KLJ Resources Ltd., New Delhi V. ACIT, New Delhi

ITA 199/DEL/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7347 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 09-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAMAN KANT GARG
• Assessee Lawyers: VK SABHARWAL
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI S.V.MEHROTRA, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER I.T.A. NO.199/DEL/2014 ASSESSMENT YEAR-2009-10 KLJ RESOURCES LTD., KLJ HOUSE, 63, RAMA MARG, NAJAFGARH ROAD, NEW DELHI. (PAN: AABCK1181C) VS ACIT, CENTRAL CIRCLE-04. NEW DELHI. APPELLANT BY SHRI V.K. SABHARWAL, ADV. RESPONDENT BY SHRI RAMAN KANT GARG, SR.DR ORDER PER BEENA A. PILLAI, JM THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)-XXXIII, NEW DELHI VIDE ORDER DATED 30.09.2013, FOR ASSESSMENT YEAR 2009-10, ON THE FOL LOWING GROUNDS OF APPEAL:- 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPE AL) HAS PASSED THE IMPUGNED ASSESSMENT ORDER WITHOUT TAKING INTO CONSIDERATION ALL THE FACTS BEFORE HIM WHICH MAKE IT UNREASONABLE, UNJUSTIFIED AND BAD IN LAW. DATE OF HEARING 4.1.2016 DATE OF PRONOUNCEMENT 18.1.2016 I.T.A. NO.199/D/2014 2 2. THAT THE ACTION ON THE PART OF THE ASSESSING OFFICER IS HIGHLY ARBITRARY, IMPROPER AND WITHOUT APPLICATI ON OF MIND, UNREASONABLE, UNJUSTIFIED AND BAD IN LAW AND DESERVES TO BE DELETED, SO THAT PROPER JUSTICE CAN BE GIVEN TO THE APPLICANT. 3. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED ASSESSING OFFICER HAS ERRED WHILE MAKING ADDITION ON ACCOUNT OF SECTION 14A OF RS. 1,41,206/ - ,WHICH IS ILLEGAL, UNJUSTIFIED AND REQUIRED TO BE D ELETED. 2. BRIEF FACTS THAT EMERGE FROM THE ORDER OF THE LD. ASSESSING OFFICER ARE AS UNDER:- THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE YEA R UNDER CONSIDERATION ON 22.09.2009, DECLARING TOTAL INCOME OF RS.3,55,09,437/-. THE CASE WAS SELECTED FOR SCRUTI NY AND DUE NOTICES WERE SERVED UPON THE ASSESSEE. THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN CHEMICALS, IN VESTMENT AND REAL ESTATE. AS PER THE COMPUTATION OF INCOME FILE D BY THE ASSESSEE, THE LD. ASSESSING OFFICER OBSERVED THAT A SSESSEE HAS EARNED DIVIDEND INCOME, AGAINST WHICH THE THERE HAS BEEN NO DISALLOWANCE OF EXPENDITURE THAT HAS BEEN MADE BY T HE ASSESSEE U/S.14A R.W.R 8D OF THE ACT. ACCORDINGLY, THE LD. A SSESSING OFFICER AFTER RECORDING THE SATISFACTION COMPUTED T HE DISALLOWANCE THE DISALLOWANCE U/S.14A R.W.R 8D OF THE ACT AT RS. 1,41,206/- 3. AGGRIEVED BY THE ORDER OF THE LD. ASSESSING OFFI CER, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A). LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS EARNED TAX FREE INCO ME OF RS.900/- AS DIVIDEND. LD.CIT(A) UPHELD THE ADDITIO N MADE BY THE I.T.A. NO.199/D/2014 3 LD.AO. 4. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), ASSE SSEE IS IN APPEAL BEFORE US. 4.1. LD. AR ARGUED THAT THE ASSESSEE HAS EARNED TAX FREE INCOME AMOUNTING TO RS. 900/- FROM HINDUSTAN PETROLEUM COR PORATION LTD. HE FURTHER SUBMITTED THAT THERE HAS BEEN NO FR ESH INVESTMENT MADE DURING THE YEAR UNDER CONSIDERATION . LD. AR SUBMITTED THAT THE INVESTMENT MADE IN HINDUSTAN PET ROLEUM CORPORATION LTD. RELATES TO THE INVESTMENT MADE IN THE PREVIOUS YEARS AND THE SAME HAS BEEN MADE OUT OF CAPITAL AND FREE RESERVES AVAILABLE WITH THE ASSESSEE. HE SUBMITTED THAT INTEREST BEARING FUNDS HAVE NOT BEEN USED IN PREVIOUS YEAR F OR MAKING SUCH INVESTMENT AS THE ASSESSEE ITSELF HAVE SUFFICI ENT CAPITAL AND RESERVE FUNDS. 4.2.LD. AR DEMONSTRATED FROM THE PROFIT AND LOSS A CCOUNT THAT THE TOTAL CAPITAL AND FREE RESERVES AS ON 31.3.2009 WAS AMOUNTING TO RS.15,80,49,522,/-, THE OPENING BALANCE OF INVES TMENT WAS RS.1,08,93,945/- AND THE CLOSING BALANCE OF INVESTM ENT WAS RS.1,22,19,945/-. LD. AR SUBMITTED THAT RS.15,21,0 00/- (1,08,93,945-1,22,19,954), DURING THE YEAR HAS BEEN INVESTED IN THE ASSESSEE COMPANY ITSELF WHICH HAS BEEN MADE OUT OF ITS OWN CAPITAL AND FREE RESERVES. 4.3. LD. AR SUBMITTED THAT ANY DISALLOWANCE U/S 14A , THEREFORE, SHOULD NOT BE MADE IN LIEU OF THE FACT THAT THE ASS ESSEE HAS NOT MADE ANY FRESH INVESTMENT WHICH COULD GIVE RISE TO TAX FREE INCOME IN THE HANDS OF THE ASSESSEE. LD. AR PLACED RELIANCE UPON THE FOLLOWING DECISIONS:- I) CIT VS HDFC BANK REPORTED IN (2014) 89 CCH 185 (BOM) I.T.A. NO.199/D/2014 4 II) MAXOPP INVESTMENT LTD. VS CIT REPORTED IN 274 ITR 272 (DEL) III) CIT VS HERO CYCLES LTD. REPORTED IN 323 ITR 74 (P&H) IV) CIT VS. RELIANCE INDUSTRIES LTD., REPORTED IN 3 39 ITR 632 (BOM) V) CIT VS. METALMAN AUTO P.LTD., REPORTED IN 336 I TR 434 (P&H) VI) CIT VS. TORRENT POWER LTD., REPORTED IN 363 IT R 474 ( GUJ) 5. ON THE CONTRARY, LD. DR SUBMITTED THAT THE A SSESSING OFFICER HAS RIGHTLY INITIATED SECTION 14A OF THE ACT AND, A FTER RECORDING THE SATISFACTION, HAS MADE THE ADDITION TO THE EXTE NT OF RS.1,41,206/-. LEARNED DR SUBMITTED THAT EVEN WHERE THE ASSESSEE CLAIMED THAT NO EXPENDITURE HAD BEEN INCUR RED, AND THAT SUCH A CLAIM OF THE ASSESSEE WAS FOUND TO BE N OT ACCEPTABLE BY THE ASSESSING OFFICER AND THUS DISALLOWANCE WAS JUSTIFIED. 5.1. ON THE OTHER HAND, LD. DEPARTMENT REPRESENTATI VE RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND OPPOSED THE REQUEST OF THE ASSESSEES COUNSEL. LD. DR REITERATED THE OB SERVATIONS MADE BY AO IN HIS ORDER THAT ASSESSEE HAS SHOWN INV ESTMENTS OF RS.1,22,19,945/-AS AT 31.3.2009 AS WELL AS DURING T HE PREVIOUS YEAR, IN SUCH ASSETS INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME. THE ASSESSEE HAS NOT ATTRIBUT ED ANY EXPENDITURE RELATING TO SUCH INVESTMENT, INCOME FRO M WHICH IS EXEMPT FROM TAX. ASSESSEES STAND IN NOT DISALLOWIN G ANY EXPENDITURE IN THIS REGARD IS NOT ACCEPTABLE THOUGH NO DIVIDEND INCOME IS EARNED DURING THE PREVIOUS YEAR. THE LD.D R SUBMITTED THAT IN ORDER TO DISALLOW THE EXPENDITURE IT IS NOT NECESSARY THAT EXEMPT INCOME IS EARNED. HE SUBMITTED THAT AS EXPEN DITURE IS ALLOWED EVEN IF NO INCOME WAS EARNED IN TAXABLE INC OME CASES, IN REVERSE CASE THE EXPENDITURE SHOULD BE DISALLOWED T HOUGH NO EXEMPT INCOME WAS EARNED. I.T.A. NO.199/D/2014 5 6. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECO RDS. WE HAVE ALSO GONE THROUGH THE ORDERS OF THE LOWER AUTH ORITIES, SYNOPSIS, PAPER BOOK FILED BY THE ASSESSEE AND THE CASE LAWS RELIED UPON BY THE ASSESSEE. 6.1. IT IS AN ADMITTED POSITION THAT FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS NOT MADE ANY INVEST MENTS IN ANY OF THE COMPANIES WHICH COULD YIELD TAX FREE INCOME IN THE HAND OF THE ASSESSEE. ON PERUSAL OF THE BALANCE SHEET AND P ROFIT AND LOSS ACCOUNTS, IT APPEARS THAT THESE INVESTMENTS HAVE BE EN CARRIED FORWARDED FROM PREVIOUS YEARS. THE INVESTMENT WHICH YIELDED TAX FREE INCOME IN THE YEAR UNDER CONSIDERATION IS HIND USTAN PETROLEUM CORPORATION LTD. AND THE REST ARE ASSOCIA TES/RELATED COMPANIES. 