Income Tax Appellate Tribunal - Delhi
Dcit, New Delhi vs M/S. Indiabulls Real Estate Ltd., New ... on 28 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI 'C' BENCH,
NEW DELHI
BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER AND
SHRI KULDIP SINGH, JUDICIAL MEMBER.
ITA No. 1595/DEL/2014 [A.Y. 2009-10]
M/s India Bulls Real Estate Ltd Vs. Dy. CIT
F - 60, Malhotra Building, Circle 11(1)
IInd Floor, Connaught Place New Delhi
New Delhi
PAN : AABCI 5194 F
ITA No. 2233/DEL/2014 [A.Y. 2009-10]
Dy. CIT Vs. M/s India Bulls Real Estate Ltd
Circle 11(1) F - 60, Malhotra Building,
New Delhi IInd Floor, Connaught Place
New Delhi
PAN : AABCI 5194 F
[Appellant] [Respondent]
Date of Hearing : 23.08.2017
Date of Pronouncement : 28.08.2017
Assessee by : Shri Gautam Jain
Shri Piyush K Kamal, Adv
Revenue by : Shri Naveen Chandra, CIT-DR
ORDER
PER B.P. JAIN, ACCOUNTANT MEMBER:
These cross appeals of the assessee and Revenue arise from the order of the ld. CIT(A)- XV, New Delhi vide order dated 27.01.2014 for assessment year 2009-10.
-2-
2. The Revenue has raised the following effective ground of appeal:
" On the facts and circumstances of the case and in law the Ld.CIT(A) has erred in deleting the disallowance of Rs. 4,30,30,578/- made u/s 14A in accordance with Rule 8D"
3. The assessee has raised the following effective ground of appeal:
" Ground No. 1:
The C1T(A) has erred on facts and circumstances of the case in not admitting the additional ground filed by the assessee that "That full value of consideration for sale of shares were wrongly assumed to be Rs 10 crores whereas the full value of sale consideration was later worked out to be Rs 25 lakhs."
Ground No. 2:
The CIT(A) has erred on facts and circumstances of the case in not accepting the alternate plea made by the assessee with regard to computation of disallowance u/s 14A read with Rule 8D that "Investment in Shares" ought to be excluded from the value of total investment while computing the "Average investment" as contemplated in Rule 8D of IT Rules.
Ground No.3:
The appellant prays that he may be allowed to add, amend, alter or forego any of the above grounds of appeal as the circumstances may warrant."-3-
4. Brief facts of sole Ground No. 1 in Revenue's appeal are that the appellant Company is engaged in the business of real estate project development. During the assessment proceeding, the AO observed that the appellant had earned dividend income of Rs.1,95,118/-. The AO asked the appellant as to why the disallowance u/s 14A read with Rule 8D may not be made in its case. The reply of the appellant that it had Suo Motto disallowed an amount of Rs.50,231/- in the computation of income on account of expenses incurred with respect to the investment made in shares, was not accepted by the^. AO, who was of the view that earning of exempt income is not in the nature of a passive activity and held that in the case of the appellant, since the provision of Rule 8D were operational, the same were to be adhered to. Accordingly, the Ld. AO applied the provisions of Rule 8D and made disallowance of Rs.4,30,80,809/- thereunder, after giving allowance of an amount of Rs. 50,231/- disallowed by the appellant.
5. The ld. CIT(A) deleted the additions for the reasons as mentioned in his order.
6. As regards Ground No. 1 of the assessee, during the course of appellate proceedings before the ld. CIT(A), the appellate counsel filed a request for admitting an additional ground as under: -4-
"Ground No. 4. That full value of consideration for sale of shares were wrongly assumed to be Rs. 10 crores whereas the full value of sale consideration was later worked out to be Rs. 25 lakhs".
7. Copy of the additional ground was sent to the Assessing Officer for seeking comments on the matter. The Assessing Officer, vide letter dated 14.01.2013 submitted that additional ground of appeal submitted by the appellant should not be admitted since from the perusal of assessment record, it is clear that due opportunities were provided to the assessee during the assessment proceedings before the Assessing Officer.
8. The said ground was not admitted by the ld. CIT(A) and on merits he decided the issue against the assessee. The relevant findings of the ld. CIT(A) are reproduced hereinbelow:
"7.9 The additional Ground No.4 filed by the appellant during the course of the appellate proceeding relating to recomputing the capital gain on sale of shares of the appellant company by revising the sale consideration from Rs.25 crores to Rs.10 lakhs in respect of 50% shares of M/s Shivalik Land Development Ltd., I find that the appellant itself had disclosed sale consideration of Rs.25 lakhs in the return of income. The disclosure made by the Ld. AO also was accepted by the Ld. AO and hence there is no -5- dispute in the matter. The provisions of Section 251 relating to the powers of Commissioner of appeals as provided in explanation below Sub-Section(2) provide that in disposing of an appeal, the Commissioner of appeal may consider and decide any matter arising out of the proceeding, in which the order of appeal against was passed before the Commissioner of appeal. In the case of the appellant, it is evident that the issue relating to the revision of capital gains was never raised and no such difference of opinion existed between AO and the appellant. Moreover, in case of the said M/s Shivalik Land Development Limited, its shares are not listed and therefore the market value of their shares cannot be determined only on the basis of a revised sale agreement. The explanation given by the appellant regarding the inability to file such claim during the assessment proceedings is not satisfactory. Moreover, there is no explanation, whatsoever, as to how in respect of sale of some shares, the two contracting parties could substitute the full value of consideration from Rs.10 Crores to Rs.25 Lakhs, without any basis. Under the circumstances, the request of the appellant to admit additional ground of appeal against its own admitted position at the time of filing of return and later during the assessment proceeding cannot be allowed to be accepted."
