ALTUS LEARNING PVT. LTD., NEW DELHI V. ACIT, CIRCLE- 2(1), NEW DELHI

ITA 2031/DEL/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0962 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 23-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: D C AGARWAL
• Keywords: Earning of tax free income; Proportionate interest; Rule 8D
• Section: 14A

Judgement Text

1 ITA NO. 2031/DEL/2018 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: A NEW DELHI BEFORE MS SUCHITRA KAMBLE, JUDICIAL ME MBER AND SH. PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NO. 2031/DEL/2 018 (A.Y 2013-14) ALTUS LEARNING PVT. LTD. B 7/122A, SAFDARJUNG ENCLAVE, NEW DELHI AADCC5355Q (APPELLANT) VS ACIT CIRCLE-2(1) ROOM NO. 392, C. R. BUILDING, NEW DELHI (RESPONDENT) APPELLANT BY SH. D. C. AGARWAL, ADV RESPONDENT BY SH. RAGHUNATH, SR. DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER DATED 11/01/2018 PASSED BY CIT(A)-1, NEW DELHI FOR ASSESSMENT YEAR 2013-14. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- GROUNDS OF APPEAL (BEING ITEM NO. 12 OF FORM NO. 36 IN THE CASE OF M/ S ALTUS LEARNING PVT. LTD. V. ACIT, CIRCLE 2(1), NEW DELHI). 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS. 47,04,192/-. DATE OF HEARING 14.03.2019 DATE OF PRONOUNCEMENT 26.03.2019 2 ITA NO. 2031/DEL/2018 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHILE CONFIRMING THE ADDITION OF RS. 47,04,192/-MADE BY ID. AO U/S 1 4A, LD. CIT(A) ERRED IN - (I) HOLDING THAT- 'AO WAS NOT SATISFIED WITH THE CLAIM OF THE APPELLANT WITH REGARD TO THE EXPENDITURE INCURRED TO EARN THE EXEMPT INCOME AND THEREBY REJECTED THE CLAIM' WHEREAS NO SUCH SATISFA CTION WAS RECORDED BY HIM IN THE ASSESSMENT ORDER OR ANYWHERE. (II) HOLDING THAT- 'THE AO HAS SHOWN THE RELATIONSHIP B ETWEEN EXEMPT INCOME AND EXPENDITURE INCURRED' WHEREAS NO SUCH RE LATIONSHIP WAS SHOWN BY THE LD. AO AND WHICH COULD NOT HAVE BEEN S HOWN AS NO INTEREST EXPENDITURE WAS RELATED TO INVESTMENT MADE TO EARN EXEMPT INCOME. (III) HOLDING THAT- 'FURTHER, THE INTEREST EXPENSES WERE NOT ATTRIBUTABLE TO ANY PARTICULAR INCOME AND THEREFORE WERE TO BE DETE RMINED AS PER RULE 8D', WHEREAS NONE OF INTEREST BEARING FUNDS WERE IN VESTED IN EARNING EXEMPT INCOME. (IV) HOLDING THAT- 'THE ASSESSING OFFICER HAS ACTED IN A FAIR MANNER AND APPLIED THE PROVISIONS OF THE ACT TO THE ISSUE TO WORK OUT THE DISALLOWANCE' (V) OBSERVING THAT- 'THE AO STATED THAT THE APPELLANT W AS HAVING CONSOLIDATED ACCOUNTS FOR ITS INCOME EARNING ACTIVI TIES. NO SEPARATE SET OF AMOUNTS WERE MAINTAINED FOR ACTIVITIES, INCOME FROM WHICH WOULD NOT FORM PART OF THE TOTAL INCOME' WHEREAS NO SUCH OBSERVATI ON OF FINDINGS ARE THERE IN THE ASSESSMENT ORDER FRAMED BY THE AO. (VI) OBSERVING THAT- 'FURTHER THE AO STATED THAT THE BU SINESS AND INVESTMENTS WERE INTERLINKED AS THE APPELLANT WAS H AVING COMMON INFRASTRUCTURE AND COMMON PERSONNEL' WHEREAS NO SUC H OBSERVATION OF FINDINGS ARE THERE IN THE ASSESSMENT ORDER FRAMED B Y THE AO. (VII) CONFIRMING THE ADDITION BY DISALLOWANCE INTEREST E XPENDITURE EVEN THOUGH A FINDING IS GIVEN BY HIM THAT MOST OF THE INTEREST BEARING FUNDS WERE NOT UTILIZED FOR INVESTMENT. THEY WERE RATHER IN THE NATURE OF TERM