DCIT, New Delhi V. M/s Jay Pee Ventures Pvt. Ltd., New Delhi

ITA 1329/DEL/2011

• Counselvise Citation: 132920114 RSA 2011
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 28-09-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 15-03-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JAYANT MISHRA
• Assessee Lawyers: V K GARGAR
• Keywords: Depreciation; Earning of tax free income; Commercial expediency; Reassessment proceedings
• Section: 14A; 32; 147; 148; 10; 2; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI D BENC H BEFORE SHRI C.L. SETHI, JM & SHRI A.N. PAHUJA, AM ITA NO.1329/DEL/2011 ITA NO.1329/DEL/2011 ITA NO.1329/DEL/2011 ITA NO.1329/DEL/2011 ASSESSMENT YEAR:2002-03 D.C.I.T.CIRCLE 4(1), ROOM NO. 407,CR BUILDING, IP ESTATE,NEW DELHI V/S V/S V/S V/S. M/S JAY PEE VENTURES PVT. LTD.,1095, SECTOR-A, POCKET-A, VASANT KUNJ, NEW DELHI [PAN:AA AI 2356 L] [PAN:AA AI 2356 L] [PAN:AA AI 2356 L] [PAN:AA AI 2356 L] (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI V.K. GARG,AR REVENUE BY SH. JAYANT MISHRA, DR DATE OF HEARING 30-09-2011 DATE OF PRONOUNCEMENT 07-10-2011 O R D E R O R D E R O R D E R O R D E R A.N.PAHUJA: A.N.PAHUJA: A.N.PAHUJA: A.N.PAHUJA:- -- -THIS APPEAL FILED ON 15.3.2011 BY THE REVENUE AGAI NST AN ORDER DATED 12 TH JANUARY, 2011 OF THE LEARNED CIT(A)-VII, NEW DELHI, RAISES THE FOLLOWING GROUNDS:- 1. THE ORDER OF THE LEARNED CIT(A) IS ERRONEOUS AND CONTRARY TO FACTS AND LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN RESTRICTING THE ADDITION U/S 14A OF THE ACT TO `72,14,080/- AS AGAINST `9,90,51,302/- MADE BY THE AO. 2.1 THE LEARNED CIT(A) IGNORED THE FINDING RECORD ED BY THE AO AND THE FACT THAT THE ADDITION WAS CORRECTLY MADE BY THE AO IN ACCORDANCE WITH THE PROVISIONS OF RULE 8D OF I. T. RULES. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE ADD ITION OF `2,07,104/- MADE ON BY DISALLOWING EXCESS DEPREC IATION ON COMPUTER PERIPHERALS. 3.1 THE LEARNED CIT(A) IGNORED THE FACTS RECORD ED BY ASSESSING OFFICER AND THE FACT THAT THE DEPRECIATION ON COMPUTER PERIPHERALS IS ALLOWABLE @25% AS PER PROVIS IONS ITA NO.1329/DEL/2011 2 OF SECTION 32 OF THE ACT AS AGAINST 60% CLAIMED BY THE ASSESSEE. 4. THE ASSESSEE CRAVES LEAVE TO ADD, ALTER OR AMEND TH E GROUNDS OF APPEAL AT OR BEFORE THE HEARING. 2. ADVERTING FIRST TO GROUND NOS.2 AND 2.1 IN THE APPEA L, FACTS ,IN BRIEF , AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF `33,26,59,111/- FILED ON 31 ST MARCH, 2003 BY THE ASSESSEE, ENGAGED IN THE BUSINESS OF DESIGN ENGINEERING, SOFTWARE DEVELOPMENT & CONSULTANCY, WAS P ROCESSED U/S 143(1) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). SUBSEQUENTLY THE ASSESSMENT WAS REOPENED U/S 147 OF THE ACT, AFTER RECORDING THE REASONS IN WRITING AND ACCORDINGLY, A N OTICE U/S 148 WAS SERVED UPON THE ASSESSEE ON 26.03.2009. DURING THE COURSE OF REASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER (A.O. IN SHORT) NO TICED THAT THE ASSESSEE MADE INVESTMENT IN SHARES AND EARNED DIVIDEND INCOME OF `2,59,86,788/- EXEMPT U/S 10(34) OF THE ACT. TO A QUERY BY THE A.O, TH E ASSESSEE MERELY REPLIED THAT NO EXPENDITURE WAS INCURRED TO EARN EXEMPT DIVIDEND INCOME. HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE AS SESSEE AND RELYING UPON THE DECISIONS IN THE CASE OF ITO VS. DAGA CAPITAL PVT. LTD., 26 SOT 203 (2008) AND CHEMINVEST LTD. VS. INCOME TAX OFFICER (20 09), 121 ITD 318 (DELHI)(SB )DISALLOWED AN AMOUNT OF `9,90,51,302/- U /S 14A OF THE ACT, CALCULATED AS UNDER:- S.NO. DISALLOWANCE AMOUNT (`) 1. THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME, WHICH DOES NOT FORM PART OF TOTAL INCOME. 0 2. IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA AXB/C WHERE A=AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (1) INCURRED DURING THE PREVIOUS YEAR B=THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT A=7,68,73,025/- B=2,62,93,26,676/- C=2,87,51,93,745/- HENCE, DISALLOWANCE =7,02,99,365/- ITA NO.1329/DEL/2011 3 FORM PART OF THE 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 TOTAL ASSETS AS 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 ON BEHALF PER CENT OF THE AVERAGE OF THE VALUE 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 (27627554999+ 2987632491)/2= (5,75,03,87,490/-) =2,87,51,937/- TOTAL DISALLOWANCE 9,90,51,302/- 3. ON APPEAL, THE LEARNED CIT(A) REDUCED THE DISALLOW ANCE TO `72,14,080/- IN THE FOLLOWING TERMS:- I HAVE CONSIDERED THE WRITTEN SUBMISSION ON BEHALF OF THE APPELLANT, THE FINDINGS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AS WELL AS IN THE REMAND REPORT AND TH E FACTS ON RECORD. THE ISSUE INVOLVED IN THE APPEAL WAS DEC IDED BY THE DELHI SPECIAL BENCH OF ITAT IN THE CASE OF CHEMINVES T LTD. VS. INCOME TAX OFFICER (2009) 121 ITD 318 (DELHI)(SB)/1 24 TTJ 577(DELHI)(SB)/27 DTR (DEL.) (SB) (TRIB.) 82. REFE RENCE MAY ALSO BE MADE TO THE DECISIONS OF THE HONBLE SUPREME COURT I N THE CASE OF CIT, MUMBAI VS. M/S WALFORT SHARE & STOCK BRO KERS PVT. LTD. (2010)TIOL-47-S.C.-IT(2010)41 DTR(SUPREME COURT) 233: 192 TAXMAN 211 (S.C.) AND OF HONBLE BOMBAY HIGH CO URT IN GODREJ & BOYCE MANUFACTURING CO. LTD. MUMBAI VS. DCIT (2010)TIOL-564-HC-MUM-IT(2010)234 CTR (BOM) 1. FRO M THE CONJOINT READING OF THE JUDGMENTS CITED ABOVE, THE FOLLO WING PROPOSITIONS EMERGE:- A) WHEN THE DIVIDEND IS NOT TAXABLE AT ALL, THE EXPENDITU RE ON RENT, TAXES, SALARIES, INTEREST, ETC. PERTAINING TO THAT WOULD AL SO NOT BE ALLOWABLE BECAUSE THERE IS NO TAXABLE INCOME OF THE AS SESSEE AGAINST WHICH SUCH EXPENDITURE CAN BE ALLOWED. B) THE DISALLOWANCE U/S 14A COULD BE MADE IN A YEAR IN WHICH NO EXEMPT INCOME HAD BEEN EARNED OR RECEIVED BY THE ASSE SSEE; C) THE ALLOWANCE OF EXPENDITURE IN RELATION TO DIVIDEN D INCOME WOULD NOT BE ADMISSIBLE IN COMPUTING THE INCOME OF AN ASSESSEE UNDER THE ACT IN BOTH THE SITUATIONS, WHETHER THE SHARES AR E HELD AS INVESTMENT OR HELD ON TRADING ACCOUNT AS STOCK-IN-TRAD E; ITA NO.1329/DEL/2011 4 D) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM 24 MARCH, 2008 SHALL AP PLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09 AND E) EVEN PRIOR TO ASSESSMENT YEAR 2008-09, WHEN RULE 8 D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE THE P ROVISIONS OF SUB SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE A SSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FOR M PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MU ST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL TH E RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REA SONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD. 4.2 FOR ALL THESE REASONS, THE EXPENDITURE WHICH HAS B EEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PAR T OF THE TOTAL INCOME UNDER THE ACT HAS TO BE DETERMINED. THE PROPORTIONATE DISALLOWANCE OF EXPENSES AMOUNTING TO RS.15,57,24,404/- HAS BEEN WORKED OUT AT RS.72,14,080 /- AFTER TAKING THE RATIO OF DIVIDEND INCOME TO TOTAL TURNOVER AND THAT APPEARS TO BE FAIRLY REASONABLE. THEREFORE, THE DISA LLOWANCE IS UPHELD TO THE EXTENT OF RS.72,14,080/-. AS A RESULT, THE APPELLANT GETS A RELIEF OF RS.9,18,37,222/- (RS.9,90, 51,302/- MINUS RS.`72,14,080/-) AND GROUNDS OF APPEAL NO.4, 4.1 AND 4.2 ARE PARTLY ALLOWED. 4. THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST THE AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LD. DR CONTENDED THAT THE LD . CIT(A) WAS NOT JUSTIFIED IN REDUCING DISALLOWANCE EVEN WHEN EXPENDI TURE OF `7,68,73,025/- WAS INCURRED BY THE ASSESSEE ON ACCOUNT OF INTEREST ON BORROWED FUNDS AND THE ASSESSEE DID NOT DEMONSTRATE AS TO HOW THE BORROWED F UNDS WERE UTILIZED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS O F THE COMPANY AND NOT FOR INVESTMENT IN SHARES. ON THE OTHER HAND, LEARNED AR OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LD. CIT(A).TO A QUERY BY THE BENCH, THE LEARNED AR SUBMITTED THAT THE ASSESSEE HAS NOT PREFERRED ANY APPE AL AGAINST THE FINDINGS OF LEARNED CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY, THE ASSESSEE ENGAGED IN THE BUSINESS OF BUSINESS OF DESIGN ENGINEERING, SOFTWARE DEVELOP MENT & CONSULTANCY , BESIDES HAVING TAXABLE BUSINESS PROFITS, EARNED EXE MPT DIVIDEND INCOME OF ITA NO.1329/DEL/2011 5 `2,59,86,788/-. INTER ALIA, THE ASSESSEE CLAIMED D EDUCTION OF INTEREST OF `7,68,73,025/- ON THEIR BORROWINGS. WE FIND THAT NEITHER BEFORE THE AO NOR BEFORE THE LD. CIT(A) , T HE ASSESSEE FURNISHED DETAILS AND EVIDENCE THAT FUNDS BORROWED BY IT WERE UTILIZED FOR THE PURPOSE OF THEIR BUSINESS ALONE AN D NOT BY WAY OF INVESTMENTS IN EQUITY SHARES/MUTUAL FUNDS. THUS, TH E ASSESSEE FAILED TO DISCHARGE THE ONUS PLACED UPON THEM IN E STABLISHING THAT THE BORROWED FUNDS HAD INDEED BEEN UTILIZED FO R THE PURPOSE OF THEIR BUSINESS PURPOSES NOR THE ASSESSEE PROVED THAT THE AFORESAID INVESTMENT HAD BEEN MADE IN THE SHARES OU T OF THEIR OWN INTEREST FREE FUNDS. RESULTANTLY, THE AO DISA LLOWED AN AMOUNT OF `9,90,51,302/-,INCLUDING INTEREST OF `7,0 2,99,365/- IN TERMS OF RULE 8D OF THE IT RULES,1962. THE LD. CIT( A),WITHOUT EVEN ASCERTAINING AS TO HOW THE FUNDS BORROWED BY THE AS SESSEE WERE UTILIZED, FOLLOWING FEW JUDICIAL PRONOUNCEMENTS INC LUDING IN GODREJ & BOYCE MFG.CO.LTD. MUMBAI VS. DCIT,(2010) 2 34 CTR (BOM.)1 CONCLUDED THAT RULE 8D WAS NOT APPLICABLE IN THE YEAR UNDER CONSIDERATION AND DISALLOWED PROPORTIONATE AM OUNT OF `72,14,080/- OUT OF EXPENSES OF `15,57,24,404/- ON THE GROUND THAT DISALLOWANCE TO THE AFORESAID EXTENT IS REASON ABLE. THE BASIS FOR WORKING OF THE AFORESAID DISALLOWANCE WAS NOT EVIDENT FROM THE IMPUGNED ORDER NOR HAS BEEN EXPLAINED BEFORE US BY THE LD. AR ON BEHALF OF THE ASSESSEE. HONBLE BOMBAY HIGH C OURT IN THEIR DECISION DATED 12.8.2010 IN CASE OF GODREJ & BOYCE MFG.CO.LTD. MUMBAI(SUPRA) WHILE HOLDING THAT RULE 8D, INSERTED W.E.F 24.3.2008 CANNOT BE REGARDED AS RETROSPECTIVE BECAU SE IT ENACTS AN ARTIFICIAL METHOD OF ESTIMATING EXPENDITURE RELA TABLE TO TAX- FREE INCOME AND IS APPLICABLE ONLY W.E.F AY 2008-09 , CONCLUDED THAT FOR THE ASSESSMENT YEARS WHERE RULE 8D DOES NO T APPLY, THE AO WILL HAVE TO DETERMINE THE QUANTUM OF DISALLOWAB LE EXPENDITURE BY A REASONABLE METHOD HAVING REGARD TO ALL THE FACTS AND CIRCUMSTANCES. ITA NO.1329/DEL/2011 6 5.1. HONBLE SUPREME COURT IN THEIR DECIS ION DATED 6.7.2010 IN CIT V. WALFORT SHARE & STOCK BROKERS ( P.) LTD.,326 ITR 1, INTER ALIA, OBSERVED THAT FOR ATTRACTING SECTION 14A OF THE ACT THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE , WHICH IS ITS RELATIONSHIP WITH THE TAX EXEMPT INCOME. HONBLE AP EX COURT OBSERVED IN THE CONTEXT OF PROVISIONS SEC.14A OF T HE ACT IN THE FOLLOWING TERMS: 17. THE INSERTION OF SECTION 14A WITH RETROSPECTIV E EFFECT IS THE SERIOUS ATTEMPT ON THE PART OF THE PARLIAMENT NOT TO ALLOW DEDUCTION IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AGAINST THE TAXABLE INCOME (SE E CIRCULAR NO. 14 OF 2001, DATED 22-11-2001). IN OTHER WORDS, SECTION 14A CLARIFIES THAT EXPENSES INCURRED CAN BE ALLOWED ONL Y TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME . IN MANY CASES THE NATURE OF EXPENSES INCURRED BY THE ASSESS EE MAY BE RELATABLE PARTLY TO THE EXEMPT INCOME AND PARTLY TO THE TAXABLE INCOME. IN THE ABSENCE OF SECTION 14A, THE EXPENDIT URE INCURRED IN RESPECT OF EXEMPT INCOME WAS BEING CLAIMED AGAIN ST TAXABLE INCOME. THE MANDATE OF SECTION 14A IS CLEAR. IT DES IRES TO CURB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRE D IN RELATION TO EXEMPT INCOME AGAINST TAXABLE INCOME AND AT THE SAM E TIME AVAIL THE TAX INCENTIVE BY WAY OF EXEMPTION OF EXEM PT INCOME WITHOUT MAKING ANY APPORTIONMENT OF EXPENSES INCURR ED IN RELATION TO EXEMPT INCOME. THE BASIC REASON FOR INS ERTION OF SECTION 14A IS THAT CERTAIN INCOMES ARE NOT INCLUDI BLE WHILE COMPUTING TOTAL INCOME AS THESE ARE EXEMPT UNDER CE RTAIN PROVISIONS OF THE ACT. IN THE PAST, THERE HAVE BEEN CASES IN WHICH DEDUCTION HAS BEEN SOUGHT IN RESPECT OF SUCH INCOME S WHICH IN EFFECT WOULD MEAN THAT TAX INCENTIVES TO CERTAIN IN COMES WAS BEING USED TO REDUCE THE TAX PAYABLE ON THE NON-EXE MPT INCOME BYDEBITING THE EXPENSES, INCURRED TO EARN THE EXEMP T INCOME, AGAINST TAXABLE INCOME. THE BASIC PRINCIPLE OF TAXA TION IS TO TAX THE NET INCOME, I.E., GROSS INCOME MINUS THE EXPEND ITURE. ON THE SAME ANALOGY THE EXEMPTION IS ALSO IN RESPECT OF NE T INCOME. EXPENSES ALLOWED CAN ONLY BE IN RESPECT OF EARNING OF TAXABLE INCOME. THIS IS THE PURPORT OF SECTION 14A. IN SECT ION 14A, THE FIRST PHRASE IS 'FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER' WHICH MAKES IT CLEAR THAT VARIO US HEADS OF INCOME AS PRESCRIBED UNDER CHAPTER IV WOULD FALL WI THIN SECTION 14A. THE NEXT PHRASE IS, 'IN RELATION TO INCOME WHI CH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT'. IT