IN INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F , NEW DELHI BEFORE SHRI R. S. SYAL, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER I.T.A. No.5613, 5614, 5729/Del/2013 (Assessment Years 2005-06, 2007-08 & 2010-11 respectively) Rathi Bars Ltd., Vs. DCIT, Circle 15(1), A-14/7, Mathura Road, New Delhi New Delhi-110 017 GIR / PAN :AAACR0737N I.T.A.No. 6102/Del/2013 (Assessment Year 2010-11) DCIT, Circle 15(1), Vs. Rathi Bars Ltd., New Delhi A-24/7, Mohan Coop Indl. Estate, Mathura Road, New Delhi. (Appellant) (Respondent) Appellant by : Shri Gautam Jain, Adv. Shri P K Kamal, Adv. Respondent by :Shri R R Meena, Sr. DR Date of hearing : 14.09.2016 Date of Pronouncement: 19.09.2016 ORDER PER BEENA A. PILLAI, JM: As issues involved in these Assessment Years are common, we are disposing of these appeals by way of common order as under: A. I.T.A.No. 5613/Del/2013 (Assessment Year 2005- 06): This appeal has been filed by assessee against order dated 16.08.2013 passed by Ld. CIT(A) XVIII, New 2 I.T.A.Nos.5613,5614, 5729 & 6102./Del/2013 Delhi for Assessment Year 2005-06 on following grounds of appeal: 1. That on fact and circumstances of case (i) impugned order is not only bad in law and nature but it also whimsical hence it is liable to be deleted. (ii) Ld.CIT(A)-XVIII grossly erred in allowing reopening of assessment u/s 148 which has already been assessed u/s 143(3) of Act. Invoking provisions of section 14A r.w.r 8D retrospectively, which is not allowed as per Rule as well as per judicial pronouncements of various High Courts. 2. That on facts and circumstances of case Ld. CIT(A)-XVIII grossly erred in confirming addition of Rs.3,13,151/- by applying provisions of Sec 14A read with rule 8D. 2. Brief facts of case are as under: 2.1 assessee filed its return of income for year under consideration on 30.10.2005 at brook profit of Rs.34,82,212/- u/s 115JB of Act. return was processed u/s 143(1) and also assessed u/s 143(3) of Act at loss of Rs.1,06,94,499/-. 2.2 Subsequently, Ld. A.O. issued notice u/s 148 of Action 30.03.2012 after recording reasons for reopening as under: assessee has claimed exempt income u/s 10(1) r.w.s 2(1) to tune of Rs. 2,11,20,946/-. assessee has shown in P& L account dividend received of Rs. 3.90 lacs. Further, sales turnover has been shown at Rs.136.85 Crores against which expenditure or Rs. 132.77 Crs has been claimed. profit before tax is shown at Rs. 2.39 Crs. Since, 3 I.T.A.Nos.5613,5614, 5729 & 6102./Del/2013 assessee has earned exempt income in form dividend and agricultural income and has not disallowed any expenditure attributable towards earning such exempt income, as per provisions of section 14A disallowances are applicable and proportionate expenses claimed needs to be disallowed which is higher than Rs.1 lac. In A.Y.2005-06 assessee has claim administrative and selling distribution expenses of Rs.1.99 crore out of which selling and distribution expenses works out to Rs. 57,84,993/-. Hence common administrative expense to be allocated for purpose of section 14A disallowance works out to Rs. 1,41,49,223/-. Further assessee has incurred expenditure of Rs.85,96,385/- towards interest. Hence proportionate administrative and interest expense attributable to exempt income works out to Rs.2,58,838/- and Rs.4,56,545/- respectively. Further assessee has shown investment of Rs.2,16,62,957/- for year ending 31.03.2005 and Rs.62,245/- for year ending 31.03.2004. Hence further disallowance of 0.5% of average investment to tone of Rs.54,313/- "also needs to be disallowed u/s 14A. Hence total disallowance u/s 14A of Rs.54,313/- needs to be disallowed Inter- alia book profit u/s 115JB will also increased by amount of Rs.7,69,696/-. assessee in response to question vide order sheet dated 31.07.2007 and as seen in return of income, has not attached separate balance sheet, P& L account or income and expenditure account with respect to its agricultural activities which is sizeable activity. investment made in above has not been disclosed. assessee has merely tried agreements regarding agriculture land. basis of income or expenditure for year and investment in agriculture land and end of year has not been submitted as can be seen from assessee's submissions dated 27.07.2007, 10.10.2007, 23.10.2007 and 26.10.2007. Hence there has been 4 I.T.A.Nos.5613,5614, 5729 & 6102./Del/2013 non compliance by assessee to notice u/s 142{/) of IT Act as well. In view of above facts, I have reason to believe that assessee has not disclosed fully and truly all material facts necessary for its assessment to extent of Rs.7,69,696/-. I have also reasons to believe that income to extent of Rs.7,69,696/- has escaped to be assessed under section 115JB for year under consideration i.e. Y 2005-06. There has been failure on part of assessee to disclose fully and truly all material facts necessary for his assessment in A Y 2005-06. Hence same is to be brought to tax under section 147 of income Tax Act. Sanction for issue of notice u/s 148 as prescribed u/s 151, may kindly be accorded." 2.3 Pursuant to reasons being intimated to assessee, reply was filed on 2012.2012 wherein, it has been submitted that there has been no failure on part of assessee in disclosing full and true material facts and that no disallowance could be made u/s 14A read with Rule 8D. 2.4 Ld. A.O. disallowed 0.5% of proportionate expenditure and proportionate value of administrative expenses. Aggrieved by order of Ld. A.O., assessee preferred appeal before Ld. CIT(A). 2.5 Ld. CIT(A) confirmed action of reopening and upheld additions made by L. A.O. Aggrieved by order of Ld. CIT(A), assessee is in appeal before us now. 3. Ld. A.R. submitted that Ld. CIT(A) has not discussed issue relating to disallowance u/s 14A made by A.O., vis- -vis decision of this Tribunal for Assessment Year 2008-09 (supra) in assessee s own case. 5 I.T.A.Nos.5613,5614, 5729 & 6102./Del/2013 He also submitted that Assessing Officer has not applied his mind before initiation of reassessment proceedings as to whether there is failure on part of assessee to disclose full and true material for year under consideration. 3.1 Ld. A.R. submitted that there has been no inquiry raised, which is apparent from reassessment order passed by Ld. A.O. on 30.01.2013. He submitted that there was no tangible relevant material that was before d. A.O. to form opinion that income has escaped assessment. Ld. A.R. further demonstrated vide paper book pages 1-12, filed before us that assessee had disclosed all material facts relating to income and investment for purposes of any disallowance u/s14A of act. He submitted that Ld. A.O. in original assessment order passed (placed at page 13 of paper book), has admitted to fact that assessee has filed full details as per order sheet. 3.2 Ld. A.R. submitted that reopening being beyond 4 years and there being no failure on part of assessee to disclose full and true material, proviso (1) to Section 147 of Act would be applicable to facts of present case. 4. On contrary, Ld. D.R. relied upon orders of authorities below. 5. We have perused records placed before us and arguments advanced by both sides. Both 6 I.T.A.Nos.5613,5614, 5729 & 6102./Del/2013 issues relate to invoking of reassessment proceedings on ground of Section 14A of Act beyond 4 years from end of relevant Assessment Year. From original assessment order placed at page 13 of paper book, it appears that assessee had filed all necessary details and material for purpose of arriving at disallowance u/s 14A of Act. There is no evidence from records placed before us that assessee has failed or omitted to disclose material / primary facts. These were every much available on record and Assessing Officer had failed to draw correct legal inference at time of original assessment from said primary facts. This cannot be held as error or omission on part of assessee and as per proviso (1) to Section147 of Act and reopening of assessment for year under consideration cannot be sustained. 