LOANS. (VIII) CONFIRMING THE ADDITION WITHOUT CONSIDERING THE ARG UMENTS MADE BY 3 ITA NO. 2031/DEL/2018 THE APPELLANT AND REPRODUCED IN THE IMPUGNED APPELL ANT ORDER. (IX) CONFIRMING THE ADDITION IGNORING, IN PARTICULAR, TH E BINDING DECISIONS OF HONBLE APEX COURT IN CIT(A) VS. WALFORT SHARE & STOCK BROKER PVT. LTD. 326 ITR 1, AND OF JURISDICTIONAL HIGH COURT OF DELH I IN H. T. MEDIA LTD. VS. PR. CIT(A)[2017] 85 TAXMANN.COM 113 (DELHI). (X) CONFIRMING THE ADDITION BY IGNORING THE DECISIONS OF OTHER HIGH COURT AND TRIBUNAL, RELIED BY THE APPELLANT TO THE EFFECT THAT (I) IF LD. A.O HAS NOT RECORDED SATISFACTION ABOUT THE CLAIM OF TH E EXPENDITURE HAVING REGARD TO THE ACCOUNTS OF THE APPELLANT, RULE 8D CA NNOT BE INVOKED AND (II) INTEREST EXPENDITURE CANNOT BE DISALLOWED U/S 14A, IF INTEREST BEARING FUNDS WERE NOT INVESTED IN EARNING EXEMPT INCOME. 3. THE ONLY ISSUE CONTESTED IN THE PRESENT APPEAL I S ADDITION OF RS. 47,04,192/- MADE BY THE ASSESSING OFFICER U/S 14A READ WITH RULE 8D OF THE INCOME TAX RULES 1962. DURING THE FINANCIAL YEAR 2 012-13 I.E. ASSESSMENT YEAR 2013-14, THE COMPANY EARNED THE EXEMPT INCOME U/S 10(34) OF THE INCOME TAX ACT, 1961 AMOUNTING TO RS. 1,38,80,773/- . THE INVESTMENT IN THE UNITS OF MUTUAL FUNDS (WRONGLY MENTIONED BY A.O AS SHARES) AS ON 31/3/2013 IS OF RS.18,32,14,106/- WHICH WAS NIL AS ON 31/3/20 12. SINCE, THE ASSESSEE COMPANY EARNED THE EXEMPT INCOME AND THERE IS INVES TMENT IN THE UNITS OF MUTUAL FUNDS, INCOME FROM WHICH IS EXEMPT, THE ASSE SSING OFFICER VIDE ORDER SHEET ENTRY DATED 6/9/2016 ASKED THE ASSESSEE AS TO WHY THE PROVISIONS OF SECTION 14A OF THE ACT SHOULD NOT BE INVOKED AND TH E DISALLOWANCE SHOULD NOT BE MADE ACCORDINGLY. IN RESPONSE TO THE SAID SHOW CAUSE NOTICE, THE ASSESSEE COMPANY FILED ITS DETAILED REPLY VIDE SUBMISSION DA TED 20 TH SEPTEMBER, 2016. THE ASSESSEE COMPANY BROUGHT TO THE NOTICE OF THE A SSESSING OFFICER THAT DURING THE FINANCIAL YEAR 2012-13, THE ASSESSEE COM PANY MADE THE CURRENT INVESTMENTS FROM THE PROCEEDS RECEIVED FROM THE ISS UE OF SHARE CAPITAL WITH PREMIUM. THE ASSESSEE COMPANY ALSO FILED FUNDS FLO W STATEMENT SHOWING THE DETAILS LIKE DATE, PARTICULARS, CAPITAL INFLOW AND CAPITAL OUT FLOW FOR CURRENT INVESTMENT. ACCORDINGLY, THE ASSESSEE COMPANY SUBM ITTED TO THE ASSESSING 4 ITA NO. 2031/DEL/2018 OFFICER THAT THE INVESTMENTS MADE BY THE ASSESSEE C OMPANY ARE NOT OUT OF BORROWED FUNDS ON WHICH THE ASSESSEE COMPANY HAS TO PAY THE INTEREST. FURTHER, THE ASSESSEE COMPANY EXPLAINED TO THE ASSE SSING OFFICER THAT NO AMOUNT OF TERM LOAN HAS BEEN UTILIZED FOR THE PURPO SE OF INVESTMENT IN THE SHARES. THE ASSESSING OFFICER DID NOT ACCEPT THE E XPLANATION OF THE ASSESSEE COMPANY AND OBSERVED THAT SINCE INVESTMENT MADE BY THE ASSESSEE COMPANY FROM THE BORROWED FUND AS TO THE EXEMPT INCOME, THE PROVISIONS OF SECTION 14A ARE ATTRACTED AND ACCORDINGLY MADE THE DISALLOWANCE OF RS. 47,04,192/-. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE APPEAL O F THE ASSESSEE. 