National Cooperative Development Corporation, New Delhi V. The Dy.CIT., New Delhi

ITA 1242/DEL/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4102 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 21-04-2011
• Assessment Year: 2000-2001
• Appeal Filed On: 01-04-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RA J TANDON
• Keywords: Opportunity of being heard
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E DELHI BEFORE SHRI I.P.BANSAL AND SHRI K.G. BANSAL I.T.A. NO. 1242(DEL)/2009 ASSESSMENT YEAR: 2000-01 NATIONAL COOPERATIVE DEVELOPMENT DY. COMMISSIONER OF INCOME CORPORATION, 4, SIRI INSTITUTIONAL VS. TAX, CIRCLE 13(1), AREA, HAUZ KHAS, NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.V.S. R. KRISHNA, C A RESPONDENT BY : SHRI RA J TANDON, CIT, DR ORDER PER K.G. BANSAL : AM THE ASSESSEE HAD TAKEN UP 15 GROUNDS AT THE TIM E OF FILING APPEAL IN FORM NO. 36 ON 1.4.2009. IN THE COURSE OF HEARING BEFORE US, ABRIDGED GROUNDS WERE FILED, WHICH CONTAIN FIVE GROUNDS. THESE GROUNDS READ AS UNDER:- 1. THE CIT(A) HAS ERRED IN UPHOLDING THE ORDER OF ASSESSING OFFICER IN DENYING THE CLAIM OF DEDUCTION U/S 36(1)(VIII ) IN RESPECT OF THE FOLLOWING INCOMES: A. INCOME RECEIVED FROM COOPERATIVES ON LONG- TERM FUNDS ON INVESTMENTS TAXED AS BUSINESS RS. 57,89,500/- INCOME. B. INTEREST FROM BANKS RS. 10,84,46,871/- C. INTEREST ON ADVANCES/DEPOSITS ON LOANS TO EMPLOYEES. RS. 9,95,152/- 2. THE OBJECTIVE OF THE CORPORATION IS TO PROVIDE LO NG TERM LOANS/ADVANCES TO COOPERATIVES ENGAGED IN AGRICULTU RE AND ALLIED ITA NO. 1242(DEL)/2009 2 ACTIVITIES AND STATE GOVERNMENTS. THERE IS NO OT HER ACTIVITY CARRIED ON BY THE ASSESSEE. THE INCOME REFERRED ABOVE AR E IN THE COURSE OF CARRYING ON SUCH BUSINESS OF PROVIDING LONG TERM FINANCE AND, THEREFORE, ARE ELIGIBLE FOR BENEFIT U/S 36(1)(VII I) OF THE INCOME-TAX ACT, 1961 AND SHOULD BE ALLOWED. 3. THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING T HAT THE ENTIRE INTEREST INCOME WOULD GET ADJUSTED AGAINST THE INTEREST EXPENDITURE AS THE CORPORATION DOES NOT HAVE SURPLUS MONEY AND IS D EPENDENT ON LONG TERM BORROWINGS FROM CENTRAL GOVERNMENT, ISSUE OF BONDS, MEDIUM TERM LOANS FROM SCHEDULED BANKS. THEREFORE, ALSO APPLYING NETTING PRINCIPLE THE ENTIRE INTEREST INCOME FROM DEPOSITS GETS SET OFF AGAINST INTEREST EXPENDITURE. SIMILAR IS THE CASE WITH REGARD TO OTHER RECEIPTS WHICH HAVE CORRESPONDING DEBIT AS EXPEN DITURE REQUIRING SET OFF. THEREFORE, ALSO THE CLAIM U/S 36(1)(VII I) AS MADE BY THE ASSESSEE SHOULD BE ACCEPTED. 4. THE APPELLANT CONTENDS THAT THE CHARGING OF IN TEREST U/S 234B IS WRONG AND BAD IN LAW. THE INTEREST IS NOT AT AL L LEVIABLE. 5. THE WITHDRAWAL OF INTEREST U/S 244A(3) IS WRONG A ND BAD IN LAW. 2. IN THE COURSE OF HEARING BEFORE US, THE LD. C OUNSEL FOR THE ASSESSEE SUBMITTED THAT GROUND NOS. 1, 2 AND 3 STAND COV ERED BY THE DECISION OF F BENCH OF DELHI TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2007-08 IN ITA NO. 4706(DEL)/2009 DATED 31 .01.2011. THEREFORE, THE ORDER MAY BE MADE APPLICABLE TO THE PROCEEDING S OF THIS YEAR ALSO. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL, CONT AINED IN PARAGRAPHS 8 AND 9, IS REPRODUCED BELOW:- 8. SINCE THE ISSUE HAS ALREADY BEEN DECIDED B Y THE COORDINATE BENCH OF THE TRIBUNAL AND THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE ARE IDENTICAL TO THE FACTS IN ITA NO. 1242(DEL)/2009 3 THE ASSESSMENT YEARS 1999-2000 AND 2004-05 AS DECIDED BY THE TRIBUNAL, WE UPHOLD THE ORDER OF THE CIT(A) IN HOLDING THAT THE ASSESSEE IS NOT ENTITLED TO GET DEDUCT ION U/ 36(1)(VIII) ON THE ITEMS INVOLVED IN THIS GROUND OF APPEAL. WE, THEREFORE, UPHOLD THE ORDER OF THE CIT(A) ON TH IS ISSUED. 9. HOWEVER, IN THE COURSE OF HEARING OF THIS A PPEAL, THE LEARNED COUNSEL FOR THE ASSESSEE POINTED OUT TH AT EVEN IF DISALLOWANCE UNDER SEC. 36(1)(VIII) IS CALLED FO R IN RESPECT OF INTEREST INCOME, DIVIDEND, INTEREST ON ADVANCES OR DEPOSITS, MISCELLANEOUS RECEIPTS AND SERVICE CHARGES OF SDF LOANS, ONLY THE NET PROFIT IS TO BE CONSIDERED FOR THE PURP OSE OF DISALLOWANCE U/S 36(1)(VIII) OF THE ACT. THIS ALTERNATIVE CONTENTION WAS ALSO RAISED BY THE ASSESSEE BEFOR E THE TRIBUNAL IN EARLIER YEARS I.E., ASSESSMENT YEARS 1999-200 A ND 2004-05 AND THIS ALTERNATIVE CONTENTION HAS BEEN DECIDED BY THE TRIBUNAL VIDE PARA 16 AND 17 OF THE ORDER, WHICH H AS BEEN REPRODUCED HEREINABOVE. IN ADDITION TO THE ABOVE , THE ASSESSEE HAS PRODUCED BEFORE US A WORKING OF DI SALLOWANCE FOR OUR CONSIDERATION. HOWEVER, THIS WORKING W AS NOT BEFORE THE AO. WE, THEREFORE, DIRECT THE AO TO WORK OU T THE NET PROFIT WHICH IS LIABLE TO BE DISALLOWED AS DEDUC TION UNDER SEC. 36(1)(VIII) AFTER CONSIDERING THE ASSESSEES CON TENTIONS. THE ASSESSEE SHALL APPEAR BEFORE THE AO AND FILE ITS WORKING FOR THE PURPOSE OF DISALLOWANCE OF INCOME UNDER SECTIO N 36(10(VIII) OF THE ACT. WE ORDER ACCORDINGLY. 2.1 IN REPLY, THE LD. DR SUBMITTED THAT ALTHOUGH THE CASE STANDS COVERED BY THE AFORESAID DECISION, IT MAY BE N OTED THAT THE LD. CIT(APPEALS) HAD GRANTED OPPORTUNITY TO THE ASS ESSEE TO WORK OUT NET INTEREST INCOME FROM OTHER COOPERATIVE SOCIETIES, BANK AND EMPLOYEES. THE ASSESSEE WAS NOT ABLE TO FURNISH THE DETAILS , THEREFORE, THE LD. CIT(APPEALS) ALLOCATED EXPENSES AND THEREAFTER WORKED OUT THE INTEREST ITA NO. 1242(DEL)/2009 4 INCOME WHICH HAS TO BE EXCLUDED FOR THE PURPOS E OF COMPUTING PROFITS DERIVED FROM THE BUSINESS OF LONG-TERM FINANCE. THEREFORE, IT WAS URGED THAT NO FURTHER