DCM Engineering Ltd., New Delhi V. ACIT, New Delhi

ITA 1333/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97111 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 28-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 20-03-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MD MOHSIN ALAM
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

1 ITA NO. 13 33/DEL/2012 FINAL - IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH:B NEW DELHI BEFORE SHRI T.S. KAPOOR, ACCOUNTANT MEMBER & SMT. BEENA PILLAI, JUDICIAL MEMBER I.T.A .NO. 1333/DE L/2012 (ASSESSMENT YEAR-2008- 09) DCM ENGINEERING LTD., 6 TH FLOOR, VIKRANT TOWER, RAJENDRA PLACE, NEW DELHI. AABCD2472M VS ACIT, CIRCLE 10(1), NEW DELHI. APPELLANT BY SH. V.P. GUPTA, ADV. RESPONDENT BY MD. MOHSIN ALAM, CIT DR ORDER PER BEENA PILLAI, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF LD. CIT(A)-XIII, NEW DELHI DATED 01.02.2012 FOR A.Y. 20 08-09 ON THE FOLLOWING GROUNDS: 1. THAT THE CIT(A) ERRED IN UPHOLDING THE DISALLOWANC E OF RS. 26,40,830/- MADE BY ASSESSING OFFICER U/S 14A OF THE INCOME TAX ACT READ WITH RULE 8D OF INCOME TAX RULES IN THE FACTS AND CIRCUMSTANCES OF THE CASE WITHOUT APPRECIATING THAT NO EXPENDITURE WAS INCURRED IN EARNING OF EXEMPT INCOME. HE FAILE D TO APPRECIATE THAT EXPENDITURE OF RS. 2 LACS OFFERE D BY THE APPELLANT WAS REASONABLE AND NO FURTHER DISALLOWANCE WAS CALLED FOR. DATE OF HEARING 28.08.2015 DATE OF PRONOUNCEMENT 01.09.2015 2 ITA NO. 13 33/DEL/2012 2. THAT THE CIT(A) ALSO ERRED IN MAKING WRONG OBSERVATIONS THAT NO EVIDENCE WAS PRODUCED TO THE EFFECT THAT SHARES WERE ACQUIRED OUT OF OWN FUNDS A ND PROFITS OF THE APPELLANT IGNORING THE DETAILS/DOCUMENTS SUBMITTED BEFORE HIM. 3. THE APPELLANT COMPANY CRAVES LEAVE TO ALTER, AMEND, VARY AND/OR ADD ANY OF THE GROUNDS OF APPEAL AT ANY TIME HEREINAFTER. 2. BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT C OMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADIN G OF GREY IRON CASTING, PATTERNS, JIGS AND FIXTURES. THE ASSESSEE HAD FILED ITS RETURN OF INCOME ON 27.09.2008, DECLARING A TOTAL INCOME O F RS.17,02,26,730/-. THE RETURN WAS PROCESSED U/S143( 1). ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S.143(2 ) WAS ISSUED. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HA D CLAIMED EXEMPT INCOME OF RS.9,01,250/-, BEING DIVIDEND RECE IVED THE SHARES OF SRF LTD., DURING THE YEAR. THE ASSESSEE OFFERED RS.2,00,000/- U/S.14A, DURING THE COURSE OF THE ASSESSMENT PROCEE DINGS ON THE GROUND THAT THE AMOUNT REPRESENTS 50% OF SALARY OF THE CONCERNED EXECUTIVE, WHO LOOKS AFTER THE ACTIVITIES RELATING TO INVESTMENTS. THE ASSESSEE SUBMITTED BEFORE LD. A.O THAT SINCE THERE WAS NO ACTIVITY DURING THE YEAR AND DIVIDEND WAS RECEIVED ONLY FROM ONE COMPANY, THE DISALLOWANCE TO THE EXTENT OF RS.2 LACS WAS JUS TIFIED. IN THE ASSESSMENT ORDER PASSED AN AMOUNT OF RS. 26,40,830/ - WAS ADDED ON ACCOUNT OF EXPENDITURE RELATED TO EARNING EXEMPT INCOME. CLAUSE PARTICULARS AMOUNT I. EXPENDITURE DIRECTLY RELATED TO EXEMPT INCOME II. DISALLOWANCE OF INTEREST EXPENDITURE A. INTEREST EXPENDITURE INCURRED DURING THE YEAR B. AVERAGE VALUE OF 409.04 670.24+670.24 2 409.045 670.24 11890.24 3 ITA NO. 13 33/DEL/2012 INVESTMENT C. AVERAGE OF TOTAL ASSETS DISALLOWANCE = A*B/C 12406.6+11373.88 2 28,0671 III AGGREGATE OF OPENING & CLOSING VALUE OF INVESTMENT (AVERAGE VALUE OF I NVESTMENT) % OF ABVOE AS PER RULE 8D 670.24 X 0.5% 3.3512 TOTAL DISALLOWANCE [AGGREGATE OF (I), (II) & (III) ] 26,4083 3. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) AFTER GOING THROUGH THE SUBMISSIONS CONFIRMED THE ACTIONS OF THE LD. A.O. AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US NOW. 4. WE HAVE VERIFIED THE ABOVE SUBMISSIONS BY BOTH T HE PARTIES AND PERUSED THE STATEMENT OF ACCOUNTS SUBMITTED BY THE ASSESSEE IN PAPER BOOK. IT IS SEEN FROM THE ORDER OF THE LD. C IT(A) THAT THE APPELLANT HAS MADE INVESTMENTS IN THE FOLLOWING COM PANIES: S.NO. PARTICULARS AMOUNT I SRF EQUITY SHARES OF RS. 10 EACH 503.74 II PUREARTH INFRASTRUCTURE LTD. EQUITY SHARES OF RS. 10 EACH 16 6.50 THESE INVESTMENTS HAVE BEEN MADE IN THE GROUP COMPA NIES FOR EARNING DIVIDEND INCOME AND RETAIN THE CONTROLLING STAKES. THE DIVIDEND INCOME EARNED FROM SUCH INVESTMENTS IS EXE MPT FROM TAX. IT HAS BEEN CLAIMED BY THE APPELLANT BEFORE THE LD. CIT(A) THAT INVESTMENT IN SRF SHARES WAS MADE IN THE F.Y. 2005- 06 AND IN THE SHARES OF PUREARTH INFRASTRUCTURE LTD. IT WAS MADE IN THE F.Y. 2006- 07 OUT OF THE CASH FLOW GENERATED BY THE COMPANY FR OM ITS PROFITS. IT IS CLAIMED BY THE APPELLANT THAT COMPANY HAS DEC LARED PROFIT OF RS. 2331.61 LACS IN THE F.Y. 2005-06 AND RS. 2169.7 5 LACS IN F.Y. 2006-07. IT HAS BEEN CLAIMED BY THE ASSESSEE THAT COMPANY WAS 4 ITA NO. 13 33/DEL/2012 HAVING SHARE CAPITAL AND RESERVE OF RS. 5702.74 LAC S AND RS. 6316.63 LACS DURING THE FINANCIAL YEAR ENDING ON 31 ST MARCH, 2006 AND 31 ST MARCH, 2007 RESPECTIVELY. IT HAS BEEN CLAIMED BY THE ASSESSEE COMPANY THAT NO DISALLOWANCE ON ACCOUNT OF INTEREST PAYMENT IS CALLED FOR. 5. THE LD. CIT(A) HAS EXAMINED THE CONTENTION OF TH E APPELLANT AND IT IS RECORDED IN THE ORDER PASSED BY LD. CIT(A ), THAT FUNDS BORROWED FOR WORKING CAPITAL REQUIREMENT AND FOR EX PANSION PURPOSES ARE KEPT IN A COMMON ACCOUNT AND NO SEPARA TE ACCOUNT IS MAINTAINED. THE PROFIT GENERATED IS ALSO KEPT IN A COMMON HOTCH POTCH. IT FURTHER OBSERVED THAT APPELLANT HAD TAKE N SECURED LOAN OF RS. 5057.62 LACS FROM FINANCIAL INSTITUTIONS DURING THE F.Y. 2006- 07. THIS HAS INCREASED TO RS. 5529.71 LACS DURING THE YEAR. THE APPELLANT HAS AVAILED CASH CREDIT AND OVER DRAFT FA CILITY FROM BANKS OF RS. 1130.53 LACS IN F.Y. 2006-07 AND RS. 2138.71 LACS DURING THE YEAR UNDER CONSIDERATION. THE SECURED LOANS OBTAIN ED BY THE COMPANY ARE COMING FROM THE EARLIER YEARS. THE MAJ ORITY OF INTEREST PAYMENTS PERTAINS TO SECURED LOANS AND CASH CREDIT AND OVER DRAFT FACILITY AVAILED BY THE APPELLANT. 