9. We have considered the rival arguments made by both the sides, perused the orders of the A.O and the ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions relied upon by both the sides. At the outset, it was -6- submitted that total exempt income earned by the assessee during the year under consideration was Rs. 1,95,118/- (page 2, read with page 9 and 26), and voluntary disallowance made by the assessee is Rs. 50,231/- (page 2 read with back side of page 97), which is commensurate to the exempt income and thus apparently disallowance made of Rs. 4,30,30,578 is patently incorrect, absurd and untenable.
10. It was submitted that in view of the judgement of Hon'ble Delhi in the case of Joint Investment (P) Ltd. reported in 372 ITR 694, (pages 30-32 of JPB) wherein it has been held as under:
"9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing Rs. 2,97,440/- as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO - an aspect which is completely unnoticed by the CIT (A) and the ITAT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs. 48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., Rs. 52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean -7- that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A. and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case."
11. It was submitted that dispute cannot exceed the exempt income, the dispute as best is of Rs. 1,44,887/- (Rs.1,95,118 being exempt income - Rs. 50,231/- voluntary disallowance made by assessee), which too is untenable having regard to the non recording of satisfaction as required in section 14A(2) of Act. The assessee in support of the decision of Id. CIT(A) submitted that, in absence of satisfaction u/s 14A(2) of the Act read with Rule 8D(1) of the Income Tax Rules' 1962 disallowance made otherwise too is untenable as held by learned Commissioner of Income Tax (Appeals). The Assessing Officer did not give credence to the assessee's working of voluntary disallowance , however rejecting the claim of the assessee without providing any cogent reason and has not recorded satisfaction that he is not satisfied with the correctness of the claim of the assessee as required by the section 14A(2) of the Act. The Assessing Officer however stating general reasons for disallowance u/s 14A of the Act. -8-
12. The learned CIT(A), therefore reversed the order of the Assessing Officer as held at page 8-9 of CIT(A) order, as under:
"7.4 I find that in the original return of income filed on 29.09.2009, the appellant had disallowed expenditure attributable to earning of tax-exempt dividend income by making its own working. This claim was based on the entries made in the books of accounts. In order to justify his lack of satisfaction, the AO ought to have identified instances suggesting serious defects in the working of the appellant, however, the AO did not do the same and applied the provisions of Rule 8D in a mechanical manner. Therefore, it is evident that the Assessing Officer's lack of satisfaction with regards the original claim of the appellant was not based on the cogent ground.
The legislature has carefully thought of achieving a trade-off between the accurate determination of expenses attributable to tax-exempt income and the subjectivity of method to be adopted for this purpose by prescribing Rule 8D. The provisions of Rule 8D do not leave any scope of subjectivity in the hand of the assessing officer and call for applying the prescribed method to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the Act. The law uses the words 'shall' and not 'may' for this purpose. However, before resorting to the prescribed method, the AO is required to meet the prescribed protocol u/s 14A(2) and (3) by recording his lack of satisfaction on cogent grounds. In the case of the appellant, the AO did not record his lack of -9- satisfaction on any cogent grounds by disregarding the computation of disallowance made by the appellant summarily and went ahead to apply the provisions of Rule 8D, as fait accompli, which is certainly not the legislative intent. In view of the above, I hold that the action of the AO of applying the provisions of Rule 8D, without recording lack of satisfaction on the cogent ground identifying material defects in the computation of the appellant made in the return of income u/s 14A, is not in accordance with the provisions of section 14A(2)."
13. Reliance is placed on the following judgments:
394 ITR 449 (SC) Godrej & Boyce Manufacturing company Ltd.
vs. DCIT (pages 1-14 of JPB) "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 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 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 -10- 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".
ii) 360 ITR 68 (Del) CIT vs. M/s Hero Management Service Ltd.
iii) 347 ITR 272 (Del) Maxopp Investment Ltd. vs. CIT
iv) 358 ITR 310 (Del) dated 2.7.2012 CIT vs. Consolidated Photo & Finvest Ltd
v) 370 ITR 338 (Del) CIT vs. Taikisha Engineering India Ltd.
(pages 15-23 of JPB) "20. However, in the present case we need not refer to sub Rule (2) to Rule 8D of the Rules as conditions mentioned in sub Section (2) to Section 14A of the Act readwith sub Rule (1) to Rule 8D of the Rules were not satisfied and the Assessing Officer erred in invoking sub Rule (2), without elucidating and explaining why the voluntary disallowance made by the assessee was unreasonable and unsatisfactory. We do not find any such satisfaction recorded in the present case by the Assessing Officer, before he invoked sub Rule (2) to Rule 8D of the Rules and made the re-computation. Therefore, the respondent assessee would succeed and the appeal should be dismissed"
vi) ITA No. 953/2015 (Del) Pradeep Khanna vs. ACIT -11-
vii) 392 ITR 552 (Del) Pr. CIT v. U.K. Paints (India) (P) Ltd.
"14A(2). That apart, significantly, the question of applying the statutorily prescribed method would arise only and only if the Assessing Officer expresses an opinion rejecting the assessee's methodology and the figure offered at the time of assessment. This is material because the jurisdiction to go into the method prescribed in the Rules arise only if the amounts the assessee offers does not have any realistic correlation with the tax exempt income. For instance, in a given case if a tax exempt income is to the tune of Rs. 5 crores and the assessee is able to satisfy that expenditure relatable to that income or the reasonable nexus to such income is Rs. 251akhs there has to be strong reasons why the said amount of Rs. 25 lakhs are to be rejected. In other words, the opinion of the Assessing Officer in the later part (of section 14A(2)) is to be based upon an appraisal of objective material relating to the assessee's voluntary disallowance of amount/ amounts. Not only that, if in the course of assessment, the Assessing Officer enquires from the assessee about the amounts spent, which are to be disallowed, and the assessee in fact discloses a larger amount (than the one given in the return), it is still incumbent upon the Assessing Officer to enquire into such larger amounts and determine whether it has nexus with expenditure relatable to exempt income to attract section 14A(1). Sans this procedure, section 14A would be reduced to mere formality which it appears to have become in the circumstances of the case.-12-
Consequently, we are of the opinion that there is no infirmity in the reasoning and conclusion of the Income-tax Appellate Tribunal. The appeal is accordingly dismissed."
viii) 372 ITR 694 (Del) Joint Investments Pvt. Ltd. vs. CIT (pages 30- 32 of JPB) "9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing Rs. 2,97,440 as a disallowance under s. 14A had to be rejected. Taikisha Engg. India Ltd. (supra) says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO-an aspect which is completely unnoticed by the CIT(A) and the Tribunal. The third, and in the opinion of this Court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs. 48,90,000, the disallowance ultimately directed works out to nearly 110 per cent of that sum, i.e., Rs. 52,56,197. By no stretch of imagination can s. 14A or r. 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in s. 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case."
-13-Bombay High Court
i) 328 ITR 81 (Bom) M/s Godrej and Boycee Mgf. Co. Ltd. vs. DCIT Punjab & Haryana High Court
i) 380 ITR 652(P&H) CIT vs. Abhishek Industrial Ltd.
ii) 393 ITR 223(P&H) Punjab Tractor Ltd. vs. CIT
iii) 361 ITR 131(P&H) CIT vs. Deepak Mittal (pages 33-36 of JPB)
iv) 388 ITR 81 (P&H) CIT vs. Max India Ltd. (pages 37-45 of JPB) Income Tax Appellate Tribunal
i) 140 TTJ 73 (Cal) Balarampur Chini Mills Ltd. vs. DCIT
ii) 152 ITD 469 (Pune Trib.) Asst CIT vs Magarpatta Township Development and Construction Co. Ltd.
iii) 146 ITD 227 (Mum Trib.) Raj Shipping Agencies Ltd. vs. Addl. CIT
iv) ITA No. 1050/Mum/2010 Assessment Year 2008-09 dated 5.8.2011 M/s Multi Commodity Exchange of India Ltd. vs. DCIT
v) ITA No. 814/De/2011 for A.Y: 2008-09 Jindal Photo Ltd. vs DCIT
vi) 52 SOT 39 (Mum) Assessment Year 2008-09 dated 30.4.2012 M/s Auchtel Products Ltd. vs. ACIT
vi) ITA No. 47/KoI/2012 Assessment Year 2008-09 dated 22.8.2012 Hindustan Paper Corporation Ltd. vs. DCIT
vii) ITA No. 16/Chd/2012 Assessment Year 2008-09 dated 6.3.2012 DCIT vs. M/s Oswal Wollen Mills Ltd
viii) ITA NO. 5231/D/2002 A.Y. 2008-09 dated 17.1.2014 M/s J.H. Fin-
vest Pvt. Ltd. vs. DCIT
ix) ITA No. 5526/Del/2014 A.Y. 2010-11 dated 28.07.2017 DCIT Vs. M/s Indiabulls Financial Services Ltd. ( pages 166-171 of Paper Book) -14- "9. Having regard to the above judicial binding precedents, we find that the ratio decidendi emerging is that it is incumbent upon the AO to record a satisfaction that having regard to accounts of 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. In the instant case, assessee had made claim that expenses attributable to exempt income is Rs. 27,72,963/-; there is no satisfaction of the AO that having regard to the accounts of the assessee the aforesaid claim of Rs. 27,72,963/- is not acceptable. The AO has not been able to point out that any defect in the claim of the appellant on any cogent ground. On the contrary Rule 8D has been invoked only on the account of quantum of tax free dividend income which is not a valid satisfaction. In view thereof, we find no reason for interference in the order of the learned CIT(A) and consequently uphold the order deleting the disallowance of Rs. 5,23,89,683/- made under section 14A of the Act. We, therefore, accordingly, dismiss the grounds of Revenue."
x) ITA No. 2646/Del/2014 A.Y. 2008-09 dated 28.07.2017 DCIT Vs. M/s India bulls Insurance Advisors Ltd.(pagel03-110 of JPB) "So the disallowance made by the AO without recording his satisfaction on any cogent ground by disputing the computation of disallowance made by the assessee rather subjectively written that, " the submission of the assessee cannot be accepted in view of the provisions contained u/s 14A read with Rule 8D" is not sustainable in the eyes of law. -15- In the given circumstances, the case law relied upon by the Id. DR is not applicable to the facts and circumstances of the case. So, finding no illegality or perversity in the finding returned by Id. CIT(A), the instant appeal filed by the Revenue is hereby dismissed."
14. The ld. DR relied upon the decision of the Hon'ble Delhi High Court in the case of the assessee dated 21.11.2016 in ITA No. 470/2016. In this regard and in view of the judgment of Hon'ble Supreme Court in the case of Godrej & Boyce [supra], the decision of Hon'ble Delhi High Court is no more a good case.
