The plea of the assessee based on Minda Investments Ltd that the dis allowance should be deleted cannot be accepted as in the later decisions similar matters have been restored to the file of the AO and according to rule of precedence, later decision passed by similar strength of the Bench has to be followed in preference to the earlier decision.
Continental Carriers Pvt. Ltd Vs. ACIT (ITAT Delhi)
ITA Nos. 4260/Del/2010, 3262/Del/2010 & 3263/Del/2010
Assessment Years : 2005- 06, 2006- 07 & 2007- 08
All these appeals are filed by the assessee and they are directed against three separate orders passed by CIT(A) dated 22.6.2010, 15.3.2010 and 29.4.2010 for AY 2005-06, 2006-07 & 2007-08 respectively. The issue raised by the assessee in all these appeals is identical i.e. dis allowance of expenditure under Section 14A. The grounds raised are also identical except difference in figures. Ground for AY 2005-06 is reproduced below:-
“1. That on the facts and in the circumstances on the case the dis allowance of expenditure u/s 14A at Rs.5,42,920/- is neither justified nor legal since no expenditure was incurred to earn dividend income and hence applicability of Rule 8D is also illegal and unjustified in view of the decision of Hon’ble Punjab and Haryana High Court in the case of CIT vs. Hero Cycles Ltd. in the present case for which submission were made before the authorities below in this regard, which is not considered while framing the Asst. u/s 143(3) by the A.O.”
. For other assessment years, the figures agitated in the grounds of appeal are as under:-
2006-07 : Rs.10,27,757/-
2007-08 : Rs.9,79,563/-
3. The facts of all these cases are identical except for AY 2005-06 where the assessment order had been passed by the AO as per directions of the Tribunal wherein dis allowance u/s 14A has been computed by the AO under Rule 8D as per directions given by the Tribunal following the decision of Special Bench in the case of ITO Vs. Daga Capital Management – 26 SOT 603.
4. In all these cases, dis allowance has been computed by the AO by applying Rule 8D and also referring to the decision of Special Bench in the case of Daga Capital Management (supra) wherein it has been held that Rule 8D is retrospective in nature.
5. In the grounds of appeal, as it can be seen, it is the case of the assessee that dis allowance made by the AO by relying on Rule 8D is neither legal nor factually right as no expenditure has been incurred by the assessee to earn exempted dividend income. Reference is made to the decision of Hon’ble Punjab & Haryana High Court in the case of CIT Vs. Hero Cycles – 323 ITR 518.
6. It is also the case of the assessee that Delhi Tribunal in the case of Minda Investments Ltd. Vs. DCIT vide order dated 13.10.2010 in ITA No. 4046/Del/2009 has deleted the dis allowance on the ground that neither the AO nor the CIT(A) has rebutted the submission of the assessee regarding non-incurrence of expenditure which are identified to earn such income and relying upon the decision of Hon’ble Supreme Court in the case of Vegetable Products – 88 ITR 192, it was held that where two constructions of the statute are possible, one favoring the assessee should be adopted. Thus, it is the case of the learned AR who had argued this appeal that dis allowance made by the AO should be deleted for the reason that Rule 8D cannot be held to be retrospective in nature and secondly that no expenditure had been identified to be incurred for earning such exempted dividend and it is the case of the assessee right from the beginning that it had surplus funds from where the investment was made, therefore no expenditure whatsoever was incurred on account of interest and also no administrative expenses have been incurred towards the same. Thus, relying upon the submissions and relying upon the decision of the Tribunal in the case of Minda Investments Ltd. (supra), it is the case of the learned AR that dis allowance in all the years should be deleted. In the alternative, it was pleaded that in AY 2005-06, the dis allowance of 50,000/- has been upheld by the CIT(A) and to that extent, the dis allowance may be upheld.
7. On the other hand, it has been the contention of the learned DR that though Rule 8D has been held to be non-retrospective but consistently, the Tribunal has restored these matters back to the file of the AO for re computation of dis allowance as directed by Hon’ble Bombay High Court in the case of Godrej & Boyce – 234 CTR 1. He has produced before us copies of following orders of the Tribunal wherein the matter has been restored back to the file of the AO :-
(i) Order of Delhi Bench ‘G’ dated 23.12.2010 in the case of Super Auto India Vs. Addl.CIT in ITA No.818/Del/2010.
(ii) Order of Delhi Bench ‘F’ dated 26.10.2010 in the case of Overseas Carpets Ltd. Vs. DCIT in ITA No.1830/Del/2010.
8. He submitted that the Tribunal order upon which the learned AR is placing reliance is dated 13.10.2010 and the orders cited by him are after the order of the said date and he pleaded that even according to rule of precedence, later decisions of similar strength should be followed and thus, he pleaded that matter may be restored back to the file of the AO to decide the same in the line directed in the aforementioned two cases of Super Auto India and Overseas Carpets Ltd.
9. We have carefully considered the rival submissions in the light of material placed before us. The facts are not disputed. The dis allowance has been made by the AO by referring to Rule 8D as per decision of Special Bench in the case of Daga Capital Management (supra). Hon’ble Bombay High Court in the case of Godrej & Boyce (supra) has held that Rule 8D cannot be applied retrospectively. Therefore, reference to Rule 8D while making the dis allowance is not in accordance with the decision of Hon’ble Bombay High Court. At the same time, in the said case, it was held that even prior to AY 2008-09 when Rule 8D was not applicable, the AO has to enforce the provisions of sub-section (1) of Section 14A. For that purpose, the AO was duty bound to determine the expenditure which has been incurred in relation to income which does not form part of the total income under the Act. The AO must adopt a reasonable basis and method consistent with all relevant facts and circumstances after furnishing a reasonable opportunity to the assessee to place all germane material on the record. Thus, it is clear from the said decision that even if Rule 8D is not applicable but AO is duty bound to compute the dis allowance under sub-section (1) of Section 14A and AO must adopt a reasonable basis and method consistent with all relevant facts and circumstances. Therefore, we direct the AO to recompute the dis allowance in accordance with the aforementioned decision of Hon’ble Bombay High Court in the case of Godrej & Boyce (supra). Before arriving at any conclusion, AO will give reasonable opportunity of hearing to the assessee to place all germane material on the record. We direct accordingly.
10. Before parting, we may mention here that plea of learned AR that based on decision of the Tribunal in the case of Minda Investments Ltd. (supra), the dis allowance should be deleted cannot be accepted as in the later decisions similar matters have been restored to the file of the AO and according to rule of precedence, later decision passed by similar strength of the Bench has to be followed in preference to the earlier decision.
11. In view of the above discussion, the matter regarding dis allowance is restored back to the file of the AO for re computation of dis allowance as directed above and for statistical purposes; all appeals of the assessee are allowed in the manner aforesaid.
12. In the result, the appeals are allowed for statistical purposes.
Decision pronounced in the open Court on 31st December, 2010.
(I. P. BANSAL)
Dated : 31.12.2010.