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ACIT, CENTRAL CIRCLE-2, NEW DELHI Versus M/s HCL CORPORATION LTD

2016 (2) TMI 194 - ITAT DELHI

Disallowance u/s 14A - Held that:- Rule 8D of the I.T. rules is applicable only from the assessment year 2008-09 and is not applicable to the earlier assessment year. Applying the aforesaid legal position to the facts of the assessee’s case, it is noticed that the assessee has, as stated above, claimed expenditure of only ₹ 5,32,48,929 out of the total expenditure of more than ₹ 27 crores. The composition of the said administrative expenses of ₹ 5,32,48,929 is found in Schedule .....

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ot be held to be relatable to the exempt income. It was also find that that more than 80% of the total dividend received has been received from various HCL Group of Companies which the assessee is a promoter investor and has been stated to be holding shares in the said companies for more 15 to 25 years. Dividend income is also stated to be received directly by way of dividend warrant which gets credited to the bank of the assessee. In the background of the aforesaid discussions and precedents, w .....

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alment or furnishing of inaccurate particulars. CIT(A) has rightly held that there is no concealment or inaccurate particulars of income where the addition and/or disallowance is based on bona-fide claims, debatable claims and difference of opinion as held inter-alia by the Hon'ble Supreme Court in a recent judgment in the case of Commissioner of Income tax Vs. Reliance Petroproducts Pvt. Ltd. reported in (2010 (3) TMI 80 - SUPREME COURT )- Decided in favour of assessee - I.T.A. Nos. 3924 & 6419 .....

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d together and are being disposed of by this common order for the sake of convenience. ITA NO. 3924/DEL/2012 (AY 2007-08) 2. First we deal with ITA No. 3924/Del/2012 (AY 2007-08) wherein the following grounds have been raised:- 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the disallowance of ₹ 1,99,09,856/- made by the AO u/s. 14A read with Rule 8D of the Income Tax Rules, 1962. 2. The order of the CIT(A) is erroneous and is .....

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(1) dated 18.9.2009 issued alongwith questionnaire and A.R., of the Assessee attended the assessment proceedings from time to time, filed necessary details. The assessee is a closely held domestic company incorporated in India on 27.3.1980 with the primary objective of carrying on business of Investment company and to inter alia buy, invest, underwrite, acquire share / other securities. The main source of income of the assessee company are, profit on disposal of current / long term investments, .....

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n shares which were acquired way back in the earlier years, i.e. more than 15 to 25 years. The assessee claimed that out of total expenditure of ₹ 27..57 crores, expenditure of ₹ 22.43 crores has already been disallowed in the return of income. Further, out of balance expenditure of ₹ 5,32,48,929/-, the assessee has further disallowed a sum of ₹ 15,66,528/- as expenditure incurred in relation to exempt income. Assessee further clamed before the AO that in view of suo moto .....

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urred in relation to exempt income and in view of decision of Mumbai Bench of the Tribunal in the case of ACIT vs. Citycorp Finance India Limited reported in 108 ITD 457 and the Special Bench of the Tribunal in the case of Dagga Investment Company Private Limited, that Rule 8D of the Rules is also applicable retrospectively to all pending cases. In view of the aforesaid findings, AO proceeded to compute the amount of disallowance as per formula prescribed in Rule 8D of the I.T. Rules. The AO pro .....

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of the assessee by allowing the appeal of the Assessee. 5. Aggrieved with the aforesaid finding of the Ld. CIT(A), Revenue is in appeal before the Tribunal. 6. Ld. DR relied upon the order of the AO and reiterated the contentions raised in the grounds of appeal by the Revenue. 7. On the other hand, Ld. Counsel of the Assessee relied upon the order of the Ld. CIT(A) and stated that Ld. CIT(A) has passed a well reasoned order which does not need any interference and the same may l be upheld. 8. W .....

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is based on the formula prescribed in Rule 8D of the IT Rules for making disallowance under section 14A of the I.T. Act. In this connection the legal position with regard to the applicability of Rule 8D of the IT Rules and also the provision of section 14A of the IT Act is now well crystallized by the later decisions of the Supreme Court In the case of Walfort Share & Stock Brokers, which has been followed and applied by the Bombay High Court in the case of Godrej Boyce and the Jurisdiction .....

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a proximate relationship exists. the disallowance has to be effected. All expenditure incurred in the earning of income which does not form part of the total income has to be disallowed subject to compliance with the test adopted by the Supreme Court in Walfort and it would not be permissible to restrict the provisions of Section 14A by an artificial method of interpretation. …….. Hence, the intention of section 14A is clearly to disallow all expenses relating to the non taxable i .....

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diture incurred" as appearing in section 14A(1) clearly mean that there must be actual expenditure. Of course, the actual expenditure must be for earning the exempt income. We have already pointed out above, that we do not subscribe to the narrow interpretation sought to given to the words "in relation to" which the learned counsel for the assessees are espousing. Thus, we will have to consider the argument of the asssessees in respect of the expression "expenditure incurred& .....

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make it clear that the 'actual' expenditure that is in contemplation under section 14A(1) of the said Act is the 'actual' expenditure in relation to or in connection with or pertaining to exempt income. The corollary to this is that if no expenditure is incurred in relation to the exempt income. no disallowance can be made under section 14A of the said Act. " The Bombay High Court and the Delhi High Court in the above mentioned cases have also held that Rule 8D of the I.T. .....

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he said amount comprises of various expenses which are normally incurred by a company during the course of it's regular business activities. Moreover the appellant has additionally himself disallowed a sum of ₹ 15,66,528 by proportionately disallowing expenses of some of the employees. There is nothing on record to controvert the submissions made on behalf of the appellant. The expenses claimed are also in the nature of day to day administrative expenses and cannot be held to be relata .....

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that no further expenditure over and above the expenses already disallowed in the return of income is required to be disallowed under section 14A of the IT Act. Accordingly, it is held that the disallowance of Rs.l,99,09,856 made by the assessing officer under section 14A of the IT Act by application of Rule 8D of the IT Rules is directed to be deleted. 8.1 We find that Ld. CIT(A) has rightly observed that that provisions of section 14A of the I.T. Act is now well crystallized by the later deci .....

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t applicable to the earlier assessment year. Applying the aforesaid legal position to the facts of the assessee s case, it is noticed that the assessee has, as stated above, claimed expenditure of only ₹ 5,32,48,929 out of the total expenditure of more than ₹ 27 crores. The composition of the said administrative expenses of ₹ 5,32,48,929 is found in Schedule 13 of the Audited Accounts. The said amount comprises of various expenses which are normally incurred by a company during .....

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ed has been received from various HCL Group of Companies which the assessee is a promoter investor and has been stated to be holding shares in the said companies for more 15 to 25 years. Dividend income is also stated to be received directly by way of dividend warrant which gets credited to the bank of the assessee. In the background of the aforesaid discussions and precedents, we are in agreement with the finding of the Ld. CIT(A) in directing the AO to delete the disallowance of ₹ 1,99,0 .....

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the penalty of ₹ 52,29,007/- imposed by the AO u/s. 271(1)(c) of the Income Tax Act, 1961. 2. The order of the CIT(A) is erroneous and is not tenable on facts in law. 3. The appellant craves leave to add, alter or amend any / all of the grounds of appeal before or during the course of the hearing of the appeal. 10. The following grounds have been raised in ITA No. 6420/Del/2012 (AY 2008-09):- 1. On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the penalt .....

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re during the course of assessment proceedings AO noticed that the assessee has earned a dividend income of ₹ 326.49 Crores which is an exempt income. The AO noticed that out of the total expenditure of ₹ 20.84 Crores, the assessee had disallowed expenses of ₹ 18.73 Crore in its return of income and out of the balance administrative expenses of ₹ 2.11 Crore, the assessee had disallowed a sum of ₹ 82,15,899/- under section 14A. However, AO was of the view that in the .....

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particulars of income, hence, the penalty is leviable u/s. 271(1(c) of the Act. 13. Aggrieved with the penalty order, assessee appealed before the Ld. CIT(A), who vide impugned order dated 18.10.2012 deleted the penalty in dispute by allowing the appeal filed by the assessee. 14. Now aggrieved with the impugned order, Revenue filed the present Appeal before the Tribunal. 15. At the time of hearing, Ld. DR relied upon the order of the AO and reiterated the contention raised by the Revenue in the .....

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e Bench (in which one of the Judicial Member was the party) in the case of ACIT vs. M/s Mehrotra Invofin India Pvt. Ltd. passed in ITA No. 4488/Del/2013 (AY 2009-10) and stated that the issue of penalty involved in the present appeal is also squarely covered by the aforesaid decision dated 24.4.2015. Therefore, he requested the Bench that the Appeal of the Revenue may accordingly be dismissed. 17. We have heard both the parties and perused the relevant records available with us, especially the o .....

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o go through the relevant provisions of section 271(1)(c), which provides for imposition of penalty where the AO has to be satisfied that:- i) any person had concealed particulars of his income or ii) had furnished inaccurate particulars of such income. Further, after insertion of Explanation 1 to Section 271(1)(c), the onus is on the assessee to show that there was no intention of concealment and not on the revenue. 17.2 We note that in this context two landmark judgments were given by Apex Cou .....

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titute a deliberate act of suppressiio veri or suggestio falsi. (iii) Primary burden of proof is on the revenue. The statute requires satisfaction on the part of the Assessing Officer. He is' required to arrive at a satisfaction so as to show that there is primary evidence to establish that the assessee had concealed the amount or furnished inaccurate particulars and this onus is to be discharged by the department. (iv) The Assessing officer while considering levy of penalty should consider .....

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ordinarily with the Department is sought to be placed on the assessee. This burden on the assessee is subject to "conditions precedent", which are required to be satisfied before the Explanation could be applied. It was also pointed out as held by Hon ble Supreme Court in K. C. Builders Vs AC/T {2004} {265 ITR 562} {SC} that "deliberateness" is implied in the concept of concealment. 17.3 However after the decision laid down in Dilip N. Shroff (Supra), T. Ashok Pai (Supra) in .....

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he decision of the Hon ble Supreme Court in the case of CIT Vs. Reliance Petro Products Pvt. Ltd (2010) (322 ITR 158) (SC), it is clear that the Hon ble Supreme Court by giving the ruling in Dharmendra Textile Processor's Case (Supra) has not overruled their decision in Dilip N. Shroff's case except for its mention of Mens rea therein. 17.6 It is also pertinent to mention here that after the ruling of Dharamendra Textile Processor, the Hon ble Supreme Court has come out with the ruling i .....

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or imposing penalty under Section 271(1)(c), the AO have to be satisfied that: (a) assessee has concealed the particulars of income or (b) assessee has furnished inaccurate particulars of such income. 17.9 Thus, in view of the Hon'ble Supreme Court's decision in Reliance Petroproducts (Supra) it is clear that the legislature did not intend to impose penalty on every assessee whose claim was rejected by the assessing officer. What is sought to be covered under Section 271(l)(c) is conceal .....

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e find that assessee on its own calculation or estimation disallowed the expenses of ₹ 82,15,899/- under section 14A, however, in the opinion of the AO, the Rule 8D(ii) was applicable accordingly by invoking the same he made a further disallowance of ₹ 1,53,83,963/-. It is not the case, where the assessee has not made any disallowance under section 14A, the assessee admits that the provisions of section 14A are applicable to him, but as per his estimate the disallowance should be to .....

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that there is failure on the part of the assessee to "conceal the particulars of income" or "furnishing of inaccurate particulars. The mere non acceptance of appellant's submissions and without any positive evidence from the AO that assessee has concealed or furnishing of inaccurate particular" didn't ipso facto warrant penalty under Section 271(1)(c). 17.13 Keeping in view of the above facts and circumstances of the case, we find considerable force in the finding of .....

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ll the material in the return which was not found to be incorrect, it is upto the authorities to accept the claim in the return or not, but the same couldn't be considered as concealment or furnishing of inaccurate particulars. 17.15 Keeping in view of the facts and circumstances as explained above, we are of the view that Ld. CIT(A) has rightly held that there is no concealment or inaccurate particulars of income where the addition and/or disallowance is based on bona-fide claims, debatable .....

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furnished inaccurate particulars of his income. The meaning of the word "particulars" used in Section 271(l)(c) would embrace the details of the claim made. Where no information given in the return is found to be incorrect or inaccurate, the assessee cannot be held guilty of furnishing inaccurate particulars. In order to expose the assessee to penalty, unless the case is strictly covered by the provision, the penalty provision cannot be invoked. By no stretch of imagination can making .....

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