5. THE LD. AR SUBMITTED THAT THE ASSESSEES CASE I S FULLY COVERED BY THE DECISION OF HONBLE APEX COURT IN CASE OF MAXOPP IN VESTMENT LTD. VS. CIT(A) (2018) 91 TAXMANN.COM 154 (S.C). AS WELL AS THE DE CISION OF THE APEX COURT IN CASE OF CIT(A) VS. WALFORT SHARES STOCK BROKER PVT. LTD. 326 ITR 1. THE LD. AR SUBMITTED THAT NO SATISFACTION FOR INVOKING SECTION 14A WAS DRAWN BY THE ASSESSING OFFICER AS REQUIRED UNDER SECTION 14A. T HE LD. AR FURTHER SUBMITTED THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATI ON ISSUED PREFERENCE SHARES WITH PREMIUM AND COLLECTED RS. 20 CRORES. THE SAID AMOUNT WAS INVESTED INTO MUTUAL FUNDS AMOUNTING TO RS. 18,27,14,116/-. IT H AD ALSO BORROWED FUNDS FROM THE FINANCIAL INSTITUTIONS FOR VARIOUS OTHER B USINESS PURPOSES ON WHICH IT INCURRED TOTAL INTEREST EXPENDITURE OF RS.1,26,97,1 72/-. THE TERM LOAN AND OTHER LOANS WERE SPEND FOR THE PURPOSES OF BUSINESS WHICH THEY BORROWED AND NOT INVESTED INTO MUTUAL FUNDS. THUS, THERE IS DIR ECT NEXUS OF MONEY COLLECTED FROM PREFERENCE SHARES AND MONEY INVESTED INTO MUTU AL FUNDS. THE ASSESSING OFFICER DISALLOWED PROPORTIONATE INTEREST AT RS. 47 , 40,192/- OUT OF TOTAL INTEREST WAS PAID BY INVOKING RULE 8D READ WITH SEC TION 14A, WHILE DOING SO NO SATISFACTION WAS RECORDED EITHER IN THE ASSESSMENT ORDER OR THERE IS NO SPECIFIC SATISFACTION RECORDED SEPARATELY BY THE ASSESSING O FFICER. THUS, THE LD. AR SUBMITTED THAT THE APPEAL OF THE ASSESSEE BE ALLOWE D. 5 ITA NO. 2031/DEL/2018 6. THE LD. DR RELIED UPON THE ORDER OF THE CIT(A) A ND THE ASSESSMENT ORDER. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE HONBLE APEX COURT IN CASE OF MAXOPP I NVESTMENT LTD. (SUPRA) HELD AS UNDER:- 41. HAVING REGARD TO THE LANGUAGE OF SECTION 14A(2 ) OF THE ACT, READ WITH RULE 8D OF THE RULES, WE ALSO MAKE IT CLEAR THAT BE FORE APPLYING THE THEORY OF APPORTIONMENT, THE A.O NEED TO RECORD SATISFACTION THAT HAVING REGARD TO THE KIND OF THE ASSESSEE, SUO MOTO DISALLOWANCE U/S 14A WAS NOT CORRECT. IT WILL BE IN THOSE CASES WHERE THE ASSESSEE IN HIS RETURN HAS HIMSELF APPORTIONED BUT THE A.O WAS NOT ACCEPTING THE SAID APPORTIONMEN T. IN THAT EVENTUALITY, IT WILL HAVE TO RECORD ITS SATISFACTION OF THIS EFFECT . FURTHER, WHILE RECORDING SUCH A SATISFACTION, NATURE OF LOAN TAKEN BY THE ASSESSE E FOR PURCHASING THE SHARES/MAKING THE INVESTMENT IN SHARES IS TO BE EXA MINED BY THE A.O. THE ASSESSING OFFICER HAS CLEARLY NOTED THAT NO TE RM LOAN MONEY HAS BEEN INVESTED FOR INVESTMENT PURPOSE. BESIDES THER E WAS NO SATISFACTION RECORDED AS TO HOW THE STRATEGIC BUSINESS INVESTMEN T HAS BEEN DONE BY THE ASSESSEE AND THE INVOCATION OF PROVISIONS OF SECTIO N 14A READ WITH RULE 8D ARE ATTRACTED. THEREFORE, IN LIGHT OF THE APEX COURT D ECISION, THE APPEAL OF THE ASSESSEE IS ALLOWED. 9. IN RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON 26TH MARCH , 2019 . SD/- SD/- (PRASHANT MAHARISHI) (S UCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 26/03/2019 R. NAHEED * 6 ITA NO. 2031/DEL/2018 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 14 .03.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 18 .03.2019 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 2 6 .03.2019 DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 2 6 .03.2019 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 2 6 .03.2019 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK