DCIT, New Delhi V. M/s. RRPR Holding Pvt. Ltd., New Delhi

ITA 192/DEL/2013

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7347 (ITAT-DELHI)
• Duration Of Justice: 8 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-08-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2009-2010
• Appeal Filed On: 10-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUSHMA SINGH
• Keywords: Earning of tax free income; Non-deduction of tax; TDS; Rule 8D
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI F BEN CH, NEW DELHI (THROUGH VIDEO CONFERENCING] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO. 192/DEL/2013 [A.Y 2009-10] THE DY. C.I.T VS. M/S RRPR HOLDING PVT. LTD CIRCLE -15(1) E 186, GREATER KAILASH - I NEW DELHI NEW DELHI PAN : AADCR 1710 Q CO NO. 30/DEL/2013 (A/O ITA NO. 192/DEL/2013 [A.Y 2009-10]) M/S RRPR HOLDING PVT. LTD VS. THE DY. C.I.T E 186, GREATER KAILASH - I CIRCLE 15(1) NEW DELHI NEW DELHI PAN : AADCR 1710 Q [APPELLANT] [RESPONDENT] DATE OF HEARING : 18.08.2021 DATE OF PRONOUNCEMENT : 18.08.2021 ASSESSEE BY : SHRI SACHIT JOLLY, AD V SHRI ROHIT GARG, ADV REVENUE BY : SMT. SUSHMA SINGH, CIT- DR 2 ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER :- THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY T HE ASSESSEE ARE PREFERRED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX [APPEALS] - XXVIII, NEW DELHI DATED 12.10.2012 PERT AINING TO ASSESSMENT YEAR 2009-10. 2. THE SOLITARY GRIEVANCE OF THE REVENUE READS AS U NDER: WHETHER ON THE FACTS & IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN DIRECTING THE AO TO ALLOCATE TH E EXPENDITURE ON PROPORTIONATE BASIS TOWARDS SHARES THAT HAVE BEE N SOLD OFF AND SHARES THAT HAVE BEEN RETAINED BY THE APPELLANT, WH ILE COMPUTING THE DISALLOWANCE U/S 14A WHERE AS THERE IS NO SUCH PROVISION UNDER RULE 8D OF THE INCOME TAX RULES. 3. THE CROSS OBJECTIONS OF THE ASSESSEE READ AS UND ER: 1. THAT THE AUTHORITIES BELOW OUGHT NOT TO HAVE CONSID ERED: (1) PROFESSIONAL AND CONSULTANCY CHARGES TO THE EX TENT OF RS. 12,245,875; (2) AUDIT FEES OF RS.50,000/-; (3) INTEREST ON TDS OF RS. 10,64,258/-; AND (4) INTEREST ON LOAN TO INDIABULLS OF RS. 17,09,21, 558/-. 3 WHICH ARE ALREADY SUBJECT MATTER OF DISALLOWANCE IN THE COMPUTATION OF THE ASSESSEE COMPANY, FOR THE PURPOS E OF COMPUTING THE DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. 2. THAT THE INTEREST/FINANCIAL CHARGES INCURRED BY THE APPELLANT COMPANY FOR ACQUIRING THE SHARES IN NTDV LIMITED AS SUSTAINED BY THE ID CIT(APPEALS) FOR THE PURPOSE OF COMPUTING THE DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 IS UNJUST AND NOT IN ACCORDANCE WITH LAW. 3. THAT THE APPLICATION OF 10% RATE OF PROFIT AS APPLI ED BY ID. ASSESSING OFFICER / CIT (APPEALS) ON THE INTEREST R ECEIVED ON BANK FDRS IS NOT IN ACCORDANCE WITH LAW AND THE INTEREST RECEIVED ON BANK FDRS HAS TO BE ADJUSTED AGAINST TH E INTEREST PAID ON BORROWED FUNDS HAVING A DIRECT NEX US AND THE REMAINING, IF ANY ONLY CAN BE TAXED. 