DCIT, New Delhi V. M/s. RDS Projects Ltd., New Delhi

ITA 1182/DEL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4267 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 04-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S P GUPTA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E , NEW DELHI BEFORE SH. N. K. SAINI, AM AND SH. K. N. CHARY , JM ITA NO. 1182 /DEL/2016 : ASSTT. YEAR : 2012 - 13 DY. COMMISS IONER OF INCOME TAX, CIRCLE - 21(2 ), NEW D ELHI VS M/S RDS PROJECTS LTD., 427, SOMDUTT CHAMBERS - II, 9, BHIKAJI CAMA PALACE, NEW DELHI - 1100 66 (APPELLANT) (RESPONDENT) PAN NO. A A ACR4761J ASSESSEE BY : NONE REVENUE BY : SH. S. P. GUPTA, SR. DR DATE OF HEARING : 14 .0 9 .201 7 DATE OF PRONOUNCE MENT : 26 .0 9 .201 7 ORDER PER N. K. SAINI, AM : THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE ORDER DATED 14 .12.2015 OF LD. CIT(A ) - 7 , NEW DELHI . 2 . THE ONLY EF FECTIVE GROUND RAISED IN THIS APPEAL READS AS UNDER : 1. ON THE FACTS AND CIRC UMSTANCES OF THE CASE, THE ID.CI T(A) HAS ERRED IN RESTRICTING THE ADDITION OF RS.38,94,340/ - TO RS.7,000/ - MADE BY ASSESSING OFFICER BY APPLYING RULE 8D WITHOUT APPRECIATING THE DIRECTIONS LAID DOWN IN CBDT'S CIRCULAR NO. 5/2014 DATED 11 - 02 - 2014 WHEREIN IT HAS BEEN M ENTIONED THAT DISALLOWANCE U/S.1 4A OF THE INCOME TAX ACT, 1961 IS TO BE MADE EVEN IF THERE IS NO EXEMPT INCOME DURING THE YEAR. ITA NO . 1182 /DE L/2016 RDS PROJECTS L TD. 2 3 . FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FILED THE RETURN OF INCOME ON 30 .09.2012 DECLARING AN INCOME OF RS. 16,68,78,960/ - WHICH WAS PROCESSED U/S 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) . LATER ON, THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO FILE DETAILS REGARDING THE INVESTMENTS MADE IN VARIOUS COMPANIES AND EXPLAIN THE POSITION WITH REGARD TO THE DISAL LOWANCE U/S 14A OF THE ACT R.W.R . 8D OF THE INCOME TAX RULES, 1962. IN RESPONSE, THE ASSESSEE SUBMITTED THAT INVESTMENT OF RS.12,71,33,000/ - HAD BEEN MADE IN SHARE CAPITAL OF DIFFERENT COMPANIES OUT OF THE SHAREHOLDERS FUNDS I.E. SHARE CAPITAL + RESERVE AND SURPLUS + PROFIT AND LOSS A/C + SHARE PREMIUM A/C + DEFERRED TAX LIABILITY TOTALING TO RS.89.67 CRORES AND THAT NO INVESTMENTS IN THE ABOVE SHARES HAD BEEN MADE OUT OF LOAN OR BORROWED FUNDS. IT WAS ALSO STATED THAT THERE WAS NO INCOME FROM DIVIDEND EXCEPT RS. 7,000/ - RECEIVED FROM STATE BANK OF TRAVANCORE. THE AO HOWEVER, DID NOT FIND ME RIT IN THE SUBMISSIONS OF THE ASSESSEE AND MADE THE DISALLOWANCE OF RS.38,94,340/ - BY OBSERVING AS UNDER: T HE ASSESSEE'S SUBMISSIONS HAVE BEEN CONSIDERED BUT ARE NOT ACCEPTABL E DUE TO THE FOLLOWING REASONS: - ITA NO . 1182 /DE L/2016 RDS PROJECTS L TD. 3 1. NO SEPARATE BOOKS OF ACCOUNT HAVE BEEN KEPT FOR INVESTMENTS. 2. THE FUNDS ARE MIXED AND THE FUNDS INVESTED IN INVESTMENTS DO NOT HAVE CHARACTER OF SURPLUS FUNDS. 3. THE FUNDS, WHICH HAVE BEEN USED BY THE ASSESSEE FOR ITS BUSINESS AS WELL AS INVESTMENTS, ARE MIXED AND INSEPARABLE. 4. THE ASSESSE E HAS NOT SHOWN THAT THE ABOVE AMOUNT IS INVESTED FROM SURPLUS FUNDS, NO NEXUS HAS BEEN FILED BY THE ASSESSEE IN THIS REGARD. IN THE VIEW OF THE ABOVE, ASSESSEE SUBMISSIONS ARE NOT ACCEPTABLE AND DISALLOWANCE U/S 14A OF I.T.ACT, READ WITH RULE 8D IS COMPU TED AS UNDER - S. NO. DISALLOWANCE AMOUNT (RS.) 1. THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. 0 2. IN CASE WHERE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVISION YEAR WH ICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA - A X B/C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST INCURRED ON OD ONLY, INCLUDED IN CLAUSE (1) INCURRED DURING THE P REVIOUS YEAR B = THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE LAST DAY AND THE LAST DAY OF THE PREVIOUS YEAR C = THE AVERAGE VALUE OF THE TOTAL A SSETS AS A = 5,22,03,622 B = 16,24,33,000 C = 2,751,170,153 HENCE, DISALLOWANCE = 30,82,175 ITA NO . 1182 /DE L/2016 RDS PROJECTS L TD. 4 APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. 3. AN AMOUNT EQUAL TO % OF THE AVERAGE VA LUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. % OF AVERAGE I NVESTMENT RS. 8,12,165 TOTAL DIS ALLOWANCE ( RS. 3082175+ RS. 812165) I.E. RS. 38,94,340 HENCE TOTAL DISALLOWANCE U/S 14A OF I.T.ACT, 1961 OF RS. 38.94.340A IS MADE TO THE INCOME OF THE ASSESSEE. DISALLOWANCE U/S 14A OF THE I.T. ACT, OF RS. 38,94,340/ - 4 . BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) WHO SUSTAINED THE DISALLOWANCE OF RS.7,000/ - BY OBSERVING IN PARAS 3.2 & 3.3 OF THE IMPUGNED ORDER AS UNDER: 3.2. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AND THE ORDER PASSED BY THE AO. THE AO HAS I NVOKED THE PROVISIONS OF SECTION 14A AND COMPUTED DISALLOWANCE AT RS.38,94,340/ - AS PER RULE 8D OF THE I.T. RULES, 1962 AS THE APPELLANT HAS INVESTMENT IN SHARES. IT IS NOTED THAT THE APPELLANT HAD EARNED DIVIDEND INCOME OF RS.7,000/ - FROM SHARES OF STATE BANK OF TRAVANCORE. DISALLOWANCE IS HOWEVER WORKED OUT AT RS.38,94,340/ - WHICH IS FAR IN EXCESS OF THE EXEMPT INCOME. THE AO HAS NOT GIVEN ANY REASONS AS TO THE BASIS OF THE EXPENDITURE DISALLOWED RELATABLE TO EARNING OF THE EXEMPT INCOME. IT IS HELD IN A NUMBER OF DECISIONS BY HON'BLE HIGH COURT AND TRIBUNALS THAT THE AO CANNOT STRAIGHT AWAY PROCEED TO APPLY RULE 8D WITHOUT EXAMINING THE MERITS OF THE APPELLANT'S ITA NO . 1182 /DE L/2016 RDS PROJECTS L TD. 5 CLAIM IN RESPECT OF EXPENDITURE DISALLOWED OR NOT INCURRED TO ATTRACT THE MISCHIEF OF DISALLOW ANCE U/S 14A OF THE ACT (MAXOPP INVESTMENT LTD. VS. CIT 347 ITR 272 (DEL), CIT VS. WALFORT SHARE AND STOCK BROKERS P. LTD. 326 ITR 1, CIT VS. HERO CYCLES LTD. 323 ITR 518, CIT VS. CONSOLIDATED PHOTO AND FINVEST LTD. 211 TAXMAN 184). THE DISALLOWANCE MADE B Y THE AO THEREFORE, IS NOT IN ORDER. 3.3. AS STATED ABOVE, THE DISALLOWANCE COMPUTED BY THE AO IS FAR IN EXCESS OF THE EXEMPT INCOME DISCLOSED BY THE APPELLANT I.E. RS.7,000/ - . THE HON'BLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT (P) LTD. VS. CIT 2015/(3) TMI 155 HAS HELD THAT DISALLOWANCE U/S 14A CANNOT EXCEED THE EXEMPT INCOME. RESPECTFULLY FOLLOWING THE DECISIONS CITED ABOVE, THE DISALLOWANCE U/S 14A IS RESTRICTED TO RS.7,000/ - I.E. THE AMOUNT OF EXEMPT INCOME EARNED BY THE APPELLANT DURING THE YEAR. THE GROUND OF APPEAL IS RULED PARTLY IN FAVOUR OF THE APPELLANT. 5 . NOW THE DEPARTMENT IS IN APPEAL. THE LD. DR STRONGLY SUPPORTED THE ORDER OF THE AO AND REITERATED THE OBSERVATIONS MADE IN THE ASSESSMENT ORDER DATED 07.07.2014. NOBODY WAS PRESENT ON BEHALF OF THE ASSESSEE. 6 . AFTER CONSIDERING THE SUBMISSIONS OF LD. DR AND THE MATERIAL ON RECORD, IT IS NOTICED THAT THE LD. CIT(A) BY FOLLOWING THE JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF JOINT INVESTMENT (P) LTD. VS CIT (SU PRA) SUSTAINED THE DISALLOWANCE TO RS.7,000/ - . WE, THEREFORE, DO ITA NO . 1182 /DE L/2016 RDS PROJECTS L TD. 6 NOT SEE ANY VALID GROUND TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). ACCORDINGLY, WE DO NOT SEE ANY MERIT IN THIS APPEAL OF THE DEPARTMENT. 7 . IN THE RESULT, THE APPEAL OF THE DEPARTME NT IS DISMISSED. ( ORDER PRON OUNCED IN THE COURT ON 26 /0 9 / 2017 ) SD/ - SD/ - (K. N. CHARY ) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 26 /09 /2017 *SUBODH* COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT REGISTRAR