ACIT, New Delhi V. M/s. Living Media India Ltd., New Delhi

ITA 1034/DEL/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2411 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 29-02-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Business expenditure; Double taxation relief; Earning of tax free income; Permanent establishment; Non-deduction of tax; Commercial expediency; Revenue expenditure; Capital expenditure; TDS; Rule 8D
• Section: 5(2); 14A; 40(a)(ia); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: C NEW DELHI BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER & DR. B. R. R. KUMAR, ACCOUNTANT MEMBER ITA NO.648/DEL/2016 ( ASSESSMENT YEAR: 2011-12) LIVING MEDIA INDIA LTD. 9K- BLOCK, CONNAUGHT CIRCUS NEW DELHI - 110005 PAN NO.AAACL0087H VS DCIT CIRCLE 15 (2) NEW DELHI APPELLANT BY SH. SALIL AGGARWAL, ADVOCATE SH.SHAILESH GUPTA, ADVOCATE RESPONDENT BY SH. AMIT KATOCH, SR. DR. ITA NO.1034/DEL/2016 ( ASSESSMENT YEAR: 2011-12) ACIT, CIRCLE 15 (2) NEW DELHI VS LIVING MEDIA INDIA LTD. 9K- BLOCK, CONNAUGHT CIRCUS NEW DELHI -110005 PAN NO.AAACL0087H APPELLANT BY SH. AMIT KATOCH, SR. DR. RESPONDENT BY SH. SALIL AGGARWAL, ADVOCATE SH.SHAILESH GUPTA, ADVOCATE ORDER PER B. R. R KUMAR, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 10.12.2015 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-5, DELHI FOR A.Y. 2011-12. 2. ITA NO.648/DEL/2016 ASSESSEE HAS RAISED FOLLOWIN G GROUNDS OF APPEAL :- DATE OF HEARING 21.01.2019 DATE OF PRONOUNCEMENT 12.03.2019 ITA NO. 648/DEL/2016 2 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS ERRED IN LAW AND ON FACTS IN SUSTAINING A DISALLOWANCE OF RS .1,96,610/- ON ACCOUNT OF MEMORANDUM FEES PAID TO M/S. AZB PARTNERS. 1.1 THAT THE ADVERSE FINDINGS RECORDED BY THE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) WHILE SUSTAINING THE IMPUGNED DISALLOWANCE HAS BEEN RECORDED WITH PRECONCEIVED NOTIONS AND BY ARBITRARI LY BRUSHING ASIDE THE DETAILED SUBMISSIONS/EVIDENCES/MATERIAL PLACE ON RE CORD, WHICH WERE FURNISHED IN ORDER TO SUPPORT THE FACT THAT THE TRA NSACTION IN QUESTION CANNOT BE REGARDED AS NON GENUINE, SO AS TO WARRANT A DISA LLOWANCE. 1.2 THAT IN DOING SO, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THE BASIC FACT THAT CLAIM OF EXPENSE WHETHER IN THE PREVIOUS YEAR OR IN THE CURRENT YEAR IS TAX NEUTRAL AS THE TAX RATES ARE SIMILAR IN BOTH THE ASSESSMENT YEARS. 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS FURTHER ERRED IN LAW AND ON FACTS IN SUSTAINING A DISALLOWA NCE OF A SUM OF RS.2,72,441/- ON ACCOUNT OF PROFESSIONAL FEES PAID TO M/S. KPMG. 2.1 THAT THE ADVERSE FINDINGS RECORDED BY THE LEARN ED COMMISSIONER OF INCOME TAX (APPEALS) WHILE SUSTAINING THE IMPUGNED DISALLOWANCES HAVE BEEN RECORDED WITH PRECONCEIVED NOTIONS AND BY ARBI TRARILY BRUSHING ASIDE THE DETAILED SUBMISSIONS/ EVIDENCES/ MATERIAL PLACED ON RECORD, WHICH WERE FURNISHED IN ORDER TO SUPPORT THE FACT THAT THE TRA NSACTION IN QUESTION CANNOT BE REGARDED AS NON GENUINE, SO AS TO WARRANT A DISA LLOWANCE. 3. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS GROSSLY ERRED IN LAW AND ON FACTS IN DISALLOWING A SUM OF R S.9,74,683/- ON ACCOUNT OF REPAIR AND MAINTENANCE EXPENSES, BY TREATING THE SA ME AS PRIOR PERIOD EXPENSE; 3.1 THAT IN DOING SO, THE LEARNED COMMISSIONER OF I NCOME (APPEALS) HAS FAILED TO APPRECIATE THE FACT THAT THE SAID EXPENSE WAS CRYSTALLIZED DURING THE YEAR UNDER CONSIDERATION AND AS SUCH, SHOULD HAVE B EEN ALLOWED. 3.2 THAT IN DOING SO, THE LEARNED COMMISSIONER OF I NCOME TAX (APPEALS) HAS FAILED TO APPRECIATE THE BASIC FACT THAT CLAIM OF EXPENSE WHETHER IN THE PREVIOUS YEAR OR IN THE CURRENT YEAR IS TAX NEUTRAL AS THE TAX RATES ARE SIMILAR IN BOTH THE ASSESSMENT YEARS. 4. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) HAS GROSSLY ERRED IN LAW AND ON FACTS IN SUSTAINING A DISALLOWA NCE OF A SUM OF RS.53,87,200/- ON ACCOUNT OF EXTENSION FEES PAID TO NOIDA AUTHORIT Y. 4.1 THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS) HAS FURTHER GONE WRONG IN TREATING THE EXTENSION FEES PAID TO N OIDA AUTHORITY AS CAPITAL NATURE, WHICH IS BASED ON ASSUMPTIONS, PRESUMPTIONS AND CONTRARY TO SUBMISSIONS/EVIDENCES / MATERIAL PLACED ON RECORD A ND THE SAME SHOULD HAVE BEEN ALLOWED, AS SUCH. 3. GROUND NO.1 DEALS WITH SUSTAINING OF DISALLOWANC E OF RS.1,96,610/- PAID TO AZB PARTNERS. THE COMPANIES PAID MEMORANDU M OF APPEAL TO AZB PARTNERS WHICH ASSESSING OFFICER DISALLOWED NON PRO DUCTION OF VOUCHERS. 4. BEFORE US THE LD. AR ARGUED THAT THIS AMOUNT HAS NOT BEEN FINALIZED DURING THE YEAR IN WHICH THE DISCUSSIONS WERE HELD. HENCE, IT SHOULD BE CONSIDER IN THE YEAR IN WHICH THE CONTRACT AMOUNT W OULD BE FINALIZED. HE ARGUED THAT THERE IS NO LOSS OF REVENUE COMPARED TH E TAX POSITION IN THE TWO YEARS. ON THE OTHER HAND LD. DR ARGUED THAT NO DOCUMENTS HAVE BEEN PRODUCED BY THE ASSESSING OFFICER NOTWITHSTAND ING FACT THAT THE ITA NO. 648/DEL/2016 3 AMOUNTS PERTAIN TO OCTOBER NOVEMBER OF 2009 WHICH SHOULD HAVE BEEN RIGHTLY CLAIMED IN THE ASSESSMENT YEAR 2010-11 BUT NOT IN THE ASSESSMENT 2011-12. HE APPRISES THAT THE LAST MEETING HAPPENE D IN NOVEMBER-2009 HENCE THE ARGUMENTS THAT THE AMOUNT COULD NOT BE FI NALIZED CANNOT BE ACCEPTED. HE FURTHER ARGUED THAT THE ASSESSEE CANN OT GIVE ON MEDALING WITH THE ACCOUNTING SYSTEM AS PER HIS VISSICIATE. HE ALSO RELIED ON THE CASE LAW OF DELHI TOURISM AND TRAVEL DEVELOPMENT CORPORA TION WHICH DID NOT ALLOW PRIOR PERIOD EXPENSES. HE FURTHER ARGUED THA T THE ALLOWABILITY OF THE PRIOR PAID EXPENSES SHOULD BE AN EXCEPTION TO THE R ULE AND ONLY UNDER RARE CIRCUMSTANCES WITH A REASONABLE DEGREE OF CLARITY. 5. WE HAVE GONE THROUGH THE ARGUMENTS OF BOTH THE P ARTIES IN DETAIL. THE ASSESSEE WELL FOLLOWING MERCANTILE SYSTEM OF AC COUNTING THE DEDUCTIONS CAN BE PERMITTED IN CONNECTION OF THE EX PENDITURE INVOLVED IN THE RELEVANT ASSESSMENT YEAR. IN CASE OF ABSOLUTE N ON CONCRETIZATION OF EXPENDITURE THE ASSESSEE OUGHT TO HAVE CLAIMED THE APPROXIMATE EXPENDITURE AND VARY THE ABSOLUTE EXPENDITURE AT A LATER DATE. THE EXPENDITURE ON LEGAL EXPENSES CANNOT BE ABSOLUTELY UNDETERMINABLE. CLAIMING OF THE EXPENDITURE AT A LATER YEAR CAN ONL Y LEAD TO DISTORTION IN THE DISCLOSURE OF PROFITS OF THAT PARTICULAR YEAR. HON BLE SUPREME COURT IN THE CASE OF KESHAV MILLS LTD. VS. CIT 23 ITR 230 HELD T HAT THE MERCANTILE SYSTEM BRINGS INTO CREDIT WHAT IS DO IMMEDIATELY BEFORE IT IS ACTUALLY RECEIVED AND SIMILARLY DEBIT ENTRIES FOR THE EXPENDITURE. THE AS SESSE COULD FORESEE THE EXPENDITURE AND DETERMINE THE LIABILITY AND MAKE NE CESSARY PROVISIONS WHICH THE ASSESSEE FAILED TO DO. THE LEGAL EXPENDIT URE IS NOT SUCH EXPENDITURE WHICH CANNOT BE QUANTIFIABLE OR ASCERTA INABLE WHILE SOLICITING THE SERVICES. HENCE KEEPING IN VIEW THE JUDGMENT OF HONBLE SUPREME COURT AND THE DECISION OF THE JURISDICTIONAL HIGH C OURT IN THE CASE OF DTTDC 155 TAXMANN 10 WE HEREBY DECLINE TO INTERFERE WITH THE REASONED DECISION OF THE LD.CIT(A). 6. THE GROUND NO. 2 RELATES TO PAYMENT TO M/S. KPMG ON ACCOUNT OF PROFESSIONAL FEES. THE MAIN ARGUMENTS OF LD. AR ON THIS ISSUE IS THAT SINCE THE BUSINESS HAS ALREADY STARTED, ANY EXPENDITURE O N ACCOUNT OF EXPLORATION OF NEW BUSINESS OR THE NEW ASPECT OF BU SINESS SHOULD BE CONSIDERED AS REVENUE EXPENDITURE. ON THE OTHER HA ND THE LD. DR ARGUED THAT THE EXPENDITURE IS CAPITAL IN NATURE AND INCUR RED PERTAINING TO A TOTALLY A NEW PROJECT BILTZ. ITA NO. 648/DEL/2016 4 7. WE HAVE GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT THIS EXPENDITURE ON ACCOUNT OF LEGAL ADVICE RELATES TO O PERATIONAL MANAGEMENT OF THE NEW BUSINESS VENTURE BUT NOT FOR THE ONGOING BUSINESS ACTIVITIES. WE FIND THAT THIS EXPENDITURE CLEARLY P ERTAINS TO A NEW PROJECT HAVE PURPORTEDLY UNDER TAKEN BY THE ASSESSEE HENCE PRIMARILY BE TREATED AS CAPITAL EXPENDITURE. SINCE THIS EXPENDITURE IS C APITAL IN NATURE THE CLAIM MADE BY THE ASSESSEE IN THE P&L ACCOUNT WHICH HAS B EEN DISALLOWED BY THE ASSESSING OFFICER IS HEREBY CONFIRMED. 8. THE GROUND NO.3 RELATES TO DISALLOWANCE ON ACCOU NT OF REPAIR AND MAINTENANCE EXPENSES. THE LD. CIT(A) HAS TREATED T HIS EXPENDITURE AS PRIOR PERIOD EXPENSES. THE LD. AR ARGUED THAT THE AMOUNT S HAVE BEEN IN DISPUTE AND HENCE COULD NOT BE PAID OR PROVISION IN THE CUR RENT YEAR. THE LD. DR ON THE OTHER HAND ARGUED THAT SINCE 4 YEARS HAVE LA PSED BY INCURRING THE EXPENDITURE THE AMOUNT CANNOT BE ALLOWED IN THIS YE AR. THE DISPUTE RELATES TO THE EXPENDITURE INCURRED ON ACCOUNT OF REPAIR WO RKS UNDERTAKEN BY ONE M/S JYOTIRATH ASSOCIATES PVT. LTD. WHICH IS AN ADD ITIONAL BILL RAISED BY THE PARTY AS FILED IN THE ANNEXURE-5 WHICH HAS BEEN A M ATTER OF DISPUTE BETWEEN THE ASSESSEE AND THE REPAIR CONTRACTOR. WE FIND THAT THE AMOUNT PERTAINS TO THE WORK DONE IN THE EARLIER YEARS AND THE BILLS HAVE BEEN RAISED SUBSEQUENTLY SINCE THE MATTER HAS BEEN DISPUTE AND THE AMOUNT HAS BEEN SETTLED LATER ON THE ASSESSEE COULD CLAIM THE AMOUN T ONLY IN THE YEAR IN QUESTION. HONBLE BOMBAY HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME-TAX VS PHALTON SUGAR WORKS LTD. 162 ITR 622 HELD THAT THE QUESTION BEFORE US IS NOT WHETHER AN ASSESSEE, MAINTAINING BOOKS OF ACCOUNT ON THE MERCANTILE SYSTEM, IS ENTITLED TO CLAIM DEDU CTION IN THE YEAR IN WHICH THE LIABILITY AROSE NOTWITHSTANDING THE FACT THAT HEJWA S DISPUTING HIS LIABILITY, BUT WHETHER IT IS OPEN TO SUCH AN ASSESSEE TO CLAIM THE DEDUCTION NOT IN THE YEAR IN WHICH THE LIABILITY AROSE BUT IN THE YEAR IN WHICH THE DISPUTE ABOUT IT WAS FINALLY ADJUDICATED UPON OR SETTLED. THE JUDGMENT OF THE SU PREME COURT IN SWADESHI COTTON AND FLOUR MILLS PRIVATE LTD'S CASE AND THE T WO JUDGMENTS OF THE ALLAHABAD HIGH COURT REFERRED TO ABOVE PROVIDE A POINTER. IN OUR VIEW, WHERE A LIABILITY ARISING OUT OF A CONTRACTUAL OBLIGATION IS DISPUTED, THE AS SESSEE IS ENTITLED, IN THE ASSESSMENT YEAR RELEVANT TO THE PREVIOUS YEAR IN WH ICH THE DISPUTE IS FINALLY ADJUDICATED UPON OR SETTLED, TO CLAIM A DEDUCTION I N THAT BEHALF. RESPECTFULLY FOLLOWING THE ABOVE RATIO OF THE HONB LE HIGH COURT AS MENTIONED ABOVE, WE ALLOW THIS EXPENDITURE AS THE AMOUNT HAS BEEN CONCRETIZED IN THE CURRENT YEAR. 9. GROUND NO.4 PERTAINS TO PAYMENT MADE TO NOIDA AU THORITY. THE LD. AR ARGUED THAT THIS PAYMENT IS IN CONNECTION OF THE OW NERSHIP AND INTEREST IN THE ITA NO. 648/DEL/2016 5 LEAST HOLD PROPERTY AND FAILURE TO PAY THIS AMOUNT WOULD LEAD TO LOOSING OF THE LEASED PROPERTY AND HENCE WOULD MAKE A PART OF THE REVENUE EXPENDITURE. THIS AMOUNT HAS BEEN PAID TO CONTINUE TO HOLD THE CAPITA L ASSET ON WHICH THE CONSTRUCTION COULD NOT BE COMPLETED AND BY PAYING A MOUNT THE ASSESSEE WOULD BE ENTITLED TO HOLD THE LEASE HOLD PROPERTY B Y PAYING 4% OF THE ALLOTTED VALUE AND HENCE IT CANNOT BE SAID TO BE PENALTY. SI NCE THE PAYMENT IS NOT IN THE NATURE OF PENALTY, IT SHOULD NOT BE DISALLOWED UNDER SECTION 37(1) BE TREATED AS REVENUE EXPENDITURE. ON THE RECORDS WE FIND THA T EXTENSION FEE PAID BY THE ASSESSEE WAS DISALLOWED IN THE ASSESSMENT YEAR 2011 -12 ONLY WHEREAS IN THE SUBSEQUENT ASSESSMENT YEAR 2012-13 AND 2013-14 THE SAME ALLOWANCE HAS BEEN ALLOWED BY THE REVENUE IN THE ORDERS PASSED U/S 143 (3). SINCE THE AMOUNTS HAVE BEEN TREATED AS REVENUE EXPENDITURE IN THE SUB SEQUENT TWO YEARS OF ASSESSMENT AND LD. DR COULD NOT BRING ANY TO OUR NO TICE ANY OTHER REMEDIAL ACTION TAKEN IN THE ASSESSMENT YEAR 2012-13 AND 201 3-14 IT CAN BE SAFELY PRESUMED THAT THE SAME AMOUNT OF RS.30,78,400/- HAS BEEN ACCEPTED BY THE REVENUE AS REVENUE EXPENDITURE. HENCE, WE FIND NO R EASON TO TREAT AS CAPITAL EXPENDITURE FOR THE ASSESSMENT YEAR 2011-12. AS A R ESULT THE APPEAL OF THE ASSESSEE ON THIS GROUND IS ALLOWED. ITA NO. 1034 / DEL/.2016 ACIT VS. LIVING MEDIA 10. THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS: 1. THAT ONTHE FACTS AND CIRCUMSTANCES OF THE CASE & LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 32,45,041/- MADE ON ACCOUNT OF COMMISSION PAID TO FOREIGN PARTIES U/S 40(A)(IA) OF THE I. T. ACT, 196 1. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE & LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS. 2,86,70,036/- MADE U/S 14A R.W. RULE 8D BY IGNORING FACT THAT AS PER THE CBDTS INSTRUCTION NO. 5/2014 DATED 11.02.2014 RULE 8D READ WITH SECTION 14A OF THE ACT PROVIDED FOR DISALLOWAN CE OF THE EXPENDITURE EVEN WHERE TAXPAYER IN A PARTICULAR YEARS HAS NOT EARNED ANY EXEMPT INCOME. 11. REGARDING THE COMMISSION PAYMENTS THE FACTS TAK EN FROM THE ORDER OF THE LD. CIT(A) ARE THAT DURING THE COURSE OF ASSESS MENT PROCEEDINGS IT WAS NOTICED THAT THE ASSESSEE HAS CLAIMED COMMISSION PA ID TO DIFFERENT PARTIES AMOUNTING TO RS. 32,45,041/- . THE ASSESSEE WAS ASK ED TO FURNISH THE DETAILS OF THE EXPENSES AS ALSO TO FILE DETAILS OF TDS DEDUCTE D ON THE SAME, A SHOW CAUSE NOTICE AS TO WHY THE SAME SHOULD NOT BE DISALLOWED AS PER PROVISIONS OF SECTION 40(A) (I) IN CASE OF NON DEDUCTION OF TAX AT SOURCE WAS ALSO ISSUED. THE ASSESSEE FAILED TO FURNISH ANY REPLY TO THE SAID SHOW CAUSE NOTICE. IN ABSENCE OF ANY EXPLANATION/EVIDENCE OF DEDUCTION OF TAX AT SOURCE, THE AMOUNT SO PAID WAS HELD TO BE NOT ALLOWABLE AS PER PROVISION OF SECTIO N 40(A)(I) OF THE I.T. ACT. ITA NO. 648/DEL/2016 6 KEEPING IN VIEW THE FACTS OF THE CASE, A DISALLOWAN CE OF RS. 32,45,041/- WAS MADE AS PER PROVISION OF SECTION 40 (A)(1). 