M/s. DLF Info City Developers (Kolkata) Ltd., Gurgaon V. ACIT, Gurgaon

CO 167/DEL/2016

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 3344 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 2 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 07-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 05-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB SENIOR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.969/DEL./2016 (ASSESSMENT YEAR : 2011-12) ACIT, CIRCLE 1 (1), VS. M/S. DLF INFO CITY DEVELOP ERS GURGAON. (KOLKATA) LIMITED, 3 RD FLOOR, SHOPPING MALL COMPLEX, ARJUN MARG, DLF CITY PHASE 1, GURGAON. (PAN : AABCD9621N) CO NO.167/DEL/2016 (IN ITA NO.969/DEL./2016) (ASSESSMENT YEAR : 2011-12) M/S. DLF INFO CITY DEVELOPERS VS. ACIT, CIRCLE 1 ( 1), (KOLKATA) LIMITED, GURGAON. 3 RD FLOOR, SHOPPING MALL COMPLEX, ARJUN MARG, DLF CITY PHASE 1, GURGAON. (PAN : AABCD9621N) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.S. SINGHVI, CA AND SHRI SATYAJEET GOEL, CA REVENUE BY : MS. ASHIMA NEB, SENIOR DR DATE OF HEARING : 28.11.2017 DATE OF ORDER : 07.12.2017 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : ITA NO.969/DEL./2016 CO NO.167/DEL/2016 2 THE AFORESAID APPEAL FILED BY THE REVENUE AND CROSS OBJECTIONS FILED BY THE ASSESSEE CHALLENGING THE IM PUGNED ORDER ARE BEING DISPOSED OFF BY WAY OF CONSOLIDATED ORDER TO AVOID REPETITION OF DISCUSSION. 2. THE APPELLANT, ASSISTANT COMMISSIONER OF INCOME- TAX, CIRCLE 1 (1), GURGAON (HEREINAFTER REFERRED TO AS THE REVENUE) BY FILING THE PRESENT APPEAL SOUGHT TO SET ASIDE THE I MPUGNED ORDER DATED 16.12.2015 PASSED BY THE COMMISSIONER OF INCO ME-TAX (APPEALS)-I, GURGAON QUA THE ASSESSMENT YEAR 2011-1 2 ON THE GROUNDS INTER ALIA THAT :- 1. LD. CIT(A) HAS ERRED IN FACT AND IN LAW BY NOT APPRECIATING THE APPLICATION OF RULE 8D OF THE INCO ME TAX RULES, 1961, SO MADE BY THE A.O WHILE MAKING TH E DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961. 2. LD.CIT(A) HAS ERRED IN FACT AND IN LAW BY RESTRICTING THE DISALLOWANCE U/S 14A OF INCOME TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME TAX RULES, 196 2 FROM RS.43,67,640/- TO RS.68,433/-. 3. LD.CIT(A) HAS ERRED IN FACT AND IN LAW BY RESTRICTING THE DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 80 OF THE INCOME TAX RULES , 1962 TO 10% OF THE EXEMPT INCOME ON THE ADHOC BASIS WITHOUT ANY RATIONALE. 3. THE OBJECTOR, M/S. DLF INFO CITY DEVELOPERS (KOL KATA) LTD., BY FILING THE PRESENT CROSS OBJECTIONS CHALLE NGED THE IMPUGNED ORDER DATED 16.12.2015 PASSED BY THE CIT ( APPEALS)-I, ITA NO.969/DEL./2016 CO NO.167/DEL/2016 3 GURGAON FOR THE ASSESSMENT YEAR 2011-12 ON THE GROU NDS INTER ALIA THAT :- 1. THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) HAS ERRED IN CONFIRMING THE DISALLOWANCE TO THE EXTENT OF RS.68,433/- UNDER SEC TION 14A READ WITH RULE 8D OF THE INCOME TAX ACT, 1961. 2. THAT THE LD. CIT (A0 HAS FAILED TO CORRECTLY APPRECIATE THE PROVISIONS OF SECTION 14A OF THE INC OME TAX ACT, 1961. 4. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICATION OF THE CONTROVERSY AT HAND ARE : ASSESSING OFFICER MADE DI SALLOWANCE OF RS.43,67,640/- BY INVOKING THE PROVISIONS CONTAINED UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE AC T) READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 (FOR SHORT T HE RULES) QUA EXEMPT INCOME EARNED BY THE ASSESSEE COMPANY DURING THE YEAR UNDER ASSESSMENT BEING DISSATISFIED WITH THE ASSERT ION MADE BY THE ASSESSEE COMPANY THAT NO EXPENDITURE HAS BEEN INCUR RED BY THE ASSESSEE COMPANY TO EARN EXEMPT INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME. AO ALSO REJECTED THE CONTENTI ON OF THE ASSESSEE COMPANY THAT NONE OF THE INVESTMENT IN THE MUTUAL FUND HAS BEEN MADE OUT OF BORROWED INTEREST BEARING FUND S. 5. ASSESSEE CARRIED THE MATTER BY WAY OF FILING APP EAL BEFORE THE LD. CIT (A) WHO HAS RESTRICTED THE ADDITION OF RS.43,67,640/- MADE BY THE AO UNDER SECTION 14A READ WITH RULE 8D TO ITA NO.969/DEL./2016 CO NO.167/DEL/2016 4 RS.68,433/-. FEELING AGGRIEVED, THE REVENUE AS WEL L AS ASSESSEE COMPANY HAS COME UP BEFORE THE TRIBUNAL BY WAY OF F ILING APPEAL AND CROSS OBJECTION RESPECTIVELY BY CHALLENGING THE IMPUGNED ORDER PASSED BY LD. CIT (A) . 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. UNDISPUTEDLY, THE ASSESSEE COMPANY HAS EARNED DI VIDEND INCOME TO THE TUNE OF RS.6,84,337/- WHICH HAVE BEEN DIRECTLY CREDITED IN THE BANK ACCOUNT OF THE ASSESSEE COMPAN Y. IT IS ALSO NOT IN DISPUTE THAT AO HAS NOT GIVEN ANY COMPUTATION OF INCOME TO ARRIVE AT THE DISALLOWANCE OF RS.43,67,640/-. 8. LD. DR FOR THE REVENUE CONTENDED INTER ALIA THAT THE AO, AFTER DULY RECORDING HIS DISSATISFACTION, WHICH IS APPARENT FROM ASSESSMENT ORDER ITSELF, WORKED OUT THE DISALLOWANC E UNDER RULE 8D AS PER ACCOUNTS RENDERED BY THE ASSESSEE COMPANY ; THAT SECTION 114 OF THE EVIDENCE ACT, 1872 RAISES PRESUMPTION IN FAVOUR OF THE REVENUE THAT THERE WAS NON-SATISFACTION OF THE AO A ND RELIED UPON THE ORDER OF THE AO. 9. LD. AR FOR THE ASSESSEE COMPANY TO REPEL THE ARG UMENTS ADDRESSED BY THE LD. DR FOR THE REVENUE CONTENDED I NTER ALIA THAT ITA NO.969/DEL./2016 CO NO.167/DEL/2016 5 AO PROCEEDED TO INVOKE THE PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D WITHOUT RECORDING HIS SATISFACTION; TH AT THE ASSESSEE COMPANY HAS NOT INCURRED ANY EXPENSES TO EARN THE D IVIDEND INCOME FROM INVESTMENT OF MUTUAL FUNDS; THAT THE AS SESSEE COMPANY HAS SUBSTANTIAL SURPLUS FUNDS; THAT ALL THE INVESTMENTS IN MUTUAL FUNDS OUT OF WHICH THE ASSESSEE COMPANY HAS EARNED EXEMPT INCOME ARE OLD INVESTMENT AND IN THE EARLIER YEARS, NO DISALLOWANCE WAS MADE; THAT LD. CIT (A) HAS ERRONEO USLY SUSTAINED THE ADDITION OF RS.68,433/- BY RESTRICTING THE SAME TO 10% OF THE EXEMPT INCOME ON AD HOC BASIS WITHOUT ANY BASIS. 10. FIRST OF ALL, THE LD. AR FOR THE ASSESSEE COMPA NY TO SUBSTANTIATE HIS CONTENTION THAT THE ASSESSEE COMPA NY HAS SUBSTANTIAL RESERVE AND SURPLUS FUND AS ON 31.03.20 11 DREW OUR ATTENTION TOWARDS BALANCE SHEET WHEREIN RESERVE AND SURPLUS FUNDS AND SHAREHOLDERS FUNDS / SHARE CAPITAL ARE SHOWN A T RS.61,46,85,927/- AND RS.25,00,000/- RESPECTIVELY A S AGAINST INVESTMENT OF RS.14,99,25,994/- MADE ON MARCH 31, 2 010. AS PER BALANCE SHEET AVAILABLE ON RECORD, NO INVESTMENT HA S BEEN MADE AS ON MARCH 31, 2011 MEANING THEREBY, THE ENTIRE INVES TMENT ON WHICH THE ASSESSEE COMPANY HAS EARNED DIVIDEND WAS OF EARLIER YEAR. ITA NO.969/DEL./2016 CO NO.167/DEL/2016 6 11. WHEN THE ASSESSEE