4. THAT THE DISALLOWANCE OF INTEREST UNDER SECTION 14A OF INCOME TAX ACT, 1961 ON THE FUNDS BORROWED FOR PURP OSE OF ACQUISITION OF SHARES FOR CONTROLLING THE STAKE, AS SUSTAINED BY THE ID CIT(APPEALS) IS NOT IN ACCORDANCE WITH LA W AND PURPOSE FOR WHICH SECTION 14A WAS ENACTED. 5. WITHOUT PREJUDICE TO ALL OTHER GROUNDS THE DISALLOW ANCE OF INTEREST FOR THE PURPOSE OF SECTION 14A OUGHT TO HA VE BEEN CONSIDERED ON NET BASIS. 4 4. THE REPRESENTATIVES OF BOTH THE SIDES WERE HEARD AT LENGTH, THE CASE RECORDS CAREFULLY PERUSED. THE RELEVANT DOCUME NTARY EVIDENCES BROUGHT ON RECORD CONSIDERED IN LIGHT OF RULE 18(6) OF ITAT RULES. 5. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE COMPANYS ACTIVITY IS TO HOLD THE SHARES OF PROMOTE RS OF NDTV GROUP. IT CAN BE SEEN FROM RECORD THAT THE ASSESSEE COMPAN Y IS A SPECIAL PURPOSE VEHICLE TO CREATE A CORPORATE ENTITY THAT H OLDS THE SHARES OF NDTV LTD. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS INC URRED FINANCE CHARGES IN THE FORM OF INTEREST, LOAN PROCESSING FE ES AND OTHER BANK CHARGES. THE CUMULATIVE INTEREST AMOUNTED TO RS. 6 8,28,78,089/-. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE COM PANY HAS DISALLOWED CERTAIN INTEREST PAYMENTS ON ACCOUNT OF NON-DEDUCTION OF TAX AT SOURCE AND, ACCORDINGLY, RETURNED LOSS OF RS . 49,01,73,918/-. 6. AS THE COMPANY HAD ONLY ONE MOTIVE OF INVESTMENT IN SHARES DURING THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER WAS OF THE FIRM BELIEF THAT ALL THE EXPENSES INCURRED BY THE A SSESSEE HAS TO BE DISALLOWED U/S 14A OF THE ACT R.W.R. 8D OF THE RULE S AS THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS. 37,93,374/- AND THERE I S DIRECT NEXUS OF 5 ALL THE EXPENDITURE INCURRED TOWARDS THE INVESTMENT IN SHARES. INVOKING THE PROVISIONS OF SECTION 14A R.W.R 8D OF THE RULES, THE ASSESSING OFFICER QUANTIFIED THE DISALLOWANCE U/S 1 4A R.W.R 8D OF THE RULES AT RS. 66,51,45,652/-. 7. THE ASSESSING OFFICER ALSO NOTICED THAT THE ASSE SSEE HAS RECEIVED INTEREST INCOME OF RS. 1,12,72,374/-. THE ASSESSING OFFICER WAS OF THE OPINION THAT THIS INTEREST INCOME HAS A SOURCE WITH THE INTEREST EXPENDITURE OF THE COMPANY AND ACCORDINGLY, COMPUTE D NET PROFIT OF 10% AT RS. 11,27,234/- TREATING THE BALANCE INTERE ST FOR COMPUTATION OF DISALLOWANCE FOR EARNING EXEMPT INCOME. 8. THE ASSESSEE ASSAILED THE ASSESSMENT BEFORE THE LD. CIT(A). 9. AFTER CONSIDERING THE FACTS AND SUBMISSIONS, THE LD. CIT(A) HELD AS UNDER: 4.4 CONSIDERING THE ABOVE, THE ASSESSING OFFICERS DECISION OF APPLYING RULE 8D READ WITH SECTION 14A OF THE ACT O N EXEMPT INCOME EARNED BY THE APPELLANT IS UPHELD. HOWEVER, THE APPELLANTS CLAIM THAT PART OF THE EXPENDITURE HAS BEEN INCURRE D TOWARDS SHARES WHICH WERE ACQUIRED DURING THE YEAR BUT HAS BEEN SOLD OFF IS CORRECT. THE ASSESSING OFFICER IS, THEREFORE, DI RECTED TO 6 ALLOCATE THE EXPENDITURE ON