MEANS THAT IF AN INCOME DOES NOT FORM PART OF TOTAL INCOME, THEN THE RELATED EXPENDITURE IS OUTSIDE THE AMBIT OF THE APPLICABILI TY OF SECTION 14A. FURTHER, SECTION 14 SPECIFIES FIVE HEADS OF IN COME WHICH ARE ITA NO.1329/DEL/2011 7 CHARGEABLE TO TAX. IN ORDER TO BE CHARGEABLE, AN IN COME HAS TO BE BROUGHT UNDER ONE OF THE FIVE HEADS. SECTIONS 15 TO 59 LAY DOWN THE RULES FOR COMPUTING INCOME FOR THE PURPOSE OF C HARGEABILITY TO TAX UNDER THOSE HEADS. SECTIONS 15 TO 59 QUANTIFY T HE TOTAL INCOME CHARGEABLE TO TAX. THE PERMISSIBLE DEDUCTION S ENUMERATED IN SECTIONS 15 TO 59 ARE NOW TO BE ALLOW ED ONLY WITH, REFERENCE TO INCOME WHICH IS BROUGHT UNDER ONE OF T HE ABOVE HEADS AND IS CHARGEABLE TO TAX. IF AN INCOME LIKE D IVIDEND INCOME IS NOT A PART OF THE TOTAL INCOME, THE EXPENDITURE/ DEDUCTION THOUGH OF THE NATURE SPECIFIED IN SECTIONS 15 TO 59 BUT RELATED TO THE INCOME NOT FORMING PART OF TOTAL INCOME COULD N OT BE ALLOWED AGAINST OTHER INCOME INCLUDIBLE IN THE TOTAL INCOME FOR THE PURPOSE OF CHARGEABILITY TO TAX. THE THEORY OF APPO RTIONMENT OF EXPENDITURES BETWEEN TAXABLE AND NON-TAXABLE HAS, I N PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14A. READING SECTION 14 IN JUXTAPOSITION WITH SECTIONS 15 TO 59, IT IS CLEAR T HAT THE WORDS 'EXPENDITURE INCURRED' IN SECTION 14A REFERS TO EXP ENDITURE ON RENT, TAXES, SALARIES, INTEREST, ETC. IN RESPECT OF WHICH ALLOWANCES ARE PROVIDED FOR (SEE SECTIONS 30 TO 37) 5.2. WE ALSO FIND THAT HONBLE KERALA HIGH COURT IN THEIR DECISION DATED 17.6.2010 IN THE CASE OF CIT VS. SMT . LEENA RAMACHANDRAN IN ITA. NO. 1784 OF 2009, HELD IN THE CONTEXT OF PROVISIONS OF SEC.14A OF THE ACT AS UNDER: 4. ON FACTS WE FIND THAT THE INTEREST PAID BY THE ASSESSEE DURING THE PREVIOUS YEAR FOR THE FUNDS BORROWED FOR ACQUIS ITION OF SHARES IN THE COMPANY WAS AT THE RATE OF 24% P.A. AND THE TOTAL INTEREST PAID IN THE ACCOUNTING YEAR ALONE IS AS MUCH AS RS. 17,44,310/-. IT IS ON RECORD THAT ASSESSEE HAD RECEIVED ONLY A DIVI DEND INCOME OF RS.3 LAKHS AND NO OTHER BENEFIT IS DERIVED FROM THE COMPANY FOR THE BUSINESS CARRIED ON BY IT. THE DISALLOWANCE PRO HIBITED UNDER SECTION 14A IS EXPENDITURE INCURRED FOR EARNING ANY INCOME WHICH DOES NOT CONSTITUTE TOTAL INCOME OF THE ASSESSEE. I N OTHER WORDS, ANY EXPENDITURE INCURRED FOR EARNING ANY INCOME WHI CH IS NOT TAXABLE UNDER THE ACT, IS NOT AN ALLOWABLE EXPENDIT URE. DIVIDEND INCOME IS EXEMPT UNDER SECTION 10(33) OF THE INCOME TAX ACT AND SO MUCH SO, DIVIDEND EARNED BY THE ASSESSEE ON THE SHARES ACQUIRED BY HER WITH BORROWED FUNDS DOES NOT CONSTI TUTE TOTAL INCOME IN THE HANDS OF THE ASSESSEE. SO MUCH SO, IN OUR VIEW, DISALLOWANCE WAS RIGHTLY MADE BY THE ASSESSING OFFI CER. IN FACT, THE TRIBUNAL ITSELF HAS ESTIMATED DISALLOWANCE OF R S.2 LAKHS BY APPLYING SECTION 14A. WE DO NOT KNOW HOW THE TRIBUN AL CAN RESTRICT THE DISALLOWANCE TO RS.2 LAKHS AND ALLOW B ALANCE ABOVE RS.15 LAKHS WHEN THE WHOLE BORROWED FUNDS WERE UTIL ISED BY THE ASSESSEE FOR PURCHASE OF SHARES IN THE COMPANY. IN OUR VIEW, THE REASONING GIVEN BY THE TRIBUNAL FOR DISALLOWANCE OF RS.2 LAKHS I.E. ITA NO.1329/DEL/2011 8 BY APPLYING SECTION 14A, SQUARELY APPLIES FOR THE I