6. AS DISCUSSED ABOVE THE ASSESSEE HAS KEPT ALL THE FUNDS IN A COMMON ACCOUNT AND INVESTMENTS AND EXPENDITURE ARE MADE FROM THE SAME ACCOUNT. NO SEPARATE ACCOUNT IS MAINTAINE D FOR THE INVESTMENT PURPOSES WHICH COULD PROVE THAT FUNDS US ED WERE NOT FROM THE INTEREST BEARING LOANS OBTAINED BY THE APP ELLANT. THE LD. CIT(A) HAS DECIDED THE ISSUE ON THE FACTS STATED AB OVE THAT INVESTMENT IN THE SHARES OF SRF LTD. AND PUREARTH I NFRASTRUCTURE 5 ITA NO. 13 33/DEL/2012 LTD. WAS MADE OUT OF THE FUNDS AVAILABLE IN COMMON ACCOUNT AND THERE IS NO EVIDENCE THAT THESE INVESTMENTS WERE MA DE FROM THE PROFIT EARNED BY THE COMPANY. THE LD. CIT(A) THUS CONFIRMED THE ADDITION MADE BY THE LD. A.O. 7. WE HAVE PERUSED THE ORDER PASSED BY THE AUTHORIT IES BELOW AND THE DECISION OF COORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO. 5033/DEL/2012 AN D 4582/DEL/2012, WHICH HAS BEEN PRODUCED BEFORE US AT THE TIME OF HEARING. IT IS OBSERVED THAT THE TRIBUNAL IN THE SU BSEQUENT ASSESSMENT YEAR HAS RESTORED BACK THE ISSUE TO THE ASSESSING OFFICER TO DECIDE THE DISALLOWANCE U/S.14A READ WITH RULE 8 D ON THE INVESTMENTS OF SHARES IN QUESTION. 8. ON THE FACTS AND CIRCUMSTANCES OF THE PRESENT CA SE, THE LD.CIT(A) HELD THAT INVESTMENT WOULD HAVE BEEN MADE OUT OF COMMON/MIXED FUNDS, AND THEREFORE THE LD. AO HAS WO RKED OUT THE DISALLOWANCE AT RS. 26,40,830/- ON A PROPORTIONATE BASIS WITH REFERENCE TO INVESTMENT OF RS.166.50LACZ OUT OF TOT AL INTEREST OF RS.576.40 LACS PAID ON ACCOUNT OF CASH CREDITS. THE LD. CIT(A) SHOULD HAVE PASSED A SPEAKING ORDER DEALING WITH CO NTENTIONS OF PARTIES IN SPECIFIC TERMS WITH FACTS AND FIGURE. TH E DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INV ESTMENTS, REPORTED IN 374 ITR 272, ARE VERY MUCH RELEVANT ON THE ISSUE OF WORKING OF DISALLOWANCE U/S.14A R.W.RULE 8 D BY THE LD. A.O. 9. WE THUS FOLLOWING THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2009-10(SUP RA), SET ASIDE THE ISSUE BACK TO THE FILE OF A.O TO DECIDE THE DIS ALLOWANCE OF 6 ITA NO. 13 33/DEL/2012 EXPENSES U/S.14A R.W. RULE 8 D ON THE INVESTMENTS O F SHARES IN QUESTION AS PER THE LAW, KEEPING IN VIEW THE GUIDEL INES PROVIDED FOR THE SAME IN THE CASE OF MAXOPP (SUPRA), AFTER AFFOR DING OPPORTUNITY OF BEING HERD TO THE ASSESSEE. 10. GROUND NO. 2 IS INCIDENTAL IN NATURE AND NO SPE CIFIC DETERMINATION IS CALLED FOR. 11. THE GROUND OF APPEAL IN ASSESSEES CASE IS THUS ALLOWED FOR STATISTICAL PURPOSES. 12. THE ASSESSEES APPEAL THUS STANDS DISPOSED OFF. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 01/09/ 2015 SD/- SD/- (T.S. KAPOOR) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 01/09/2015 *KAVITA, P.S. COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 7 ITA NO. 13 33/DEL/2012 DATE 1. DRAFT DICTATED ON 31.08.2015 2. DRAFT PLACED BEFORE AUTHOR 31.08.2015 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 01.09.2015 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 01.09.2015 5. APPROVED DRAFT COMES TO THE SR.PS/PS 01.09.2015 6. KEPT FOR PRONOUNCEMENT ON 01.09.2015 7. FILE SENT TO THE BENCH CLERK 01.09.2015 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.