12. ON THIS ISSUE THE LD. AR SUBMITTED THAT IN RESP ONSE TO THE QUERY OF THE AO WHETHER THE TDS HAS BEEN DEDUCTED ON THE COMMISSION , THE ASSESSEE HAD REPLIED VIDE LETTER DATED 12.3.2014 THAT NO TDS HAS BEEN DEDUCTED ON THE COMMISSION PAID TO FOREIGN PARTIES AMOUNTING TO RS. 32,45,041/- AS THE FOREIGN ENTITIES IN QUESTION NEITHER HAD ANY PERMANENT ESTA BLISHMENT NOR ANY BUSINESS CONNECTION IN INDIA. THE INCOME OF THE FOREIGN AGEN TS THEREFORE CANNOT BE DEEMED TO ACCRUE AND ARISE IN INDIA, EVEN CONSIDERI NG ARTICLE 7 OF THE DTAA, NOW THESE RECEIPTS ARE TAXABLE AS BUSINESS PROFITS IN THEIR HANDS AND NO TDS IS DEDUCTIBLE. THE RELEVANT EXTRACT OF THE ORDER OF TH E LD.CIT(A) IS AS UNDER: IN ORDER TO DECIDE THE ISSUE UNDER APPEAL, THE RELE VANT SECTION 5 R.W.S 9(L)(I) NEED TO BE PERUSED IN ORDER TO DECIDE THE TAXABILITY OR OTHERWISE OF THE SUMS PAID BY WAY OF COMMISSION TO SUCH NON-RESIDENT AGENTS. SECT ION 5 WHICH DEALS WITH THE SCOPE OF TOTAL INCOME OF A NON-RESIDENT AND READS A S UNDER:- 5(2) SUBJECT TO THE PROVISIONS OF THIS ACT, THE TO TAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A NON-RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA I N SUCH YEAR BY OR ON BEHALF OF SUCH PERSON; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR. 5.2.1 SECTION 9(1), WHICH AMPLIFIES AND SUPPORTS THE SCOP E OF TOTAL INCOME OF A NON-RESIDENT READS AS UNDER: 9.(1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCR UE OR ARISE IN INDIA : (I) ALL INCOME ACCRUING OR ARISING, WHETHER DIRECTL Y OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA, OR THROUGH OR FRO M ANY PROPERTY IN INDIA, OR THROUGH OR FROM ANY ASSET OR SOURCE OF INCOME IN IN DIA, [* * *] OR THROUGH THE TRANSFER OF A CAPITAL ASSET SITUATE IN INDIA. [EXPLANATION 1],FOR THE PURPOSES OF THIS CLAUSE (A) IN THE CASE OF A BUSINESS OF WHICH ALL THE OPER ATIONS ARE NOT CARRIED OUT IN INDIA, THE INCOME OF THE BUSINESS DEEMED UNDER THIS CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOME AS IS R EASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED OUT IN INDIA; 5.3 SECTION 5(2)(B) DEALS WITH THE SCOPE OF TOTAL INCOM E WHEREBY THE INCOME OF A NON-RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED, WHICH ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE I N INDIA DURING SUCH PREVIOUS YEAR. UNDER SECTION 9( 1)(I), INCOME ACCRUING OR AR ISING DIRECTLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA OR SOURCE OF INCOME IN INDIA SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. WE ARE CONCE RNED IN THIS PARTICULAR CASE WITH THE SOURCE OF INCOME OF THE NON-RESIDENT AGENT S WHO HAD EARNED COMMISSION FROM THE BUSINESS ACTIVITY OF THE APPLIC ANT. SECTIONS 5 AND 9 OF THE ACT THUS PROCEED ON THE ASSUMPTION THAT INCOME HAS A SITUS AND THE SITUS HAS TO BE DETERMINED ACCORDING TO THE GENERAL PRINCIPLES O F LAW. THE WORDS 'ACCRUE' OR 'ARISE' OCCURRING IN SECTION 5 HAVE MORE OR LESS A SYNONYMOUS SENSE AND INCOME IS SAID TO ACCRUE OR ARISE WHEN THE RIGHT TO RECEIVE I T COMES INTO EXISTENCE. 5.4 THE FACTS OF THE PRESENT CASE HAVE TO BE ANALYZED I N ORDER TO SEE WHETHER THE INCOME OF THE NON-RESIDENT AGENTS ACCRUED OR AR OSE IN INDIA. THE FOREIGN ENTITIES IN QUESTION HAD BEEN APPOINTED BY THE APPE LLANT COMPANY IN ORDER TO COLLECT THE SUBSCRIPTION OF MAGAZINES IN THE COUNTR IES IN WHICH THEY WERE POSITIONED NAMELY, UK, FRANCE, ITALY AND SRI LANKA. THEY WERE ALSO IN CHARGE OF PROCUREMENT OF ADVERTISEMENTS FOR THE APPELLANT COM PANY. THE SERVICES WERE PROVIDED OUTSIDE INDIA AND THE COMMISSION WAS PAID OUTSIDE INDIA ALSO. THE SITUS ITA NO. 648/DEL/2016 7 OF THE INCOME OF THE APPELLANT EARNED AS A RESULT O F THESE SERVICES PROVIDED, WAS IN THESE COUNTRIES. THE AO HAS NOT BROUGHT ANYTHING ON RECORD TO SHOW THAT THE ENTITIES CONCERNED HAD ANY PERMANENT ESTABLISHMENT IN INDIA OR ANY BUSINESS CONNECTION WHICH IN DEFINED IN EXPLANATION 2 TO SEC TION 9(1) (I). THEREFORE, I DO NOT SEE ANY LOGIC IN THE CONCLUSION DRAWN BY THE AO THA T THE AMOUNTS WERE CHARGEABLE TO TAX IN INDIA. IT MAY ALSO BE KEPT IN MIND THAT THE AO HAS NOT MENTIONED THE SPECIFIC DEFAULT FOR DEDUCTION OF TAX AT SOURCE AND IT CAN ONLY BE ASSUMED THAT THE PROVISIONS OF SECTION 40(A)(I) HAV E BEEN APPLIED FOR THE DEFAULTS IN FAILURE TO DEDUCT TAX U/S 194H. ACCORDINGLY, IT IS HELD THAT THERE IS NO LIABILITY OF THE APPELLANT TO DEDUCT TAX U/S 194H AND CONSEQUENT LY ANY DEFAULT U/S 40(A)(I). 12. BEFORE US, THE LD. DR RELIED ON THE ORDER OF TH E ASSESSING OFFICER AND THE LD. AR REITERATED THE ARGUMENTS TAKEN BEFORE THE LD . CIT(A). 13. WE FIND THAT THE SECTION 194J, 194H ARE NOT APP LICABLE TO THE PAYMENTS MADE BY THE ASSESSEE AS THE ENTITIES FOR WHICH THE COMMISSION PAYMENTS HAVE BEEN MADE ARE SITUATED OUTSIDE INDIA AND NO TAXABIL ITY ARISES OUT OF THESE TRANSACTIONS AS THE PAYMENTS WERE MADE FOR THE WORK EXECUTED OUTSIDE INDIA BY A FOREIGN ENTITY. THE PROVISIONS OF ARTICLE 7 OF DTAA ARE APPLICABLE TO THE ASSESSEE AND NO TDS IS DEDUCTIBLE, HENCE THE DISALL OWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 40A(I)IS LIABLE TO BE DELETED. 14. AS A RESULT THE APPEAL OF THE REVENUE ON THIS G ROUND IS DISMISSED. 