IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH `F', NEW DELHI
Before Sh. H. S. Sidhu, JM & Sh. T.S. Kapoor, AM
ITA No. 4595/Del/2013 : Asstt. Year : 2008-2009
M/s RLF LTD., Vs INCOME TAX OFFICER,
C/o RK Khanna & Co., ITO, WARD 15(1)
Chartered Accountants, NEW DELHI
D-41, NDSE-II,
NEW DELHI - 110049
(APPELLANT) (RESPONDENT)
PAN No. AAACR0008E
Assessee by : Sh. Y.K. Sharma, CA
Revenue by : Sh. Vikram Sahay, Sr. DR
Date of Hearing: 15.01.2015 Date of Pronouncement:20.1.2015
ORDER
PER H.S. SIDHU, JM
This is an appeal by the assessee is directed against the order dated
21.5.2013 of Ld. CIT(A)-XVIII, New Delhi on the following grounds:-
"(1) That on the facts and in the circumstances of the case
and under the provisions of the law, the Commissioner
has erred in upholding:-
a) Invoking of the provisions of section 14A of I.T. Act
read with Rule 8d of the Income Tax Rules, and
b) Disallowance of RS. 9,37,904/- under the above
Rule.
2 ITA No.4595/Del/2013
(2) That on the facts and in the circumstances of the
case the Ld. CIT(A) has erred in upholding an addition
of Rs. 6,62,012/- to the income of the assessee
company.
(3) That on the facts and in the circumstances of the
case the Ld. CIT(A) has erred in sustaining a
disallowance of 20% out of various expenses
amounting to Rs. 34,51,270/-.
(4) Any other ground that the assessee may take with
permission.
2. Facts of the case in brief are that the Return of Income declaring a
total income of Rs. NIL and a book profit u/s. 115JB of Rs. 1,11,215/-
was filed by the assesee on 30.9.2009. The return was processed u/s.
143(1) of I.T. Act, 1961. The case was selected for compulsory
scrutiny under CASS norms. Notice u/s. 143(2) was issued on
11.8.2009, which was duly served upon the assessee. Subsequently,
notice u/s. 142(1) of the I.T. Act, 1961 alongwith questionnaire was
issued to the assessee on 21.7.2010 which was duly served upon the
assessee. In response to these notices, the required details were filed.
During the year under consideration, the assessee company was engaged
in the business of manufacture and exports of embroidered fabrics and
financer. Copy of profit and loss account, balance sheet and suit report
u/s. 44AB of the I.T. Act, 1961 was furnished by the assessee during the
3 ITA No.4595/Del/2013
course of assessment proceedings. Thereafter, the AO completed the
assessment vide its order dated 21.12.2010 and made the various
additions.
3. Against the above assessment order dated 21.12.2010, the assessee
appealed before the Ld. CIT, who vide impugned order dated 21.5.2013
has upheld the additions and dismissed the appeal of the assessee.
4. Aggrieved with the order of the Ld. CIT(A) dated 21.5.2013,
assessee is in appeal before us. The ld. Counsel for the assessee
reiterated the submissions made before the authorities below
and further submitted that as there was no dividend income
received by the assessee, the provisions of section 14A of the
Act were not applicable and no disallowance was called for. It
was further stated that there should have been a positive
income for making the disallowance u/s 14A of the Act r.w.
Rule 8D of the Income Tax Rules, 1962. The reliance was
placed on the following case law:
Ø CIT Vs Holcim India (P) Ltd. in ITA Nos. 486/2014 and
299/2014 order dated 05.09.2014 of Hon ' ble Delhi High
Court
5. In his rival submissions the ld. DR strongly supported the
orders of the authorities below and further submitted that the
earning of income is not a criteria for making the disallowance
u/s 14A of the Act and even if no income has been earned the
4 ITA No.4595/Del/2013
disallowance has to be made u/s 14A of the Act r.w. Rule 8D
of the IT Rules.