RELIEF MAY BE GRANTED TO THE A SSESSEE. THE RELEVANT PARAGRAPH OF THE IMPUGNED ORDER, AT PAGE NOS. 14 A ND 15, IS REPRODUCED BELOW:- THE APPELLANT VIDE ITS WRITTEN SUBMISSION HAS C LAIMED THAT AO HAS EXCLUDED GROSS RECEIPTS FROM SHORT TERM DEPOSITS FROM PROFIT AND GAINS OF BUSINESS WHEREAS PROFITS FROM SUCH ACTIVITY SHOULD HAVE BEEN EXCLUDED I.E., EXPEND ITURE SHOULD ALSO BE APPROPRIATED AND ONLY NET AMOUNT SHOULD BE REDUCED. I HAVE CONSIDERED APPELLANTS ARGUMENT CAREFULLY . IT IS UNDISPUTED FACT THAT COMPOSITE ACCOUNTS ARE BEIN G MAINTAINED BY THE APPELLANT. FURTHER, IT IS ALSO CLEAR THAT ONLY INCOME ARISING OUT OF THESE ACTIVITIES SHOULD BE REDUCED AND MERE GROSS RECEIPTS SHOULD NOT BE EXCLUDED FROM PRO FITS FOR PURPOSE OF COMPUTING DEDUCTION U/S 36(1)(VIII). HOWEVER, THE APPELLANT HAS FAILED TO SUBSTANTIATE THE NEXU S OF ANY PARTICULAR EXPENSE INCURRED FOR EARNING THE AB OVE INCOMES. REGARDING THE INTEREST INCOMES, THE APPELLANT HA S ITSELF ADMITTED THAT THEY WERE THE SURPLUS FUNDS AVAILABLE WHICH WERE PARKED DURING THE INTERREGNUM PERIOD. THE EXPENS ES ARE ALLOWED TO BE ADJUSTED ONLY IF THEY HAVE A DIRECT NEXUS WITH THE INCOME FROM VARIOUS ACTIVITIES IN WHICH SUCH FUNDS ARE DEPLOYED. IN ITS SUBMISSIONS MADE BY THE APPELLAN T DURING THE COURSE OF APPEAL RELATING TO OTHER ASSESSMENT Y EAR, IT IS SUBMITTED THAT IT IS NOT POSSIBLE TO LINK THE INF LOW OF FUNDS TO ITS ULTIMATE OUTFLOW. THE BORROWING AND ITS COS T IS PRIMARILY FOR LONG TERM CORE ACTIVITY OF THE APPELLANT. I N CASE OF A GAP BETWEEN PART OF BORROWING AND ADVANCING OF LOAN AN D IN ORDER TO USE SURPLUS CASH FLOW TO GENERATE ADDITIONAL INCOME IT IS INVESTED FROM TIME TO TIME. HOWEVER, IT CANNOT BE SAID THAT BORROWING IS DONE FOR MAKING THESE SHORT TERM INVESTMENTS. THE COST OF FUNDING THEREFORE DEPENDS ON THE COM POSITION OF VARIOUS SOURCES OF FUNDS, EARNING FROM VARIOUS ACTIVITIES, ITS ITA NO. 1242(DEL)/2009 5 QUANTUM AND DEPLOYMENT SCHEDULE. THE APPELLANT IT SELF HAD ARGUED THAT INVESTMENT IS BEING DONE OF SURPLUS FUND. IN VIEW OF THIS, IT WILL NOT BE PROPER TO ASSUME THAT INVESTMENTS HAVE BEEN DONE OUT OF BORROWED FUNDS ONLY. SIMILARLY, IT WILL NOT BE CORRECT TO ATTRIBUTE WHOLE COST OF BORROWING TO TH IS RECEIPT. SIMILARLY EARNING OF DIVIDEND INCOME FROM IN VESTMENT PER SE CANNOT JUSTIFY ALLOCATION OF EXPENSES. THE HONBLE ITAT, DELHIS SPECIAL BENCH IN THE CASE OF LALSON ENTERPRISES (89 ITD 25) HAS ALSO HELD THAT NETTING WOULD BE AL LOWED PROVIDED THERE IS A DIRECT NEXUS BETWEEN THE IN COME EARNED AND THE EXPENDITURE INCURRED BY THE ASSESSEE. IN THE ABOVE BACKGROUND, OF THE FACTS ON RECORD, A O IS DIRECTED TO REDUCE FOLLOWING EXPENSES FROM RESPE CTIVE ITEM OF RECEIPT FOR PURPOSE OF EXCLUSION FROM PROFITS IN COMPUTATION OF DEDUCTION U/S 36(1)(VIII) WHEN CLEARLY BORROW ING WAS NOT FOR MAKING SHORT TERM DEPOSITS:- (I) IN RESPECT OF INTEREST FROM BANK DEPOSITS:- IT WILL NOT BE PROPER TO ALLOCATE PRO-RATA INTEREST OR OTHER COST S. HOWEVER, AS AN ANALOGY TO SECTION 80HHC, IT IS NOW ACCEPTED PRINCIPLE THAT 10% OF RECEIPT OF THIS NATURE ARE EXPENSE S ATTRIBUTABLE TO EARNING OF SUCH INCOME. THEREFORE, 10% OF RE CEIPT BE ALLOWED AS EXPENDITURE AND ONLY 90% OF RECEIPT BE EXCLUDED FROM PROFITS FOR PURPOSE OF DEDUCTION U/S 36(1)(V III). (II) IN RESPECT OF DIVIDEND INCOME:- THE INCOME IS RESULT OF PASSIVE INVESTMENTS AND DOES NOT INVOLVE HUGE E STABLISHMENT EXPENDITURE. HAVING REGARD TO COMPLETE CIRCUMSTAN CES OF THE APPELLANTS AFFAIRS 5% OF RECEIPTS WOULD BE JUST IFIED TO BE ALLOWED AS EXPENSES. THEREFORE, 5% OF RECEIPT IS DIRECTED TO BE REDUCED ON ACCOUNT OF EXPENDITURE U/S 36(1) (VIII) OF THE INCOME-TAX ACT. (III) MISC. RECEIPTS/INTEREST ON ADVANCE:- THESE RECEIPTS BY VERY NATURE ARE SUCH THAT NONE OF EXPENSES CAN B E PROPERLY SPEAKING ATTRIBUTED TO THEIR EARNINGS OR EVEN IF THERE IS SOME INCIDENTAL EXPENDITURE THE QUANTUM WILL BE VERY IN SIGNIFICANT THEREFORE, NO EXPENSES CAN BE ALLOCATED TOWARDS E ARNING OF ITA NO. 1242(DEL)/2009 6 THIS INCOME. THEREFORE, THE AO HAS CORRECTLY RED UCED THE GROSS AMOUNT FOR PURPOSE OF DEDUCTION U/S 36(1)(V III). ACCORDINGLY, THE GROUNDS OF APPEAL STANDS PARTLY ALLOWED. 2.2 HAVING CONSIDERED THE RIVAL SUBMISSIONS, IT IS CLEAR THAT THE ISSUE STANDS COVERED BY THE ORDER OF THE TRIBUNAL FOR ASSESSMENT YEAR 2007-08 AND EARLIER YEARS AS MENTIONED IN PARAGRAPH NO. 8 OF THE ORDER, REPRODUCED ABOVE. BEING A PRECEDENT OF BINDING NATURE, FO LLOWING THE SAME, THE MATTER IS RESTORED TO THE FILE OF THE AO TO WORK OUT NET PROFIT WHICH IS LIABLE TO BE DISALLOWED UNDER AFORESAID PROVISIO N AFTER CONSIDERING THE WORKING FURNISHED BY THE ASSESSEE AND AFFORDING HIM A REASONABLE OPPORTUNITY OF BEING HEARD. 2.3 THUS, THESE GROUNDS ARE TREATED AS PARTLY AL LOWED FOR STATISTICAL PURPOSES. 3. GROUND NOS. 4 AND 5 REGARDING LEVY OF INT EREST U/S 234B AND WITHDRAWAL OF INTEREST U/S 244A(3) WERE NOT ARGUED BY THE LD. COUNSEL. THEREFORE, THESE GROUNDS ARE TAKEN AS CONSEQUE NTIAL IN NATURE. THE WORKING OF INTEREST UNDER THESE PROVISIONS SHAL L BE REVISED WHILE GIVING EFFECT TO THIS ORDER. ITA NO. 1242(DEL)/2009 7 4. IN THE RESULT, THE APPEAL IS TREATED AS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 29 APRIL, 2011. SD/- SD/- (I.P. BANSAL) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 29TH APRIL, 2011. SP SATIA COPY OF THE ORDER FORWARDED TO: NATIONAL COOPERATIVE DEVELOPMENT CORPORATION, NE W DELHI. ACIT, CIRCLE 13(1), NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.