M/s. Kohli Housing & Development Ltd., New Delhi V. ACIT, New Delhi

CO 50/DEL/2013

• Counselvise Citation: [2016] 123 COUNSELVISE.COM (IT) 2102 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 31-12-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 13-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P DAM KANUNJNA
• Assessee Lawyers: U N MARWAHA
• Keywords: Earning of tax free income; Source of fund
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D : NEW DELHI BEFORE SHRI J.S. REDDY , ACCOUNTANT MEMBER, AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER ITA NO. 4395 /DEL /20 1 1 ASSESSMENT YEAR : 20 0 8 - 0 9 THE A.C.I.T VS. M/S KOHLI HOUSING & DEVELOPMENT CIRLE 5(1) [NOW KNOWN AS KOHLI ONE HOUSING NEW DELHI & DEVELOPMENT [P] LTD D - 90, OKHLA INDUSTRIAL AREA, PHASE - I NEW DELHI - 110020 PAN : AABCK 7836 Q CO NO. 50/DEL/2013 ITA NO. 4395/DEL /2011 [ASSESSMENT YEAR: 2008 - 09] M/S KOHLI HOUSING & DEVELOPMENT VS. THE A.C.I.T [NOW KNOWN AS KOHLI ONE HOUSING CIRLE 5(1) & DEVELOPMENT [P] LTD , D - 90, NEW DELHI OKHLA INDUSTRIAL AREA, PHASE - I NEW DELHI - 110020 PAN : AABCK 7836 Q [APPELLANT] [RESPONDENT] DATE OF HEARING : 31 . 1 2 . 2015 DATE OF PRONOUNCEMENT : 29 . 0 2 .201 6 ASSESSEE BY : SHRI U .N. MARWAHA, CA DEPARTM ENT BY : SHRI P. DAM KANUNJNA , SR. DR ORDER PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CIT(A) - VIII, 2 2 NEW DELHI, DATED 22/07/2011 FOR A.Y 2008 - 09 IN FIRST APPEAL NO. 81/2010 - 11/CIT(A)VIII . 2. THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL IN ITS APPEAL: 1. THE ORDER OF THE LEARNED CIT(APPEALS) IS ERRONEOUS & CONTRARY TO FACTS & LAW. 2 . ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT (A) ERRED IN DELETING DISALLOWANCE OF INTEREST PAID TO THE TUNE OF RS. 48,49,411 RELATABLE TO FUND ADVANCED TO SISTER CONCERNS INTEREST FEE IN THE FORM OF LOAN AND INTEREST FEE COVERABLE DEBENT URES. THIS IS DESPITE THE FACT THAT THE AUDITORS OF THE COMPANY REPORTED THAT RATE OF INTEREST AND OTHER TERMS U/S 301 OF THE COMPANIES ACT, 1956 AMOUNTING TO A SUM OF RS. 31.28 CRORE IS PRIMA FACIE PREJUDICIAL TO THE INTEREST OF THE COMPANY. 3 . ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN HOLDING THAT THE ASSESSEE COMPANY DID NOT INCUR ANY INTEREST EXPENDITURE IN RESPECT OF DEBENTURES AND ACCORDINGLY DIRECTED TO ASSESSING OFFICER TO REDUCE THE DISALLOWANCES UNDER RULE 8D (2) (II) TO THAT EXTENT. 4. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE, THE LD. CIT (A) ERRED IN DIRECTING THE ASSESSING OFFICER TO RESTRICT DISALLOWANCE UNDER RULE 8D (2) (II) BY TAKING INTO CONSIDERATION THE VALUE OF AVERAGE INVESTMENT AT RS. 55 LACS AS AGAINST RS. 14,64,21,896/ - TAKEN BY THE ASSESSING OFFICER. 3 3 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS IN ITS CROSS OBJECTION: 1. THAT ON THE FACTS AND IN LAW THE LEARNED COMMISSIONER OF INCOME TAX, (APPEALS) - VIII, NEW DELHI, ERRE D IN UPHOLDING THAT RULE 8D WAS ATTRACTED DESPITE NO EXEMPT INCOME EARNED DURING THE YEAR AND THEREBY SUSTAINING AN AGGREGATE DISALLOWANCE OF RS10,03,955/ WHICH EXCEEDS THE TOTAL INDIRECT EXPENDITURE. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE RESPONDENT S CASE THE LEARNED COMMISSIONER OF INCOME TAX, (APPEALS) - VIII,NEW DELHI, ERRED IN DIRECTING THE AO TO RESTRICT THE DISALLOWANCE U/S 14A IN TERMS OF CLAUSE (II) OF SUB RULE (2) OF RULE 8D TAKING AVERAGE INVESTMENT AT RS 55 LACS. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE RESPONDENT S CASE THE LEARNED COMMISSIONER OF INCOME TAX, (APPEALS) - VIII, NEW DELHI, ERRED IN UPHOLDING THE DISALLOWANCE IN TERMS OF RULE 8D, CLAUSE (III) OF SUB RULE (2) AT RS 7,32,109/. 4. GROUND NO. 1 OF THE REVENUE BEING GENERAL IN NATURE NEEDS NO ADJUDICATION. HENCE GROUND NO. 1 OF THE REVENUE STANDS DISMISSED. 5. GROUND NOS. 3 AND 4 OF THE REVENUE AND GROUND NOS. 1 TO 3 OF THE ASSESSEE ARE TAKEN UP TOGETHER FOR DISPOSAL SINCE THEY INVOLVE SIMILAR ISSUE IN RELATION TO EXEMPTED INCOME. 4 4 6 . BRIEFLY STATED, THE FACTS GIVING RISE TO THESE GROUNDS AS ENUNCIATED BY THE ASSESSEE IN ITS PAPER BOOK AT PAGES 2 AND 3 ARE THAT THE ASSESSEE HAS NOT RECEIVED ANY EXEMPTED INCOME DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE, IN ITS RETURN OF INCOME DID NOT COMPUTE ANY DISALLOWANCE U/S 14A OF THE ACT. THE ASSESSEE DISCLOSED TOTAL INVESTMENT IN SECURITIES AT RS. 6,53,50,000/ - AS ON 31.3.2008 [PREVIOUS YEAR RS. 22,74,93,792/ - ] REPRESENTING CON VERTIBLE DEBENTURES RS. 5,98,50,000/ - IN UNLISTED EQUITY SHARES OF GROUP/JOINT VENTURE COMPANY NOT FOR PURP O SES OF EARNING DIVIDEND . THE LD. AR FURTHER SUBMITTED THAT THE AO WITHOUT ESTABLISHING NEXUS BETWEEN EXPENDITURE INCURRED AND THE INVESTMENT INVOKE D RULE 8D MADE ADDITION OF RS. 45,26,964/ - BY (I) INCL. INTEREST RS. 2,00,63,733/ - WHICH HAS BEEN ALLOWED TOWARDS TAXABLE INCOME [NO DISALLOWANCE IN VIEW OF BHARTI OVERSEAS PVT. LTD [DHC] (II) 0.5% OF AVG VALUE OF INVESTMENT TAKING THE CONVERTIBLE DEBENTUR ES INTO CONSIDERATION EVEN THOUGH THE INCOME THERE FROM IS NOT EXEMPT U/S 10(34). THE DISALLOWANCE MADE BY THE LOWER AUTHORITIES U/S 14A DESERVES T O BE DELETED IN THE ABSENCE OF EXEMPTED INCOME. THE LD. AR 5 5 PLEADED THAT IN VIEW OF NO EXEMPTED INCOME EARNED DURING THE YEAR UNDER CONSIDERATION , SECTION 14A IS NOT ATTRACTED. 