NTEREST PAID ON BORROWED FUNDS BECAUSE IT IS ON RECORD THAT THE ENT IRE FUNDS BORROWED WERE UTILISED FOR ACQUISITION OF SHARES BY THE ASSESSEE IN THE COMPANY. IN FACT, IN OUR VIEW, ASSESSEE WOUL D BE ENTITLED TO DEDUCTION OF INTEREST UNDER SECTION 36(1)(III) O F THE ACT ON BORROWED FUNDS UTILISED FOR THE ACQUISITION OF SHAR ES ONLY IF SHARES ARE HELD AS STOCK IN TRADE WHICH ARISES ONLY IF THE ASSESSEE IS ENGAGED IN TRADING IN SHARES. SO FAR AS ACQUISIT ION OF SHARES IS IN THE FORM OF INVESTMENT AND THE ONLY BENEFIT ASSE SSEE DERIVED IS DIVIDEND INCOME, WHICH IS NOT ASSESSABLE UNDER T HE ACT, THE DISALLOWANCE UNDER SECTION 14A IS SQUARELY ATTRACTE D AND THE ASSESSING OFFICER, IN OUR VIEW, RIGHTLY DISALLOWED THE CLAIM. AS ALREADY POINTED OUT, THE CALCUTTA HIGH COURT DECISI ON WHICH PERTAINS TO THE PERIOD PRIOR TO INTRODUCTION OF SEC TION 14A, HAS NO APPLICATION. THE DECISION OF THE SUPREME COURT ALSO DOES NOT APPLY BECAUSE IN THIS CASE APART FROM INVESTMENT IN SHARES OF THE COMPANY, THERE IS NOTHING TO INDICATE THAT THE ASSE SSEE'S BUSINESS WAS FULLY LINKED WITH THE BUSINESS OF THE LEASING COMPANY OR THAT ASSESSEE'S BUSINESS IS SOLELY DEPEN DENT ON THE BUSINESS OF THE LEASING COMPANY. IN FACT, THE WHOLE TRANSACTION WAS A TOTAL FIASCO IN AS MUCH AS, AS AGAINST RS.17, 44,310/- PAID TOWARDS INTEREST ON BORROWED FUNDS SERVICED AT THE RATE OF INTEREST OF 24% P.A., THE DIVIDEND INCOME RECEIVED BY THE ASSESSEE DURING THE PREVIOUS YEAR WAS A MEAGRE SUM OF RS.3 LAKHS. THIS ONLY SHOWS THAT THE BUSINESS CARRIED ON BY THE LEASING COMPANY WAS NOT VERY SUBSTANTIAL TO JUSTIFY THE ASS ESSEE'S INVESTMENT THROUGH BORROWED FUNDS. THEREFORE, IN OU R VIEW, THE PRINCIPLE OF COMMERCIAL EXPEDIENCY GONE INTO BY THE SUPREME COURT DOES NOT APPLY TO THE FACTS OF THIS CASE. THE REFORE, WE HOLD THAT THE TRIBUNAL IN PRINCIPLE RIGHTLY HELD THAT TH E UTILISATION OF BORROWED FUNDS FOR ACQUISITION OF SHARES WILL NOT E NTITLE THE ASSESSEE FOR CLAIMING DEDUCTION OF INTEREST PAID ON SUCH BORROWED FUNDS. HOWEVER, WE HOLD THAT THE TRIBUNAL WAS NOT J USTIFIED IN ALLOWING THE CLAIM IN EXCESS OF RS.2 LAKHS. FOR THE SAME REASONING APPLIED BY THE TRIBUNAL, THE ASSESSEE IS NOT ENTITLED TO DEDUCTION OF ANY AMOUNT TOWARDS INTEREST PAID ON FU NDS BORROWED BY WAY OF FIXED DEPOSITS TAKEN FOR ACQUISITION OF S HARES IN THE COMPANY, WHICH HELPED THE ASSESSEE ONLY TO EAR N SOME DIVIDEND. 5.3 HONBLE PUNJAB & HARYANA HIGH COURT IN THEIR DECISION IN CIT VS. HERO CYCLES LTD.,323 ITR 518 HAVE OBSERVED THAT DISALLOWANCE UNDER SECTION 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE AND WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAS BEEN INCURRED, DISALLOWAN CE UNDER SECTION 14A CANNOT STAND. ITA NO.1329/DEL/2011 9 5.4 RECENTLY, HONBLE CALCUTTA HIGH COURT IN DHANUKA & SONS V. CIT (CENTRAL)-1, [2011] 12 TAXMANN.COM 227 (CAL.) WHILE A DJUDICATING A SIMILAR ISSUE CONCLUDED AS UNDER: 9. 9. 9. 9. IN OUR OPINION, THE MERE FACT THAT THOSE SHARES WER E OLD ONES AND NOT ACQUIRED RECENTLY IS IMMATERIAL. IT IS FOR THE ASSESSEE TO SHOW THE SOURCE OF ACQUISITION OF THOSE SHARES BY PRODUCTION OF MATERIALS THAT THOSE WERE ACQUIRED FROM THE FUNDS AVAILABLE IN THE HANDS OF THE ASSESSEE AT THE RELEVANT POINT OF TIME WITHOUT TAKING BENEFIT OF ANY LOAN. IF THOSE SHARES WERE PURCHASED FROM THE AMOUNT TAKEN IN LOAN, EVEN FOR INSTA NCE, FIVE OR TEN YEARS AGO, IT IS FOR THE ASSESSEE TO SHOW BY THE PRODUCTION OF DOCUMENTARY EVIDENCE THAT SUCH LOANED AMOUNT HAD ALREADY BEEN PAI D BACK AND FOR THE RELEVANT ASSESSMENT YEAR, NO INTEREST IS PAYABLE BY THE ASSESSEE FOR ACQUIRING THOSE OLD SHARES. IN THE ABSENCE OF ANY SUC H MATERIALS PLACED BY THE ASSESSEE, IN OUR OPINION, THE AUTHORITIES BELOW RIG HTLY HELD THAT PROPORTIONATE AMOUNT SHOULD BE DISALLOWED HAVING REGAR D TO THE TOTAL INCOME AND THE INCOME FROM THE EXEMPT SOURCE. IN THE ABSENCE O F ANY MATERIAL DISCLOSING THE SOURCE OF ACQUISITION OF SHARES WHICH IS WITHIN THE SPECIAL KNOWLEDGE OF THE ASSESSEE, THE ASSESSING AUTHORITY TOOK A MOST REASONABLE APPROACH IN ASSESSMENT. 5.5 IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DECISIONS , WE ARE OF THE OPINION THAT THE UTILISATION OF BORROWE D FUNDS FOR ACQUISITION OF SHARES WILL NOT ENTITLE THE ASSESSEE FOR CLAIMING DEDUCTION OF INTEREST PAID ON SUCH BORROWED FUNDS . AS ALREADY POINTED OUT, THE ASSESSEE DID NOT FURNISH COMPLETE DETAILS OF UTILIZATION OF THEIR BORROWED FUNDS BEFORE THE AO/L D.CIT(A). AS A RESULT, THE AO OR THE LD. CIT(A) DID NOT HAVE ANY O CCASION TO ASCERTAIN AS TO WHETHER OR NOT BORROWED FUNDS HAVE INDEED BEEN UTILISED FOR THE PURPOSE OF BUSINESS OF THE ASSESS EE AND WERE NOT UTILISED IN ACQUIRING THE AFORESAID SHARES/MUTUAL F UNDS. EVEN BEFORE US, SITUATION IS NO BETTER. SINCE THE ASSESS EE FAILED TO DISCHARGE THE ONUS PLACED UPON THEM IN ESTABLISHIN G THAT THE BORROWED FUNDS HAD INDEED BEEN UTILIZED FOR THE PUR POSE OF THEIR BUSINESS PURPOSES NOR THE ASSESSEE PROVED THAT THE AFORESAID INVESTMENT HAD BEEN MADE IN THE SHARES OUT OF THEIR OWN INTEREST FREE FUNDS, WE CONSIDER IT FAIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE MATTER TO H IS FILE FOR DECIDING THE ISSUE OF DISALLOWANCE OF INTEREST AN D ADMINISTRATIVE ITA NO.1329/DEL/2011 10 EXPENSES U/S 14A RAISED IN THE GROUND NOS. 2 & 2 .1 IN THIS APPEAL, AFRESH IN ACCORDANCE WITH LAW IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS, INCLUDING THOSE REFERRED T O ABOVE, AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE PARTIES . NEEDLESS TO SAY THAT WHILE REDECIDING THE ISSUE, THE LEARNED CI T(A) SHALL PASS A SPEAKING ORDER, KEEPING IN MIND, INTER ALIA, THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT, BRINGING OUT CLEARLY AS TO WHETHER OR NOT BORROWED FUNDS HAD INDEED BEEN UTILI SED IN INVESTMENT IN SHARES/MUTUAL FUNDS OR ANY OTHER EXP ENDITURE HAD BEEN INCURRED FOR EARNING EXEMPT DIVIDEND INCOM E. WITH THESE OBSERVATIONS, GROUND NOS. 2 & 2.1 IN THE APP EAL ARE DISPOSED OF. 6. THE NEXT GROUND NOS.3 AND 3.1 IN THE APPEAL RELATE TO DISALLOWANCE OF EXCESS DEPRECIATION ON COMPUTER PERIPHERALS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE CLAIMED DEPRECIATION @60% ON SCANNER, PRINTER AND S. VIDEO T O A QUERY BY THE AO, THE ASSESSEE RELIED UPON THE DECISION IN CONTAINER COR PORATION OF INDIA LTD. VS. ACIT(2009) 30 SOT 284 (DELHI). HOWEVER, THE AO DID NOT ACCEPT THE SUBMISSIONS OF THE ASSESSEE AND DISALLOWED EXCESS DE PRECIATION OF `2,07,104/- AS COMPUTED IN PARA 5 OF THE ASSESSMENT OR DER. 7. ON APPEAL, THE LEARNED CIT(A) WHILE FOLLOWING THE DECISION OF DELHI BENCH OF THE ITAT IN THE CASE OF CONTAINER CORPORATION OF INDIA LTD. (SUPRA) ALLOWED THE CLAIM OF THE ASSESSEE . 8. THE REVENUE IS NOW IN APPEAL BEFORE US AGAIN ST THE AFORESAID CONCLUSION OF THE LD. CIT(A).THE LEARNED DR SUPPORTED THE ORDER O F THE AO WHILE THE LD. AR FOR THE ASSESSEE RELIED ON THE ORDER OF THE LD. CIT (A). 9. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE F ACTS OF THE CASE. WE FIND THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. BSES RAJDHANI POWER LTD. IN I.T. APPEAL NO. 1266 (DELHI) OF 2010, DATED 31-8-2010 WHILE ADJUDICATING A SIMILAR ISSUE, HELD AS UNDER: ITA NO.1329/DEL/2011 11 'WE ARE IN AGREEMENT WITH THE VIEW OF THE TRIBUNAL THAT C OMPUTER ACCESSORIES AND PERIPHERALS SUCH AS, PRINTERS, SCANN ERS AND SERVER ETC. FORM AN INTEGRAL PART OF THE COMPUTER SYSTEM. IN FACT, TH E COMPUTER ACCESSORIES AND PERIPHERALS CANNOT BE USED WITHOUT THE COMPUTER. CONSEQUENTLY, AS THEY ARE THE PART OF THE COMPUTER SYSTEM, THEY ARE ENTITLED TO DEPRECIATION AT THE HIGHER RATE OF 60 PER CENT. ' 9.1 FOLLOWING THE SAID DECISION, IITAT IN ITO VS. V. OMNI GLOBEL INFORMATION TECHNOLOGIES INDIA (P.) LTD., 131 ITD 2 80(DELHI) HELD THAT IF PERIPHERALS SUCH AS PRINTERS, SCANNERS AND SERVERS E TC. FORM INTEGRAL PART OF THE COMPUTER SYSTEM, UPS WILL ALSO BE AN INTEGRAL PART O F THE COMPUTER SYSTEM, ENTITLED FOR DEDUCTION OF DEPRECIATION AT THE RATE OF 60 PER CENT. EARLIER KOLKATA BENCH IN THE CASE OF INCOME TAX OFFI CER VS. SAMIRAN MAJUMDAR (2006) 98 ITD 119, HELD THAT THE PRINTER AND SCANNER ARE INTEGRAL PART OF THE COMPUTER SYSTEM AND, THEREFORE, ENTITLED TO HIG HER RATE OF DEPRECIATION @ . 60 PER CENT . A SIMILAR VIEW WAS TAKEN BY THE DELHI BENCH IN THE AFORECITED DECISION IN THE CASE OF CONTAINER CORPOR ATION OF INDIA LTD. (SUPRA). IN THE LIGHT OF VIEW TAKEN IN THE AFORESAID DE CISIONS, ESPECIALLY WHEN THE REVENUE HAVE NOT PLACED BEFORE US ANY CONTRARY DEC ISION NOR ANY OTHER MATERIAL SO AS TO ENABLE US TO TAKE A DIFFERENT VIEW IN THE MATTER, WE HAVE NO HESITATION IN UPHOLDING THE FINDINGS OF LEARNED CIT(A) . THEREFORE, GROUND NOS.3 AND 3.1 IN THE APPEAL ARE DISMISSED. 10. GROUND NO.1 IN THE APPEAL BEING GENERAL IN NATUR E NOR ANY SUBMISSIONS HAVING BEEN MADE BEFORE US ON THIS GROUN D, DOES NOT REQUIRE SEPARATE ADJUDICATION WHILE NO ADDITIONAL GROUND HAS B EEN RAISED BEFORE US IN TERMS OF GROUND NO.4 IN THE APPEAL, ACCORDINGLY, BOTH THESE GROUNDS ARE DISMISSED. 11. IN RESULT, APPEAL IS PARTLY ALLOWED BUT FOR STATISTIC AL PURPOSES. ORDER PRONOUNCED IN OPEN COURT SD/- SD/- (C.L. SETHI) (A.N. PAHUJA) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) NS ITA NO.1329/DEL/2011 12 COPY OF THE ORDER FORWARDED TO :- 1. M/S JAY PEE VENTURES PVT. LTD., 1095, SECTOR-A, POC KET-A, VASANT KUNJ, NEW DELHI. 2 D.C.I.T.CIRCLE 4(1), ROOM NO. 407,CR BUILDING, IP ESTATE,NEW DELHI 3. CIT (APPEALS)-VII, NEW DELHI 4. THE CIT CONCERNED. 5. THE DR, ITAT,D BENCH, NEW DELHI 6. GUARD FILE. BY ORDER, DEPUTY/ // /ASSTT.REGISTRAR ITAT, DELHI