DCIT, New Delhi V. M/s. Desiccant International Pvt. Ltd., Delhi

ITA 130/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6685 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 07-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A; 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: B : NEW DELHI BEFORE SHRI R.S. SYAL, AM & SHRI A.T. VARKEY, JM ITA NO.130/DEL/2013 ASSESSMENT YEAR : 2009-10 DCIT, CIRCLE-10(1), NEW DELHI. VS. DESICCANT ROTORS INTERNATIONAL PVT. LTD., 20, RAJPUR ROAD, CIVIL LINES, DELHI. PAN: AAACA0350N CO NO.98/DEL/2013 (ITA NO.130/DEL/2013 ASSESSMENT YEAR : 2009-10 DESICCANT ROTORS INTERNATIONAL PVT. LTD., 20, RAJPUR ROAD, CIVIL LINES, DELHI. PAN: AAACA0350N VS. DCIT, CIRCLE-10(1), NEW DELHI. ASSESSEE BY : SHRI SHAILENDER K. BAJAJ, CA DEPTT. BY : MS SUSAN D. GEORGE, SR. DR DATE OF HEARING : 08.03.2016 DATE OF PRONOUNCEMENT : 10.03.2016 ITA NO.130/DEL/2013 CO NO.98/DEL/2013 2 ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARISE OUT OF THE ORDER PASSED BY THE C IT(A) ON 22.10.2012 IN RELATION TO THE ASSESSMENT YEAR 2009- 10. 2. THE FIRST GROUND OF THE REVENUES APPEAL IS AGAI NST THE DELETION OF ADDITION OF RS.73,11,674/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE U/S 40(A)(IA) OF THE INCOME -TAX ACT, 1961 (HEREINAFTER ALSO CALLED THE ACT). 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN MANUFACTURING OF HEAT RECOVERY AND ENVIR ONMENT CONTROL SYSTEMS SUCH AS ROTORS, HEAT RECOVERY WHEEL S, ENERGY RECOVERY VENTILATORS, ETC. DURING THE YEAR UNDER C ONSIDERATION, THE ASSESSEE MADE PAYMENT, INTER ALIA, OF RS.73,11,674/- TO THE PERSONS SPECIFIED U/S 40A(2)(B) ON ACCOUNT OF REIMBURSEMENT OF EXPENSES. THE AO OBSERVED THAT NO DEDUCTION OF TAX AT SOURCE WAS MADE. ON BEING CALL ED UPON TO ITA NO.130/DEL/2013 CO NO.98/DEL/2013 3 EXPLAIN AS TO WHY THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE U/S 194C OF THE ACT, THE ASSESSEE SUBMITTED THAT CE RTAIN COMPOSITE EXPENSES WERE INCURRED BY THE GROUP COMPA NIES AND THE ASSESSEE PAID ITS SHARE IN SUCH EXPENSES. NOT CONVINCED, THE AO MADE DISALLOWANCE U/S 40(A)(IA) OF THE ACT W HICH CAME TO BE DELETED IN THE FIRST APPEAL. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE ASSESSEE PAID A S UM OF RS.70.95 LAC TO M/S BRY AIR (ASIA) PVT. LTD., RS.96 ,499/- TO M/S DELAIR INDIA PVT. LTD. AND RS.1.19 CRORE TO M/S INSENT COMMERCIAL P. LTD., TOTALING TO RS.73.11 LAC. THES E THREE ARE GROUP COMPANIES OF THE ASSESSEE ALL OF WHICH ARE SI TUATED AT 21-C, UDYOG VIHAR, GURGAON. APART FROM PAYMENT OF LEASE CHARGES TO M/S BRY AIR (ASIA) PVT. LTD., ON WHICH P ROPER DEDUCTION OF TAX AT SOURCE WAS MADE, THE ASSESSEE A LSO REIMBURSED ITS SHARE IN COMMONS COSTS LIKE ELECTRIC ITY, TELEPHONE, DIESEL FOR GENERATOR, ETC., ON ACTUAL BA SIS WITHOUT ITA NO.130/DEL/2013 CO NO.98/DEL/2013 4 ANY MARK-UP. THE LD. AR HAS INVITED OUR ATTENTION TOWARDS THE BIFURCATION OF TOTAL ELECTRICITY AND TELEPHONE EXPE NSES, ETC., ON THE BASIS OF ACTUAL USE FOR WHICH COMMON PAYMENTS W ERE MADE AND THE ASSESSEE PAID ITS SHARE ON THE BASIS OF ACT UAL USAGE OF ELECTRICITY, TELEPHONE, ETC. WHAT THE GROUP COMPANI ES HAVE RECOVERED FROM THE ASSESSEE IS ITS SHARE IN SUCH CO MMON EXPENSES INCURRED ON COST TO COST BASIS. WE ARE UN ABLE TO COMPREHEND AS TO HOW PAYMENT TO THE GROUP CONCERNS TOWARDS REIMBURSEMENT OF EXPENSES CAN BE CHARACTERIZED AS WORK TO FALL WITHIN THE AMBIT OF SECTION 194C REQUIRING WIT HHOLDING OF TAX. IN OUR CONSIDERED OPINION, THE LD. CIT(A) COR RECTLY APPRECIATED THE FACTS IN DELETING THE DISALLOWANCE U/S 40(A)(IA) OF THE ACT ON THIS ISSUE. 