7 . ON THE OTHER HAND, THE LD. AR SUPPORTED THE ACTION OF THE AO AND CONTENDED THAT THE IMPUGNED ORDER OF THE LD. CIT(A) WHICH GRANTED RELIEF IS NOT CORRECT AND SUSTAINABLE THUS THE SAME M AY BE SET ASIDE BY RESTORING THAT OF THE AO. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND CAREFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD BEFORE US. WE FIND THAT THE LD. DR HAS NOT CONTROVERTED THE FACT THAT THE ASSESSEE HAS NOT RECEIVED ANY EXEMPTED INCOME DURING THE YEAR UNDER CONSIDERATION. IN VIEW OF THE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHEMINVEST LTD V S . CIT [2015] 378 ITR 33 [DEL] AND IN THE CASE OF CIT VS. HOLCIM INDIA PVT LTD [2014] (9) TMI 434 [DEL] WHEREIN IT HAS BEEN HELD THAT NO DISALLOWANCE U/S 14A OF THE ACT CAN BE MADE IN A YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSES SEE, WE CONCUR WITH THE LD. AR SUBMISSIONS. WE ALSO AGREE WITH THE CONTENTION OF THE LD. AR THAT WITHOUT ESTABLISHING ANY NEXUS BETWEEN THE 6 6 EXPENDITURE INCURRED AND INVESTMENT, RULE 8D CANNOT BE INVOKED. ACCORDINGLY, RESPECTFULLY FOLLOWING THE DICTA LAID DOWN BY THE HON'BLE HIGH COURT IN THE ABOVE MENTIONED CASES, WE DISMISS GROUND NOS. 3 AND 4 RAISED BY THE REVENUE AND ALLOW ALL THE GROUNDS RAISED BY THE ASSESSEE IN ITS CROSS OBJECTIONS. 9 . THE ONLY OTHER GROUND WHICH REMAINS FOR ADJUDICATION IS GROUND NO. 2 OF THE REVENUE IN RELATION TO DELETION OF DISALLOWANCE OF INTEREST. 10 . BRIEFLY STATED, THE FACTS GIVING RISE TO THIS ISSUE ARE THAT THE ASSESSEE HA S NINE G ROUP COMPANIES TO WHOM LOANS WERE ADVANCED. DURING A.Y. 2006 - 07 ASSESSEE GAVE INTEREST FREE L OANS AGGREGATING RS 4.75 CRORE TO SIX GROUP COMPANIES OUT OF ITS OWNED FUNDS/OUT OF INTEREST FREE BORROWINGS . THE AO, IN ORDER U/S 143(3) OF THE ACT FOR AY 2006 - 07, AFTER EXAMINATION , MADE NO DISALLOWANCE/ADDITION ON THIS ACCOUNT. THE ASSESSEE ADVANCED MONIES CHARGING INTEREST TO 3 GROUP CO MPANI E S OUT OF INTEREST BEARING BORROWED FUNDS. THE ACCOUNTS FOR AY 2006 - 07 CONFIRM THAT THERE WAS A CAR LOAN FROM HDFC RS 6,86,109/ & INTEREST FREE LOAN OF RS 75,00,000/ FROM DIRECTOR . THE SOURCE OF 7 7 FUNDS TO ENABLE A SSESSEE TO ADVANCE INTEREST FREE LOANS HAVE BEEN DEALT WITH BY THE CIT(A) AT PARA 4 PG NO 8/9 OF HIS ORDER. DURING THE Y EAR THE ASSESSEE RECEIVED REFUNDS AGGREGATING RS 32.65 LACS, FROM THE SAID SIX GROUP COMPANIES WHICH HAD AN OPENING BALANCE ON 1.4.2007 OF RS 4,29,36,926/ - AND ADVANCED L OANS AGGREGA TING RS 27,31,80,000/ - TO THREE G ROUP COMPANIES BEARING INTEREST @ 14% . THE SAID FUNDS WERE ADVANCED OUT OF BORROWING BEARING INTEREST @ 12% P.A ARE AS UNDER: (A) VISHAL GUJRAL RS . 1,00,00,000/ (B) U.K.P AINTS (INDIA) PVT LTD RS . 10,59,00,000/ (C) SPAN INDIA PVT LTD RS . 6,25,00,000/ (D) SOLUTIONS SOFTWARE INDIA PVT LTD RS . 