6.2. THE DETAILS OF THE ADMINISTRATIVE EXPENSES ARE GIVEN IN SCHEDULE 15 AND FINANCIAL EXPENSES ARE GIVEN IN SCH EDULE 16 TO THE PROFIT AND LOSS ACCOUNTS. IT IS ALSO AN ADMITT ED POSITION THAT THE ASSESSEE HAS NOT MADE ANY SUO MOTO DISALLOWANCE IN RESPECT OF THE EXPENDITURE THAT COULD HAVE BEEN INCURRED TO EARN THE DIVIDEND OF RS.900/- FOR THE YEAR UNDER CONSIDERATI ON. 6.3. CONSIDERING THAT ASSESSEE IS ALSO INVOLVED IN THE ACTIVITY OF INVESTMENT, WE PROCEED TO ANALYSE THE LEGAL POSITIO N APPLICABLE TO THE FACTS OF THE PRESENT CASE. 6.4. SUB-SECTION (2) OF SECTION 14A OF THE ACT PROV IDES THE MANNER IN WHICH THE ASSESSING OFFICER IS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME IN A CASE WHERE AN ASSESSE E CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE IN RELATION TO THE INCOME WHICH DO NOT FORM PART OF THE TOTAL INCO ME UNDER THE I.T.A. NO.199/D/2014 6 ACT. IF WE EXAMINE THE PROVISION CAREFULLY, WE WOUL D FIND THAT THE ASSESSING OFFICER IS REQUIRED TO DETERMINE THE AMOU NT OF SUCH EXPENDITURE ONLY IF THE ASSESSING OFFICER, HAVING R EGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, IN RESPECT OF SUCH EXPEN DITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. FURTHER FOR THE YEAR UNDER CONS IDERATION, IF AT ALL ANY DISALLOWANCE NEEDS TO BE CALCULATED, IT MUS T BE IN ACCORDANCE WITH RULE 8 D OF THE ACT. FROM THE COMPU TATION OF IN THE ASSESSMENT ORDER, THE LD.AO HAS RULED OUT THE A PPLICABILITY IF SUB CLAUSE (I) OF RULE 8 D (2). HE HAS CALCULATED T HE DISALLOWANCE UNDER RULE 8 D (2) (II) & (III). 6.5. IN THE PRESENT CASE, THE LD. AR HAS SUBMITTED THAT THE ASSESSEE HAS EARNED A DIVIDEND INCOME OF RS.900/- F ROM THE INVESTMENT IN HINDUSTAN PETROLEUM CORPORATION, WHIC H HAS BEEN MADE IN THE PRECEDING YEARS BY THE ASSESSEE AND THE REFORE, THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE OF THE EXPEN DITURE TOWARDS EARNING SUCH DIVIDEND INCOME. 6.6. TO THE FACTS OF THE PRESENT CASE THE ASSESSEE HAS NOT SET OUT WHETHER THE INTEREST EXPENDITURE WAS ATTRIBUTABLE T O THE EARNING OF EXEMPT INCOME, TO BE CONSIDERED FOR DISALLOWANCE UNDER RULE 8D(2)(II). STRATEGIC INVESTMENT HAS TO BE EXCLUDED FOR THE PURPOSE OF ARRIVING AT DISALLOWANCE UNDER RULE 8D (III).THE ASSESSEE HAS ALSO FAILED TO PROVE THAT THE INVESTMENT MADE IN TH E OTHER COMPANIES ARE STRATEGIC IN NATURE. THELD.CIT(A) HAS RECORDED A FINDING THAT THE ASSESSEE HAS NOT SUBMITTED ANY EVI DENCE TO ESTABLISH THAT BORROWED FUNDS ARE FOR SPECIFIC PURP OSE. FURTHER ADMINISTRATIVE EXPENSES THAT COULD BE ATTRIBUTABLE TO EARNING OF I.T.A. NO.199/D/2014 7 EXEMPT INCOME CANNOT BE EXCLUDED. HOWEVER AS HELD I N THE CASE OF SARABHAI HOLDINGS PVT. LTD. V. ACIT , ITA NO. 2328/AHD/2012, DATED 11/4/2014 (AHD.)(TRIB.), ONLY AVERAGE OF VALU E OF INVESTMENT FROM WHICH EXEMPT INCOME HAS BEEN EARNED IS TO BE CONSIDERED AND NOT TOTAL INVESTMENT AT BEGINNING OF YEAR AND AT END OF YEAR, IN DISALLOWING ADMINISTRATIVE EXPENSES . WE ACCORDINGLY SET ASIDE THIS ISSUE FOR COMPUTING T HE DISALLOWANCE BY GIVING PROPER OPPORTUNITY TO THE AS SESSEE. NEEDLESS TO SAY THAT, THE BURDEN OF PROVING THE NEX US BETWEEN THE TAXABLE INCOME/BUSINESS INCOME AND THE ADMINIST RATIVE EXPENSES, LIES UPON THE ASSESSEE. THE GROUND OF THE ASSESSEE STANDS STATISTICALLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18.01.2016 SD/- SD/- (S.V. MEHROTRA) (BEENA A. PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 18 TH JANUARY 2016 GS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSTT. REGISTRAR