5. THE ONLY OTHER GROUND WHICH SURVIVES IN THE REVE NUES APPEAL IS AGAINST RESTRICTING THE DISALLOWANCE U/S 14A TO RS.14,65,726/- AS AGAINST RS.32,06,866/- MADE BY TH E AO. THE ASSESSEE IN ITS CROSS OBJECTION IS AGAINST PART SUS TENANCE OF ITA NO.130/DEL/2013 CO NO.98/DEL/2013 5 DISALLOWANCE U/S 14A BY TAKING INCORRECT FIGURES OF AVERAGE TOTAL ASSETS. 6. THE FACTS APROPOS THIS ISSUE ARE THAT THE ASSESS EE EARNED TAX FREE INCOME. THE AO NOTICED THAT THE ASSESSEE MADE INVESTMENT TO THE TUNE OF RS.33.72 CRORE AND PAID I NTEREST AMOUNTING TO RS.42.95 LAC. INVOKING THE PROVISIONS OF RULE 8D, THE AO MADE DISALLOWANCE OF RS.32,06,866/-. TH E LD.CIT(A) UPHELD THE DISALLOWANCE TO THE EXTENT OF RS.17.41 LAC BY, INTER ALIA , REDUCING `BANK CHARGES AMOUNTING TO RS.34.51 LAC FROM INTEREST UNDER RULE 8D(2)(II). HE HELD THAT ONLY `INTEREST COMPONENT WAS REQUIRED TO BE C ONSIDERED. WE HAVE GONE THROUGH THE ASSESSEES ANNUAL ACCOUNTS FROM WHICH IT IS DISCERNIBLE THAT THE ASSESSEE ALSO PAID `BANK CHARGES AMOUNTING TO RS.34.51 LAC APART FROM `INTE REST AMOUNTING TO RS.8.43 LAC. THE LD.CIT(A) HAS IGNORE D THE AMOUNT OF `BANK CHARGES FROM THE PURVIEW OF DISALL OWANCE BY NOTICING THAT THIS AMOUNT PERTAINED TO EXPORTS UNDE RTAKEN BY ITA NO.130/DEL/2013 CO NO.98/DEL/2013 6 THE ASSESSEE COMPANY, WHICH HAS NO RELATION WHATSOE VER WITH THE INVESTMENTS MADE YIELDING EXEMPT INCOME. IN OU R CONSIDERED OPINION, THE LD.CIT(A) RIGHTLY APPRECIAT ED THE FACTS IN EXCLUDING THE AMOUNT OF `BANK CHARGES FROM INT EREST FOR THE PURPOSES OF CALCULATION OF DISALLOWANCE UNDER R ULE 8D(2)(II) OF THE ACT. 7. IN SO FAR AS THE ASSESSEES GRIEVANCE IS CONCERN ED, WE FIND THAT WHILE CALCULATING THE AMOUNT OF `AVERAGE ASSET S FOR THE PURPOSES OF DISALLOWANCE, THE AO COMPUTED THE AMOUN T OF TOTAL ASSETS BY EXCLUDING CURRENT LIABILITIES FRO M THE VALUE OF ASSETS. THE LD. CIT(A) ECHOED THE ACTION OF THE AO IN REDUCING THE AMOUNT OF `CURRENT LIABILITIES FROM THE VALUE OF ASSETS BOTH AT THE BEGINNING AND AT THE CLOSE OF THE YEAR IN TH E COMPUTATION OF AVERAGE VALUE OF ASSETS. THOUGH THE AO HAS REPR ODUCED THE DEFINITION OF TOTAL ASSETS GIVEN IN RULE 8D(3), B UT, THE CALCULATION SO MADE BY HIM APPEARS TO HAVE GONE IN A DIFFERENT DIRECTION. UNDER SUCH CIRCUMSTANCES, WE ARE OF THE CONSIDERED ITA NO.130/DEL/2013 CO NO.98/DEL/2013 7 OPINION THAT THE ENDS OF JUSTICE WOULD MEET ADEQUAT ELY IF THE IMPUGNED ORDER ON THIS ISSUE IS SET ASIDE AND THE M ATTER IS RESTORED TO THE FILE OF AO. WE ORDER ACCORDINGLY A ND DIRECT HIM TO COMPUTE AVERAGE VALUE OF INVESTMENTS BY CONS IDERING THE DEFINITION OF TOTAL ASSETS AS PRESCRIBED IN R ULE 8D(3). 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND THE CO OF THE ASSESSEE IS PARTLY ALLOWED FOR STATIS TICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 10.03.2016. SD/- [A.T. VARKEY] SD/- [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 10 TH MARCH, 2016. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.