10,33,00,000/ (E) NARESH GUJRAL RS. 3,31,00,000/ RS. 32,03,05.000/ OUT OF THE AFORESAID B ORROWING, RS 27,31,80,000/ WAS UTILIZED FOR ADVANCING LOANS TO 3 GROUP COS ON WHICH INTEREST @ 14% WAS CHARGED AMOUNTING TO RS 1,40,05,654/ AND CORRESPONDING INTEREST PAID WAS RS. 1,20,04846 (12% PROPORTIONATE TO INTER ES T CHARGED OF 14% OF RS.1,40,05654). THE BALANCE FUNDS WERE ADVANCED TO (I) ROCKMAN PROJECTS LTD (II) KAY K AY BUILDTECH PVT LTD . THE INTEREST PERTAINING TO THESE ADVANCES WAS CAPITALIZED. DETAILS OF INTEREST INCLUDING CAPITALIZATION IS AS UNDER : 8 8 INTEREST (OTHER THAN CAR LOANS) RS 3,94,54,990/ - LESS INTEREST CAPITALISED RS 1,93.91,256/ - INTEREST [OTHER THAN CAR LOANS] RS 2,00,63,734/ - ADD: - INTEREST ON CAR LOANS RS 7.34.695 / - TOTAL DEDUCTION CLAIMED [P&L] RS 2.07.98.429/ - AO HAS , AT PARA 3.3, PG 4 OF ORDER , WRONGLY CONCLUDED THAT SINCE NO INTEREST CHARGED ON THE INTEREST FREE LOANS TO THE SIX CO MPANIES INTEREST OF 48,49,411/ IS DISALLOWED BY ASSUMING CHARGEABLE INTEREST @12%. THE DIFFERENCE BETWEEN INTEREST EARNED RS 1,40,05,645/ AND I NTEREST CLAIMED AS DEDU CTION RS 2,00,63,733/ I.E RS 60,58,088/ - REPRESENTS INTEREST CLAIMED TOWARD BUSINESS. THE CIT(A) AFTER ANALYZING SOURCE OF FUNDS HAS RECORDED A FINDING OF FACT AT PG 8/9 OF THE ORDER THAT AMOUNTS ADVANCED TO SIX CO MPANIES WAS OUT OF INTERNAL ACCRUALS/ REDE MPTION OF MUTUAL FUNDS AND NOT OUT OF BORROWED FUNDS. 1 1 . WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND CAREFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD BEFORE US. WE NOTE THAT THE INTEREST FREE ADVANCES GIVEN TO SIX COMPANIES DURING F.Y. 2006 - 07 PERTAINED TO A.Y 2007 - 08 . WHEN THE ASSESSEE S COMPANY ESTABLISHED THAT NO INTEREST BEARING FUNDS WERE UTILISED FOR THESE IMPUGNED INTEREST FREE ADVANCES, THEN DISALLOWANCE CAN BE HELD AS SUSTAINABLE. 9 9 WHEN THE CIT(A) HIMSELF H AS RECORDED A FINDING OF FACT AT PG 8/9 OF THE ORDER THAT AMOUNTS ADVANCED TO SIX CO MPANIES WAS OUT OF INTERNAL ACCRUALS/ REDEMPTION OF MUTUAL FUNDS AND NOT OUT OF BORROWED FUNDS , WE DO NOT FIND ANY VALID REASON TO INTERFERE WITH HIS FINDING IN THE ABSENCE OF ANY MATERIAL BROU GHT ON RECORD BY THE LD. DR TO CONTRADICT THE SAME. IN THAT VIEW OF THE MATTER, WE DECLINE TO INTERFERE WITH THE IMPUGNED ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DISMISS THE GROUND OF APPEAL NO. 2 RAISED BY THE REVENUE. 12 . IN THE RESULT, THE APPEAL O F THE REVENUE IS DISMISSED WHEREAS THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 2 9 . 0 2 .201 6 . S D / - S D / - ( J.S. REDDY ) (C.M. GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 2 9 T H FEBRUARY, 2016 VL/ COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI