COMMISSIONEROF INCOMETAX-IV v. I.P.SUPPORT SERVICES INDIA (P) LTD
[Citation -2015-LL-0924-32]

Citation 2015-LL-0924-32
Appellant Name COMMISSIONEROF INCOMETAX-IV
Respondent Name I.P.SUPPORT SERVICES INDIA (P) LTD.
Court HIGH COURT OF DELHI AT NEW DELHI
Relevant Act Income-tax
Date of Order 24/09/2015
Assessment Year 2009-10
Judgment View Judgment
Keyword Tags legal support and other support services to law firms • expenses relevant to the earning of dividend • interest expenditure • investments generating tax exempt income • erroneous premise • voluntary disallowance • substantial question of law
Bot Summary: The Assessee filed its return of income on 22nd September 2009 showing the total income at Rs. 3,16,74,931/-. The AO proceeded to disallow the amount of Rs.33,35,986/- under Section 14A read with Rule 8D of Income Tax Rules, 1962 and added the said amount to the total income of the Assessee. The CIT allowed the appeal filed by the Assessee by an order dated 29th November, 2012 after recording a finding that the AO had failed to examine the contention of the Assessee that it had sufficient funds of Rs.83.13 crores and no borrowing, for whatever purposes, was resorted to and investments generating tax exempt income were done by using administrative machinery of PMS, who did not charge any fees. Sub-section of section 14A of the said Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. If we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. The condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing Officer must record that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Sub-section is nothing but an offshoot of sub-section of section 14A. Sub-section applies to cases where the assessee claims that no expenditure has been incurred ITA 283/2014 Page 4 of 6 in relation to income which does not form part of the total income under the said Act.


$ * IN HIGH COURT OF DELHI AT NEW DELHI 5. + ITA 283/2014 COMMISSIONEROF INCOMETAX-IV ..... Appellant Through: Mr Kamal Sawhney, Senior Standing Counsel and Mr Ragvendra Singh, Junior Standing Counsel and Mr Shikhar Garg, Advocate. versus I.P.SUPPORT SERVICES INDIA (P) LTD. ..... Respondent Through: Mr Piyush Kaushik, Advocate. CORAM: HON'BLE DR. JUSTICE S.MURALIDHAR HON'BLE MR. JUSTICE VIBHU BAKHRU ORDER % 24.09.2015 1. appeal by Revenue is directed against order dated 8th August, 2013 passed by Income Tax Appellate Tribunal ( ITAT ) in ITA No.524/Del/2013 for Assessment Year ( AY 2009-10. 2. By order dated 24th August 2015, this Court issued notice in present appeal, albeit, confined to question as to whether ITAT erred in affirming order of Commissioner of Income Tax (Appeals) [CIT(A)] in deleting disallowance on account of invoking Rule 8D read with ITA 283/2014 Page 1 of 6 Section 14A of Income Tax Act, 1961? 3. Learned counsel for Assessee has placed on record copy of order passed by Assessing Officer ( AO ) by pointing out that copy at Annexure-I is not correct copy. 4. Assessee is company engaged in business of providing legal support and other support services to law firms. These services are specifically related to search of trade mark, patent and design out of unique data base created and owned by Assessee. Assessee filed its return of income on 22nd September 2009 showing total income at Rs. 3,16,74,931/-. case of Assessee was picked up for scrutiny and notice under Section 143(2) was issued and served on Assessee on 25 th August, 2010. 5. In order dated 2nd December, 2011, AO observed that Assessee had dividend income of Rs.2,38,13,275/-. Assessee was asked to furnish explanation as to why expenses relevant to earning of dividend should not be disallowed under Section 14A of Act. Assessee s representative submitted that as no expenses have been incurred for earning of dividend income, this was not case for making any ITA 283/2014 Page 2 of 6 disallowance. AO, inter alia, observed that invocation of Section 14A is automatic and comes into operation, without any exception, as soon as dividend income is claimed as exemption. AO proceeded to disallow amount of Rs.33,35,986/- under Section 14A read with Rule 8D of Income Tax Rules, 1962 and added said amount to total income of Assessee. 6. CIT (A) allowed appeal filed by Assessee by order dated 29th November, 2012 after recording finding that AO had failed to examine contention of Assessee that it had sufficient funds of Rs.83.13 crores and no borrowing, for whatever purposes, was resorted to (no interest expenditure was incurred) and investments generating tax exempt income were done by using administrative machinery of PMS, who did not charge any fees. It was further found by CIT(A) that contrary to decision of this Court in Maxopp Investment (P) Ltd. v. CIT (2012) 347 ITR 272 (Del), AO had failed to record AO s satisfaction after examining accounts which was requirement for invoking Section 14A of Act. 7. In impugned order dated 8th August, 2013, while dismissing ITA 283/2014 Page 3 of 6 Revenue s appeal, ITAT has additionally noted that CIT (A) has followed order of ITAT for AY 2007-08. 8. Having heard learned counsel for parties, Court finds that AO has indeed proceeded on erroneous premise that invocation of Section 14A is automatic and comes into operation as soon as dividend income is claimed exempt. In Maxopp Investment (P) Ltd. (supra) this Court held: 30. Sub-section (2) of section 14A of said Act provides manner in which Assessing Officer is to determine amount of expenditure incurred in relation to income which does not form part of total income. However, if we examine provision carefully, we would find that Assessing Officer is required to determine amount of such expenditure only if Assessing Officer, having regard to accounts of assessee, is not satisfied with correctness of claim of assessee in respect of such expenditure in relation to income which does not form part of total income under said Act. In other words, requirement of Assessing Officer embarking upon determination of amount of expenditure incurred in relation to exempt income would be triggered only if Assessing Officer returns finding that he is not satisfied with correctness of claim of assessee in respect of such expenditure. Therefore, condition precedent for Assessing Officer entering upon determination of amount of expenditure incurred in relation to exempt income is that Assessing Officer must record that he is not satisfied with correctness of claim of assessee in respect of such expenditure. Sub-section (3) is nothing but offshoot of sub-section (2) of section 14A. Sub-section (3) applies to cases where assessee claims that no expenditure has been incurred ITA 283/2014 Page 4 of 6 in relation to income which does not form part of total income under said Act. In other words, sub-section (2) deals with cases where assessee specifies positive amount of expenditure in relation to income which does not form part of total income under said Act and sub- section (3) applies to cases where assessee asserts that no expenditure had been incurred in relation to exempt income. In both cases, Assessing Officer, if satisfied with correctness of claim of assessee in respect of such expenditure or no expenditure, as case may be, cannot embark upon determination of amount of expenditure in accordance with any prescribed method, as mentioned in sub-section (2) of section 14A of said Act. It is only if Assessing Officer is not satisfied with correctness of claim of assessee, in both cases, that Assessing Officer gets jurisdiction to determine amount of expenditure incurred in relation to such income which does not form part of total income under said Act in accordance with prescribed method. prescribed method being method stipulated in rule 8D of said Rules. While rejecting claim of assessee with regard to expenditure or no expenditure, as case may be, in relation to exempt income, Assessing Officer would have to indicate cogent reasons for same. (emphasis supplied) 9. In CIT v. Taikisha Engineering India Ltd. 370 ITR 338 (Del.), in similar circumstances, Court disapproved of AO invoking Section 14A read with Rule 8D (2) of Rules without recording his satisfaction and noted that recording of satisfaction as to why voluntary disallowance made by assessee was unreasonable and unsatisfactory is mandatory requirement of law. ITA 283/2014 Page 5 of 6 10. No substantial question of law arises. appeal is dismissed. S.MURALIDHAR, J VIBHU BAKHRU, J SEPTEMBER 24, 2015 MK ITA 283/2014 Page 6 of 6 COMMISSIONEROF INCOMETAX-IV v. I.P.SUPPORT SERVICES INDIA (P) LTD
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