATION TO THE FACTS OF THE C ASE AND ON THAT SCORE THE ADDITION IS NOT MAINTAINABLE. LD. CIT(A) IN TH E APPEAL ACCEPTED THE CONTENTION OF THE ASSESSEE AND WHILE PLACING RELIAN CE ON THE ADDITION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE O F CHEMINVEST LTD VS. CIT (2015) 378 ITR 33 (DELHI) AND ALSO THE DECISION IN HOLCIM INDIA PRIVATE LIMITED IN ITA NO. 486/2014 AND A DELETED T HE ADDITION. 4. REVENUE IS AGGRIEVED BY SUCH DELETION AND PREFER RED THESE APPEALS. LD. DR PLACED RELIANCE ON THE ASSESSMENT O RDER AND SUBMITTED THAT INSOFAR AS THE EXPENDITURE IS CONCERNED IF NO T IN THIS YEAR IN THE FUTURE THE ASSESSEE IS LIKELY TO EARN THE DIVIDENDS AND BECAUSE THE ITAS-797 798/DEL/2018 3 ASSESSEE INCURRED SOME EXPENDITURE IN THE INVESTMEN T WHICH WILL EARLY EXEMPT INCOME SUCH PART OF EXPENDITURE ALLOCATABLE TO THE INVESTMENT HAS TO BE DISALLOWED. 5. WHEN THE MATTER IS CALLED NEITHER THE ASSESSEE NOR ANY AUTHORISED REPRESENTATIVE ENTERED APPEARANCE. IT CO ULD BE SEEN FROM THE RECORD THAT THE NOTICE SENT TO THE ADDRESS GIVE N IN FORM NO. 36 IS RETURNED WITH THE ENDORSEMENT OF THE POSTAL SERVANT THAT THE ADDRESSEE LEFT. IF THE ASSESSEE IS AVAILABLE IN SUCH ADDRESS SUCH NOTICE SHOULD HAVE BEEN SERVED ON THE ASSESSEE. IF FOR ANY REASON THE ASSESSEE IS NOT AVAILABLE THERE IT IS FOR THE ASSESSEE TO MAKE ARR ANGEMENTS FOR SERVICE OF SUCH NOTICE BY FURNISHING THE ADDRESS WHERE THE ASSESSEE WOULD BE AVAILABLE OR TO DELIVER IT TO SOME AUTHORISED PERS ON OR BY MAKING REQUEST TO THE POSTAL DEPARTMENT TO DETAIN THE MAIL TILL THE ASSESSEE CLAIMS THE SAME. SINCE THE ASSESSEE DOES NOT SEEM T O HAVE ADOPTED ANY OF THESE METHODS WE ARE THE CONSIDERED OPINION THA T NO TIME COULD BE GRANTED. BASING ON THE RECORD WE PROCEED TO HEAR TH E COUNSEL FOR REVENUE AND DECIDE THE MATTER ON MERITS. 6. WE HAVE GONE THROUGH THE RECORD IN THE LIGHT OF THE SUBMISSIONS MADE ON EITHER SIDE. THERE IS NO DISPUTE AND AS A M ATTER OF FACT AUTHORITIES BELOW CATEGORICALLY RECORDED THAT THE A SSESSEE HAD NOT EARNED ANY EXEMPT INCOME DURING THESE ASSESSMENT YE ARS AND THEREFORE THE DECISION OF THE HONBLE JURISDICTIONA L HIGH COURT IN THE CASES OF CHEMINVEST LTD (SUPRA) AND HOLCIM INDIA PV T. LTD (SUPRA) ARE APPLICABLE TO THE FACTS OF THE CASE. THERE IS NO EX PIRATION FROM THE ITAS-797 798/DEL/2018 4 REVENUE AS TO HOW THE BINDING DECISIONS NEED NOT OR CANNOT BE FOLLOWED BY THE LD. CIT(A). 7. HONBLE JURISDICTIONAL HIGH COURT IN PCIT VS. IL & FS ENERGY DEVELOPMENT COMPANY LTD. (2017) 99 CCH 0190 DELHC (2017) 297 CTR 0452 (DEL) DECIDED ON 16TH AUGUST 2017 AFTER CONS IDERING A CATENA OF DECISIONS HELD THE ISSUE IN FAVOUR OF THE ASSESSEE AND OBSERVED THAT - 9. MR. ZOHEB HOSSAIN LEARNED SENIOR STANDING COUNS EL FOR THE REVENUE SUBMITTED THAT IN CHEMINVEST LTD. (SUPRA) THIS COURT HAD NO OCCASION TO CONSIDER THE CBDT CIRCULAR NO. 5/2014 D ATED 11TH FEBRUARY 2014 WHICH CLARIFIED THAT SECTION 14A WOULD APPLY E VEN WHEN EXEMPT INCOME WAS NOT EARNED IN A PARTICULAR AY. ACCORDING TO HIM THE OTHER DECISIONS OF THIS COURT IN CIT-IV V. TAIKISHA ENGIN EERING INDIA PVT. LTD. [2015] 370 ITR 338 (DEL) AND CIT-IV V. HOLCIM INDIA PVT. LTD. (2014) 272 CTR (DEL) 282 DID NOT ACTUALLY DISCUSS THE ABOVE CI RCULAR OF THE CBDT AND THEREFORE WOULD BE DISTINGUISHABLE. 10. MR. HOSSAIN FURTHER SUBMITTED THAT THERE WAS NO THING IN SECTION 14A OF THE ACT WHICH SUGGESTED THAT EXEMPT INCOME H AD TO NECESSARILY BE EARNED IN THE AY IN QUESTION FOR THE APPLICABILI TY OF THE SAID PROVISION. HE SUBMITTED THAT IF THE INTERPRETATION PLACED ON SECTION 14 A OF THE ACT BY THE ABOVE CBDT CIRCULAR WAS NOT ACC EPTED THE VERY PURPOSE OF SECTION 14A WOULD BE DEFEATED. HE REFERR ED TO THE DECISIONS OF THE ITAT IN ACIT V. RATAN HOUSING DEVELOPMENT LT D. (ORDER DATED 23RD MAY 2008 OF ITAT LUCKNOW) RELAXO FOOTWEAR LTD. V. ADDL. CIT [2012] 50 SOT 102 (DEL). XXX XXX XXX XXX XXX XXX 19. IN THE CONSIDERED VIEW OF THE COURT THIS WILL BE A TRUNCATED READING OF SECTION 14 A AND RULE 8D PARTICULARLY WHEN RULE 8D (1) USES THE EXPRESSION SUCH PREVIOUS YEAR. FURTHER IT DOES N OT ACCOUNT FOR THE CONCEPT OF REAL INCOME. IT DOES NOT NOTE THAT UND ER SECTION 5 OF THE ACT THE QUESTION OF TAXATION OF NOTIONAL INCOME DOES NOT ARISE. AS EXPLAINED IN COMMISSIONER OF INCOME TAX V. WALFORT SHARE AND STOCK BROKERS PVT. LTD [2010] 326 ITR 1 (SC) THE MANDATE OF SECTION 14A OF THE ACT IS TO CURB THE PRACTICE OF CLAIMING DEDUCTI ON OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME BEING TAXABLE INCOME AND AT THE ITAS-797 798/DEL/2018 5 SAME TIME AVAIL OF THE TAX INCENTIVES BY WAY OF EXE MPTION OF EXEMPT INCOME WITHOUT MAKING ANY APPORTIONMENT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. CONSEQUENTLY THE COURT IS NOT PERSUADED THAT IN VIEW OF THE CIRCULAR OF THE CBDT DATED 11TH MAY 2014 THE DECISION OF THIS COURT IN CHEMINVEST LTD. (SUPRA) R EQUIRES RECONSIDERATION. 20. IN M/S. REDINGTON (INDIA) LTD. V. THE ADDITIONA L COMMISSIONER OF INCOME TAX COMPANY RANGE V CHENNAI (ORDER DATED 23RD DECEMBER 2016 OF THE HIGH COURT OF MADRAS IN TCA N O. 520 OF 2016) A SIMILAR CONTENTION OF THE REVENUE WAS NEGATED. TH E COURT THERE DECLINED TO APPLY THE CBDT CIRCULAR BY EXPLAINING T HAT SECTION 14A IS CLEARLY RELATABLE TO THE EARNING OF THE ACTUAL INC OME AND NOT NOTIONAL INCOME OR ANTICIPATED INCOME. IT WAS FURTHER EXPLA INED THAT THE COMPUTATION OF TOTAL INCOME IN TERMS OF RULE 8 D IS BY WAY OF A DETERMINATION INVOLVING DIRECT AS WELL AS INDI RECT ATTRIBUTION. THUS ACCEPTING THE SUBMISSION OF THE REVENUE WOULD RESULT IN THE IMPOSITION OF AN ARTIFICIAL MET HOD OF COMPUTATION ON NOTIONAL AND ASSUMED INCOME. WE BELI EVE THUS WOULD BE CARRYING THE ARTIFICE TOO FAR. 21. THE DECISIONS IN CIT V. M/S LAKHANI MARKETING I NC. 2014 SCC ONLINE P&H 20357 CIT V. WINSOME TEXTILE INDUSTRIES LIMITED [2009] 319 ITR 204 (P&H) CIT V. SHIVAM MOTORS (P) LTD. (2014) 272 CTR (ALL) 277 HAVE ALL TAKEN A SIMILAR VIEW. THE DECISION IN TAIKISHA ENGINEERING INDIA PVT. LTD. (SUPRA) DOES NOT SPECIFICALLY DEAL WITH THIS I SSUE. 22. IT WAS SUGGESTED BY MR. HOSSAIN THAT IN THE CO NTEXT OF SECTION 57(III) THE SUPREME COURT IN COMMISSIONER OF INCOM E TAX WEST V. RAJENDRA PRASAD MOODY [1978] 115 ITR 519 (SC) EXPLA INED THAT DEDUCTION IS ALLOWABLE EVEN WHERE INCOME WAS NOT AC TUALLY EARNED IN THE AY IN QUESTION. THIS ASPECT OF THE MATTER WAS D EALT WITH BY THIS COURT IN M/S CHEMINVEST LTD. (SUPRA) WHERE IT REVER SED THE DECISION OF THE SPECIAL BENCH OF THE ITAT BY OBSERVING AS UNDER : 20. SINCE THE SPECIAL BENCH HAS RELIED UPON THE DE CISION OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY (SUPRA) IT IS CONSIDERED NECESSARY TO DISCUSS THE TRUE PURPORT OF THE SAID DECISION. IT IS NOTICED TO BEGIN WITH THAT THE ISSU E BEFORE THE SUPREME COURT IN THE SAID CASE WAS WHETHER THE EXPE NDITURE UNDER SECTION 57 (III) OF THE ACT COULD BE ALLOWED AS A DEDUCTION AGAINST DIVIDEND INCOME ASSESSABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. UNDER SECTION 57 (III) OF THE ACT DEDUCTION IS ALLOWED IN RESPECT OF ANY EXPENDITURE LAID OUT O R EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING SUCH ITAS-797 798/DEL/2018 6 INCOME. THE SUPREME COURT EXPLAINED THAT THE EXPRES SION 'INCURRED FOR MAKING OR EARNING SUCH INCOME? DID N OT MEAN THAT ANY INCOME SHOULD IN FACT HAVE BEEN EARNED AS A CONDITION PRECEDENT FOR CLAIMING THE EXPENDITURE. THE COURT E XPLAINED: WHAT S. 57(III) REQUIRES IS THAT THE EXPENDITURE M UST BE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING INCOME. IT IS THE PURPOSE OF THE EXPENDI TURE THAT IS RELEVANT IN DETERMINING THE APPLICABILITY OF S. 57( III) AND THAT PURPOSE MUST BE MAKING OR EARNING OF INCOME. S. 57( III) DOES NOT REQUIRE THAT THIS PURPOSE MUST BE FULFILLED IN ORDER TO QUALIFY THE EXPENDITURE FOR DEDUCTION. IT DOES NOT SAY THAT THE EXPENDITURE SHALL BE DEDUCTIBLE ONLY IF ANY INCOME IS MADE OR EARNED. THERE IS IN FACT NOTHING IN THE LANGUAGE OF S. 57(III) TO SUGGEST THAT THE PURPOSE FOR WHICH THE EXPENDITURE IS MADE SHOULD FRUCTIFY INTO ANY BENEFIT BY WAY OF RETURN I N THE SHAPE OF INCOME. THE PLAIN NATURAL CONSTRUCTION OF THE LANGU AGE OF S. 57(III) IRRESISTIBLY LEADS TO THE CONCLUSION THAT T O BRING A CASE WITHIN THE SECTION IT IS NOT NECESSARY THAT ANY IN COME SHOULD IN FACT HAVE BEEN EARNED AS A RESULT OF THE EXPENDITUR E.' 21. THERE IS MERIT IN THE CONTENTION OF MR. VOHRA T HAT THE DECISION OF THE SUPREME COURT IN RAJENDRA PRASAD MOODY (SUPRA) WAS RENDERED IN THE CONTEXT OF ALLOWABILITY OF DEDUCTION UNDER SECT ION 57(III) OF THE ACT WHERE THE EXPRESSION USED IS 'FOR THE PURPOSE OF MA KING OR EARNING SUCH INCOME.' SECTION 14A OF THE ACT ON THE OTHER H AND CONTAINS THE EXPRESSION 'IN RELATION TO INCOME WHICH DOES NOT FO RM PART OF THE TOTAL INCOME.' THE DECISION IN RAJENDRA PRASAD MOODY (SUP RA) CANNOT BE USED IN THE REVERSE TO CONTEND THAT EVEN IF NO INCO ME HAS BEEN RECEIVED THE EXPENDITURE INCURRED CAN BE DISALLOWE D UNDER SECTION 14A OF THE ACT. 23. THE DECISIONS OF THE ITAT IN ACIT V. RATAN HOUS ING DEVELOPMENT LTD. (SUPRA) AND RELAXO FOOTWEAR LTD. V. ADDL. CIT (SUPRA) TO THE EXTENT THAT THEY ARE INCONSISTENT WITH WHAT HAS BEEN HELD HEREINBEFORE DO NOT MERIT ACCEPTANCE. FURTHER THE MERE FACT THAT IN TH E AUDIT REPORT FOR THE AY IN QUESTION THE AUDITORS MAY HAVE SUGGESTED THA T THERE SHOULD BE A DISALLOWANCE CANNOT BE DETERMINATIVE OF THE LEGAL P OSITION. THAT WOULD NOT PRECLUDE THE ASSESSEE FROM TAKING A STAND THAT NO DISALLOWANCE UNDER SECTION 14 A OF THE ACT WAS CALLED FOR IN THE AY IN QUESTION BECAUSE NO EXEMPT INCOME WAS EARNED. 8. IN VIEW OF THE ABOVE POSITION OF LAW WE ARE OF THE CONSIDERED OPINION THAT WHERE THERE IS NO DISPUTE OF FACT THAT NO DIVIDEND INCOME ITAS-797 798/DEL/2018 7 WAS EARNED BY THE ASSESSEE DURING THE YEAR NO DISA LLOWANCE IS CALLED FOR UNDER SECTION 14 A OF THE ACT. FOR THESE REASON S WE UPHOLD THE FINDINGS OF THE LD. CIT(A) AND DISMISS THE GROUNDS OF APPEAL OF THE REVENUE. 9. IN THE RESULT APPEALS OF THE REVENUE ARE DISMIS SED. ABOVE DECISION WAS PRONOUNCED ON CONCLUSION OF VIR TUAL HEARING ON 10.03.2021.