COMPANY WAS HAVING SUBSTANTIA L RESERVES AND SURPLUS FUND AND SHAREHOLDERS FUNDS / SHARE CA PITAL TO THE TUNE OF RS.61,46,85,927/- AND RS.25,00,000/- RESPECTIVEL Y, THOUGH PAID INTEREST PAYMENT ON SOME BORROWED FUNDS DURING THE YEAR UNDER ASSESSMENT, THE DISALLOWANCE CANNOT BE MADE U/S 14A READ WITH RULE 8D. MORE PARTICULARLY WHEN NO INVESTMENT HAS BEEN MADE BY THE ASSESSEE DURING THE YEAR UNDER ASSESSMENT. SO, IN THESE CIRCUMSTANCES, THE PRESUMPTION HAS TO BE RAISED IN FAVOUR OF THE ASSESSEE THAT INVESTMENTS, IF MADE, WERE MADE OUT O F INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE COMPANY. 12. HONBLE HIGH COURT OF BOMBAY IN CASE CITED AS CIT-2, MUMBAI VS. HDFC BANK LTD. (2014) 49 TAXMANN.COM 3 35 (BOMBAY) WHILE DEALING WITH THE IDENTICAL ISSUE HELD THAT W HEN THE ASSESSEES OWN FUNDS AND OTHER NON-INTEREST BEARING FUNDS WERE MORE THAN INVESTMENT IN TAX FREE SECURITIES, NO DIS ALLOWANCE ON ACCOUNT OF INTEREST PAYMENT UNDER SECTION 14A CAN B E MADE. 13. FURTHERMORE, THE AO HAS NOT RECORDED HIS DISSAT ISFACTION AS TO THE COMPUTATION MADE BY THE ASSESSEE COMPANY THA T NO EXPENDITURE HAS BEEN MADE BY THE ASSESSEE COMPANY D URING THE YEAR UNDER ASSESSMENT TO EARN THE INTEREST FREE INC OME RATHER PROCEEDED MECHANICALLY BY EXTRACTING THE BARE LANGU AGE OF RULE 8D. ITA NO.969/DEL./2016 CO NO.167/DEL/2016 7 14. HONBLE APEX COURT IN GODREJ & BOYCE MANUFACTURE COMPANY LTD. VS. DCIT 394 ITR 449 (SC) THRASHED THE ISSUE IN CONTROVERSY AS TO INVOKING OF THE PROVISIONS CONTAI NED UNDER RULE 8D OF THE RULES BY OBSERVING AS UNDER :- 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUATION A DIFFERENT VIEW COULD HAVE BEEN TAKEN FO R THE ASSESSMENT YEAR 2002-2003. SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESCRIBE A FORMULA FOR DETERMINATION OF EXPENDITURE INCURRED IN RELATION T O INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WHERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSE SSEE. WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQU ISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREAFTER THAT T HE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, A S EARLIER PREVAILING, WOULD BECOME APPLICABLE. 15. HONBLE DELHI HIGH COURT IN HT MEDIA LIMITED VS. PR. CIT IN ITA NO.548/2015 DATED 23.08.2017 DECIDED THE ISSUE IN CONTROVERSY IN FAVOUR OF THE ASSESSEE BY RETURNING THE FOLLOWING FINDINGS :- 39. TURNING NOW TO THE ORDER OF THE ITAT IN PARA 33, IT RECORDED THE SUBMISSION OF THE AR THAT THE A O DID 1)0T RECORD ANY SATISFACTION ABOUT THE ASSESSEE NOT PROPERLY OFFERING EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME AT RS.3 LAKHS. THE ITA NO.969/DEL./2016 CO NO.167/DEL/2016 8 ITAT REPRODUCED THE CONTENTS OF PARA 3.3.1 OF THE ASSESSMENT ORDER, WHICH HAS BEEN EXTRACTED BY THIS COURT HEREINBEFORE, WHICH CONTAINS GENERAL OBSERVATIONS REGARDING EARNING OF EXEMPT INCOME. THIS CANNOT BE ACCEPTED AS A RECORDING BY THE AO OF SATISFACTION REGARDING THE CLAIM OF THE ASSESSEE AF TER EXAMINING ITS ACCOUNTS. AGAIN, IN PARA 34 OF ITS ORDER, THE ITAT SIMPLY REPRODUCED PARA 3.3.6 OF THE ASSESSMENT ORDER WHERE, AGAIN, NO REASONS HAVE BEEN PROVIDED BUT ONLY A CONCLUSION HAS BEEN REACHED THAT THE AO WAS 'SATISFIED THAT THE ASSESSE E HAD INCURRED EXPENSES TO MANAGE ITS INVESTMENTS WHICH MAY YIELD EXEMPT INCOME, AND ASSESSEE GROSSLY FAILED TO CALCULATE SUCH EXPENSES IN A REASONABLE MANNER TO ASCERTAIN THE TRUE AND CORRECT PICTURE OF ITS INCOME AND EXPENSES.' 40. CONSEQUENTLY ON THE ASPECT OF ADMINISTRATIVE EXPENSES BEING DISALLOWED, SINCE THERE WAS A FAILUR E BY THE AO TO COMPLY WITH THE MANDATORY REQUIREMENT OF SECTION 14 A (2) OF THE ACT READ WIT H RULE 8D (1) (A) OF THE RULES AND RECORD HIS SATISFACTION AS REQUIRED THEREUNDER, THE QUESTION O F APPLYING RULE 8D (2) (III) OF THE RULES DID NOT ARI SE. THE QUESTION FRAMED IN ITA 549 OF 2015 IS ANSWERED ACCORDINGLY. 16. FOLLOWING THE DECISION RENDERED BY HONBLE APEX COURT IN GODREJ & BOYCE MANUFACTURE COMPANY LTD. (SUPRA) AND HONBLE DELHI HIGH COURT IN HT MEDIA LTD. (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS RETURNED BY AO TH AT, THE CLAIM OF THE ASSESSEE THAT THE AMOUNT INVESTED IN MUTUAL FUNDS WAS ONLY OUT OF ITS OWN FUNDS AND NO PART OF IT WAS INVESTED OUT OF BORROWED FUNDS CANNOT BE ACCEPTED, AS ENTIRE MONEY OF A COMP ANY IS PART OF A COMMON KITTY, AS WAS HELD BY JURISDICTIONAL HIGH COURT IN CIT ITA NO.969/DEL./2016 CO NO.167/DEL/2016 9 VS. ABHISHEK INDUSTRIES [2006] 156 TAXMAN 257. ARE NOT SUSTAINABLE BECAUSE THE ASSESSEE COMPANY HAS COME U P WITH CATEGORIC PLEA THAT IT HAS NOT INCURRED ANY EXPENSE S TO EARN THE MUTUAL FUNDS AND THAT THE ASSESSEE HAS SUBSTANTIAL POOL OF SHARE CAPITAL, RESERVES AND SURPLUS AND NO AMOUNT OUT OF INTEREST BEARING FUNDS HAVE BEEN INVESTED TO EARN THE EXEMPT INCOME. 17. THE AO HAS NOT POINTED OUT ANY DEFECT IN THE CO MPUTATION MADE BY THE ASSESSEE COMPANY AND AS SUCH, PROVISION S CONTAINED U/S 14A READ WITH RULE 8D ARE NOT ATTRACTED. BECAU SE SUB-SECTION (2) & (3) OF SECTION 14A WITH RULE 8D OF THE RULES HAS ONLY PRESCRIBED A FORMULA FOR DETERMINATION OF AN EXPEND ITURE TO EARN THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL IN COME UNDER THE ACT, WHICH CAN ONLY BE INVOKED IF THE AO IS NOT SAT ISFIED WITH THE CLAIM OF THE ASSESSEE. 18. FURTHERMORE, CIT (A) ERRED IN SUSTAINING THE DI SALLOWANCE OF RS.68,433/- BY RESTRICTING THE SAME TO 10% OF THE E XEMPT INCOME EVEN DESPITE AGREEING WITH THE ASSESSEE COMPANY THA T NO SATISFACTION HAS BEEN RECORDED BY THE AO THAT NIL E XPENSES HAS BEEN INCURRED TO EARN TAX FREE DIVIDEND INCOME RATHER PR OCEEDED TO SUSTAIN THE ADDITION OF RS.68,433/- ON THE BASIS OF SURMISES AND GUESSWORK WHICH IS NOT SUSTAINABLE. IN THE GIVEN C IRCUMSTANCES, THE CONTENTIONS RAISED BY LD. DR ARE NOT SUSTAINABL E. ITA NO.969/DEL./2016 CO NO.167/DEL/2016 10 19. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, APPEA L FILED BY THE REVENUE CHALLENGING TO RESTRICT THE DISALLOWANC E U/S 14A READ WITH RULE 8D FROM RS.43,67,640/- TO RS.68,433/- IS DISMISSED BEING WITHOUT MERIT. HOWEVER, CROSS OBJECTIONS FIL ED BY THE ASSESSEE ARE HEREBY ALLOWED AND ADDITION OF RS.68,4 33/- IS HEREBY ORDERED TO BE DELETED. ORDER PRONOUNCED IN OPEN COURT ON THIS 7 TH DAY OF DECEMBER, 2017. SD/- SD/- (PRASHANT MAHARISHI) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 7 TH DAY OF DECEMBER, 2017 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-I, GURGAON. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.