THE PR. COMMISSIONER OF INCOME TAX -4 vs. M/S HIND INDUSTRIES LTD.

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ITA/361/2018HC DelhiDLHC01077928201823 March 2018Bench: HON'BLE MR. JUSTICE S. RAVINDRA BHAT,HON'BLE MR. JUSTICE A. K. CHAWLA2 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that no substantial question of law arises for consideration in the appeal. The Court noted that its earlier decision in Maxopp Investment Ltd. v. Commissioner of Income Tax (347 ITR 272) was approved by the Supreme Court in Godrej & Boyce Manufacturing Co. Ltd. v. DCIT (2017) 394 ITR 449 (SC). The principle established is that the Assessing Officer must record satisfaction that the expenditure claimed by the assessee in relation to tax-exempt income is not in accordance with Section 14A before resorting to the computation mechanism under Rule 8D. Since the ITAT followed this established precedent, the High Court found no error in its decision. The appeal filed by the Revenue was accordingly dismissed.

What were the facts?

The Revenue, in its appeal under Section 260A of the Income Tax Act, 1961, challenged the deletion of sums amounting to ₹1,25,52,405/- added under Section 14A of the Act. The Assessing Officer (AO) had applied Rule 8D of the Income Tax Rules, 1962, for disallowance related to tax-free income declared by the assessee, M/s Hind Industries Ltd. The Commissioner of Income Tax (Appeals) [CIT(A)] and the Income Tax Appellate Tribunal (ITAT) had deleted these additions. The ITAT followed the reasoning of the Delhi High Court in Maxopp Investment Ltd. v. Commissioner of Income Tax, holding that the AO could not invoke Rule 8D without first recording satisfaction that the sums offered by the assessee were not in order.

What were the issues?

1. Whether a substantial question of law arises for consideration regarding the deletion of disallowances made under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962. Assessee's Contention: The assessee contended that the lower authorities (CIT(A) and ITAT) correctly deleted the additions. They relied on the High Court's decision in Maxopp Investment Ltd. v. Commissioner of Income Tax, which held that the AO must record satisfaction regarding the inadequacy of the assessee's offered disallowance before invoking Rule 8D. Revenue's Contention: The Revenue argued that the ITAT erred in deleting the additions made under Section 14A. They contended that the AO was justified in applying Rule 8D. The Revenue's appeal was filed under Section 260A of the Act.

Which sections of the Income-tax Act were involved?

Section 14A,Section 260A

AI-generated summary — verify with the full judgment below

$~29 * IN THE HIGH COURT OF DELHI AT NEW DELHI

+ ITA 361/2018

THE PR. COMMISSIONER OF INCOME TAX -4 ..... Appellant

Through: Mr. Ruchir Bhatia, Adv.

versus

M/S HIND INDUSTRIES LTD.

..... Respondent

Through: Mr. K.N. Ahuja, Adv.

CORAM: HON'BLE MR. JUSTICE S. RAVINDRA BHAT HON'BLE MR. JUSTICE A. K. CHAWLA

O R D E R %

23.03.2018

Questioning the deletion of the sums added under Section 14A of the Income Tax Act, 1961 (hereafter referred to as “the Act”) (to the tune of `1,25,52,405/-), the Revenue in its appeal under Section 260A of the Act urges that the ITAT fell into error.

The AO applied Rule 8D of the Income Tax Rules, 1962 (hereafter referred to as “the Rules”) in respect of the disallowance mandated by Section 14A of the Act, towards the tax free income declared by the assessee. The CIT(A) and the ITAT following the reasoning of this Court in Maxopp Investment Ltd. v. Commissioner of Income Tax 347 ITR 272 (Del.), held that without recording satisfaction that the sums offered by the assessee were not in order, the AO could not have sought recourse to Rule 8D of ITA 361/2018

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the Rules.

The ITAT concurred with the Appellate Commissioner’s view.

This Court is of the opinion that no question of law arises; besides Maxopp (supra) and other decisions have been approved by a recent judgment of the Supreme Court in Godrej & Boyce Manufacturing Co. Ltd. v. DCIT (2017) 394 ITR 449 (SC). The appeal is accordingly dismissed.

S. RAVINDRA BHAT, J

A. K. CHAWLA, J MARCH 23, 2018 kks

ITA 361/2018

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