PROPORTIONATE BASIS TOW ARDS SHARES THAT HAVE BEEN SOLD OFF AND SHARES THAT HAVE BEEN R ETAINED BY THE APPELLANT. THE PROPORTIONATE EXPENSES TO THE EXTENT OF RETAINED SHARES ARE TO BE DISALLOWED UNDER SECTION 14A. THE ASSESSING OFFICER IS DIRECTED TO ACCORDINGLY RE-COMPUTE THE D ISALLOWANCE UNDER SECTION 14A. THE ASSESSING OFFICERS DECISION OF TAXING INTEREST INCOME AT 10% IS CONFIRMED. THE GROUNDS OF APPEAL ARE ACCORDINGLY DISPOSED OFF. 10. AT THE VERY OUTSET, WE ARE OF THE CONSIDERED VI EW THAT THE RATIO LAID DOWN BY THE HON'BLE HIGH COURT OF DELHI IN THE CASE OF JOINT INVESTMENTS [P] LTD 59 TAXMANN.COM 295 SQUARELY APP LIES TO THE FACTS OF THE CASE AND THE SAME READ AS UNDER: THE THIRD, AND IN THE OPINION OF THIS COURT, IMPOR TANT ANOMALY WHICH WE CANNOT BE UNMINDFUL IS THAT WHEREAS THE EN TIRE TAX EXEMPT INCOME IS RS. 48,90,000/. THE DISALLOWANCE U LTIMATELY DIRECTED WORKS OUT TO NEARLY 110 PER CENT OF THAT S UM, I.E., RS. 52,56,197. BY NO STRETCH OF IMAGINATION CAN S. 14A OR R. 8D BE INTERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EXEMP T INCOME IS TO BE DISALLOWED. THE WINDOW FOR DISALLOWANCE IS INDIC ATED IN S. 14A, AND IS ONLY TO THE EXTENT OF DISALLOWING EXPENDITUR E 'INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME'. THIS PROPORTION OR PORTION OF THE TAX EXEMPT INCOME SURELY CANNOT S WALLOW THE ENTIRE AMOUNT AS HAS HAPPENED IN THIS CASE. 7 11. THE LD. DR HAS RELIED UPON THE DECISION OF THE AMRITSAR BENCH OF THE TRIBUNAL IN 93 TAXMANN.COM 39 BUT WE ARE OF THE OPINION THAT THE SAME IS NOT RELEVANT CONSIDERING THE RATIO LAID DOW N BY THE HON'BLE JURISDICTION HIGH COURT DELHI [SUPRA]. 12. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY T HE HON'BLE HIGH COURT OF DELHI [SUPRA] WE DIRECT THE ASSESSING OFFI CER TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME WHICH I S RS. 37,93,374/-. 13. GROUND OF APPEAL OF THE REVENUE AND THE CROSS O BJECTION BY THE ASSESSEE IS PARTLY ALLOWED ON THIS ISSUE. 14. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS PARKED ITS SURPLUS FUNDS IN FIXED DEPOSITS OF THE BANK FROM WHICH IT E ARNED INTEREST INCOME OF RS. 1,12,72,374/-. AT THE SAME TIME, WE FIND THAT THE ASSESSEE HAS ALSO PAID INTEREST TO THE BANK. IN OU R CONSIDERED OPINION, INTEREST EARNED HAS TO BE NETTED OFF WITH INTEREST EXPENDITURE. WE, ACCORDINGLY, DIRECT THE ASSESSING OFFICER TO NET OF F INTEREST INCOME OF RS. 1,12,72,374/- WITH INTEREST EXPENDITURE. 8 15. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IN ITA NO. 192/DEL/2013 AS WELL AS THE CROSS OBJECTION OF THE ASSESSEE IN CO NO. 30/DEL/2013 ARE PARTLY ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON .08. 2021 IN THE PRESENCE OF BOTH THE RIVAL REPRESENTATIVES. SD/- SD/- [PAWAN SINGH] [ N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 18 TH AUGUST, 2021 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 9 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER