ITO, New Delhi v. M/s Liquid Investment & Trading Company, New Delhi

ITA 92/DEL/2011 | 2006-2007
Pronouncement Date: 16-02-2012 | Result: Allowed

Appeal Details

RSA Number 9220114 RSA 2011
Assessee PAN AAACL0518K
Bench Delhi
Appeal Number ITA 92/DEL/2011
Duration Of Justice 1 year(s) 1 month(s) 9 day(s)
Appellant ITO, New Delhi
Respondent M/s Liquid Investment & Trading Company, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 16-02-2012
Appeal Filed By Department
Order Result Allowed
Bench Allotted D
Tribunal Order Date 16-02-2012
Date Of Final Hearing 16-02-2012
Next Hearing Date 16-02-2012
Assessment Year 2006-2007
Appeal Filed On 07-01-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI U.B.S. BEDI JUDICIAL MEMBER & SHRI B.C. MEENA ACCOUNTANT MEMBER ITA NO. 92/DEL/2011 ASSESSMENT YEAR: 2006-07 ITO VS. LIQUID INVESTMENT & TRADING COMPANY WARD 4(4) ROOM NO. 234B 15 AURANGZEB ROAD NEW DELHI. CENTRAL REVENUE BUILDING AAACL0518K I.P. ESTATE NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO. 5574/DEL/2010 ASSESSMENT YEAR: 2007-08 DCIT VS. LIQUID INVESTMENT & TRADING COMPANY CIRCLE 4(1) ROOM NO. 407 15 AURANGZEB ROAD NE W DELHI. CENTRAL REVENUE BUILDING AAACL0518K I.P. ESTATE NEW DELHI. (APPELLANT) (RESPONDENT) ITA NO. 5573/DEL/2010 ASSESSMENT YEAR: 2001-02 DCIT VS. LIQUID INVESTMENT & TRADING COMPANY CIRCLE 4(1) ROOM NO. 407 15 AURANGZEB ROAD NE W DELHI. CENTRAL REVENUE BUILDING AAACL0518K I.P. ESTATE NEW DELHI. (APPELLANT) (RESPONDENT) & CROSS OBJECTION NO. 38/DEL/2011 (IN ITA NO. 5573/DEL/2010) ASSESSMENT YEAR: 2001-02 LIQUID INVESTMENT & TRADING COMPANY VS. DCIT 15 AURANGZEB ROAD NEW DELHI. CIRCLE 4(1) AAACL0518K C.R. BLDG. I.P. ESTATE N. DELHI. (APPELLANT) (RESPONDENT) ITA NOS. 92/D/11 5574 & 5573/D/10 & CO NO. 38/D/11 2 APPELLANT BY : SH. D.K. MISHRA CIT(DR) & MRS. Y. KAKKAR SR. DR RESPONDENT BY : SH. GAURAV JAIN ADV. ORDER PER B.C. MEENA A.M. THE THREE APPEALS FILED BY THE REVENUE ARISES OUT OF THE ORDER OF THE CIT(A) DATED 18.10.2010 FOR THE A.Y. 2007-08 AND TH E TWO ORDERS DATED 20.10.2010 FOR THE A.Y. 2001-02 AND 2006-07. 2. THE ISSUE INVOLVED IN ALL THESE APPEALS IS REGAR DING REDUCTION OF THE ADDITION MADE BY THE ASSESSING OFFICER U/S 14A OF T HE INCOME TAX ACT. 3. IN THE APPEAL RELATED TO THE A.Y. 2007-08 THE RE VENUE HAS ALSO RAISED AN ISSUE THAT THE AO HAS CORRECTLY MADE DISA LLOWANCE AS PER U/S 14A OF I.T. ACT AS PER THE PROVISIONS OF RULE 8D OF I.T. RULES 1962. 4. IN THE APPEAL FOR THE A.Y. 2006-07 THE REVENUE H AS ALSO RAISED A GROUND THAT ASSESSEE HAS ADVANCED LOAN AT A CONCESS IONAL RATES FOR NON BUSINESS PURPOSES WHERE IT HAS PAID INTEREST ON BO RROWED CAPITAL/FUNDS. THIS ISSUE HAS BEEN RAISED IN A SUB GROUND TO THE M AIN GROUND WITH REGARD OF REDUCTION OF THE ADDITION MADE U/S 14A. THE AO M ADE THE DISALLOWANCES BY APPLYING THE RULE 8D IN THE A.Y. 2007-08 AND TOT AL DISALLOWANCE MADE WERE OF RS.2 95 03 813/-. THE ASSESSEE ITSELF DISAL LOWED ONLY RS.85 48 009/-. CIT(A) HAD WORKED OUT DISALLOWANCE BY ADOPTING A FORMULA: DIVIDEND INCOME X TOTAL EXPENSES/ TOTAL RE CEIPTS. BY THIS FORMULA THE DISALLOWANCE WORKS OUT MUCH LESSER THAN WHICH T HE ASSESSEE ITSELF HAS DISALLOWED. SIMILAR FORMULA HAS BEEN ALSO ADOPTED BY THE CIT(A) IN THE A.Y. 2006-07 AND ALSO IN THE A.Y. 2001-02. ITA NOS. 92/D/11 5574 & 5573/D/10 & CO NO. 38/D/11 3 5. AT THE OUTSET THE LD. DR SUBMITTED THAT VARIOUS COURTS HAVE HELD THAT THE RULE 8D IS APPLICABLE PROSPECTIVELY. THE JURIS DICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT VS. CIT REPORTED IN 2 03 TAXMANN 364 HAS ALSO HELD SO. LD. DR PLEADED THAT THE YEARS UNDER CONSIDERATION ARE PRIOR TO THE INTRODUCTION OF RULE 8D FOR WORKING OUT THE DISALLOWANCES U/S 14A. THE LD. DR ALSO PLEADED THAT THE HONBLE JURISDICTI ONAL DELHI HIGH COURT HAS ALSO DECIDED HOW THE DISALLOWANCES U/S 14A ARE TO BE WORKED OUT FOR THE PERIOD PRIOR TO THE INTRODUCTION OF RULE 8D. L D. DR PLEADED THAT THE ISSUE MAY BE RESTORED BACK TO THE FILE OF THE AO TO WORK OUT THE DISALLOWANCES IN VIEW OF THE DECISION OF HONBLE JU RISDICTIONAL HIGH COURT. LD. DR ALSO PLEADED THAT THE CROSS OBJECTION FILED BY THE ASSESSEE IS DELAYED BY 30 DAYS THEREFORE IS DESERVE TO BE DIS MISSED IN LIMINE AS THERE IS NO REASONABLE AND SUFFICIENT CAUSE FOR DELAY. 6. ON THE OTHER HAND LD. AR SUBMITTED THAT THERE W AS A SUFFICIENT CAUSE DUE TO WHICH THE ASSESSEE COULD NOT FILE THE CROSS OBJECTION IN TIME. LD. AR PLEADED TO CONDON THE DELAY. LD. AR ALSO PLEADE D THAT TO SERVE THE END OF JUSTICE THE DELAY MAY BE CONDONED. LD. AR A LSO PLEADED THAT WHEN SUBSTANTIAL JUSTICE AND TECHNICAL CONSIDERATIONS AR E PITTED AGAINST EACH OTHER THE CAUSE OF SUBSTANTIAL JUSTICE DESERVES TO BE PREFERRED. THE ASSESSEES DELAY WAS NOT DELIBERATE OR DUE TO CULPA BLE NEGLIGENCE OR ON ACCOUNT OF ANY MALA-FIDES. LD. AR PRAYS TO CONDONE THE DELAY. WE HAVE ALSO HEARD BOTH THE SIDES ON THE CROSS OBJECTION RA ISED BY THE ASSESSEE. 7. AFTER HEARING BOTH THE SIDES ON ALL THE ISSUES R AISED IN APPEALS AND CROSS OBJECTION WE HOLD THAT THE DISALLOWANCES MAD E AS PER RULE 8D CANNOT BE HELD JUSTIFIED IN VIEW OF THE VARIOUS DEC ISIONS OF HONBLE HIGH COURT AND PARTICULARLY IN VIEW OF THE DECISION OF H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT (SUPRA) WHEREIN THE HONBLE HIGH COURT HAS HELD THAT THE RULE 8D SHALL NOT BE APPLIED ITA NOS. 92/D/11 5574 & 5573/D/10 & CO NO. 38/D/11 4 RETROSPECTIVELY. HOWEVER WE ALSO HOLD THAT THE CI T(A) IS NOT JUSTIFIED IN ADOPTING THE FORMULA FOR APPORTIONMENT OF THE EXPEN DITURE TOWARDS THE EXEMPTED INCOME BY TAKING THE EXEMPTED INCOME AS BA SIS. THIS IS NOT A CORRECT METHOD IN VIEW OF THE DECISION OF HONBLE D ELHI HIGH COURT CITED SUPRA. THE HONBLE DELHI HIGH COURT HAS DECIDED IN THIS REGARD IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT IS AS UNDER: - HOW IS SECTION 14A TO BE WORKED FOR THE PERIOD PR IOR TO THE INTRODUCTION OF RULE 8D? SUB-SECTION (2) OF SECTION 14A STIPULATES THAT THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN REL ATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME IN ACCORDAN CE WITH SUCH METHOD AS MAY BE PRESCRIBED. OF COURSE THIS DETERMINATION CAN ONLY BE UNDERTAKEN IF THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THIS PART OF SECTI ON 14A(2) WHICH EXPLICITLY REQUIRES THE FULFILLMENT OF A CONDITION PRECEDENT IS ALSO IMPLICIT IN SECTION 14A(1) [AS IT NOW STANDS] AS ALSO IN ITS IN ITIAL AVATAR AS SECTION 14A. IT IS ONLY THE PRESCRIPTION WITH REGARD TO THE METH OD OF DETERMINING SUCH EXPENDITURE WHICH IS NEW AND WHICH WILL OPERATE PRO SPECTIVELY. IN OTHER WORDS SECTION 14A EVEN PRIOR TO THE INTRODUCTION OF SUB-SECTIONS (2) AND (3) WOULD REQUIRE THE AO TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXTENT OF SUCH EXPENDITURE AND SUCH R EJECTION MUST BE FOR DISCLOSED COGENT REASONS. IT IS THEN THAT THE QUES TION OF DETERMINATION OF SUCH EXPENDITURE BY THE AO WOULD ARISE. THE REQUIR EMENT OF ADOPTING A SPECIFIC METHOD OF DETERMINING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF SUB-SECTION (2) OF SECTION 14A. PRIOR TO THAT THE AO WAS FREE TO ADOPT ANY REASONABLE AND ACCEPTABLE METHOD. THUS THE FACT THAT SUB-SECTION (2) AND (3) OF SECT ION 14A AND RULE 8D WOULD OPERATE PROSPECTIVELY (AND NOT RETROSPECTIVE LY) DOES NOT MEAN THAT THE AO IS NOT TO SATISFY HIMSELF WITH THE CORRECTNE SS OF THE CLAIM OF THE ASSESSEE WITH REGARD TO SUCH EXPENDITURE. IF HE IS SATISFIED THAT THE ASSESSEE HAS CORRECTLY REFLECTED THE AMOUNT OF SUCH EXPENDITURE HE HAS TO DO NOTHING FURTHER. ON THE OTHER HAND IF AO IS SATISFIED ON AN OBJECTIVE ANALYSIS AND FOR COGENT REASONS THAT THE AMOUNT OF SUCH EXPENDITURE AS CLAIMED BY THE ASSESSEE IS NOT CORRECT HE IS REQUI RED TO DETERMINE THE AMOUNT OF SUCH EXPENDITURE ON THE BASIS OF A REASON ABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. SO EVEN FOR THE PRE RULE 8D PERIOD WHENEVER THE I SSUE OF SECTION 14A ARISES BEFORE AN AO HE HAS FIRST OF ALL TO ASCER TAIN THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS B EEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTA L INCOME THE AO WILL HAVE TO VERIFY THE CORRECTNESS OF SUCH CLAIM. IN C ASE THE AO IS SATISFIED WITH THE CLAIM OF THE ASSESSEE WITH REGARD TO THE E XPENDITURE OR NO EXPENDITURE AS THE CASE MAY BE THE AO IS TO ACCEP T THE CLAIM OF THE ASSESSEE INSOFAR AS THE QUANTUM OF DISALLOWANCE U/S 14A IS CONCERNED. IN SUCH EVENTUALITY THE AO CANNOT BE EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE FOR THE PURPOSES OF SECTION 1 4A(1). IN CASE THE ITA NOS. 92/D/11 5574 & 5573/D/10 & CO NO. 38/D/11 5 AO IS NOT ON THE BASIS OF OBJECTIVE CRITERIA AND A FTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY SATISFIED WITH THE CORRECTN ESS OF THE CLAIM OF THE ASSESSEE HE SHALL HAVE TO REJECT THE CLAIM AND STA TE THE REASONS FOR DOING SO. HAVING DONE SO THE AO WILL HAVE TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF TOTAL INCOME UNDER THE SAID ACT. HE IS REQUIRED TO DO SO ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. IN VIEW OF FOREGOING DISCUSSION EXPENDITURE (INCLU DING INTEREST PAID ON FUNDS BORROWED) IN RESPECT OF INVESTMENT IN SHARES OF OPERATING COMPANIES FOR ACQUIRING AND RETAINING A CONTROLLING INTEREST THEREIN IS HIT BY SECTION 14A INASMUCH AS THE DIVIDEND RECEIVED ON SU CH SHARES DOES NOT FORM PART OF THE TOTAL INCOME. 8. IN THIS DECISION THE HONBLE HIGH COURT HAS ALSO HELD THAT EVEN WHERE INVESTMENT IN SHARES OF OPERATING COMPANIES FOR ACQ UIRING AND RETAINING A CONTROLLING INTEREST THEREIN IS ALSO HIT BY SECTION 14A. AS THE DIVIDEND RECEIVED ON SUCH SHARES DOES NOT FORM PART OF THE T OTAL INCOME. THE HONBLE HIGH COURT HAS ALSO HELD THAT EVEN FOR THE PRE RULE 8D PERIOD WHENEVER THE ISSUE OF SECTION 14A ARISES BEFORE THE AO HE HAS FIRST OF ALL TO ASCERTAIN THE CORRECTNESS OF THE CLAIM OF THE AS SESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO THE INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. IN THE CASE UNDER CONSIDERATION THE ASSESSEE ITSELF HAS DISALLOWED CERTAIN AMOUNTS. IN VIEW OF THE DECISION OF HONBLE DELHI JURISDICTIONAL HIGH COURT THE AO HAS TO ASCERTAIN THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE AND IF HE IS NOT SATISFIED WITH THE CLAIM WITH REGARD TO THE EXPENDITURE IN SUCH A CAS E THE AO HAS TO REJECT THE CLAIM OF THE ASSESSEE BY STATING REASONS FOR DO ING SO. HAVING DONE SO THE AO SHALL DETERMINE THE AMOUNT OF EXPENDITURE IN CURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT AND THE AO IS REQUIRED TO DO SO ON THE BASIS OF A REASONAB LE AND ACCEPTABLE METHOD OF APPORTIONMENT. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE WE RESTORE THE ISSUE RAI SED IN THE APPEAL AS WELL AS IN THE CROSS OBJECTION TO THE FILE OF THE AO FOR DECIDING DENOVO NO DOUBT AFTER AFFORDING REASONABLE OPPORTUNITY TO THE ASSES SEE. ITA NOS. 92/D/11 5574 & 5573/D/10 & CO NO. 38/D/11 6 9. IN THE RESULT THE APPEALS OF THE REVENUE AND CR OSS OBJECTION OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 16.0 2.2012 SD/- SD/- (U.B.S. BEDI) (B.C. MEEN A) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 16.02.2012 *KAVITA COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITA NOS. 92/D/11 5574 & 5573/D/10 & CO NO. 38/D/11 7 ITA NOS. 92/D/11 5574 & 5573/D/10 & CO NO. 38/D/11 8