15. GROUNDS RELATING TO SECTION 14A . FOR THE SAKE OF CONVENIENCE THE RELEVANT ORDER OF T HE LD. CIT(A) IS REPRODUCED AS UNDER: THE ASSESSEE WAS ASKED TO EXPLAIN WHY DISALLOWANCE U/S 14A READ WITH RULE 8D SHOULD NOT BE MADE IN RESPECT OF INVESTMENT MADE. T HE ASSESSEE SUBMITTED BEFORE THE AO THAT A DISALLOWANCE OF RS. 48,23,318/ - HAS ALREADY BEEN MADE AND ADDED TO THE COMPUTATION OF INCOME. HOWEVER THE DIS ALLOWANCES WERE FOUND NOT WORKED OUT AS PER PROVISIONS OF SECTION 14A R.W . RULE 8D AS PER FORMULA PRESCRIBED IN THE RULES. THE AMOUNT TO BE DISALLOWE D U/S 14A WAS THEREFORE, WORKED OUT TO BE RS. 3,34,93,354/- (AS PER RULE 8D) , AND SINCE THE ASSESSEE ON ITS OWN HAD ALREADY MADE DISALLOWANCE OF RS. 48,23,318/ -, THE BALANCE RS. 2,86,70,036/- WAS DISALLOWED AND-U/S 14A AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 8.1 THE AR HAS SUBMITTED THAT THERE IS NO DOUBT THAT SE CTION 14A WAS APPLICABLE IN THE PRESENT CASE AS THE APPELLANT HAD ITSELF OFFERED THE DISALLOWANCE. HOWEVER, WHEREAS THE AO HAS TAKEN THE FULL VALUE OF INVESTMENTS, IT IS TO BE SEEN THAT INVESTMENT IN SUBSIDIARY COMPANI ES WHICH ARE NOT LISTED COMPANIES AND HENCE CAPITAL GAINS ARE NOT EXEMPT OR FROM WHOM NO DIVIDEND HAS BEEN RECEIVED WOULD BE EXCLUDED FOR PURPOSES OF RULE 8D. THE DETAILED SUBMISSIONS FILED IN THIS REGARD ARE AS UNDER: '8(A) THAT THE LD. ASSESSING OFFICER HAS GONE WRONG IN DISALLOWING EXPENSES AMOUNTING TO RS.2,86,70,036/- INCURRED FOR EARNING DIVIDEND INCOME; 8(B) THAT THE LD. ASSESSING OFFICER HAS GONE WRONG IN DISALLOWING EXPENSES AMOUNTING TO RS. 2,86/70)056/- FOR EARNING DIVIDEND INCOME BY CONSIDERING THOSE INVESTMENTS ON WHICH NO DIVIDEND HAS BEEN RECEIVED BY THE ASSESSEE COMPANY DURING THE YEAR; 8(C) THAT THE LD. ASSESSING OFFICER HAS GONE WRONG IN DISALLOWING EXPENSES AMOUNTING TO RS. 2,86,70,036/- FOR EARNING DIVIDEND INCOME BY ITA NO. 648/DEL/2016 8 CONSIDERING THOSE INVESTMENT ON WHICH NO EXEMPT INC OME IS RECEIVABLE EITHER IN THE FORM OF DIVIDEND OR IN THE FORM OF CAPITA! GAIN ; 8(D) THAT THE LD. ASSESSING OFFICER HAS GONE WRONG IN DISALLOWING EXPENSES FOR EARNING DIVIDEND INCOME TO THE EXTENT OF RS. 2,86,7 0,036/- BY IGNORING THE INVESTMENTS CHART FOR LAST 1 8 - 2 0 YEARS FILED BY THE ASSESSEE COMPANY IN WHICH DEARLY SHOWS THAT NO INVESTMENTS HAS BEEN MADE OUT OF BORROWED FUNDS; 8(E) THAT THE LD. ASSESSING OFFICER HAS GONE WRONG IN DISALLOWING EXPENSES FOR EARNING DIVIDEND INCOME TO THE EXTENT OF RS. 2,86,7 0,036/- BY CONSIDERING THE INTEREST ON WORKING CAPITAL DEMAND LOANS/ INTEREST ON CASH CREDITS/ INTEREST ON FIXED DEPOSITS/ INTEREST OTHERS FOR WORKING OF DISA LLOWANCE U/S 14A R W R 8D; 8(F) THAT THE LD. ASSESSING OFFICER HAS GONE WRONG IN DISALLOWING EXPENSES AMOUNTING TO RS. 2,86,70,036/- FOR EARNING DIVIDEND INCOME OF RS. 2,57,40,528/- FINDINGS OF THE ASSESSING OFFICER ASSESSING OFFICER HAS MADE A DISALLOWANCE U/S 14(A) READ WITH RULE 8D AMOUNTING TO RS. 2,86,70,036/- IN RESPECT OF THE EX PENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME. FACTS AND ARGUMENTS OF THE CASE IN THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDE RATION, THE ASSESSEE COMPANY HAS MADE A DISALLOWANCE OF EXPENSES AMOUNTING TO RS . 48,23,318 IN THE COMPUTATION OF TAXABLE INCOME BEING THE EXPENSES IN CURRED IN RESPECT OF THE EXEMPT INCOME AS REGUIRED PER THE PROVISION OF SECT ION 14A READ WITH RULE 8D. THE CALCULATION OF THE DISALLOWANCE U/S 14A READ WI TH RULE 8D IS ENCLOSED HEREWITH AS ANNEXURE 5 FOR YOUR KIND REFERENCE. S. NO. PARTICULARS AMOUNT (RS.) AMOUNT (RS.) 1 THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO THE INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME NIL 2 A*B/C A= AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT MENTIONED IN CLAUSE (1) B= THE AVERAGE OF VALUE OF INVESTMENT C= THE AVERAGE VALUE OF TOTAL ASSETS 7,17,77,097/- 84,86,15,503/- 2,08,24,11,773/- THE AMOUNT OF DISALLOWANCE ( A* B/C) 2,92,50,779/- 3 0.5% OF AVERAGE VALUE OF INVESTMENT (0. 5% * RS.84,86,15,053/-) TOTAL AMOUNT OF DISALLOWANCE 33,493,354/- THE ASSESSEE COMPANY HAS NO DOUBT IN RESPECT OF T HE APPLICABILITY OF SECTION 14A READ WITH RULE 8D IN THE PRESENT CASE AS THE COMPAN Y HAS ITSELF OFFERED THE DISALLOWANCE IN THE RETURN OF INCOME. HOWEVER, THE ASSESSEE COMPANY HAS BEEN AGGRIEVED BY THE AMOUNT OF DISALLOWANCE AS COMPUTED BY THE ASSESSING OFFICER ON THE FOLLOWING POINTS: ITA NO. 648/DEL/2016 9 1. THE ASSESSING OFFICER HAS TAKEN THE FULL VALUE OF INVESTMENT AS APPEARING IN THE BALANCE SHEET, THIS INCLUDES VARIOUS INVESTMENTS ON WHICH THE COMPANY HAS NOT RECEIVED ANY DIVIDEND DURING THE YEAR UNDER CONSIDE RATION. 2. IT IS BEING HIGHLIGHTED BEFORE YOUR LD. SELF THAT ALL THE SUBSIDIARIES CQMPANY IN WHICH INVESTMENT HAS BEEN MADE ARE NOT LISTED COMPA NIES IN THE RECOGNIZED STOCK EXCHANGE. HENCE THE CAPITAL GAIN ARISING ON T HE SALE OF INVESTMENT MADE IN SUCH COMPANIES IS NOT ELIGIBLE FOR EXEMPTION UND ER THE PROVISION OF THE ACT. 3. THE PURPOSE OF MAKING INVESTMENTS IN THE SUBSIDIAR Y COMPANY IS COMMERCIAL EXPEDIENCY AND NOT FOR THE PURPOSE OF EARNING DIVID END. 4. FURTHER IT IS SUBMITTED BEFORE YOUR LEARNED SELF T HAT THE ASSESSEE COMPANY HAS ALREADY RECEIVED A FAVORABLE CIT(A) ORDER FOR THE A Y 2010-11 ON THE SAME ISSUE WHEREIN ALL OF THE CONTENTIONS OF THE ASSESSEE COMP ANY HAS BEEN ACCEPTED BY THE CIT(A). IN THE SAID ORDER THE CIT(A) HAS ACCEPT ED THE CONTENTION OF THE ASSESSEE COMPANY THAT ALL OF THE INVESTMENTS MADE T ILL THAT YEAR IS NOT OUT OF THE BORROWED FUNDS. THE COPY OF THE SAID ORDER IS ATTAC HED HEREWITH AS ANNEXURE 6 FOR YOUR KIND REFERENCE. 5. THE COMPARISON OF FRESH INVESTMENT MADE AFTER AY 2 010-11 AND THE SOURCE THEREON HAS BEEN EXPLAINED BELOW FOR YOUR KIND REFE RENCE. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAS SOLD ITS BUSINESS DIVISION 'BAG IT TODAY' AS A GOING CONCERN ON SLUMP SALE BASIS TO TODAY MERCHANDISE PRIVATE LIMITED ('TMPL') FOR A CONSIDER ATION OF RS. 280,310,000 OUT OF WHICH RS. 135,310,000 WAS RECEIVED IN CASH BANK AND BALANCE WAS RECEIVED IN THE FORM OF 14,500,000 FULLY PAID UP SHARES OF RS. 10 EACH IN TMPL. HENCE THE FRESH INVESTMENT IN TMPL IS THE SHARES RECEIVED PURSUANT TO SALE OF 'BAG IT TODAY' DIVISION. FURTHER, THE ASSESSEE COMPANY ALSO TRANSFERRED THE ASSETS OF DISTRIBUTION BUSINESS OF 'BAG IT TODAY' AT COST TO ITS GROUP CONCERN. THE SOURCE OF OTHER FRESH INVESTMENTS IS THE CASH RECEIVED ON THE ABOVE TRANSACTIONS AND THE INTERNAL REVENUE GENERATED IN THE FORM OF INTEREST, DIVIDEND. THE FRESH INVESTMENT MADE IN TV TODAY NETWORK LIMI TED IS DUE TO THE SALE OF RADIO BUSINESS BY RADIO TODAY BROADCASTING LIMITED TO TV TODAY NETWORK LIMITED PURSUANT TO COMPOSITE SCHEME OF ARRANGEMENT HENCE IT IS CLEAR FROM THE ABOVE THAT THE FRESH IN VESTMENTS HAVE BEEN MADE OUT OF THE OWN FUNDS AND INTERNAL REVENUE GENERATION OF THE COMPANY AND THE BORROWED FUNDS HAVE NOT BEEN UTILIZED FOR THE PURPO SE OF INVESTMENT. 6. IN THE CALCULATION, THE LD. ASSESSING OFFICER HAS C ONSIDERED THE FINANCE COST AMOUNTING TO RS. 7,17,77,097/- AS DEBITED IN THE PR OFIT & LOSS ACCOUNT. SUCH AN AMOUNT INCLUDES THE FOLLOWING COMPONENTS: PARTICULARS AMOUNT (RS.) INTEREST ON WORKING CAPITAL DEMAND LOAN AND CASH CREDIT 5,40,52,105 INTEREST ON FIXED DEPOSIT 16,94,163 OTHERS 1,60,30,829 TOTAL AMOUNT (RS.) 7,17,77,097 INTEREST ON SHORT TERM BORROWINGS AMOUNTING TO RS. 5,40,52,105/- PERTAINS TO CASH CREDIT/ WORKING CAPITAL DEMAND LOAN WHICH HAVE BEEN UTILISED FOR THE PURPOSE OF WORKING CAPITAL REQUIREMENT OF COMPANY. INTEREST ON FIXED DEPOSIT AMOUNTING TO RS. 16,94,16 3/- AND OTHER BORROWING COST AMOUNTING TO RS. 1,60,30,829 IS IN THE NATURE OF IN TEREST OF SECURITY DEPOSITS AND ITA NO. 648/DEL/2016 10 INCLUDES VARIOUS BANK CHARGES LIKE DD CHARGES [CHAR GES FOR MAKING DEMAND DRAFTS FOR MAKING PAYMENTS TO THE COMPANY'S CLIENTS ], CHEQUE BOOK CHARGES, BANK GUARANTEE CHARGES, TT CHARGES [CHARGES FOR MAK ING TELEGRAPHIC TRANSFER OF MONEY TO ITS CLIENTS], EXPENSES INCURRED FOR THE PR OCESSING OF LOANS ETC. THE VARIOUS TERMS LOAN FROM THE BANK HAS BEEN TAKEN FOR THE SPECIFIED PURPOSE AND HAS BEEN WHOLLY UTILIZED FOR THE SAID PURPOSE ONLY. HENCE, THE INTEREST COST ON SUCH TERM LOAN CANNOT B E CONSIDERED FOR THE PURPOSE OF CALCULATION OF DISALLOWANCE. AN AMOUNT O F RS. 622,868/- IS DUE ON LOANS NOT TAKEN FOR ANY SPECIFIC PURPOSE AND THE SA ME HAD ALREADY BEEN CONSIDERED IN THE AMOUNT OF DISALLOWANCE U/S 14A BY THE ASSESSEE COMPANY. THE ABOVE SAID COMPONENT CAN NOT BY ANY STRETCH O F IMAGINATION BE CALLED AS USED FOR THE PURPOSE OF MAKING INVESTMENT BY THE AS SESSEE COMPANY. HENCE THIS AMOUNT IS NOT TO BE CONSIDERED WHILE CALCULATING TH E DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. 7. IN ORDER TO STRENGTHEN THE VIEWPOINT MENTIONED ABO VE, THE ASSESSEE COMPANY HAS PUT RELIANCE ON FOLLOWING JUDGMENTS OF HIGH COU RTS: A) CIT VS HOLCIM INDIA PVT LTD ITA 486 OF 2014 [DELHI HC] B) CIT V'S DELITE ENTERPRISES ITA 110 OF 2009 [BOMBAY HC] C) CIT VS WINSOME TEXTILES LTD [319 ITR 204 [PUNJAB & HARYANA HC] D) CIT VS CORRTECH ENERGY PVT LTD 233 TAXMANN 130 [GU JARAT HC] E) CIT VS SHIVAM MOTORS PVT LTD ITA 88 OF 2014 [ ALLA HABAD HC] F) ALLIANCE INFRASTRUCTURE PROJECTS PVT LTD VS DCIT [ ITAT BANGALORE] 8. FURTHER, THE BRIEF SUMMARY OF THE VARIOUS JUDGMENT S PUT RELIANCE BY THE ASSESSEE COMPANY IS MENTIONED BELOW:: > IN THE CASE OF DCIT VS. REI AARO LTD KOLKATA LTA NO 1331/KOI/2011 DATED 19.06.2013 FOR THE ASSESSMENT YEAR 2008 - 09 BENCH 'AT KOLKATA TRIBUNAL HAS HELD THAT IN THE ABSENCE OF ANY SUCH FINDING, FACTS OF T HE PRESENT CASE SHOWS THAT THE INVESTMENT IN SHARES WAS MADE OUT OF OWN CAPITA L EMPLOYED AND NOT FROM BORROWED FUNDS, NO DISALLOWANCE ON ACCOUNT OF INTER EST EXPENDITURE CAN BE MADE B V INVOKING RULE 8D OF THE RULES. > IN THE CASE OF JM FINANCIALS LIMITED VS ACIT MUMBA I BENCH 'J' FLTA NO 4521/MUM/2012 DATED 26.03.2014 FOR AY 2009 - 101 WH EREIN MUMBAI TRIBUNAL HAS HELD THAT NO DISALLOWANCE U/S 14A/ RULE 8D CAN BE MADE ON INVESTMENT MADE IN SHARES OF SUBSIDIARIES COMPANIES & JOINT VENTURES > SIMILARLY, IN THE CASE OF ORIENTAL STRUCTURAL ENGI NEERS (P) LTD WHEREIN HON'BLE DELHI HIGH COURT HAS BEEN HELD THAT SECTION 14A DIS ALLOWANCE CANNOT BE MADE FOR INVESTMENT IN SUBSIDIARIES AND SPVS OUT OF COMMERCIAL EXPEDIENCY. > ALSO, IN THE CASE OF GARWARE WALL ROPES LTD V/S AD DL CIT MUMBAI BENCH 'G' LTA NO 5408/MUM/2012 AY 2009 - 101 WHERE IN IT WAS HELD THAT A DISALLOWANCE U/S 14A CANNOT BE MADE IF THE PRIMARY OBJECT OF INV ESTMENT IS HOLDING CONTROLLING STAKE IN THE GROUP CONCERN AND NOT EARN ING ANY INCOME OUT OF INVESTMENT. > BASED ON THE JUDGMENT GIVEN BY CHANDIGARH TRIBUNAL IN THE CASE OF ACIT VS PUNJAB STATE COOP & MARKETING FED LTD LTA NO 548/CH D/2011 FOR AY 2007 - 081 WHEREIN CHANDIGARH TRIBUNAL HAS HELD THAT DISALLOWA NCE U/S 14A CANNOT EXCEED THE EXEMPT INCOME. 9. FURTHER, IT IS REALLY INCONGRUOUS THAT EXPENSES AMO UNTING TO RS. 2,86,70,036/- HAS BEEN DISALLOWED FOR EARNING DIVIDEND INCOME AMOUNTI NG TO RS. 2,57,40,528/- IN VIEW OF THE ABOVE, IT IS BEING REQUESTED THAT TH E DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER MAY KINDLY BE DELETED.' 8.2 SUBSEQUENTLY, DURING THE COURSE OF APPELLATE PROCEE DING THE AR HAS FILED WRITTEN SUBMISSION DATED 09.12.2015, STATING THAT, AT THE TIME OF FILING THE RETURN OF INCOME, THE APPELLANT CONSIDERED, FOR THE PURPOSE O F CALCULATION OF DISALLOWANCE U/S 14A, THE ENTIRE INVESTMENTS EXCEPT INVESTMENTS MADE IN FOREIGN COMPANIES. IN VIEW OF THE SUBSEQUENT DECISIONS, WHEREIN IT HAS BE EN HELD THAT ONLY THOSE INVESTMENTS ON WHICH EXEMPT INCOME HAS BEEN RECEIVE D DURING THE YEAR SHOULD BE CONSIDERED FOR THE PURPOSES OF CALCULATING THE D ISALLOWANCE U/S 14A, IT HAS BEEN SUBMITTED THAT THIS HAS BEEN ACCEPTED BY THE C IT(A) FOR A.Y. 2010-11 AND THE AMOUNT OF DISALLOWANCE FOR THAT YEAR HAS BEEN R EDUCED TO RS. 9,00,621/-. THE REVISED WORKING OF DISALLOWANCE U/S 14A, CONSIDERIN G ONLY THOSE INVESTMENTS IN ITA NO. 648/DEL/2016 11 WHICH DIVIDEND HAS BEEN RECEIVED HAS BEEN SUBMITTED WHEREIN THE AMOUNT OFFERED FOR DISALLOWANCE U/S 14A IS MENTIONED AT RS . 11,05,860/-. 8.2.1 I HAVE GIVEN CAREFUL CONSIDERATION TO THE ISSUE IN QUESTION. THE APPELLANT WAS IN THE RECEIPT OF DIVIDEND INCOME OF RS. 2,57,4 0,528/-. IT OFFERED A DISALLOWANCE OF RS. 48,23,318/- SUO-MOTU IN THE RET URN OF INCOME. PERUSAL OF THE WORKING OF THE DISALLOWANCE SHOW THAT AN AMOUNT OF RS. 6,22,868/- WAS OFFERED UNDER RULE 8D(2)(I). THIS SHOWS THAT THE APPELLANT ADMITS THAT THERE IS CERTAIN DIRECT EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCO ME. IN THE REVISED WORKING THIS AMOUNT HAS BEEN TAKEN AS NIL. NO EXPLANATION HAS BE EN OFFERED AS TO WHY THE DIRECT EXPENDITURE THAT HAS BEEN INCURRED IN RESPEC T OF EXEMPT INCOME HAS BEEN REVISED. I SEE NO REASON TO GIVE RELIEF ON THE EXPE NDITURE SUO-MOTU OFFERED. IN SO FAR AS THE QUESTION OF INTEREST IS CONCERNED, THERE IS AN INCREASE IN INVESTMENT FROM RS.67.30 CRORES TO RS. 102.42 CRORES. IT IS SEEN TH AT NET FRESH INVESTMENT DURING THE YEAR TOTALS RS. 37.12 CRORES (NEW INVESTMENTS OF RS . 47.03 CRORES - SALE OF INVESTMENTS OF RS. 9.91 CRORES). AS PER THE NOTE TO SCHEDULE VI OF THE BALANCE SHEET THE APPELLANT ACQUIRED THE SHARE OF TV TODAY TO THE TUNE OF RS. 11.91 CRORES, PURSUANT TO THE SALE OF RADIO BUSINESS BY R ADIO TODAY BROADCASTING LTD. TO TV TODAY NETWORK LTD. AS PER THE COMPOSITE SCHEME OF A GREEMENT BETWEEN THE TWO PARTIES DULY APPROVED BY THE SHAREHOLDERS AND T HE DELHI HIGH COURT DATED 21.11.2009 & 24.12.2010 RESPECTIVELY. IN ADDITION S HARES TO THE TUNE OF RS. 14.51 CRORES IN TODAY MERCHANDISE PVT. LTD. (TMPL) WERE R ECEIVED IN PURSUANCE TO SALE OF ITS BUSINESS CONCERN 'BAG IT TODAY' AS A GOING C ONCERN ON SLUMP SALE BASIS TO TMPL. AS RESULT, NO CASH OUTFLOW WAS INVOLVED IN TH ESE TWO TRANSACTIONS. THE BALANCE FRESH INVESTMENT DURING THE YEAR IS RS. 82. 