Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN
PER BENCH
Aforesaid appeals by the Department and cross objections by the assessee are directed against common order dated 13th November 2014, passed by the learned Commissioner (Appeals)–36, Mumbai, for the assessment years 2006–07, 2007–08, 2008–09, 2009–10, 2010– 11 and 2011–12. As common issues are involved in all these appeals, they were clubbed together and being disposed off in this combined order.
ITA no.480, 481 & 482/Mum./2015 C.O. no. 202, 203, 204/Mum./2016
At the outset, it needs to be mentioned that the cross objections by the assessee are delayed by 96 days. Assessee has sought condonation of delay by explaining that non–filing of cross objection in time was due to inadvertent omission on the part of the assessee as it was busy in preparation and filing of return in the month of September and other connected work. Learned Departmental Representative has no serious objection for condonation of delay.
Considering the submissions of the parties, we are satisfied that the delay in filing cross objections is due to reasonable cause, hence,
5 M/s. Rolta Limited
we condone the delay and admit these cross objections for hearing on merit.
The Department has raised two issues in its grounds of appeal. The first issue relates to the decision of the learned Commissioner (Appeals) in holding that in the absence of incriminating material, assessment made under section 153A of the Act was not proper.
The second issue relates to deletion of disallowance made under section 14A of the Act.
The common issue raised in the cross objection corresponding to issue no.1 in Department’s appeals is in relation to validity of assessment under section 153A. As the issue no.1 raised in the Department’s appeal and which is the only issue raised in assessee’s cross objections is a purely legal and jurisdictional issue, we propose to deal with the same at the outset.
Brief facts are, the assessee a company is engaged in the business of providing information technology related services to various companies and derives income from business, dividend and interest on deposits. For the assessment year under consideration, assessee had filed its return of income originally on 20th November 2006. A search and seizure operation under section 132 of the Act,
6 M/s. Rolta Limited
was conducted in assessee’s case and other group concerns on 29th April 2010. In pursuance to the search and seizure operation, the Assessing Officer initiated proceedings under section 153A of the Act. During the assessment proceedings, the assessee objected to the initiation of proceedings under section 153A of the act by submitting that in the absence of any incriminating material, no addition can be made in respect of income which was subject matter of assessments completed prior to the search and seizure operation. In this context, the assessee relied upon the Special Bench decision of the Tribunal, Mumbai Bench, in All Cargo Global Logistic Ltd. v/s DCIT, 147 TTJ 513 (SB) (Mum.). The Assessing Officer, however, rejecting the contention of the assessee, observed that section 153A, empowered him to determine the total income without having regard to nature of documents seized during the course of search. Having held so, the Assessing Officer observed, in the relevant previous year assessee had earned exempt income by way of dividend of ` 9,84,40,500, whereas, no disallowance under section 14A, has been made by the assessee. In response to query raised by the Assessing Officer, it was submitted by the assessee that it receives only one dividend warrant, hence, no indirect expenditure is incurred. The Assessing Officer, however, did not find merit in the submissions of the assessee and proceeded to disallow an amount of ` 62,34,668 being 0.5% of the average
7 M/s. Rolta Limited
investments under section 14A of the Act. Being aggrieved of the assessment completed under section 153A, as well as disallowance made under section 14A, assessee preferred appeal before the learned Commissioner (Appeals).
The learned Commissioner (Appeals) after considering the submissions of the assessee on the issue of validity of proceedings initiated under section 153A, observed as far as assessment year 2006–07, 2007–08, 2008–09 are concerned, original assessment was completed under section 143(3), prior to the date of search and no disallowance was made under section 14A. He also found from the record that no incriminating material was found during the search which could have enabled the Assessing Officer to pass assessment orders under section 153A, by disturbing the original assessment order under section 143(3) to make the addition under section 14A. Having held so, the learned Commissioner (Appeals) without annulling the assessment orders passed for assessment year 2006–07, 2007–08 and 2008–09, proceeded to dispose off the appeals on merit by deleting the disallowance made under section 14A.
Learned Departmental Representative, though, accepted that no incriminating material was found at the time of search, even, in relation to addition made by the Assessing Officer, however, he
8 M/s. Rolta Limited
submitted, irrespective of the fact whether there is incriminating material against the assessee found as a result of search, the Assessing Officer is empowered under section 153A, to make an assessment even if there is no pending assessment on the date of search. In this context, he relied upon the decision of Hon'ble Supreme Court in CIT v/s Calcutta Knit Wares, 362 ITR 673.
