Income Tax Appellate Tribunal - Delhi
M/S. Excel Infotech Ltd., New Delhi vs Dcit, New Delhi on 25 April, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : B : NEW DELHI
BEFORE SHRI R.S. SYAL, VICE PRESIDENT
AND
SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER
ITA Nos.3492 to 3494/Del/2014
Assessment Years : 2009-10 to 2011-12
Excel Infotech Ltd., Vs. DCIT,
910, Ansal Bhawan, Central Circle-14,
K.G. Marg, New Delhi.
New Delhi.
PAN: AAACE2098K
(Appellant) (Respondent)
Assessee By : Shri Rakesh Gupta &
Shri Somil Aggarwal, Advocates
Department By : Ms Rachna Singh, CIT, DR
Date of Hearing : 24.04.2018
Date of Pronouncement : 25.04.2018
ORDER
PER R.S. SYAL, VP:
These three appeals filed by the assessee relating to assessment years 2009-10, 2010-11 & 2011-12 arise out of the common order passed by the CIT(A) on 10.02.2014. Since some of the issues raised in these appeals are ITA Nos.3492 to 3494/Del/2014 common, we are, therefore, proceeding to dispose them off by this consolidated order for the sake of convenience.
Assessment Year 2009-10
2. First issue raised in this appeal through ground no. 2 is against the confirmation of disallowance of Rs.89,19,576/- made by the Assessing Officer u/s 14A of the Act.
3. Briefly stated, the facts of the case are that a search and seizure action was taken against the assessee on 22.3.2011. A return of income was filed in response to notice u/s 153A of the Act. During the course of assessment proceedings, it was noted by the AO that the assessee earned exempt dividend income of Rs.7,77,882/-, but, did not offer any disallowance u/s 14A of the Act. Applying the provisions of Rule 8D, he computed disallowance under this section at Rs.89,19,576/-. The ld. CIT(A) confirmed the same. The assessee is aggrieved against the sustenance of this addition.
4. We have heard both the sides and perused the relevant material on record. At the outset, the ld. AR contended that no incriminating material 2 ITA Nos.3492 to 3494/Del/2014 was found during the course of search in respect of the assessment year under consideration. Relying on the judgment of the Hon'ble jurisdictional High Court in the case of Kabul Chawla vs. CIT (2016) 380 ITR 573 (Del), it was argued that the addition made u/s 14A, which is not based on any incriminating material, be deleted.
5. This was opposed by the ld. DR, who submitted that the question of jurisdiction has not been raised by the assessee in its ground of appeal and, hence, the invocation of the judgment in the case of Kabul Chawla (supra), should not be permitted.
6. We find that ground No.2 raised by the assessee challenges the disallowance of Rs.89,19,576/- made by the Assessing Officer u/s 14A of the Act. This ground has been drafted quite widely and in such a manner so as to include the challenge to the disallowance u/s 14A in any manner. Since the reliance of the ld. AR on the judgment of the Hon'ble jurisdictional High Court in the case of Kabul Chawla (supra) is restricted to the deletion of disallowance u/s 14A and nothing else, we hold that the 3 ITA Nos.3492 to 3494/Del/2014 ground covers challenge to the disallowance under this section on the basis of the legal issue decided in the case of Kabul Chawla (supra).
7. Turning to the facts of the instant case, it is seen that the search was conducted u/s 132 on 22.03.2011. The assessee filed its return for assessment year under consideration on 30.09.2009. As per section 143(2), notice could have been issued within a period of six months from the end of the financial year in which the return was filed. Going by the prescription of the proviso to section 143(2), notice u/s 143(2) could have been, at the most, issued by 30.09.2010. As the search proceedings were conducted on 20.03.2011, on that date, there was no possibility of issuing notice u/s 143(2) for framing assessment u/s 143(3). In such circumstances, the processing of return u/s 143(1) amounts to completion of assessment within the scheme of section 153A. It cannot be termed as an abated assessment.
8. Turning to the judgment in the case of Kabul Chawla (supra), the factual matrix of the case is that a search was carried out u/s 132 on 15.11.2007 on BPTP Ltd., a leading real estate developer operating all over India and some of its group companies including the premises of the 4 ITA Nos.3492 to 3494/Del/2014 assessee, who owned and controlled the group. No assessment proceedings were pending for the assessment years 2002-03, 2005-06 and 2006-07 as on the date of the search. The assessments for such assessments years had already been made u/s 143(1) of the Act. The assessee filed returns for the three assessment years declaring certain income. The assessments were completed u/s 153A for the concerned assessment years making additions, inter alia, on account of low household withdrawals and deemed deduction u/s 2(22)(e) of the Act. It was submitted before the ld. CIT(A) that no evidence was found during the course of search so as to warrant an addition u/s 2(22)(e) of the Act. The ld. CIT(A) held that the additions need not be restricted only to the seized material. The Tribunal concluded that: 'If some incriminating material is found in respect of such assessment years for which the assessment is not pending, then, the total income would be determined by considering the originally determined income plus income emanating from the incriminating material found during the course of search'. That is how, the additions made u/s 2(22)(e), which were not based on any incriminating material found during the course of search, were held to be unsustainable in law and, hence, deleted. The Hon'ble High 5 ITA Nos.3492 to 3494/Del/2014 Court approved the view taken by the Tribunal. It summarized the legal position in para 37 of its judgment as under :-
`On a conspectus of Section 153A(1) of the Act, read with the provisos thereto, and in the light of the law explained in the aforementioned decisions, the legal position that emerges is as under:
i. Once a search takes place under Section 132 of the Act, notice under Section 153 A (1) will have to be mandatorily issued to the person searched requiring him to file returns for six AYs immediately preceding the previous year relevant to the AY in which the search takes place.
ii. Assessments and reassessments pending on the date of the search shall abate. The total income for such AYs will have to be computed by the AOs as a fresh exercise.
iii. The AO will exercise normal assessment powers in respect of the six years previous to the relevant AY in which the search takes place. The AO has the power to assess and reassess the 'total income' of the aforementioned six years in separate assessment orders for each of the six years. In other words there will be only one assessment order in respect of each of the six AYs "in which both the disclosed and the undisclosed income would be brought to tax".
iv. Although Section 153 A does not say that additions should be strictly made on the basis of evidence found in the course of the search, or other post-search material or information available with the AO which can be related to the evidence found, it does not mean that the assessment "can be arbitrary or made without any relevance or nexus with the seized material. Obviously an assessment has to be made under this Section only on the basis of seized material."
v. In absence of any incriminating material, the completed assessment can be reiterated and the abated assessment or reassessment can be made. The word 'assess' in Section 153 A is relatable to abated proceedings (i.e. those pending on the date of search) and the word 'reassess' to completed assessment proceedings.6
ITA Nos.3492 to 3494/Del/2014 vi. Insofar as pending assessments are concerned, the jurisdiction to make the original assessment and the assessment under Section 153A merges into one. Only one assessment shall be made separately for each AY on the basis of the findings of the search and any other material existing or brought on the record of the AO.
vii. Completed assessments can be interfered with by the AO while making the assessment under Section 153 A only on the basis of some incriminating material unearthed during the course of search or requisition of documents or undisclosed income or property discovered in the course of search which were not produced or not already disclosed or made known in the course of original assessment.'
9. It is evident from the above judgment that once a search takes place u/s 132 of the Act, the assessee is obliged to file returns for the six assessment years immediately preceding the previous year relevant to the assessment year in which the search took place. In so far as the completed assessments as on the date of the search are concerned, the same are to be repeated as increased by additions, only if, based on incriminating material found during the course of search. In other words, if no incriminating material is found during the course of search, then, the amount of total income determined under the earlier completed assessments is to be adopted in a fresh assessments u/s 153A without making any further addition.7
ITA Nos.3492 to 3494/Del/2014
10. Adverting to the facts of the instant case, we find that the A.Y. 2009- 10 falls in the category of `completed assessments'. It is an admitted position that no incriminating material was found during the course of search concerning the disallowance u/s 14A of the Act. In that view of the matter, the assessment cannot embrace any fresh disallowance otherwise than supported by any incriminating material found during the course of search. In such a situation, the originally determined income has to be repeated in the assessment u/s 153A of the Act. As there is no mention of any disallowance having been made in the original assessment u/s 143(3) of the Act in any of the orders of the authorities below, we hold that the disallowance made by the Assessing Officer at Rs.89.19 lac and confirmed in the first appeal, is required to be deleted. This ground is allowed.
11. The only other ground pressed by the ld. AR is No.4, as per which the ld. CIT(A) did not deal with the additional grounds 'E', 'F' and 'G' raised before him regarding grant of credit of Rs.1,87,538/- only against Rs.18,65,739/-; not granting MAT credit of Rs.1,49,377/- u/s 115JA; and charging of interest u/s 234A in the absence of such direction in the order, respectively. As the ld. CIT(A) has not disposed off these additional 8 ITA Nos.3492 to 3494/Del/2014 grounds, we set aside the impugned order and remit the matter to his file for firstly considering the admission or otherwise of the additional grounds and, thereafter, deciding them on merits, if they are admitted.
12. In the result, the appeal is partly allowed.
Assessment Year 2010-11
13. The first issue raised in this appeal is against the confirmation of disallowance u/s 14A at Rs.33,12,360/-.
14. Briefly stated, the facts of the case are that the Assessing Officer noticed the assessee to have earned exempt income of Rs.7,72,918/-. No disallowance was offered by the assessee u/s 14A of the Act. On being called upon to explain the reasons, the assessee furnished its point of view, which has been reproduced in the assessment order. Not convinced, the Assessing Officer made disallowance u/s 14A at Rs.58,90,988/-. The ld. CIT(A) reduced such disallowance to Rs.33,12,360/-, against which the assessee has come up in appeal before the Tribunal.
15. The ld. AR contended that the Assessing Officer did not record any satisfaction before proceeding to make disallowance u/s 14A of the Act. In 9 ITA Nos.3492 to 3494/Del/2014 support of the deletion of addition on this count, he relied on the judgment of the Hon'ble jurisdictional High Court in the case of HT Media vs. Pr. CIT (2017) 399 ITR 576 (Del). This was countered by the ld. DR who, apart from relying on the recent judgment dated 12.02.2018 of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT, also supported her case with the judgment of Indiabulls Financial Serices Ltd. vs. DCIT (20165) 76 taxmann.com 268 (Del).
16. After considering the rival submissions and perusing the relevant material on record, we do not find any convincing reason to countenance the argument of the ld. AR for deleting the disallowance u/s 14A on the ground of `non-recording of satisfaction' by the AO. It is pertinent to mention that the assessee categorically stated before the Assessing Officer that: 'the expenses relating to exempt or non-exempt incomes cannot be segregated.' It further stated vide para 3, as reproduced on page 2 of the assessment order that it: 'engaged the services of an exclusive employee for the purpose of taking investment decisions in respect of shares and units.' Despite the above assertion, it did not offer any disallowance u/s 14A of the Act, not even the remuneration etc. of the employee, who was 10 ITA Nos.3492 to 3494/Del/2014 admittedly an `exclusive employee' for taking investment decisions. The Assessing Officer categorically recorded satisfaction in terms of section 14A in para 4.2 of his order, when he mentioned : `that the assessee has not quantified/attributed the expenses u/s 14A of the IT Act and not disallowed in the P&L account himself which are related to the exempt income not forming part of the total income. While certain expenses like managerial expenses, bank charges etc. must have been incurred by the assessee to earn the exempt income in the shape of dividend of Rs.7,72,918/- which has been claimed exempt u/s 10(34) of the I.T. Act, 1961. Thus, I am not satisfied with the contention of the assessee's not disallowance of expenditure for earning exempt income on investment'. It is self evident that the AO recorded proper satisfaction as per the mandate of section 14A and the case is fully covered by the judgment in the case of Indiabulls Financial (supra) and not the other decision relied by the ld. AR in HT Media (supra).
17. Be that as it may, it is found as an admitted position that the assessee did not offer any disallowance u/s 14A. The Hon'ble Supreme Court in Maxopp Investment (supra) has considered the aspect of recording of 11 ITA Nos.3492 to 3494/Del/2014 satisfaction by the Assessing Officer for making disallowance u/s 14A and has laid down in para 41 as under:-
41) Having regard to the language of Section 14A(2) of the Act, read with Rule 8D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo moto disallowance under Section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO.
18. It is palpable from the judgment of the Hon'ble Summit Court that: "It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect." It, therefore, becomes clear that only where the assessee offers some disallowance u/s 14A with which the Assessing Officer is not satisfied, that he needs to record a proper satisfaction before proceeding to make disallowance u/s 14A. If, on the other hand, the assessee does not offer any disallowance u/s 14A, the requirement of recording satisfaction by the Assessing Officer will be dispensed with. The facts of our case are covered by the mandate in this case inasmuch as the assessee had not offered any 12 ITA Nos.3492 to 3494/Del/2014 disallowance u/s 14A of the Act. In view of the fact that the Assessing Officer properly recorded satisfaction u/s 14A of the Act, despite there being no such requirement as laid down by the Hon'ble Supreme Court in the case of Maxopp Investments Ltd., we are convinced that the ld. AR's contention on this aspect deserves to be jettisoned. We order accordingly.
19. Turning to the amount of disallowance, it is found that the assessee earned dividend income of Rs.7,72,918/-, which was claimed as exempt. The Hon'ble Delhi High Court in the case Cheminvest Ltd. vs. CIT (2015) 378 ITR 33 (Del) has held that if there is no exempt income, there can be no question of making any disallowance u/s 14A of the Act. Similar view has been taken by the Hon'ble Delhi High Court in CIT vs. Holcim India P. Ltd. (2014) 90CCH 081-Del-HC. The net effect of these decisions is that the disallowance u/s 14A gets restricted to the extent of exempt income, even if the provisions of the section are attracted. In view of the above precedents, which are squarely applicable to the facts of the instant case, we limit the disallowance to the extent of exempt income of Rs.7,72,918/-. The impugned order is modified pro tanto.
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ITA Nos.3492 to 3494/Del/2014
20. The only other ground pressed by the ld. AR is No.5, by which it has been asserted that the ld. CIT(A) did not adjudicate additional ground 'E' regarding grant of credit of Rs.20,24,335/- only against Rs.54,20,331/-. The ld. CIT(A) is directed to decide this ground on merits.
21. In the result, the appeal is partly allowed.
Assessment Year 2011-12
22. The only issue raised in this appeal is against the confirmation of disallowance u/s 14A to the tune of Rs.37,02,740/-
23. Both the sides are in agreement that the facts and circumstances of this ground are similar to those of the assessment year 2010-11. Following the view taken hereinabove, we reject the assessee's contention of non- recording of satisfaction by the Assessing Officer. However, the disallowance u/s 14A is reduced to Rs.2,48,500/-, being, the amount of exempt income u/s 10(34) of the Act.
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ITA Nos.3492 to 3494/Del/2014
24. In the result, the appeal is partly allowed.
The order pronounced in the open court on 25.04.2018.
Sd/- Sd/-
[K. NARASIMHA CHARY] [R.S. SYAL]
JUDICIAL MEMBER VICE PRESIDENT
Dated, 25th April, 2018.
dk
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.
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