11 LAKH IN ITAS MEDIA PVT. LTD., RS. 18.18 CRORES IN AUTOMOTIVE EXCHANGE PVT. LTD. A ND RS. 1.59 CRORES IN WORLD MEDIA TRADING PVT. LTD. THE CASE OF THE APPELLANT I S THAT INVESTMENTS MADE DURING THE YEAR (OTHER THAN THOSE ACQUIRED THROUGH NON CAS H SOURCES) OF RS. 20.60 CRORES ARE ENTIRELY FUNDED THROUGH INTERNAL FUNDS. IT IS P OINTED OUT THAT THE PROFITS FOR THE YEAR BEFORE TAX, INCLUSIVE OF THE NON CASH ADJUSTME NT, ON ACCOUNT OF DEPRECIATION, IS RS. 22.22 CRORES AND THE APPELLANT HAD OPENING RESERVES OF RS. 39.89 CRORES. THIS CLEARLY SHOWS THAT NO BORROWED F UNDS HAVE BEEN UTILIZED FOR PURPOSES OF MAKING THE FRESH INVESTMENT DURING THE YEAR. 8.2.1 I HAVE PERUSED THE FACTS STATED ABOVE AND FIND MYS ELF IN AGREEMENT WITH THE LEGAL CONTENTION OF THE APPELLANT THAT-IN A SIT UATION WHERE THE OWN FUNDS ARE MORE THAN THE INVESTMENT IN EXEMPT ASSETS, NO DISAL LOWANCE CAN BE MADE OUT OF THE INTEREST EXPENDITURE. THIS HAS BEEN THE VIEW OF THE BOMBAY HIGH COURT IN RELIANCE UTILITIES AND POWER LTD. (313 ITR 340) AND HDFC BANK LTD. (366 ITR 505). IT HAS MOST RECENTLY BEEN FOLLOWED BY THE DELHI BENCH OF ITAT IN THE CASE OF T&T MOTORS LTD. (154 ITD 306). ACCORDINGLY IN MY VIEW N O DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A READ WITH RULE 8D(2)(II) IS WAR RANTED. 8.2.2 COMING TO THE ISSUE OF DISALLOWANCE OF ADMINISTRAT IVE EXPENSES, THE AR HAS POINTED OUT THAT, DESPITE OFFERING A SUM OF RS. 42,00,450/- IN THE RETURN OF INCOME ON THIS ACCOUNT, IN VIEW OF THE FRESH CASE L AWS, THE AMOUNT MAY BE REVISED TO RS. 11,05,860/- BY CONSIDERING ONLY THOS E INVESTMENTS FROM WHICH DIVIDEND INCOME HAS BEEN RECEIVED. IT IS NOTED IN T HIS REGARD THAT THE APPELLANT HAS NOT MAINTAINED SEPARATE ACCOUNTS WITH REGARD TO THE INVESTMENT PORTFOLIO NOR HAS IT BEEN POINTED OUT WHICH DECISIONS SUPPORT ITS CLAIM THAT ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED FOR PURPOSES OF SE CTION 14A WHICH HAVE YIELDED EXEMPT INCOME DURING THE YEAR. THE RULE 8D(2)(III) CANNOT BE APPLIED AS PER THE ASSESSEE'S CONVENIENCE. SO FAR AS THE DELHI HIGH CO URT DECISION IN THE CASE OF ACB INDIA LTD. IS CONCERNED, WHICH PRESUMABLY THE A PPELLANT IS RELYING UPON, THE RATIO WOULD APPLY IN A SITUATION WHERE THE DISALLOW ANCE IS TO BE COMPUTED BY APPLYING THE PROVISIONS OF RULE 8D AND NOT TO SELF ADMITTED DISALLOWANCE OF DIRECT EXPENDITURE INCURRED IN THIS REGARD. IN ANY CASE, I F FOR ARGUMENTS SAKE, THE APPELLANT'S CONTENTION IS ACCEPTED THEN ALSO THE SA ID AMOUNT BECOMES DISALLOWABLE AS NON BUSINESS EXPENDITURE. THEREFORE THIS CONTENTION OF APPELLANT IS DISMISSED. THE DISALLOWANCE OFFERED BY THE APPELLAN T OF RS. 48,23,318/- UNDER RULE 8D(2)(III) IS SUSTAINED SINCE THE SAME HAS BEEN OFF ERED IN THE RETURN OF INCOME ITSELF. ITA NO. 648/DEL/2016 12 16. AGAINST THE BACKGROUND OF THIS DISALLOWANCE THE LD. DR ARGUED THAT THE INSTRUCTION OF CBDT NO. 5 / 2014 DT. 11/02/2014 REG ARDING THE DISALLOWANCE UNDER RULE 8D R.W.S 14 WHEREIN IT WAS PROVIDED FOR DISALLOWANCE OF EXPENDITURE EVEN WHERE THE TAX PAYER IN A PARTICULAR YEAR HAS N OT EARNED ANY EXEMPT INCOME HAS BEEN IGNORED BY THE LD. CIT(A). ON THE OTHER HAND LD. AR ARGUED THAT AT THE TIME OF FILING THE RETURN OF INCOME, TH E APPELLANT CONSIDERED, FOR THE PURPOSE OF CALCULATION OF DISALLOWANCE U/S 14A, THE ENTIRE INVESTMENTS EXCEPT INVESTMENTS MADE IN FOREIGN COMPANIES. IN VIEW OF T HE SUBSEQUENT DECISIONS, WHEREIN IT HAS BEEN HELD THAT ONLY THOSE INVESTMENT S ON WHICH EXEMPT INCOME HAS BEEN RECEIVED DURING THE YEAR SHOULD BE CONSIDE RED FOR THE PURPOSES OF CALCULATING THE DISALLOWANCE U/S 14A, IT HAS BEEN S UBMITTED THAT SIMILAR DISALLOWANCE HAS BEEN ACCEPTED BY THE CIT(A) FOR A. Y. 2010-11. 17. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES . FOLLOWING THE ESTABLISHED JUDGMENTS AS OF NOW, WE HEREBY HOLD THA T THERE CANNOT BE ANY DISALLOWANCE UNDER SECTION 14A WHERE THE ASSESSEE H AS NOT EARNED ANY EXEMPT INCOME, IN ANY OTHER CASE THE DISALLOWANCE C ANNOT EXCEED THE EXEMPT INCOME EARNED, WHILE CALCULATING DISALLOWANC E THE DIVIDEND YIELDING INVESTMENTS ARE ONLY TO BE CONSIDERED. WITH THESE O BSERVATIONS WE REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER TO RE-COMPUTE THE DISALLOWANCE WITH THE ABOVE GUIDELINES AND IN ACCORDANCE WITH TH E PROVISIONS OF THE ACT. 18. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED WHEREAS THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. SD/- SD/- (KULDIP SINGH) (B.R.R KUMAR) JUDICIAL MEMBER ACCOUNTA NT MEMBER DATED: 12.03.2019 NEHA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI ITA NO. 648/DEL/2016 13 DATE OF DICTATION 21.01.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK T O THE SR. PS/ PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE HEAD CLERK. THE DATE ON WHICH FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER