HCL Comnet Ltd. Vs DCIT (ITAT Delhi)
It is settled principle of law that generic dissatisfaction as to the correctness of the claim of the assessee without assigning any reason is not a valid satisfaction which is mandatory under section 14A(2) of the Act, as has been held by Hon’ble Supreme Court in case of Maxopp Investments Ltd. vs. CIT (2018) 402 ITR 640 (SC) and Hon’ble Delhi High Court in case of HT Media Ltd. vs. Pr.CIT 199 ITR 576 (Del.). So, when audited financials of the assessee company have otherwise been accepted by the AO, mechanical application of Rule 8D to reject the suo motu disallowance u/s 14A of the Act by the assessee is not sustainable in the eyes of law.
AO was not empowered to invoke the provisions contained under section 14A read with Rule 8D in a mechanical manner without recording his satisfaction that working given by assessee company is not correct.
AO has merely recorded that, “I am not satisfied with the correctness of the claim of the assessee”. No reasons as to how and why he has not got satisfied with the correctness of the claim of the assessee. So, we are of the considered view that AO as well as ld. CIT (A) have erred in making/confirming further disallowance under section 14A read with Rule 8D over and above the disallowance made by the assesse.
So, we are of the considered view that the disallowance made by the AO and confirmed by the ld. CIT (A) on the basis of invalid satisfaction as to the correctness of the claim of the assessee is not sustainable, hence ordered to be deleted.
FULL TEXT OF THE ORDER OF ITAT DELHI
Since common questions of facts and law have been raised in the aforesaid appeals/cross appeals filed by the assessee and Revenue, the same are being disposed off by way of composite order to avoid repetition of discussion.
2. Appellant, M/s. HCL Comnet Limited (hereinafter referred to as ‘the assessee’) by filing the present appeal sought to set aside the impugned order dated 12.10.2017 passed by the Commissioner of Income-tax (Appeals)-35, New Delhi qua the assessment year 2013-14 on the grounds inter alia that :-
“ITA NO.135/DEL/2018 (AY 2013-14)
(ASSESSEE’S APPEAL)
1. That on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) [“CIT(A)”] erred in upholding addition of Rs.38,48,495 made by the assessing officer under section 14A of the Income-tax Act, 1961 (“the Act”) read with Rule 8D(2)(iii) of the Income-tax Rules, 1962 (“the Rules”), without pointing out any error in computation of expenses incurred for earning the tax free income disallowed by the Appellant.
1.1 That on the facts and circumstances of the case and in law, the CIT(A) erred in not holding that no disallowance could be made under section 14A of the Act, without recording satisfaction reaching finding as to nexus of any expenditure incurred during the year with investments made or exempt income earned nor pointing out an error in the computation of disallowance under section 14A of the Act made by the Appellant.
1.2 Without prejudice, that on the facts and circumstances of the case and in law, the CIT(A) erred in not holding that investments on which no exempt income was earned were not required to be taken into account for computing disallowance as per formula prescribed under sub-rule (2)(iii) of Rule 8D of the Rules.”
2. That on the facts and circumstances of the case and in law, the CIT(A) erred in not allowing credit of tax deducted at source (“TDS”) amounting to Rs.27,75,487, on the ground that the same pertained to deferred revenue, not offered to tax in entirety by the Appellant in the subject assessment year.
2.1 Without prejudice, that on the facts and circumstances of the case and in law, the CIT(A) erred in disallowing credit of entire amount of TDS amounting to Rs.27,75,487 relating to deferred revenue and in not allowing credit of TDS on proportionate basis, as specified under Rule 3’7BA(3)(ii) of the Income-tax Rules, 1962.”
3. Appellant, M/s. HCL Comnet Systems & Services Ltd. Limited (hereinafter referred to as ‘the assessee’) by filing the presents appeal sought to set aside the impugned orders both dated 12.10.2017 passed by the Commissioner of Income-tax (Appeals)-35, New Delhi qua the assessment years 2013-14 & 2014-15 on the identical grounds except the difference of amount of addition/disallowance inter alia that :-
“ITA NOS.136/DEL/2018 & 137/DEL/2018 (AYs 2013-14 & 2014-15) (ASSESSEE’S APPEALS)
1. That on the facts and circumstances of the case and in law, the Commissioner of Income-tax (Appeals) [“CIT(A)”] erred in not allowing credit of tax deducted at source (“TDS”) (amounting to Rs.2,00,000/- & Rs.2,14,814/- for AYs 2013-14 & 2014-14 respectively) on deferred revenue holding hat the same would be allowed in the relevant assessment year in which corresponding revenue is offered for taxation .
1.1 Without prejudice, that on the facts and circumstances of the case and in law, the CIT(A) erred in disallowing credit of entire amount of TDS (amounting to Rs.2,00,000/- & Rs.2,14,814/- for AYs 2013-14 & 2014-14 respectively) relating to deferred revenue and in not allowing credit of TDS on proportionate basis, as per Rule 37BA(3)(ii) of the Income-tax Rules, 1962.”
4. Appellant, DCIT, Circle 11 (1), New Delhi (hereinafter referred to as ‘the Revenue’) by filing the present appeals sought to set aside the impugned order dated 12.10.2017 passed by the Commissioner of Income-tax (Appeals)-35, New Delhi qua the assessment years 2013-14 & 2014-15 on the grounds inter alia that:-
“ITA NO.385/DEL/2018 (AY 2013-14)
(REVENUE’S APPEAL)
1. Whether on the facts and circumstances of case and in law, the ld. CIT (A) was not justified in deleting the addition made by the AO by disallowance of Rs.3,14,11,091/- on account of license fee paid to Department of Telecom (DOT).
“ITA NO.100/DEL/2018 (AY 2014-15)
(REVENUE’S APPEAL)
1. Whether on the facts and circumstances of case and in law, the ld. CIT (A) was not justified in deleting the addition made by the AO by disallowance of Rs.3,50,95,924/- on account of license fee paid to Department of Telecom (DOT).
2. Whether on the facts and circumstances of case and in law, the ld. CIT (A) was not justified in deleting the addition of Rs.2,20,383/- by disallowance of this amount on account of principal portion of lease obligation.”
5. Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessee company was engaged in the business of trading of networking equipment, installation and maintenance of such equipment and creation, maintenance and operation of networks. Assessing Officer (AO) by invoking the provisions contained under section 14A of the Income-tax Act, 1961 (for short ‘the Act’) read with Rule 8D of the Income-tax Rules, 1962 (for short ‘the Rules’) made addition of Rs.38,48,495/-in addition to the suo motu disallowance of Rs.1,12,136/- made by the assessee on the ground that exempt income has been earned but disallowance has not been made correctly in ITA No.135/Del/2018 for AY 2013-14 in case of HCL Comnet Ltd.
6. AO also disallowed credit of tax deducted at source amounting to Rs.27,75,487/-, Rs.2,00,000/- & Rs.2,14,814/- on the ground that the same pertained to deferred revenue and was liable to tax in entirety in ITA No.135/Del/2018 for AY 2013-14 in case of HCL Comnet Ltd., in ITA No.136/Del/2018 for AY 2013-14 & in ITA No.137/Del/2018 for AY 2014-15 in case of HCL Comnet Systems & Services Ltd. respectively.
7. AO also made addition of Rs.3,14,11,091/- & Rs.3,50,95,924/- by way of disallowance on account of licence fee paid to the Department of Telecommunication (DOT) in ITA Nos.385/Del/2018 & 100/Del/2018 for AYs 2013-14 & 2014-15 respectively in case of HCL Comnet Systems & Services Ltd..
8. AO also made disallowance of Rs.2,20,383/- on account of principal portion of lease obligation in ITA No.100/Del/2018 for AY 2014-15 in case of HCL Comnet Systems & Services Ltd..
9. AO thereby framed the assessment u/s 143(3) of the Act at the total income of Rs.70,66,57,990/- for AY 2013-14 in case of HCL Coment Ltd. and Rs.9,84,54,930/- & Rs.3,64,24,300/- for AYs 2013-14 & 2014-15 respectively in case of HCL Comnet Systems & Services Ltd..
10. Assessee carried the matter before the ld. CIT (A) by way of filing appeals in AYs 2013-14 & 2014-15 in case of both the assessment order who has partly allowed the same. Feeling aggrieved by the order passed by the ld. CIT (A), both the assessees and Revenue have come up before the Tribunal by way of filing the present appeals.
11. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
GROUNDS NO.1, 1.1 & 1.2 OF
ITA NO.135/DEL/2018 for AY 2013-14
(ASSESSEE’S APPEAL)
12. AO by invoking the provisions contained u/s 14A read with Rule 8D made the disallowance of Rs.38,48,495/-, computed as under :-