6. We have heard both the counsel and perused the records,
especially the orders of the Revenue authorities and Paper Book filed by
the assessee containing pages 1 to 206 having the details of the
assessment as well as appellate records/ documents. Assessee has
submitted that the addition mentioned in Ground no. 1 as aforesaid is
squarely covered by the decision of the Hon'ble High Court of Delhi
vide its order dated 5.9.2014 passed in ITA Nos. 486/2014 & 299/2014
in the case of CIT vs. Holcim India P. Ltd. in favor of the assessee and
against the Revenue. He further submitted that as far as additions raised
vide Ground No. 2 and 3 as aforesaid is concerned, the same was not
properly considered by the AO and the assessee was not granted
adequate opportunity to substantiate its claim.
7. We find that that ground no. 1 (a) & (b) is related to invocation of
the provisions of Section 14A read with Rules 8D of the I.T. Rules and
disallowance of Rs. 9,37,902/- under section 14A. We find that in
response to the AO's query in regard to disallowance under section
14A, the assessee claimed that the investment of Rs. 2,11,04,488/- had
been made by the company out of its own funds, since it had share
capital of more than Rs. 9.65 crores and reserves and surplus of Rs. 1.63
crores. The company also claimed that there have been no movement in
the investment portfolio and therefore, no administrative expense could
5 ITA No.4595/Del/2013
be attributed for managing the portfolio. The AO did not find the reply
of the assessee as acceptable and applied the provisions of Section 14A
r.w.r. 8D and made a disallowance of Rs. 9,37,902/-. We find that Ld.
CIT(A) after considering the submissions of the assessee
observed that the Hon ' ble Bombay High Court in the case of
M/s Godrej & Boyce Manufacturing Co. Ltd. Vs DCIT
reported at 328 ITR 8 after dwelling on the above issue in
great details and considering decisions of various Courts and
Tribunals on the matter including that ITAT, Mumbai (Special
Bench) in the case of ITO vs. Daga Capital Management Pvt.
Ltd. (2009) 117 ITD 169. The Hon ' ble High Court has also
upheld the validity of Rule 8D w.e.f. AY 2008-09. We find
that Ld. CIT(A) after considering the above, confirmed the
addition of Rs. 9,37,902/- made by the AO.
8. We find that their lordships of the Hon ' ble Jurisdictional
High Court in the case of CIT Vs Holcim India (P) Ltd. in ITA
Nos. 486 & 299/2014 vide order dated 05.09.2014 dismissed
the appeal of the revenue and observed in para 14 as under:
"14. On the issue whether the respondent-assessee could have
earned dividend income and even if no dividend income was
earned, yet Section 14A can be invoked and disallowance of
expenditure can be made, there are three decisions of the
different High Courts directly on the issue and against the
appellant-Revenue. No contrary decision of a High Court has
been shown to us. The Punjab and Haryana High Court in
6 ITA No.4595/Del/2013
Commissioner of Income Tax, Faridabad Vs. M/s. Lakhani
Marketing Incl., ITA No. 970/2008, decided on 02.04.2014,
made reference to two earlier decisions of the same Court in
CIT Vs. Hero Cycles Limited, [2010] 323 ITR 518 and CIT Vs.
Winsome Textile Industries Limited, [2009] 319 ITR 204 to hold
that Section 14A cannot be invoked when no exempt income was
earned. The second decision is of the Gujarat High Court in
Commissioner of Income Tax-I Vs. Corrtech Energy (P.) Ltd.
[2014] 223 Taxmann 130 (Guj.). The third decision is of the
Allahabad High Court in Income Tax Appeal No. 88 of 2014,
Commissioner of Income Tax (II) Kanpur, Vs. M/s. Shivam
Motors (P) Ltd. decided on 05.05.2014. In the said decision it
has been held:
"As regards the second question, Section 14A of the Act
provides that for the purposes of computing the total
income under the Chapter, no deduction shall be allowed
in respect of expenditure incurred by the assessee in
relation to income which does not form part of the total
income under the Act. Hence, what Section 14A provides
is that if there is any income which does not form part of
the income under the Act, the expenditure which is
incurred for earning the income is not an allowable
deduction. For the year in question, the finding of fact is
that the assessee had not earned any tax free income.
Hence, in the absence of any tax free income, the
corresponding expenditure could not be worked out for
disallowance. The view of the CIT(A), which has been
affirmed by the Tribunal, hence does not give rise to any
substantial question of law. Hence, the deletion of the
disallowance of Rs.2,03,752/- made by the Assessing
Officer was in order."
9. In the aforesaid case their lordships has also considered
the decisions of the Hon ' ble Punjab and Haryana, Gujarat and
7 ITA No.4595/Del/2013
Allahabad High Court which are in favour of the assessee. We,
therefore, by keeping in view the ratio laid down by the
Hon ' ble Jurisdictional High Court in the case of CIT Vs
Holcim India (P.) Ltd. order dated 05.09.2014 are of the
considered view that no disallowance u/s 14A of the Act can
be made if there is no income earned. In that view of the
matter we delete the disallowance made by the AO and
confirmed by the ld. CIT(A). Therefore, this ground of appeal
is allowed in favor of the assessee and against the Revenue.
10. As regards issue involved in ground no. 2 and 3 regarding
addition of Rs. 6,66,012/- and the disallowance of 20% out of
various expenses amounting to Rs. 34,51,270/-. After hearing
both the parties and perusing the records available with us
especially the written statement filed by the assessee as well as
the order of the revenue authority, we are of the view that
assesee filed its return of income on 30.9.2008 and the AO
issued the show cause notice as per the order dated 16.12.2010
requiring the assessee to file the reply on 21.12.2010. The
requirement of the assessee has been reproduced by the AO in
paras 4 of his order is reproduced below for the sake of
convenience.
" 4. In this case a show cause was issued as per
order sheet dated 16.12.2010 and required to
8 ITA No.4595/Del/2013
file reply on 21.12.2010. The show cause
reproduced as under:-
a) Why disallowance u/s. 14A will not be added back
to your income.
b) As per AIR/TDS/CIB information you have not
shown proof of income / receipt regarding
following parties:-
i. Rotex Hosiery P 30.11.2007 Rs. 6519/-
Ltd.
ii. -do- Rs. 4375/-
21.7.2007
iii. -do- Rs.
29.2.2008
17665/-
iv. Pawan Kumar 29.2.2008 Rs.
Singla 56858/-
v. Rotex Hosiery P 31.10.2010 Rs.
Ltd. 40380/-
vi. BL International 31.12.2007 Rs.
54600/-
vii. Ivory Clothing P 5.11.2007 Rs.
Ltd. 100370/-
viii. -do- 18.12.2007 Rs. 4180/-
ix. Holiday 31.8.2008 Rs.
14920/-
x. -do- 31.8.2008 Rs.
261464/-
xi. -do- 31.8.2008 Rs.
46690/-
xii. -do- 31.3.2008 Rs. 4689/-
xiii Shor Shot India 31.7.2007 Rs.
12516/-
9 ITA No.4595/Del/2013
Why not above amounts added back in your income.
(c) As per confirmation of the following parties, the
difference comes after complisation:-
(i) GTN Rs. 1040/-
(ii) Shiv Ganga Rs. 5999/-
(iii) M/s Thread Depot Rs. 78979/-
Why not above amount added in your income.
Produce books of a/c with vouchers/bills, and sale
purchase bills etc. "
10. The reply by the Assessee dated 21.12.2010 is at Page No.
5 vide para no. 5 of the AO order is reproduced below, for the
sake of convenience:-
5. "The assessee filed the reply vide letter dated
21.12.201 which is reproduced as under:-
5.1 As this connection it is respectfully
submitted that the investment of Rs.2,
11,04,488/- has been made by the company out
of its own funds. It has a share capital of more
than Rs.9.65 Crores besides Reserve & Surplus
of R.1.63 Crores.
10 ITA No.4595/Del/2013
5.2 It may further be submitted that the
company has taken loans from banks and
financial institutions. The working capital term
loan was sanctioned and has been invested in its
factory. Similarly, cash credit facility has also
been granted by the bank for business activities
relating to factory. The other loans are also
charged to imported auxiliary machinery.
Similarly, fixed deposits were taken long time
ago for factory purposes only. Therefore, no
loan can directly or indirectly be attributed to
the activity of investment in shares. Therefore,
no element of interest can be allocated directly
or indirectly for earning income from
investment in shares.
As there has hardly been any movement in its
investment portfolio except sale of some
Development Bank Shares and Vijay Bank
Share, no amount of administrative expense can
be attributed for managing the investment
'portfolio. Hence, the applicability of the
11 ITA No.4595/Del/2013
provisions of Section 14A of IT Act is
completely denied.