15. Accordingly, the disallowance made by the assessee is appropriate, considering the process of the investment and the steps involved in an investment activity. It is emphasized that in order to justify that no other cost has been incurred by the assessee, the assessee submits that activity of investment in mutual funds is not complex or driven by any complicated analysis and, evaluation. The objective is to invest in a mutual fund which maximizes return over a short period of time. There are no external or statutory approvals or statutory requirement of maintenance of records. It is submitted that obtaining approval from top management is an internal process and does not entail much of their time. Further on account of technology- -16- based environment and facility of electronic transfer of funds, task of lower-level management has also become quite hassle-free and does not need much of their time. Thus making an investment activity is not a time consuming activity. It does not involve full day effort of the personnel's' involved and hence the same ought to be accepted as such, no further disallowance is warranted.
16. Also in absence of any identified/specific expenditure disallowance is untenable Reliance is placed on.
i) 374 ITR 108 (Del) ACB India Ltd. vs. ACIT (pages 46-48 of JPB)
ii) 347 ITR 272 (Del) at page 290 and 291 Maxopp Investment Ltd.
vs. CIT
Punjab & Haryana High Court
i) 323 ITR 518 (P&H) CIT vs. Hero Cycles Ltd.
Income Tax Appellate Tribunal
i) ITA No. 3889/Mum/2011 A.Y. 2008-09 Justice Sam P
Bharucha vs. Addl. CIT
ii) 138 TTJ 240 (Del) Minda Investments Ltd. vs. DCIT
iii) ITA Nos 563 & 564/D/2013 dated 9.3.2015 M/s Bhushan Energy Ltd. vs. ACIT -17-
iv) ITA No. 305/Mad/2013 dated 7.11.2013 DCIT v. M/s Allied Investments Housing (P) Ltd.
v) ITA No. 7851/Mum/2011 dated: 06.05.2013 JK Investors Ltd. vs ACIT
vi) 129 ITD 237 (Mum) Yatish Trading Co. (P) Ltd. v. ACIT
17. The Assessing Officer has included all the investments for calculation of disallowance under Rule 8D of the Income Tax Rules, 1962.The disallowance under section 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to income which does not form part of the total income during the instant year. Reliance is placed on the following judgments:
ITA No(s) 1236 and 1240/Mds/2014 ACIT vs. M/s Computer Age Management Services (P) Ltd.
374 ITR 108 (Del) ACB India Ltd. vs. ACIT (pages 46-48 of JPB) "The Assessing Officer, instead of adopting the average value of investment of which income is not part of the total income, i.e., the value of tax exempt investment, chose to factor in the total investment itself. Even though the Commissioner of Income-tax (Appeals) noticed the exact value of the investment which -18- yielded taxable income he did not correct the error but chose to apply his own equity. Given the record that had to be done so to substitute the figure of Rs. 38,61,09,287 with the figure of Rs.
3,53,26.800 and, thereafter, arrive at the exact disallowance of .05 per cent."
388 ITR 81 (P&H) CIT vs. Max India Ltd. (pages 37-45 of JPB) 381 ITR 107 (P&H) Bright Enterprises (P) Ltd. vs. CIT 393 ITR 223 (P&H) Punjab Tractors Ltd. vs. CIT "Accordingly, disallowance made by Assessing Officer is not in accordance with law as it is evident from the tabulated chart placed at para 3.4 above, that investment taken for disallowance under Rule 8D(2)(iii), read with section 14A of the Act, by Assessing Officer, does not give rise to any income which does not form part of the total income."
18. Also, if investment made on account of strategic or for controlling interest, section 14A is inapplicable. It is submitted that assessee is a real estate company. The main objective of which is to acquire land to develop real estate projects and sell it. In view of the applicable state land laws, which put ceiling on the extent of acquisition of land, it was in the business interest of the assessee that instead of one company acquiring large chunks of land, small company of the same group acquire small chunk of land in the adjoining area, which helps in negotiating better land price. Thus assessee had made -19- investment into several subsidiaries companies, most of which were formed for the purpose of acquisition of land and for which purpose the appellant had made investment in their share capital. No dividend income has been earned by the appellant thereon nor likely to be earned, as the very purpose of such investment was to support the core business activity of the company. It ft submitted that the Hon'ble High Court in the case of CIT vs. Oriental Structural Engineers Pvt. Ltd. reported in 216 Taxman 92 (Del) (pages 5JT-59 oFJPB) noted that, the assessee invested in shares of subsidiary companies and claimed that the said subsidiaries were formed out of "commercial expediency" in order to obtain contracts from the NHAI. In the assessment order, the AO while rejecting the commercial expediency claim of the assessee, has disallowed Rs. 35,85,121/- as expenses incurred in relation to exempt income u/s 14A read with Rule 8D. Being aggrieved, the assessee appealed before learned Ld. CIT (A) where the disallowance u/s 14A made by AO was deleted and the Ld. CIT (A) categorically held that:
"In respect of investments of Rs.6,07,775,000/- made in subsidiary companies as per documents produced before me, they are attributable to commercial expediency. and therefore no expense and interest attributable to -20- the investments made by the appellant in the SPVs can be disallowed u/s 14Ar.w. Rule 8D because it cannot be termed as expense /interest incurred for earning exempted income."
19. On further appeal by revenue against the Hon'ble CIT(A) Order, the Delhi ITAT and Hon'ble High Court while dismissing the appeal held that subsidiaries formed due to commercial expediency cannot be considered for the calculation of disallowance u/s 14A read with rule 8D of the Act. Similar view has also been expressed by the judgment of Jurisdictional High Court in the case of CIT v. Holcim India (P) Ltd. reported in 217 CTR 282. Further, in the case of EIH Associated Hotels Limited vs. DCIT (2013-TIOL-796- ITAT-MAD) (pages 60-77 of the JPB), wherein Chennai ITAT has held that even if dividend is earned from the investment made in subsidiary, still for calculating average investments for Section 14A those investments need to be excluded. The motive of the assessee towards theinvestment in subsidiary was not for earning dividend or capital gain, but to promote business of subsidiary. The Tribunal has supported above analogy and held as under:
"the investments made by the assessee in the subsidiary company are not on account of investment for earning capital gains or dividend income. Such investments have been made by -21- the assessee to promote subsidiary company into the hotel industry. The assessee is not into the business of investment and the investments made by the assessee are on account of business expediency. Any dividend earned by the assessee from investment in subsidiary company is purely incidental. Therefore, the investments made by the assessee in its subsidiary are not to be reckoned for disallowance u/s. 14A r.w.r. 8D. The AO is directed to re-compute the average value of investment under the provisions of Rule 8D after deleting investments made by the assessee in subsidiary company."
20. Also in the case of Garware Wall Ropes Limited vs Add CIT Range 5(1), Mumbai ITA No.5408/Mum/2012 (pages 78 - 85 of the JPB) ITAT has held that when investment is made in group concern with the primary objective of holding a controlling stake in the concern and not to earn any income out of the investment, the provisions of Section 14A need not be applied. The Tribunal has held that:
"We find merit and substance in the contention of the assessee on this point because the investment has been made by the assessee in the group concern and not in the shares of any un- related party. Therefore, the primary object of investment is holding controlling stake in the group concern and not earning any income out of investment. Further the investment were made long back and not in the year under consideration. Therefore, in view of the fact that the investment are in the -22- group concern we do not find any reason to believe that the assessee would have incurred any administrative expenses in holding these investments The AO has not brought on record any fact or material to show that any expenditure has been incurred on the activity which has resulted into both taxable and non taxable income. Therefore, in our view when the assessee has prima facie brought out a case that no expenditure has been incurred for earning the income which does not form part of the total income then in the absence of any finding that expenditure has been incurred for earning the exempt income the provisions of section 14A cannot be applied. Accordingly we delete the addition/disallowance made by AO u/s 14A r.w. Rule 8D"
21. Above proposition has also been accepted by ITATMumbai in a recent case of JM Financial Limited vs. Addl. CIT 4(31, Mumbai ITA No. 4521/Mum/2012. (Page No. 86-96 of the Paper Book). In the said case, Hon'ble ITAT has held as under :-
"the assessee has brought out a case to show that no expenditure has been incurred for maintain the 98% of the investment made in the subsidiary companies, therefore in the absence of any finding that any expenditure has been incurred for earning the exempt income, the disallowance made by the AO is not justified, accordingly the same is deleted."-23-
22. Accordingly, disallowance made by Assessing Officer is also not in accordance with law on the facts that investments are made only for the purpose of strategic or controlling interest, as it is evident from the tabulated chart placed at para 3.4 above. In light of the aforesaid, it is respectfully prayed that that order of the learned Commissioner of Income Tax (Appeals) be upheld.
23. Lastly it was submitted that disallowance made by the Assessing Officer cannot exceed the exempt income of Rs. 1,95,118/- earned by the assessee (page 2 of Paper Book). Reliance is placed on the following judicial pronouncements:
i) 372 ITR 694 (Del) Joint Investments Pvt. Ltd. vs. CIT (pages 30-32 of JPB)
ii) I.T. A. No. 245 /AHD/2013 dated 27.03.2015 Chudgar Ranchodlal Jethalal vs. DCIT
iii) ITA NO.5592/MUM/2012 dated 01.01.2015 M/s Daga Global Chemicals Pvt. Ltd. vs. Asst. CIT
iv) ITA No.986/Del/2012 dated 18.03.2015 HT Media Ltd. vs. ACIT
v) 148 ITD 336 (Del) Sahara India Financial Corpn.Ltd. vs. DCIT
vi) ITA No. 548/Chd/2011 dated 30.09.2011 ACIT vs. Punjab State Coop & Marketing Fed. Ltd -24-
vii) ITA No.4320/Del/2014 dated 21.10.2015 Asst. IT vs. M/s Kajaria Ceramics Limited
viii) ITA No. 1027/Del/2013 dated 23.10.2015 Hema Engineering Industries Ltd. vs. ACIT
ix) ITA No.3763/Del/2013 dated 29.04.2015 Indus Valley Investment & Finance Pvt. Ltd. vs. DCIT
24. In light of the aforesaid, the order of the learned Commissioner of Income Tax (Appeals) is upheld and appeal of the revenue is dismissed.
25. Now taking up ground 1 of assessee's appeal regarding non admission of additional ground filed by assessee before leaned CIT(A) that 'That full value of consideration for sale of shares were wrongly assumed to be Rs. 10 crores whereas the full value of sale consideration was later working out to be Rs. 25 lakhs."
26. Facts in brief are that on July 2006, assessee acquired 50,000 shares of Rs. 10 each of M/s Shivalik Land Development Limited (hereinafter referred as SLDL). That on 04.12.2008 assessee had entered into an agreement(pages 133-136 of Paper Book) with M/s Virasat Agro Foods Private Limited (hereinafter referred as Virasat) to sell such shares for a total consideration of Rs. 10 Crores. Out of the -25- said value, an amount of Rs. 25 Lacs was received by the assessee during the year under consideration. However in accordance with the provisions of section 45 of I.T.Act., assessee accounted the capital gains considering the sale consideration as Rs. 10 Crores and paid the taxes accordingly. A copy of computation is placed at page 2 of Paper Book. Further, subsequent to share purchase agreement and transfer of sale of shares, SLDL had mortgaged its land measuring 11.30 acres situated at Kherki Dhaula Tehsil Sohna District Gurgaon in favour of Indiabulls vide mortgage deed dated 12.12.2008 alongwith deposit of title documents as a security for fulfillment of the obligation of Virasat under the share purchase agreement as per clause 3.6 of above said agreement reproduced herein below;
"3.6 The purchaser has represented that it is at an advanced stage of acquiring, either in its own favour or in the favour of its nominee, the entire rights and title in the said land admeasuring 11.30 acres situated at kherki Dhaula, Tehsil Sohna Distt. Gurgaon. As a security towards the payment of balance sale consideration along with interest thereon, if any, as mentioned under this agreement by the purchaser, the purchaser shall cause the mortgage under this agreement by the purchaser, the purchaser shall cause the mortgage of said land admeasuring 11.30 acre situated at village Kherki Dhaula, Tehsil Sohna Distt Gurgaon in favour of seller simultaneous to the execution of this agreement by the parties. The mortgage for this purpose shall -26- be only equitable mortgage by depositing the original title deeds of the said land with the seller and the seller shall enforce the mortgage only on default of the purchaser with respect to the payment of entire sale consideration under the share purchase agreement including interest thereon. The said mortgage shall be redeemed as soon as the entire sale consideration is received by the seller in terms of clause 3.3 of this agreement on the sale consideration alongwith interest thereon is paid by the purchaser in terms of clause 3.5. Non encashment of the said cheque or non payment of balance sale consideration alongwith interest thereon as envisaged in clause 3.5 shall be deemed as default on part of the purchaser for the purpose of exercising redemption of the mortgage.
27. Thereafter several disputes arose between the parties and the parties filed legal cases and criminal complaints against each other in various courts including but not limited to the cases as detailed below;
(i) Indiabulls Real Estate Ltd. vs. Virasat Agro Foods Pvt. Ltd. and others (Complaint u/s 138 of Act bearing No. 5079 dated 11.09.2009)
(ii) Arbitration case no. 444/2010 titled Indiabulls Real Estate Ltd. vs. Virasat Agro Foods (P) Ltd. and anothers (includes a claim by Indiabulls and a counter claim by Virasat)
(iii) Shivalik Land Development Ltd. Vs. Padmini Technologies Ltd. and others (Indiabulls being Defendent), -27- Civil Suit No. 369/09.
28. Further on 01.02.2012 i.e. after the assessment year 2009-10, a settlement deed (pages 156-158 of Paper Book) executed between the parties of share purchase agreement for resolving all the disputes among themselves as per terms and conditions stated therein and sale price is renegotiated as under;
"3. That the parties have mutually agreed that the consideration for purchase of sale shares stand revised from Rs. 10,00,00,000/- (Rupees Ten crores only) to Rs. 25,00,000/- (Rupees Twenty Five Lakhs only).
29. Further in accordance with aforesaid settlement deed a supplementary share purchase agreement is executed on 01.02.2012 (pages 137-138 of Paper Book) between parties of share purchase agreement dated 04.12.2008. The assessee could not raise this claim before assessing officer as the sale consideration on which tax was paid was revised only on 01.02.2012, however assessment proceedings u/s 143(3) was completed on 26.12.2011. Therefore, the aforesaid issue was raised before learned CIT(A) vide letter dated 12.06.2012(page 130 of Paper Book) as additional ground. Further submissions dated 30.10.2012 (pages 131-138 of Paper Book) and 06.12.2012 (page 139 of Paper Book) were submitted before learned CIT(A). Then learned -28- CIT(A) sent the additional ground to the learned Assessing Officer for seeking his comments on the matter, however the Assessing Officer vide letter dated 14.01.2013 (page 142 of Paper Book) submitted before Id. CIT(A) that additional ground of appeal submitted by the appellant should not be admitted since from the perusal of assessment record it is clear that due opportunities were provided to the assessee during the assessment proceeding before the learned assessing officer.
30. Further, learned CIT (A) has also not admitted the additional ground as held at page 20 of order as under:
"'7.9 I find that the appellant itself had disclosed sale consideration of Rs. 25 lakhs (however disclosed sale consideration is Rs. 10 Crores) in the return of income. The disclosure made by the learned AO also was accepted by the Id. AO and hence there is no dispute in the matter. The provisions of section 251 relating to powers of commissioner of appeals as provided in explanation below sub-section (2) provided that in disposing of an appeal, the commissioner of appeal may consider and decide any matter arising out of the proceeding, in which the order of the appeal against which passed before the learned commissioner of appeal. In the case of the appellant it is evident that the issue relating to the revision of capital gain was never raised and no such difference of opinion existed between AO and the appellant. Moreover in the case of the said M/s Shivalik -29- Land Development Limited, its shares are not listed and therefore the market value of their shares cannot be determined only on the basis of a revised sale agreement. The explanation given by the appellant regarding inability to file such claim during the assessment proceedings is not satisfactory. Moreover, there is no explanation, whatsoever, as to how in respect of sale of some share two contracting parties could substitute the full value of consideration from 10 crores to Rs. 25 lakhs. Under the circumstances the request of the appellant to admit additional ground of appeal against its own admitted position at the time of filing of return and later during the assessment proceedings cannot be allowed to be admitted."
31. From a reading of the aforesaid letter of the assessing officer it is apparent that the Assessing Officer has objected to the additional ground on the basis that since from the perusal of assessment record it is clear that due opportunities were provided to assessee during the assessment proceedings. The Assessing Officer has overlooked the facts of the case and mechanically given his comment, as regard the position of raising the ground during assessment proceedings. The additional issue has emerged only after the assessment proceedings which are completed vide order dated 26.12.2011; and sale consideration -30- has been changed only on 01.02.2012 in supplementary share purchase agreement. The learned CIT (A) has erroneously rejected the claim of the assessee holding that, the request of the appellant to admit additional ground of appeal is against its own admitted position at the time of filing of return and later during the assessment proceedings, which cannot be allowed to be accepted. The aforesaid objection is fundamentally misconceived as the issue raised is a legal plea and therefore such a plea based on facts on record brought during the appellant proceedings and, confronted to the learned Assessing Officer, who not disputed on the facts in the remand report, can be raised at any stage of the proceedings include appellate proceedings. The Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd v CIT reported in 229 ITR 383 has held as under:
"But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee."[Emphasis supplied] -31-
32. Further the following judgments also support our view:
i) 160 ITR 920 (SC) CIT vs. Mahalaxmi SugarMills Co. Ltd.
Delhi High Court
(i) 81 ITR 303 (Del) CIT vs. Bharat General Reinsurance Co. Ltd It is true that the assessee itself had included that dividend income in its return for the year in question but there is no estoppel in the Income-tax Act and the assessee having itself challenged the validity of taxing the dividend during the year of assessment in question, it must be taken that it had resiled from the position which it had wrongly taken while tiling the return. Quit apart from it, it is incumbent on the income-tax department to find out whether a particular income was assessable in the particular year or not. Merely because the assessee wrongly included the income in its return for a particular year, it cannot confer jurisdiction on the department to tax that income in that year even though legally such income did not pertain to that year. We are therefore of the view that the income from dividend was not assessable during the assessment year 1958-59, but it was assessable in the assessment year 1953-54. It cannot, therefore, be taxed in the assessment year 1958-59.
ii) 130 ITR 264 (Del) Archna Luthansa vs. CIT
iii) 211 CTR 357 (Del) S.D.S Monga vs. CBDT -32- "6. Since the extraordinary jurisdiction of this Court has been invoked, the constraints that may have been felt by the Commissioner in deciding the assessee's revision application under section 264 would not impinge on the powers of the Court under article 226 of the Constitution to correct an injustice that has occurred albeit because of the petitioner/assessee himself. Article 265 of the Constitution mandates that no person shall be taxed without the authority of law. Since in the present case there is no authority to tax the annuities received by the petitioner, we consider it appropriate to exercise our extraordinary powers to correct the injustice
iv) 52 taxmann.com 226 (Del) DIT(E) vs. Ajay G. Piramal Foundation (pages 132-138 of JPB) "In Jai Parabolic (supra), a division bench of this court, after referring to judgment of Supreme Court in Jute Corporation (supra) and some other judgments observed that there is no prohibition on the powers of the Tribunal to entertain an additional ground which according to the Tribunal arises in the matter and for the just decision of the case.
In Pruthvi Brokers (supra), a division Bench of Bombay High Court, referred to the judgments of Supreme Court in Jute corpn. of India Ltd. (supra), NTPC (supra) and Goetze (India) Ltd. (supra) and observed as under:--
"23. It is clear to us that the Supreme Court did not hold anything contrary to what was held in the previous judgments to the effect that even if a claim is not made before the assessing -33- officer, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. In fact, the Supreme Court made it clear that the issue in the case was limited to the power of the assessing authority and that the judgment does not impinge on the power of the Tribunal under section 254."
Thus there cannot be any doubt or debate, that the claim and submission could have been raised by the respondent assessee before the appellate authorities. In either way, the issue has been rightly decided in favour of the respondent assessee." Bombay High Court]
i) 136 ITR 355 (Bom) CIT Vidarbha and Marathwada vs Smt. Archana R. Dhanwatay
ii) 269 ITR 1 (Bom) Nirmala L. Mehta vs. A. Balasubramaniam, CIT
iii) 310 ITR 310 (Bom) Balmukund Acharya vs. DCIT "31. Having said so, we must observe that the Apex Court and the various High Courts have ruled that the authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If any assessee, under a mistake, misconceptions or on not being properly instructed is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected (see S.R. Kosti v CIT (Guj) (2005) 276 ITR 165, C.P.A. Yoosuf v. I.T.O. (1970) 77 ITR 237, CIT v. Bharat -34- General Reinsurance Co. Ltd, (1971) 81 ITR 303, CIT vs. Archana R. Dhanwate (1982) 136 ITR 355 (Bom).
32. If particular levy is not permitted under the Act, tax cannot be levied applying the doctrine of estoppel. (See Dy. Commissioner of Sales Tax vs. Sreeni Printers (1987) 67 SCC 279.
33. This Court in the case of Nirmala L. Mehta v. A. Balasubramaniam, C.I.T. (2004) 269 ITR 1 has held that there cannot be any estoppel against the statute. Article 265 of the Constitution of India in unmistakable terms provides that no tax shall be levied or collected except by authority of law. Acquiescence cannot take away from a party the relief that he is entitled to where the tax is levied or collected without authority of law. In the case on hand, it was obligatory on the part of the Assessing Officer to apply his mind to the facts disclosed in the return and assess the assessee keeping in mind the law holding the field."
349 ITR 136 (Bom) CIT vs. Pruthvi Brokers and Shareholders (P) Ltd. (123-131 of JPB) "22. It was then submitted by Mr. Gupta that the Supreme Court had taken a different view in Goetze (India) Limited v. Commissioner of Income- tax, (2006) 157 Taxman 1. We are unable to agree. The decision was rendered by a Bench of two learned Judges and expressly refers to the judgment of the Bench of three learned Judges in National Thermal Power -35- Company Limited vs. Commissioner of Income-tax (supra). The question before the Court was whether the appellant-assessee could make a claim for deduction, other than by filing a revised return. After the return was filed, the appellant sought to claim a deduction by way of a letter before the Assessing Officer. The claim, therefore, was not before the appellate authorities. The deduction was disallowed by the Assessing Officer on the ground that there was no provision under the Act to make an amendment in the return of income by modifying an application at the assessment stage without revising the return. The Commissioner of Income-tax (Appeals) allowed the assessee's appeal. The Tribunal, however, allowed the department's appeal. In the Supreme Court, the assessee relied upon the judgment in National Thermal Power Company Limited contending that it was open to the assessee to raise the points of law even before the Tribunal. The Supreme Court held:-
"4. The decision in question is that the power of the Tribunal under section 254 of the Income-tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing Officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income-tax -36- Appellate Tribunal under section 254 of the Incometax Act, 1961. There shall be no order as to costs." [emphasis supplied]
23. It is clear to us that the Supreme Court did not hold anything contrary to what was held in the previous judgments to the effect that even if a claim is not made before the assessing officer, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. In fact, the Supreme Court made it clear that the issue in the case was limited to the power of the assessing authority and that the judgment does not impinge on the power of the Tribunal under section 254."
v) 349 ITR 404 (Bom) Sanchit Software& Solutions (P) Ltd. Vs. CIT (pages 111-117 of JPB ) "7. Therefore, in view of the above it is clear that the Commissioner of Income-tax in the order dated 7.04.2011 committed a fundamental error in proceeding on the basis that no deduction on account of dividend income and income form capital gains under Section 10 of the Act was claimed. Therefore there is an error on the face of the order dated 7.04.2011 and the same is not sustainable."
Gujrat High Court 276 ITR 165 (Guj) S. R. Koshti vs. CIT -37- "A word of caution. The authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or on not being properly instructed, is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. This Court, in an unreported decision in case of Vinay Chandulal Satia vs. N.O. Parekh, CIT, Spl. Civil Appln. No. 622 of 1981, rendered on 20th Aug., 1981, has laid down the approach that the authorities must adopt in such matters in the following terms;
"The Supreme Court has observed in numerous decisions, including Ramlal and Ors. vs. Rewa Coalfields Ltd. AIR 1962 SC 361; The State of West Bengal vs. The Administrator, Howrah Municipality and Ors. AIR 1972 SC 749, and Babutmal Raichand Oswal vs. Laxmibal R. Tarte AIR 1975 SC 1297, that the State authorities should not raise technical pleas if the citizens have a lawful right and the lawful right is being denied to them merely on technical grounds. The State authorities cannot adopt the attitude which private litigants might adopt."
ii) 27 taxmann.com 202(Guj.) Aryaman Spinners (P) Ltd. Vs. CIT(pages 118-122 of JPB) Orissa High Court
i) 106 CALLT 192 NULL Srei International FinanceLtd.vs. State of Orissa and Ors. Dated 18.3.2008 -38- "Following Article 265 that, there was no estoppels against statute and, if a person was not liable whether the four comers of the statute, to pay tax, he cannot be assessed to tax, merely because the preciously admitted his liability on a wrong notion. According to the court, the liability to pay tax had to be determined in accordance with the provisions of law and not an admission Allahabad High Court
i) 90 ITR 236 (All) Dhampur Sugar Mills Ltd. vs. CIT Delhi Central Calcutta High Court
i) 57 DTR 39 (Cal) Modern Malleables Ltd. vs. CIT Tribunal
i) 35 DTR 388 (Mum) Rajesh Rasiklal Shah vs. DCIT
ii) 15 SOT 252 (Mum) Chicago Pneumatic India Lt.d vs. DCIT
iii) 94 TTJ 113 (Pune) Lab India Instruments (P) Ltd. vs. DCIT
33. Accordingly, in the facts and circumstances of the present case, the matter is set aside to the file of AO who will verify the genuineness of ht claim of the assessee that whether the sale consideration is Rs. 10 crores or Rs. 25 lakhs and decide the issue de novo but by affording adequate opportunity of being heard to the assessee. Thus, Ground No. 1 of the assessee is allowed for statistical purposes. -39-
34. As regards Ground No. 2, the same is consequential to the sole ground of the Revenue and in view of our findings in Revenue's appeal, the same is allowed.
35. In the result, the appeal of the Revenue in ITA No. 2233/DEL/2014 is dismissed and that of the assessee in ITA No. 1595/DEL/2014 is partly allowed for statistical purposes.
The order is pronounced in the open court on 28.08.2017.
Sd/- Sd/-
[KULDIP SINGH] [B.P. JAIN]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated: 28th AUGUST, 2017
VL/
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar,
ITAT, New Delhi