Ambassdor Coolers Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 1396/DEL/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7317 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 02-07-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 08-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A MISRA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A : NEW DELHI BEFORE SHRI S.V. MEHROTRA , ACCOUNTANT MEMBER AND SHRI A. T. VARKEY, JUDICIAL MEMBER ITA NO. 1396 /DEL/ 2013 (ASSESSMENT YEAR: 2009 - 10 ) AMBASSDOR COOLERS PVT. LTD. H - 6,B1, MOHAN CO - OPERATIVE, MATHURA ROAD, BADARPUR, NEW DELHI PAN:AAACA8227C VS. DCIT CIRCLE - 1(1) NEW DELHI (APPELLANT) (RESPONDENT) APPELLANT BY : SANJAY SOOD, CA RESPONDENT BY : A MISRA, CIT DR O R D E R PER A. T. VARKEY , JUDICIAL MEMBER THIS APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT(A) - IV DATED 04.01.2013 RELATES TO ASSESSMENT YEAR 2009 - 10. 2. GROUND NOS.1,2 AND 3 ARE IN RESPECT OF ADDITION OF RS.7,32,756/ - U/S 14A OF THE INCOME TAX ACT, 1961 (HEREI N AFTER THE ACT) AND RULE 8D OF THE INCOME TAX RULES, 1962 (HEREIN AFTER THE RULE). 3. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HELD INVESTMENTS TO THE TUNE OF RS.13.30 CRORES AT THE BEGINNING OF THE YEAR AND RS.16.01 CRORES AT THE CLOSE OF THE YEAR. IT EARNED EXEMPT INCOME I N THE SHAPE OF DIVIDEND OF RS.13.09 LAKHS. ON SUCH FACTS , THE AO HAS HELD THAT IT IS INCONCEIVABLE THAT NO EXPENSES HAVE BEEN INCURRED FOR EARNING EXEMPT INCOME. HE THEREFORE AFTER RECORDING SATISFACTION AS ENVISAGED U/S 14A COMPUTED DISALLWOANCE APPLYING CLAUSE (III) OF RULE 8D. IE.@ 0.5% OF THE AVERAGE VALUE O F INVESTMENT AT RS.7,32,756/ - . ON APPEAL THE LD CIT(A), CONFIRMED THE ACTION OF THE AO. AGGRIEVED, THE ASSESSEE IS BEFORE US. PAGE NO. 2 4. THE LD AR CONTENDS THAT IN COMPUTING THE DISALLOWANCE THE AO HAS ERRED IN INCLUDING THE INVESTMENTS IN DEB T MUTUAL FUNDS. IN H IS SUBMISSION, THE INVESTMENTS IN DEBT MUTUAL FUNDS WERE FOR RS. 6.50 CRORES AT THE BEGINNING OF THE YEAR AND RS.8.97 CRORES AT THE CLOSE OF THE YEAR. HE SUBMITTED, THAT IF THE AFORESAID FIGURE IS EXCLUDED DISALLOWANCE WOULD COME AT RS.3,45,625/ - IN THE MA NNER HERE UNDER: - A) AS CALCULATED BY ASSESSING OFFICER 0.5% (13,29,92,349/ - +16,01,10123/ - )=7,32,756/ - COSTS AS ON 31.03.2008 COST AS ON 31.03.2009 MUTUAL FUNDS DEBT FUND 6,50,87,452.54 8,97,53,108.08 EQUITY FUND 6,45,17,823.76 6,69,69,944.76 SHARES RELIANCE PETROLEUM 33,87,072.98 33,87,072,98 TOTAL 13,29,92,349.28 16,01,10,125.82 B) AS CALCULATED BY ASSESSEE 0.5% (6,79,04,897/ - +7,03,57,018/ - )=3,45,655/ - COSTS AS ON 31.03.2008 COST AS ON 31.03.2009 MUTUAL FUNDS EQUITY FUND 6,45,17,823.76 6,69,69,944.76 SHARES RELIANCE PETROLEUM 33,87,072.98 33,87,072.98 TOTAL 6,79,04,896.74 7,03,57,017.74 5 . ON THE OTHER HAND THE LD DR RELIED UPON THE ORDER OF THE AUTHORITIES BELOW AND DOES NOT WANT US TO INTERFERE. 6 . WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULLY PERUSED THE RECORD OF THE CASE. SECTION 14A OF THE ACT PROVIDES, THAT NO EXPENDITURE , IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE INCOME , SHOULD BE ALLOWED AS DEDUCTIONS. 7. THE METHOD FOR DETERMINING AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME IS GIVEN UNDER RULE 8D . 8. FOR REFERENCE, THE RULE 8D (III) IS REPRODUCED BELOW: - (III) AN AMOUNT EQUAL TO ONE - HALF 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. 9. A PERUSAL OF THE ABOVE PROVISION CLEARLY SPELLS OUT THAT AN AMOUNT EQUAL T O ONE - HALF PERCENT OF THE AVERAGE OF THE VALUE OF INVESTMENT INCOME FROM PAGE NO. 3 WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME , WILL BE CONSIDERED FOR COMPUTING DISALLOWANCE AS PER RULE 8D(III) . 10. THEREFORE RULE 8D PROVIDES THAT INVESTMENTS , INCOME F ROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME , WILL BE CONSIDERED FOR COMPUTING DISALLOWANCE UNDER RULE 8D(III). ERGO, IF THERE ARE INVESTMENTS MADE IN MUT U AL FUNDS WHICH DO NOT RESULT INTO ANY EXEMPT INCOME, THEN NO DISALLOWANCE COULD BE MADE U/S 14A READ WITH RULE 8D WITH REFERENCE TO THOSE INVESTMENTS WHILE COMPUTING DISALLOWABLE EXPENDITURE UNDER RULE 8D(2)(III). 11 . IN THE LIGHT OF THE ABOVE, WE SET - ASIDE THE ORDER OF THE AUTHORITIES BELOW, WE DIRECT THE AO TO EXCLUDE THE INVESTMENTS MADE IN DEBT MUTUAL FUNDS, WHILE COMPUTING THE DISALLOWANCE U/S 14A READ WITH 8D. 12 . IN THE RESULT THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 6 . 09 . 2014. - S D / - - S D / - ( S.V. MEHROTRA ) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 2 6 / 09 / 2014 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI