DCIT, New Delhi V. M/s. A.K. Capital Services Ltd., New Delhi

ITA 1366/DEL/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 2570 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2009-2010
• Appeal Filed On: 11-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Assessee Lawyers: VED JAIN SHRI ASHISH CHADHA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI G.D. AGARWAL, VICE PRESIDENT & SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER ITA NO.1366/DEL/2016 ASSESSMENT YEAR: 2009-10 DY. COMMISSIONER OF INCOME-TAX CIRCLE 3, NEW DELHI VS M/S A.K. CAPITAL SERVICES LTD., 609, 6 TH FLOOR, ANTRIKSH BHAWAN, 22 K.G. MARG, NEW DELHI PAN: AAACA1069L APPELLANT RESPONDENT ASSESSEE BY SHRI VED JAIN, ADVOCATE SHRI ASHISH CHADHA, CA REVENUE BY MS ASHIMA NEB, SR. DR ORDER PER K. NARASIMHA CHARY, JM CHALLENGING THE ORDER DATED 29.12.2015 IN APPEAL NO.336/15-16 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX(APPEALS)-I, NEW DELHI DATE OF HEARING 31.10.2018 DATE OF PRONOUNCEMENT: 05.11.2018 2 {CIT(A)} IN RELATION TO ASSESSMENT YEAR 2009-10, REVENUE PREFERS THIS APPEAL. 2. BRIEF FACTS OF THE CASE EMANATING FROM THE ORDERS OF THE AUTHORITIES BELOW AND AS ARGUED BY THE PARTIES ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF PROVIDING MERCHANT BANKING SERVICES AND PROVIDING VARIOUS FINANCIAL SERVICES TO ITS CLIENTS LIKE IPO MANAGEMENT, DEBT SYNDICATION, DEBT TRADING, PROJECT FINANCING, MUTUAL FUND DISTRIBUTION, LOAN SYNDICATION AND PRIVATE PLACEMENT OF DEBT INSTRUMENTS. FOR THE ASSTT. YEAR 2009-10, ASSESSEE FILED THEIR RETURN OF INCOME ON 30.09.2009 DECLARING A TOTAL INCOME OF RS.55,46,80,447/-. ASSESSMENT U/S 143(3) OF THE INCOME-TAX ACT, 1961 (THE ACT) WAS COMPLETED AT RS.63,17,44,861/- BY MAKING TWO ADDITIONS, NAMELY, RS.7,06,12,161/- (WHICH WAS SUBSEQUENTLY RECTIFIED TO RS.88,10,748/-) ON ACCOUNT OF SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 ( THE RULES ) AND RS.64,52,253/- ON ACCOUNT OR DISALLOWANCE OF BUSINESS PROMOTION EXPENSES. 3. IN APPEAL, LEARNED CIT(A) HAVING CONSIDERED THE DETAILS OF INTEREST EXPENDITURE SUBMITTED BY THE ASSESSEE TO SHOW THAT NO INTEREST EXPENDITURE WAS INCURRED FOR MAKING THE INVESTMENTS, RESTRICTED THE DISALLOWANCE U/S 14A READ WITH 8D OF THE RULES TO RS.7,70,600/- HOLDING THAT THE PROVISIONS UNDER RULE 8D(2)(II) HAVE NO APPLICATION TO THE FACTS OF THIS CASE. LEARNED CIT(A), HOWEVER, DELETED THE DISALLOWANCE OF RS.64,52,263/- ON ACCOUNT OF BUSINESS PROMOTION EXPENSES BY PLACING RELIANCE ON THE DECISION OF THE FIRST APPELLATE AUTHORITY IN ASSESSEES OWN CASE FOR THE ASSTT. YEAR 2010-11. HENCE, THE REVENUE IS IN THIS APPEAL BEFORE US. 3 4. WE HAVE GONE THROUGH THE RECORD. ASSESSEE CLAIMS TO HAVE RECEIVED RS.39,18,947/- TOWARDS THE DIVIDEND INCOME AND COMPUTED THE EXPENDITURE INCURRED FOR EARNING THE SAME AT RS.7,70,600/-. LEARNED AO RECORDED THAT THE TOTAL INTEREST WAS RS.11,17,63,952/- AND IT HAS TO BE CONSIDERED FOR WORKING OUT THE DISALLOWANCE U/S 14A READ WITH RULE 8D AND BY WORKING OUT THE FORMULA, THE AO REACHED THE AMOUNT DISALLOWABLE AT RS.7,06,12,161/-. 5. ASSESSMENT ORDER SPEAKS THAT THE ASSESSEE PLEADED BEFORE THE LEARNED AO THAT THE INTEREST THAT WAS PAID ON THE FUNDS BORROWED FROM THE BANK WAS UTILIZED SOLELY FOR THE PURPOSE OF DEBT SECURITIES AND PURCHASE OF CAR AND NO PART OF SUCH FUND WAS UTILIZED FOR INVESTMENT TO EARN THE EXEMPT INCOME. THE ASSESSES CASE HAS BEEN THAT OUT OF TOTAL INTEREST EXPENDITURE OF RS.11,70,63,952/-, A SUM OF RS.11,63,00,665/- WAS PAID ON THE OVERDRAFT BANK LIMIT AGAINST THE DEBT SECURITIES WHICH WAS TO BE SPECIFICALLY UTILIZED FOR DEALING IN DEBT SECURITIES AS PER THE CONTRACT, RS.7,04,710/- WAS PAID ON LOAN TAKEN FROM BANK AND FINANCIAL INSTRUMENTS AND RS.58,577/- WAS PAID FOR LATE PAYMENT OF SERVICE TAX AND TDS. IT IS, THEREFORE, THE CONTENTION OF THE ASSESSEE THAT NO PART OF THE BORROWED AMOUNTS WERE UTILIZED FOR INVESTMENT TO EARN THE EXEMPT INCOME AND AS A MATTER OF FACT, OWN FUNDS OF THE ASSESSEE AS ON 31.3.2009 WERE TO THE TUNE OF RS.1,36,16,41,847/- WHEREAS THE TAX FREE INVESTMENT OF THE ASSESSEE WAS ONLY RS/21,60,50,180/- AS IS EVIDENCED BY THE BALANCE SHEET AND FINANCIALS INCORPORATED AT PAGE NOS. 10 TO 16 OF THE PAPER BOOK. 6. THERE IS NO DENIAL OF THE FACTS AND FIGURES FURNISHED ABOVE. LEARNED CIT(A) CONSIDERED THE ISSUE AT LENGTH AND RECORDED THAT THE BORROWED FUNDS WERE USED ONLY FOR THE APPROVED PURPOSES AND NOT USE FOR CAPITAL MARKETS 4 OPERATIONS SO ALSO IT WAS FOUND THAT THE AMOUNT OF RS.7,70,600/- OFFERED BY THE ASSESSEE SUO MOTO WAS ENOUGH TO COVER THE SITUATION. ON THIS BASIS, LEARNED CIT(A) RESTRICTED THE DISALLOWANCE TO RS.7,70,600/- BY DELETING THE SUM TO THE TUNE OF RS.80,40,148/-. SINCE NO CONTRARY FACTS WERE BROUGHT TO OUR NOTICE, WE ACCEPT THE FACTUAL FINDING GIVEN BY THE LEARNED CIT(A). 7. FURTHER, ASSESSMENT ORDER DOES NOT SPEAK ANY REASONS FOR THE LEARNED AO TO SAY THAT THE EXPENDITURE DISALLOWED SUO MOTO BY THE ASSESSEE AT RS.7,70,600/- IS INCORRECT HAVING REGARD TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 8. BY PLACING RELIANCE ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASES OF CIT VS. TAIKISHA ENGINEERING INDIA LTD. (2015) 370 ITR 338 (DELHI); (II) CIT VS. I.P. SUPPORT SERVICES INDIA (P) LTD. (2015) 370 ITR 240 (DELHI); (III) EICHER MOTORS LTD. VS CIT-III (2017) 398 ITR 51 (DELHI); (IV) MAXOPP INVESTMENT LTD VS CIT (2012) 347 ITR 272 (DELHI); (V) JOINT INVESTMENTS (P) LTD. VS CIT (2015) 372 ITR 694 (DELHI); AND THE HONBLE SUPREME COURT DECISION IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS DCIT (2017) 394 ITR 449 (SC), LEARNED AR CONTENDED THAT WITHOUT RECORDING ANY REASONS FOR REJECTING THE COMPUTATION OF DISALLOWANCE WORKED OUT BY THE ASSESSEE AND WITHOUT GENERATING REQUISITE SATISFACTION TO INVOKE THE PROVISIONS U/S 14A READ WITH RULE 8D, THE AO CANNOT MAKE ANY ADDITION. 9. IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. (SUPRA), THE HONBLE SUPREME COURT OBSERVED THAT ,- 5 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUATION A DIFFERENT VIEW COULD HAVE BEEN TAKEN FOR THE ASSESSMENT YEAR 2002-2003. SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESCRIBE A FORMULA FOR DETERMINATION OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WHERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREAFTER THAT THE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOULD BECOME APPLICABLE. 10. IN VIEW OF THE ABOVE FACTUAL AND LEGAL POSITION, WE DO NOT FIND ANY ILLEGALITY OR IRREGULARITY IN THE ORDER OF THE LEARNED CIT(A) AND WHILE UPHOLDING THE SAME WE FIND THAT GROUND NO. 1 OF APPEAL OF THE REVENUE BEING DEVOID OF ANY MERIT. THE SAME IS ACCORDINGLY DISMISSED. 11. NOW TURNING TO GROUND NO. 2, LD. ASSESSING OFFICER DISALLOWED A SUM OF RS. 64,52,263/- OUT OF THE BUSINESS PROMOTION EXPENSES. LD. CIT(A) DELETED THE SAME RELYING UPON THE ORDERS OF A COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010-11 AND 2011-12 IN ITA NUMBERS 1143 AND 1194/DEL/2014 BY ORDER DATED 10 FEBRUARY,2016. 12. WE HAVE GONE THROUGH THE ORDER DATED 10/02/2016 AND FIND THAT THE ISSUE UNDER CONSIDERATION IS SQUARELY COVERED BY THIS ORDER. NO CIRCUMSTANCES TO THE CONTRARY ARE BROUGHT TO OUR NOTICE TO RENDER THIS PRESIDENT NOT APPLICABLE TO THE CASE ON HAND. WE THEREFORE WHILE RESPECTFULLY FOLLOWING THE SAME HOLD THAT THE LD. CIT(A) RIGHTLY DELETED THE ADDITION BY 6 DISALLOWANCE OF THE PART OF BUSINESS PROMOTION EXPENSES. WE ACCORDINGLY DISMISS GROUND NO. 2 ALSO. 13. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH NOVEMBER , 2018. SD/- SD/- (G.D. AGARWAL) (K. NARASIMHA CHARY) VICE PRESIDENT JUDICIAL MEMBER DATED: 5 TH NOVEMBER, 2018 VJ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DRAFT DICTATED ON 01.11.2018 DRAFT PLACED BEFORE AUTHOR 02.11.2018 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS KEPT FOR PRONOUNCEMENT ON DATE OF UPLOADING ORDER ON THE WEBSITE FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.