Delhi High Court
Cit-I vs M/S. Consolidated Photo & Finvest ... on 2 July, 2012
Author: R.V. Easwar
$~5
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Date of Decision : 2nd, July, 2012.
+ ITA 1290/2011
CIT-I ..... Appellant
Through : Sh. Deepak Chopra and Sh. Harpreet Singh
Ajmani, Advocates.
versus
M/S. CONSOLIDATED PHOTO & FINVEST LTD ..... Respondent
Through: Ms. Kavita Jha and Sh. Somnath Shukla,
Advocates.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.V. EASWAR
R.V.EASWAR, J.: (ORAL)
This appeal by the revenue, filed under section 260A of the Income Tax Act,
1961 („Act‟, for short) is directed against the order passed by the Income Tax
Appellate Tribunal („Tribunal‟, for short) on 13.5.2011 in ITA No.5519/Del/10.
2. The revenue seeks to raise the following question as a substantial question of
law for adjudication :
"(A) Whether the Tribunal was justified in not remitting the matter
back to the AO for re-computation of the disallowance under
section 14A of the Act since the AO had applied Rule 8D and
there arose no occasion for him to examine whether the
disallowance made by the assessee in respect of expenses
pertaining to exempt income was appropriate or not?"
3. In our opinion no substantial question of law arises for our decision. The
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assessee is a company engaged in the business of giving loans and earning interest
income. It also earned commission income on trading of goods and freight investment
made in mutual funds. In the return filed for the assessment year 2007-08, the
assessee itself made a disallowance of Rs.36,64,485/- under Section 14A of the Act
out of the total expense of Rs.47,73,534/- incurred by it. The assessee was in receipt
of tax-free dividend of Rs.88,53,317/- and tax-free long-term capital gains of
Rs.3,71,00,919/-. According to the assessee, expenses to the tune of Rs.36,64,485/-
were incurred in relation to the earning of the aforesaid two items of tax-free income
and therefore had to be disallowed as mandated by Section 14A. The Assessing
Officer, while completing the assessment, without examining the merits of the
assessee‟s stand, straightaway proceeded to apply Rule 8D of the Income Tax Rules,
1962 and disallowed a sum of Rs.78,70,570/- as expenses incurred in relation to the
earning of exempt income. It may be noted that the disallowance computed by the
Assessing Officer was much more than the total expenses of Rs.47,73,534/- incurred
by the assessee to earn both exemption and taxable income.
4. On appeal by the assessee, the CIT(Appeals) observed that the Assessing
Officer did not point out any discrepancy in the disallowance offered by the assessee
itself nor was there any material to show that further expenditure needs to be
disallowed under Section 14A. He held further that Rule 8D of the Income Tax Rules
was notified only on 24.3.2008 and therefore took effect only from the assessment
year 2008-09. In this view of the matter and applying the judgment of the Bombay
High Court in the case of Godrej & Boyce Manufacturing Company Ltd. Vs. DCIT
in ITA 626/2010 where it was held that Rule 8D took effect only from the assessment
year 2008-09, the CIT(Appeals) held that the disallowance worked out by the
Assessing Officer was not justified. He accordingly, deleted the further disallowance
made by Assessing Officer and allowed the assesses‟s appeal on this point.
5. The revenue carried the matter in appeal before the Tribunal. The Tribunal
noticed the method adopted by the assessee in making a disallowance of
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Rs.36,64f,485/- out of the total expense of Rs.47,73,534/-. It found no discrepancy or
error in the disallowance made by the assessee. The basis adopted by the assessee has
been set out in para 4.2 of the order of the Tribunal in a tabular form. The Tribunal
also held that Rule 8D applied only from the assessment year 2008-09, as held by the
Bombay High Court in the judgment cited supra. It would appear that the computation
was put to the representative of the department for comments, but he was not able to
point out any error in the same. This has been recorded by the Tribunal in para 5 of its
order. In this situation, the Tribunal did not feel any need for interfering with the
decision of the CIT(Appeals) and the appeal of the revenue on this point was
dismissed.
6. The objection of the ld. standing counsel before us is that the Tribunal ought to
have remitted the matter back to the Assessing Officer for re-computation of the
disallowance made under Section 14A of the Act, since he had no occasion to examine
whether the disallowance made by the assessee was sufficient or not because of the
view he took, that is to say, that Rule 8D was applicable to the assessment year in
consideration (2007-08). We are not able to uphold the objection. It was for the
Assessing Officer to examine whether the disallowance offered by the assessee itself
was sufficient on the facts and circumstances of the case, notwithstanding the view he
took regarding the applicability of Rule 8D. It is not expected of him to take
piecemeal decisions regarding the merits of the disallowance. In any case, when the
disallowance was taken in appeal before the CIT(Appeals), the judgment of the
Bombay High Court (supra) was available and it was for the Assessing Officer to take
out a plea before the CIT(Appeals) that the disallowance offered by the assessee was
not sufficient, even if Rule 8D was not applicable but this was not done. When the
matter reached the Tribunal, the Tribunal specifically called upon the departmental
representative to point out any error in the computation of the disallowance made by
the assessee, but he was not able to point out any error in the same. In these
circumstances, we are of the opinion that no strong grounds have been made out for
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disturbing the decision of the Tribunal. The Tribunal, in our view was not in error in
not remitting the matter to the Assessing Officer for fresh consideration.
7. The ld. standing counsel referred to the judgment dated 18th November, 2011
of this Court in the case titled Maxopp Investment Ltd. vs. CIT ITA No. 687/2009 and
contended that in view of the directions given by the Court in this decision, it would
be proper and more appropriate for the Assessing Officer to examine the disallowance
to be made under Section 14A over again. Each case has to turn on its facts. We do
not think that any broad generalization can be made in such a matter which is purely
factual. As already noted, a substantial amount of the total expense incurred by the
assessee, for earning both taxable and non-taxable income, has been offered for
disallowance by the assessee itself. Neither the CIT(Appeals) nor the ld.
Departmental representative who appeared before the Tribunal could point out any
error or serious discrepancy in the basis adopted by the assessee for making the
disallowance. In these circumstances, particularly having regard to the facts of the
case before us, we do not think any substantial question of law arises for decision.
8. For the above reasons we find no merit in the appeal and the same is dismissed
with no order as to costs.
R.V.EASWAR, J.
S. RAVINDRA BHAT, J
JULY 02, 2012
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