5.3 You were pleased to give a copy of the AIR
extracts relevant to the company. Our staff has
been able to co-relate the same with the bills
raised by the company in respect of the said
parties. Some of the bills relate to the Financial
Year preceding to the relevant previous year. A
chart giving details and corresponding bills are
enclosed. In case of Holiday Exports, it may be
submitted that - the company has not had any
transaction with the party during the year under
assessment. On enquiry, the personnel of
Holiday Exports have informed that perhaps by
mistake the PAN No. of our company was
mentioned in the quarterly returns
electronically uploaded/filed by the said party.
A copy of the e-mail from the party is enclosed.
A formal letter if required can also be filed.
You have already cross verified other entries
appearing in the AIR with the relevant
12 ITA No.4595/Del/2013
records/details of the company, such as Cash
Book etc..
5.4 You had also required the company to
explain the difference in accounts between the
following parties and their accounts in our
books of accounts.
i) Shiv Ganga Industries
In this case you were pleased to give a copy of
account of the company in the books of M/s Shiv
Ganga Industries, Delhi. A copy of the said
party ' s accounts in our books is also enclosed.
During the year we had debited the party an
amount of Rs. 852884/- being amounts in
respect of bills and freight cartage and petrol.
The party has responded the entries aggregating
to Rs. 846884/-, the debit notes of Rs. 1000/-,
Rs. 1000/- and Rs. 4000/- dated 14.9.2007,
1.12.2007 and 16.1.2008 respectively. This is
in continuation to our earlier reply dated 9 th
December, 2010 on this point.
As desired acknowledgement forms of the
company having filed Income Tax Returns
13 ITA No.4595/Del/2013
showing loss for the AY 2000-01, 2001-02,
2002-03 and 2003-04 are enclosed. For AY
2003-04 the date for filing of the IT return had
been extended to 30.11.2003 vide notification
dated 16.10.2003. Copy enclosed. All the
returns have been filed within the prescribed
due date and therefore loss is allowed to be
carried forward. "
11. After going through the reply filed by the assessee, the
AO completed assessment on 21.12.2010 u/s. 143(3) of the I.T.
Act. We are of the of the view that the AO completed the
assessment on 21.12.2010 whereas he has issued the show
cause notice vide order dated 16.12.2010 asking the assesee to
file its reply by 21.12.2010. We are of the view that the AO
has not given sufficient time to the assessee to file its
complete reply alongwith supporting documents for
substantiating its claim. No doubt that assessee has filed its
reply on the date of assessment i.e. 21.12.2010, but in our
opinion sufficient time has not been granted by the AO to the
assessee for substantiating its claim, which is contrary to the
principles of natural justice. Similarly, the Ld. CIT(A) has
also taken in a routine manner the additional evidence filed by
14 ITA No.4595/Del/2013
the assessee. No doubt that after taking the Remand Report
from the AO, Ld. CIT(A) has decided the issue in dispute
against the assessee. We are not commenting upon the merits
of the case, because it will prejudice to the mind of the AO
while deciding the issue in dispute fresh, as per law. But we
are of the considered view that AO as well as Ld. CIT(A) has
not given sufficient time to the assesse for substantiating its
claim before the revenue authority. As stated by the Ld.
Counsel of the assessee that assessee is in possession of all the
documentary evidence for substantiating its claim and he
requested the issue involved in ground no. 2 and 3 may be set
aside to the file of the AO, to decide the same afresh, under
the law, after giving adequate opportunity of being heard to
the assessee. No objection has been raised by the Ld. DR on
the request of the assesee.
12. Keeping in view of the facts and circumstances of the
case, we are of the view that the issue involved in ground no. 2
and 3 require thorough examination at the level of the AO,
after providing adequate opportunity of hearing to the
assessee. Therefore, the issues raised vide Ground NO. 2 and
15 ITA No.4595/Del/2013
3 are set aside to the file of the AO de novo, to decide the
same as per law.
13. In the result, appeal of the assessee is partly allowed for
statistical purposes.
Order pronounced in the open Court on 20/01/2015.
Sd/- Sd/-
(T.S. KAPOOR) (H.S. SIDHU)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated: 20/01/2015
*SR Bhatnagar*
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT(Appeals)
5. DR: ITAT
ASSISTANT REGISTRAR
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