Learned Authorised Representative strongly relying upon the decision of the Hon'ble Jurisdictional High Court in CIT v/s Continental Warehousing Corporation, 374 ITR 645, submitted in the absence of incriminating material, the Assessing Officer cannot make assessment under section 153A in respect of income which were part of the original assessment completed before the search and seizure operation. He, therefore, submitted, learned Commissioner (Appeals) having found that there is no incriminating material relating to the addition made by the Assessing Officer and which is a routine addition already considered in the original assessment, the assessment completed under section 153A should have been annulled.
We have considered the submissions of the parties and perused the material available on record. It is evident from the impugned assessment orders that only addition made in the aforesaid assessment years is on account of disallowance made under section
9 M/s. Rolta Limited
14A of the Act. Undisputedly, in the aforesaid assessment years original assessments have been completed under section 143(3) of the Act much before the search and seizure operation conducted by the Department in the case of the assessee. Therefore, as on the date of search, there was no pending assessment for the aforesaid assessment years. On a careful analysis of the assessment orders passed for these assessment years, we have noticed that the Assessing Officer has not referred to a single piece of incriminating material revealing undisclosed income of the assessee. The only addition made by the Assessing Officer is on account of disallowance under section 14A, towards expenditure attributable to earning of exempt income. In fact, the learned Departmental Representative has also accepted the aforesaid factual position. Undisputedly, the information relating to dividend income was disclosed by the assessee in return of income filed and certainly was subject matter of consideration at the time of original assessment. In fact, in the proceedings under section 153A, the Assessing Officer has no other information on dividend income except information disclosed by the assessee in the return of income. Therefore, undisputedly, the addition made by the Assessing Officer has no nexus with any incriminating material found during the search and seizure operation. Rather, it is a routine / regular disallowance made by the Assessing Officer, which in our view, cannot be made in
10 M/s. Rolta Limited
an unabated assessment under section 153A. The ITAT, Mumbai Special Bench, in case of All Cargo Global Logistics Ltd. v/s DCIT, [2012] 18 ITR 106 (Trib.), while examining the power of the Assessing Officer under section 153A of the Act has held, in case of assessments pending on the date of search the Assessing Officer retains the power to make original assessment and assessment under section 153A. In other words, he can assess both income which could have been assessed in the original assessment as well as income unearthed as a result of search and seizure operation and any other material brought on record. However, in case of a non–abated assessment, the assessment under section 153A, has to be made on the basis of books of account or other documents not produced in the course of original assessment but found in the course of search, and undisclosed income or undisclosed property discovered in the course of search. Aforesaid view of the Special Bench was approved by the Hon'ble Jurisdictional High Court in CIT v/s Continental Warehousing Corp. Ltd. (supra). Therefore, in view of the principle laid down by the Hon'ble Jurisdictional High Court in Continental Warehousing (supra), proceedings initiated under section 153A and additions made under section 14A in the absence of any incriminating material is invalid, therefore, the impugned assessment orders passed under section 153A, have to be annulled. Accordingly, issue no.1, raised by the
11 M/s. Rolta Limited
Department is dismissed and ground raised by the assessee in the cross objections are allowed.
Since we have declared the impugned assessment orders to be invalid, the issue raised by the Department in relation to the deletion of disallowance made under section 14A, have become infructuous, hence, no adjudication is required.
In the result, Department’s appeals in ITA no.480, 481 & 482/ Mum./2015 are dismissed and assessee’s Cross Objections no.202, 203, 204/Mum./2016 are allowed.
ITA no.483, & 484/Mum./2015
According to us, the only common issue which arises in these appeals of the Department is in relation to deletion of disallowance made under section 14A.
As discussed in the earlier part of our order in the course of assessment proceedings, the Assessing Officer noticing that the assessee had earned different amount of dividend income in the relevant previous years which have been claimed as exempt, whereas the assessee has not disallowed any expenditure relating to earning of such dividend income, called upon the assessee to explain why disallowance under section 14A r/w rule 8D should not be made. In
12 M/s. Rolta Limited
response, it was submitted by the assessee that it receives only one dividend warrant, hence, has not incurred any indirect expenditure. The Assessing Officer, however, did not find any merit in the submissions of the assessee and proceeded to disallow 0.5% of the average value of investment in terms of rule 8D(2)(iii). Being aggrieved of such disallowance made by the Assessing Officer, assessee preferred appeals before the learned Commissioner (Appeals).
Before the learned Commissioner (Appeals), it was submitted by the assessee that in absence of recording of satisfaction by the Assessing Officer that the claim of the assessee having regard to the books of account was not proper no disallowance can be made under section 14A r/w rule 8D. Further, it was submitted by the assessee 100% investment made by the assessee is in associate concerns and subsidiaries and such investments are long term investment. Therefore, no decision is required in making the investments or disinvestments on regular basis because these investments are strategic in nature, therefore, no direct or indirect expenditure is incurred. It was submitted, the assessee had received only one dividend warrant which is electronically transferred to the Demat account, hence, no expenditure is incurred. In support of his contention, the assessee also relied upon few decisions of the Tribunal.
13 M/s. Rolta Limited
The learned Commissioner (Appeals) after considering the submissions of the assessee in the light of the decisions relied upon observed, sub– section (2) of section 14A, does not empower the Assessing Officer to apply rule 8D straight away without considering whether the claim made by the assessee is correct. Further, learned Commissioner (Appeals) relying upon certain decisions of the Tribunal holding that the primary object of investment is holding controlling stake in the Group concerns and not earning income out of any investment, ultimately concluded that the assessee has not incurred any expenditure for earning the exempt income. Therefore, he deleted the addition made under section 14A r/w rule 8D.
Learned Departmental Representative submitted, the provisions contained in section 14A r/w rule 8D, do not allow any deduction on account of strategic investment. Relying upon the decision of the Hon'ble Jurisdictional High Court in Godrej & Boyce Mfg. Co. Ltd. v/s DCIT, [2010], 328 ITR 081 (Bom.), he submitted, the Assessing Officer has to make disallowance of expenditure attributable to earning exempt income in strict compliance to the provisions contained under section 14A r/w rule 8D. He, therefore, submitted, learned Commissioner (Appeals) was not justified in deleting the addition made under section 14A by the Assessing Officer.
14 M/s. Rolta Limited
Learned Authorised Representative on the other hand, strongly supporting the order of the learned Commissioner (Appeals) submitted, the entire exempt income yielding investment made by the assessee is in subsidiary. He submitted, as these investments are for strategic purpose to gain control by holding stack, it cannot be construed to be for the purpose of earning dividend. Therefore, no disallowance under section 14A can be made. He submitted, in case of assessee’s sister concern, against the order of the learned Commissioner (Appeals), deleting similar disallowance, though, the Department had come in appeal before the Tribunal, however, the Tribunal has upheld the order of the learned Commissioner (Appeals) in deleting the disallowance made under section 14A. He, therefore submitted, the order passed by the learned Commissioner (Appeals) should not be disturbed.
We have considered the submissions of the parties and perused the material available on record. As far as the factual aspect of the issue is concerned, there is no dispute that the investments on which the assessee has earned dividend have been made in subsidiary companies. It is the contention of the assessee that such investments made in the subsidiary is not with the motive of earning dividend but with the object of holding controlling stake in the group concern. We have noted, in case of one of the group concerns of the assessee viz.
15 M/s. Rolta Limited
Rolta Shares and Stocks Pvt. Ltd., the Tribunal, while deciding the appeal involving identical investment made in the same sister concern has deleted the disallowance made under section 14A r/w rule 8D(2)(iii) observing as under:–
“5. We have carefully considered the rival contentios and perused the material placed before us including the orders of authorities below and the case laws relied upon by the ld.AR. The issue of strategic investments in the subsidiary companies / sister concerns are meant to gain control over the subsidiary companies / sister concerns and are not governed by the profit consideration or the motive of earning dividend from the said investments. Therefore, for the purpose of disallowance u/s 14A w.r.s. 8D(2)(iii) the investments in the associate concern are not to be considered as has been held in the afforestated cases. 6. In view of the ratio laid down in the above decisions, we are of the considered view that the issue raised by the assessee is squarely covered in favour and the appeal of the revenue is accordingly dismissed.”
Undisputedly, in the impugned appeals also, assessee has received dividend income from investment made in the same sister concerns, therefore, the claim of the assessee that these are strategic investments for gaining control over the sister concern is acceptable. That being the case, following the decision of the Tribunal in case of another group company referred to above, we uphold the order of the learned Commissioner (Appeals) on the issue by dismissing the ground raised.
In the result, Department’s appeals in ITA no.483, 484 & 485/ Mum./2015 are dismissed.
16 M/s. Rolta Limited
To sum up, Department’s appeals in ITA no.480, 481 & 482/Mum./2015 and ITA no.483, 484 & 485/Mum./2015 are dismissed and assessee’s Cross Objections no.202, 203, 204/Mum./ 2016 are allowed. Order pronounced in the open Court on 21.12.2016
Sd/- Sd/- SAKTIJIT DEY N.K. PRADHAN ACCOUNTANT MEMBER JUDICIAL MEMBER
MUMBAI, DATED: 21.12.2016 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary (Dy./Asstt. Registrar) ITAT, Mumbai