DCIT, New Delhi V. M/s. PTC India Ltd., New Delhi

ITA 1034/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8026 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 2 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 16-05-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 21-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMRIT LAL
• Assessee Lawyers: ANNYA KAPOOR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

ITA NOS. 1034,1035/DEL/2014 AYS 2006-07,2007-08 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER ITA NOS. 1034, 1035/DEL/2014 ASSESSMENT YEARS: 200 6-07, 2007-08 DCIT, VS. PTC INDIA LTD. CIRCLE-14(1) 2 ND FLOOR, NBCC TOWER, 15 NEW DELHI BHIKAJI CAMA PL ACE NEW DELHI 110 066 PAN AABCP7947F (APPELLANT) (RESPONDENT) REVENUE BY : SHRI AMRIT LAL, SR. DR ASSESSEE BY : SHRI SALIL KAPOOR & MS. ANNYA KAPOOR, ADV. DATE OF HEARING : 16.05.2016 DATE OF PRONOUNCEMENT : 18.5 .2016 O R D E R PER CHANDRA MOHAN GARG, JUDICIAL MEMBER THESE APPEALS HAVE BEEN FILED BY THE REVENUE AGAINS T THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-X XIV, NEW DELHI ITA NOS. 1034,1035/DEL/2014 AYS 2006-07,2007-08 2 IN APPEAL NO. 216, 215/13-14 FOR ASSTT. YEAR 2006-0 7 TO 2007-08 RESPECTIVELY BOTH DATED 26.11.2013. 2. GROUNDS RAISED BY THE REVENUE IN ITA NO . 1034/DEL/2014 FOR THE ASSTT. YEAR 2006-07 READ AS UNDER :- 1. ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF RS. 89 ,30,000/- MADE BY THE AO U/S 14A TO RS. 1,46,397/-. 1.1 ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF RS. 1, 46,397/- IGNORING THE FACT THAT RULE 8D COULD NOT APPLIED SI NCE THE SAME WAS NOT APPLICABLE IN THE ASSESSMENT YEAR IN QUESTI ON. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND CAREFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. LD. SR. DR SUBMITTED THAT THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DI SALLOWANCE OF RS. 89,30,000/- MADE BY THE AO U/S 14A OF THE INCOME TA X ACT 1961 ( FOR SHORT THE ACT) TO RS. 1,46,397/-. LD. DR VEHEME NTLY CONTENDED THAT AS PER FACTS AND CIRCUMSTANCES OF THE CASE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE IGNORING THE FACT T HAT RULE 8D OF THE IT RULES 1962 COULD NOT BE APPLIED SINCE THE SAME WAS NOT APPLICABLE IN THE ASSESSMENT YEAR IN QUESTION. ITA NOS. 1034,1035/DEL/2014 AYS 2006-07,2007-08 3 4. REPLYING TO THE ABOVE THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED COPY OF THE ASSESSMENT ORDERS FOR ASSTT. YEAR 2006-07 AND 2007-08 AND SUBMITTED THAT THE ASSESSEE MADE SUO MO TO DISALLOWANCE AND ON THE BASIS OF RATIO OF DIVIDEND INCOME TO TOTAL INCOME WHICH WAS 0.13% IN ASSTT. YEAR 2006-07 AND 0 .18% IN ASSTT. YEAR 2007-08 WHICH IS ON LOGICAL BASIS FOR A PUBLIC SECTOR GOVT. UNDERTAKING COMPANY. LD. COUNSEL VEHEMENTLY CONTEND ED THAT THE AO HAS NOT CONTROVERTED THIS RATIO OF THE LOGICAL PROPORTION ADOPTED BY THE ASSESSEE FOR MAKING SUO MOTO DISALLOWANCE. T HEREFORE THE LD. CIT(A) WAS RIGHT IN RESTRICTING THE ADDITION TO THE SUO MOTO DISALLOWANCE OF THE ASSESSEE. LD. COUNSEL ALSO POIN TED OUT THAT IN THE RELEVANT ASSESSMENT YEAR 2006-07 AND 2007-08 RULE 8 D OF THE INCOME TAX RULES 1962 IS NOT APPLICABLE. THEREFORE THE BASIC TERMS AND PROVISION OF THE AO ON WHICH DISALLOWANCE WAS M ADE WAS NOT VALID AND SUSTAINABLE. 5. ON CAREFUL CONSIDERATION OF OUR SUBMISSIONS FROM THE RELEVANT OPERATIVE PART OF THE ASSESSMENT ORDER WE OBSERVE T HAT THE AO INVOKED PROVISIONS OF RULE 8D OF INCOME TAX RULES, 1962 FOR MAKING ITA NOS. 1034,1035/DEL/2014 AYS 2006-07,2007-08 4 AND ESTIMATING DISALLOWANCE. THEREFORE THE BASIS OF DISALLOWANCE WAS NOT CORRECT AND BAD IN LAW AS RULE 8D APPLIES FROM ASSTT. YEAR 2008- 09 ONWARDS. FURTHERMORE, FROM THE RELEVANT OPERATIV E PART OF THE IMPUGNED ORDER OF THE CIT(A) WE OBSERVE THAT THE LD . CIT(A) GRANTED RELIEF TO THE ASSESSEE WITH FOLLOWING OBSER VATIONS AND CONCLUSIONS :- NOW ADVERTING TO THE CASE OF THE APPELLANT COMPANY , IT IS SEEN THAT DURING THE RELEVANT ASSESSMENT YEAR THE INVEST MENT IN THE MUTUAL FUNDS (WITH GROWTH OPTION) HAS GONE TO RS. 191,33,20,101/- AS ON 31.03.2006 IN COMPARISON TO T HE INVESTMENTS OF RS. 1,97,97,88,755/- AS ON 31.03.200 5 . THUS THERE WAS AN DECREASE IN THE INVESTMENTS OF RS. 6,6 4,68,654. DURING THE RELEVANT ASSESSMENT YEAR, THE APPELLANT HAS CLAIMED TO HAVE MADE INVESTMENTS IN MUTUAL FUNDS FROM ITS O WN INTERNAL SOURCES AND NO INTEREST BEARING FUND WAS U SED BY THE APPELLANT FOR INVESTMENTS. IT IS ALSO SEEN THAT DUR ING THE RELEVANT ASSESSMENT YEAR, THE APPELLANT HAS CLAIMED TO HAVE RECD RS. 1,42 CRORES AS INTEREST ON FORS AND INCURR ED RS. 1.31 CRORES AS EXPENSES ON INTEREST. THEREFORE, THERE WA S A GAIN IN INTEREST INCOME AFTER NETTING OF THE INTEREST EXPEN DITURE FROM THE INTEREST INCOME. MOREOVER, THE INTEREST EXPENDI TURE HAS BEEN INCURRED ON THE AMOUNTS OF DEPOSITS FROM CUSTO MERS WHICH WAS TAKEN BY THE APPELLANT COMPANY DURING THE NORMAL COURSE OF ITS BUSINESS AND THE SAME WAS NOT INCURRE D FOR THE PURPOSES OF INVESTMENTS. NO MATERIAL HAS BEEN BROUG HT ON RECORD BY THE ASSESSING OFFICER TO SHOW THAT THE IN TEREST EXPENDITURE WAS INCURRED FOR THE PURPOSES OF INVEST MENTS. FURTHER, DURING THE COURSE OF ASSESSMENT PROCEEDING S, THE APPELLANT HAD CLAIMED BEFORE THE ASSESSING OFFICER OF INCURRING EXPENDITURE OF RS. 1,46,397/- FOR THE PURPOSES OF E ARNING EXEMPT INCOME. NO MATERIAL HAS BEEN BROUGHT ON THE RECORD BY ITA NOS. 1034,1035/DEL/2014 AYS 2006-07,2007-08 5 THE ASSESSING OFFICER TO SHOW THAT THE AFORESAID CL AIM OF EXPENDITURE TO BE DISALLOWED SUO MOTO BY THE APPELL ANT WAS EITHER WRONG OR INADEQUATE. THE ASSESSING OFFICER H AS MERELY MENTIONED THAT THE COMPUTATION IS NOT BASED UPON AN Y RATIONAL. IT IS WORTHWHILE TO MENTION HERE THAT THOUGH SECTIO N 14A OF THE I. T. ACT WAS INTRODUCED BY THE FINANCE ACT, 2001 W .R.E. FROM 01.04.1962 BUT NO RULE/METHOD WAS PRESCRIBED FOR CO MPUTING THE DISALLOWANCE. THE CENTRAL BOARD OF DIRECT TAXES (CBDT) VIDE NOTIFICATION NO. 45/2008, DATED MARCH 24TH, 20 08 PRESCRIBED THE METHOD FOR DETERMINING THE EXPENDITU RE TO BE DISALLOWED UNDER SECTION 14A IN RELATION TO INCOME NOT FORMING PART OF THE TOTAL INCOME BY INSERTING RULE-8D IN TH E INCOME-TAX RULES. THUS DURING THE RELEVANT ASSESSMENT YEAR 200 6-07, THERE WAS NO RULE PRESCRIBED FOR MAKING THE DISALLO WANCE U/S 14A OF THE I.T.ACT. AS DISCUSSED ABOVE, RULE 80 OF THE I.T.RULES IS APPLICABLE FROM 01.04.2008 AND IT HAS NO RETROSP ECTIVE APPLICATION AS HELD BY THE HON'BLE HIGH COURT OF MU MBAI IN THE CASE OF GODREJ BOYCEE & CO. PVT LTD. (SUPRA). IT IS FURTHER OBSERVED THAT THE ASSESSING OFFICER HAS DISALLOWED AN AMOUNT OF RS. 89,30,000/- U/S 14A BASED ON A FORMULA WHICH IS NOT A WIDELY ACCEPTABLE FORMULA AND HIGHLY DEBATABLE. THE REFORE, THE AFORESAID ADDITION OF RS 89,30,000/- MADE BY THE AS SESSING OFFICER CANNOT BE SUSTAINED AND DIRECTED TO BE REST RICTED TO RS. 1,46,397/- ON WHICH CAN REASONABLY BE ATTRIBUTABLE AS EXPENDITURE INCURRED FOR THE PURPOSES OF EARNING E XEMPT INCOME. 6. IN VIEW OF ABOVE, WE INCLINED TO HOLD THAT NO MA TERIAL HAS BEEN BROUGHT ON RECORD BY THE AO TO SHOW THAT THE INTERE ST EXPENDITURE WAS INCURRED FOR THE PURPOSE OF INVESTMENT EARNING EXEMPT INCOME. AT THE SAME TIME, WE ALSO OBSERVED THAT THE LD. DR COULD NOT CONTROVERT THIS FACTUAL POSITION THAT THERE IS NO E XPENDITURE ON ITA NOS. 1034,1035/DEL/2014 AYS 2006-07,2007-08 6 INTEREST AND THERE IS SOME INTEREST INCOME SHOWN BY THE ASSESSE IN BOTH THE YEARS. AS WE HAVE ALREADY NOTED THAT RULE 8D OF INCOME TAX RULES IS NOT APPLICABLE FOR ASSTT. YEAR 2006-07 AND 2007-08 WHICH WAS WRONGLY APPLIED BY THE AO FOR ESTIMATING THIS AMOUNT. THE AO HAS NOT CONTROVERTED THE RATIO ADOPTED BY ASSESS EE IN MAKING SUO MOTO DISALLOWANCE I.E RATIO OF DIVIDEND INCOME TO T OTAL INCOME. THEREFORE, WE DECLINE TO ACCEPT BASIS ADOPTED BY TH E AO FOR MAKING DISALLOWANCES. 7. PER CONTRA, AT THE SAME TIME WE ARE IN FU LL AGREEMENT WITH THE CONCLUSION OF THE LD. CIT(A) WHEREIN HE RESTRIC TED THE DISALLOWANCE U/S 14A OF THE ACT TO THE RATIO OF TH E DIVIDEND INCOME TO TOTAL INCOME OF THE ASSESSEE DURING THE RELEVANT FINANCIAL PERIOD. HENCE WE ARE UNABLE TO SEE ANY VALID REASON TO INT ERFERE WITH THE CONCLUSION OF THE FIRST APPELLATE AUTHORITY ON THIS ISSUE AND THUS WE UPHOLD THE SAME. IT IS ALSO RELEVANT TO MENTION HER E THAT THE FACTS AND CIRCUMSTANCES OF ASSTT. YEAR 2006-07 AND 2007-0 8 AND QUITE SIMILAR THEREFORE, OUR CONCLUSION BASED ON THE FACT S AND ASSTT. YEAR 2006-07 WOULD APPLY MUTATIS MUTANDIS TO ASSTT. YEAR 2007-08 ALSO. ITA NOS. 1034,1035/DEL/2014 AYS 2006-07,2007-08 7 ACCORDINGLY SOLE GROUND OF THE REVENUE IN BOTH THE APPEALS BEING DEVOID OF MERITS IS DISMISSED. 8. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE A RE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH MAY, 2016. SD/- SD/- (G.D. AGRAWAL) (CHANDRA MOHAN GARG) VICE PRESIDENT JUDICIAL MEMBE R DATED 18 TH MAY, 2016 VEENA COPY OF ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR BY ORDER ASSTT REGISTRAR, ITAT