5.1 Accordingly as legal issue raised by assessee in ground No.1 has been upheld, we set aside order of Ld. CIT(A) and quash reassessment proceedings initiated for year under consideration. B. I.T.A.No. 5614/Del/2013 (Assessment Year 2007- 08): 6. present appeal arises out of order dated 16.08.2013 passed by Ld. CIT(A) for Assessment Year 2007-08 on following grounds of appeal: 1. That on fact and circumstances of case 7 I.T.A.Nos.5613,5614, 5729 & 6102./Del/2013 (i) impugned order is not only bad in law and nature but it also whimsical hence it is liable to be deleted. (ii) Ld.CIT(A)-XVIII grossly erred in allowing reopening of assessment u/s 148 which has already been assessed u/s 143(3) of Act. Invoking provisions of section 14A r.w.r 80 retrospectively which is not allowed as per Rule as well as per judicial pronouncements of various High Courts. 2. That on facts and circumstances of case Ld. CIT(A)-XVIII grossly erred in confirming addition of Rs.4,84,688/- by applying provisions of Sec 14A read with rule 8D. 6.1 At outset, Ld. A.R. submitted that ground No.1 relating to validity of reopening of assessment, is not pressed. Therefore, to deal with merits, brief facts of case are as under: 6.3 assessee had filed its return of income on 30.10.2007 declaring total income of Rs.48,28,710/- and book profit u/s 115JB of Act to tune of Rs.2,21,54,235/-. return was processed u/s 143(1) of Act and original assessment order was passed u/s 143(3) of Acts on 11.12.2009. issue relates to disallowance u/s 14A of Act for year under consideration. assessee had shown in P & L account, dividend being received to tune of Rs.30,43,724/-. It had claimed maintenance, selling and administrative expenses amounting to Rs.2.59 crores out of which selling and distribution expenses worked out to Rs.70,23,855/-. Assessee had further incurred 8 I.T.A.Nos.5613,5614, 5729 & 6102./Del/2013 expenditure of Rs.98,89,316/- towards interest. Ld. A.O. in reassessment proceedings, observed that since assessee has earned exempt income from dividend and agriculture, and has not disallowed nay expenses towards earning of such income as per provisions of Section 14A of Act, he recomputed income by applying rule 8D and added Rs.3,84,434/- on account of proportionate administrative expenses and Rs.1,00,345/- being 0.5% of average investment following Rule 8D. 6.4 Aggrieved by order of Ld. A.O. assessee preferred appeal before Ld. CIT(A). Ld. CIT(A) upheld additions made by Ld. A.O., aggrieved by order of Ld. CIT(A), assessee is in appeal before us now. 6.5 Ld. A.R. placed reliance upon decision of this Tribunal for Assessment Year 2008-09 and 2009-10 in I.T.A.No. 4223/Del/2011 and 2429/Del/2015 passed on 23.11.2002 and 09.01.2015 respectively, wherein Tribunal had restricted disallowance to 0.5% of expenditure for purposes u/s 14A of Act. He thus submitted that disallowance as directed by this Tribunal, should be applied to facts of present case before us. 6.6 On contrary, Ld. D.R. relied upon orders of authorities below. 6.7 We have perused orders of authorities below and records placed before us and arguments advance by both parties. It is not possible that no expenditure were incurred towards earning exempt income and in 9 I.T.A.Nos.5613,5614, 5729 & 6102./Del/2013 view of A.O., on basis of order of this Tribunal in assessee s own case, for Assessment Year 2008-09 and 2009-10 (supra) placed at pages 33-44 of paper book, we direct Ld. A.O. to calculate disallowance on basis of 0.5% of expenditdure. Accordingly, ground No.2 of assessee s appeal stands disposed off. C. I.T.A.No. 5729/Del/2013 & 6102/Del/2013 (Assessment Year 2010-11): Cross appeals: 7. These cross appeals have been filed by assessee and Revenue against order dated 29.08,.2013 passed by Ld. CIT(A) XVIII, New Delhi for Assessment Year 2010-11 on following grounds of appeal: I.T.A.No. 5729/Del/2013 (assessee s appeal): 1. Ld.CIT(A)-XVIII has erred in confirming addition of Rs.1,87,337/- on account of foreign travelling expenses, without appreciating facts & circumstances of case. 2. Ld.CIT(A)-XVIII has erred in confirming addition of Rs. 96,000/- on account of payment to related person u/s 40A(2)(b) of Income Tax Act,1961, without appreciating facts & circumstances of payments. I.T.A.No. 6102/Del/2013(Revenue s appeal): 1. On facts & in circumstances of case, Ld. CIT(A) has erred in restricting disallowance made under head of 'foreign travelling expenses' to Rs.1,87,337/- ignoring fact that these expenses contain expenses of personal nature. 2. On facts & in circumstances of case, Ld. CIT(A) has erred in restricting disallowance on account of excessive payment to Rs.96,000/- 10 I.T.A.Nos.5613,5614, 5729 & 6102./Del/2013 failing to appreciate that burden of proving payment as genuine is on assessee. 3. On facts & in circumstances of case, Ld. CIT(A) has erred in restricting disallowance u/ s 14A read with rule 8D is not to be made on percentage basis of administrative expenses. 7.1 brief facts of case are as under: 7.2 assessee filed its return of income for year under consideration on 27.09.2010 at nil income. case of assessee was selected for scrutiny and notice u/s 14(2) of Act was issued. During assessment proceedings, Ld. A.O. observed that assessee has incurred foreign travel expense to tune of Rs.15,21,802/- and assessee has made excessive payment by way of salary to wives of directors. He also made disallowance u/s 14A of Act on exempt income earned by assessee. Ld. A.O. accordingly, made following disallowances: a) Foreign Travel expenses Rs.8,50,401/- b) Excessive payment made u/s 14A(2) Rs.2,88,000/- c) Disallowance u/s 14A Rs.43,56,622/- 7.3 Aggrieved by assessment order, assessee preferred appeal before Ld. CIT(A). Ld. CIT(A) held that out of total foreign travel expenses, assessee had explained amount of Rs.8,50,401/- and gave relief to this extent. In respect of balance amount of Rs,3,74,674/-, Ld. CIT(A) held, it to be having source of personal element and restricted disallowance to 50% of such amount being Rs,1,87,337/-. In respect of 11 I.T.A.Nos.5613,5614, 5729 & 6102./Del/2013 disallowance made towards excessive payment of salary, Ld. CIT(A) held that Smt. Pushpa Rahi, being wife of director, helped in company s administrative work. He considered amount of Rs.40,000/- per month as reasonable payment as her salary and restricted these expenses to Rs.4.80 lacs per annum. In respect of disallowance u/s14A, Ld. CIT(A) held that 0.5% of Rs.1,58,87,767/- being taken as administrative expenses which comes to Rs.79,739/- should be amount of disallowance as against disallowance made by Ld. A.O. Aggrieved by order of Ld. CIT(A), Revenue as well as assessee are in appeal before us now. 7.4 We shall first deal with common issues raised in appeals filed by Revenue as well as assessee simultaneously. Ground No.1 raised by Revenue and Assessee: 7.5 Ld. D.R. placed reliance upon orders passed by Ld. A.O. and submitted that foreign travel has been undertaken by members of families by way of holiday/leisure trip, and no such expenses have been incurred exclusively towards business purposes as required u/s 37(1) of Act. 7.6 On contrary, Ld. A.R. submitted that before Ld. CIT(A), on 02.04.2012, assessee had furnished full details of foreign travel undertaken by directors and their relatives including destination, purpose, date of ravel along with relevant documentation to establish business purposes. Copies of bills relating to these 12 I.T.A.Nos.5613,5614, 5729 & 6102./Del/2013 expenses were also furnished. He submitted that qualification and designation along with job profile of directors and relatives of directors, who undertook foreign travel were analyzed by Ld. CIT(A), are as under: Name of Qualification Designation Job Profile remarks Directors Sh. K. K. Rathi B.Sc. Managing Legal & - Director Administration Sh. Anupam B.Tech. Whole time Operations & - Rathi Director Purchase/sale Sh. Anurag B.Com. Director Production - Rathi Smt. Pushpa Matriculate Administrator Looking after W/o Shro K. Rathi administration K. Rathi of company Smt. Parneeta B.Sc. Operations Operation W/o Sjhri Rathi Assistant Assistant Anupam Rathi Smt. Nandita B.Com. Production Production W/o Shri Rathi Assistant Assistant Anurag Rathi 7.7 Ld. A.R. further submitted that Assessing Officer has not disputed salary being paid to these personnel for job profile undertaken by them. He submitted that assessee could substantiate and obtain documentary evidences only to extent of Rs.8,50,401/-. He, therefore, prayed for total disallowance being deleted for year under consideration in respect of foreign travel expenses. 7.8 We have perused all necessary details on record placed before us and heard both parties. We do not find any infirmity in respect of findings of Ld. CIT(A) and therefore, uphold same. In view of above 13 I.T.A.Nos.5613,5614, 5729 & 6102./Del/2013 discussion, ground No.1 of appeal filed by Revenue as well as assessee stand dismissed. Ground No.2 of appeal filed by Revenue and Assessee: 8. It relates to disallowance made u/s 40A(2)(b) of Act. Ld. D.R. submitted that Smt. Pushpa Rathi being matriculate and old lady, could not be of any assistance to any administrative duties of assessee, he therefore, submitted that payment made to these personnel being Smt. Pushpa Rathi @ Rs.48,000/- per month is highly excessive and cannot be allowed. He placed his reliance on disallowance made by Ld. A.O. 8.1 On contrary, Ld. A.R. submitted that Smt. Pushpa Rathi has been involved in formation of company as shareholder w.e.f. 25.06.1993, but she has been taking salary w.e.f. 2000-01. He also submitted that such payment made to Smt. Pushpa Rathi has never been disputed in any of previous years. He also submitted that Ld. CIT(A) has sustained disallowance to extent of Rs.96,000/- on ad-hoc basis. He thus prayed for disallowance being deleted in toto. 8.2 We have perused details filed before us and arguments advanced by both parties. Ld. A.O. and Ld. CIT(A) have admitted to position that salary paid to Smt. Pushpa Rathi is almost equal to salary paid to other staff members. Thus, L. A.O. has failed to establish main ingredient to initiate Section 40A, which is, expenditure being excessive or unreasonable. We, therefore, are not agreeable to ad-hoc 14 I.T.A.Nos.5613,5614, 5729 & 6102./Del/2013 disallowance sustained by Ld. CIT(A) when consistently in preceding years, no such disallowance has been made by Ld. A.O. We, accordingly delete disallowance restricted by Ld. CIT(A) on this count. In result, ground raised by Revenue stand dismissed and ground raised by assessee stand allowed. Ground No.3 of Revenue s appeal: 9. It is in respect disallowance of expenses u/s 14A of Act. As in this Assessment Year, Rule 8D would be applicable. We direct A.O. to calculate disallowance being 0.5% of average investment. 9.1 In result, two grounds raised by Revenue and one ground raised by assessee stand dismissed, second ground raised by assessee stands allowed and third ground raised by Revenue stands partly allowed. 10. Accordingly, appeal filed by Revenue stands dismissed and appeal filed by assessee stands partly allowed. Order pronounced in open court on 19th Sep., 2016. Sd./- Sd./- (R. S. SYAL) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER Date: 2016 Sp. 15 I.T.A.Nos.5613,5614, 5729 & 6102./Del/2013 Copy forwarded to:- 1. appellant 2. respondent 3. CIT 4. CIT (A)-, New Delhi. 5. DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy. By Order (ITAT, New Delhi) S.No. Details Date Initials Designation 1 Draft dictated on Sr. PS/PS 2 Draft placed before author Sr. PS/PS Draft proposed & placed before 3 JM/AM Second Member Draft discussed/approved by 4 AM/AM Second Member Approved Draft comes to 19/9/16 5 Sr. PS/PS Sr. PS/PS 6 Kept for pronouncement 19/9 Sr. PS/PS 7 File sent to Bench Clerk 19/9 Sr. PS/PS Date on which file goes to 8 Head Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order Rathi Bars Ltd. v. DCIT, Circle 15(1), New Delhi