DCIT, New Delhi V. M/s. Span Holding (P) Ltd., New Delhi

ITA 206/DEL/2013

• Counselvise Citation: 20620114 RSA 2013
• Duration Of Justice: 1 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 27-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 11-01-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: P M SHASTRI
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI H.S. SIDHU : JUDICIAL MEMBER ITA NO. 206/DEL/2013 ASSTT. YR: 2008-09 DCIT, CIRCLE 9(1), VS. SPAN HOLDING (P) LTD., NEW DELHI. 220, OKHLA INDUSTRIAL ESTATE, NEW DELHI. PAN: AAACS 0294 H ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI RAKESH KUMAR SR. DR RESPONDENT BY : SHRI M.P. RASTOGI ADV. & SHRI P.M. SHASTRI CA DATE OF HEARING : 27-08-2014 DATE OF ORDER : 05-09-2014. O R D E R PER S.V. MEHROTRA, A.M:- THIS APPEAL, PREFERRED BY THE REVENUE, IS DIRECTE D AGAINST THE ORDER DATED 30-10-2012 PASSED BY THE LD. CIT(A)-XII, NEW DELHI, IN APPEAL NO. 173/10-11, RELATING TO A.Y. 2008-09. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE HA D FILED ITS RETURN OF INCOME DECLARING INCOME OF RS. 2,89,78400/-. THE AS SESSEE COMPANY, IN THE ITA NO. 206/DEL/2013 DCIT VS. SPAN HOLDING (P) LTD. 2 RELEVANT ASSESSMENT YEAR, WAS ENGAGED IN THE BUSINE SS OF LEASING, BILL DISCOUNTING AND TRADING IN SHARES AND SECURITIES. 2.1. DURING THE COURSE OF ASSESSMENT, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAD EARNED DIVIDEND INCOME OF RS. 1,07,56, 205/-. HE REQUIRED THE ASSESSEE TO FILE DETAILS OF EXPENDITURE INCURRED FO R EARNING DIVIDEND INCOME AND ALSO TO EXPLAIN AS TO WHY DISALLOWANCE BE NOT M ADE U/S 14A READ WITH RULE 8D OF THE I.T. RULES. THE ASSESSEE IN ITS REPL Y POINTED OUT THAT IT HAD ITSELF ADDED BACK 9.72 LACS OF STT PLUS RS. 1 LAKH ON ACCOUNT OF OVERHEAD ADMINISTRATIVE EXPENSES DEEMED AS INCURRED FOR EARN ING OF TAX FREE DIVIDEND ON THE BASIS AS ADOPTED IN THE PRECEDING YEARS, BY THE CIT(A) AND THEN FOLLOWED IN THE SUBSEQUENT YEARS. 2.2. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSES SEES SUBMISSIONS IN VIEW OF THE PROVISIONS OF SECTION 14A READ WITH RUL E 8D OF THE I.T. RULES. HE FURTHER POINTED OUT THAT ASSESSEE HAD NOT GIVEN ANY BASIS FOR APPORTIONMENT OF EXPENDITURE FOR EARNING TAX FREE I NCOME. THE ASSESSING OFFICER DID NOT ACCEPT THE ASSESSEES CONTENTION FO R THE FOLLOWING REASONS: 3.3. THE REPLY OF THE ASSESSEE HAS BEEN CONSIDERED AND IS FOUND TO BE UNACCEPTABLE ON FOLLOWING BASIS:- (1) THE EARNING OF EXEMPT INCOME IS NOT IN NATURE O F PASSIVE ACTIVITY HAVING NO INPUT. IN FACT IN PRESENT SITUAT ION MAKING OF INVESTMENT, MAINTAINING OR CONTINUING INVESTMENT AN D TIME OF EXIT FROM INVESTMENT ARE WELL INFORMED AND WELL COO RDINATED MANAGEMENT DECISIONS INVOLVING NOT ONLY INPUTS FROM VARIOUS SOURCE BUT ALSO ACUMEN OF SENIOR MANAGEMENT FUNCTIO NARIES. THEREFORE COST IS INBUILT INTO EVEN SO CALLED PASS IVE INVESTMENT. THERE ARE INCIDENTAL EXPENDITURE OF COL LECTION, ITA NO. 206/DEL/2013 DCIT VS. SPAN HOLDING (P) LTD. 3 TELEPHONE, FOLLOW UP EVEN DIRECTORS TIME AND ENERGY ETC. THEREFORE EXPENSES IN RELATION TO EARNING OF INCOME ARE EMBEDDED IN INDIRECT EXPENSES. (2) THE INVESTMENT MADE, BEING A CONSCIOUS DECISION AND HAVING DEPLOYMENT OF FUNDS CLEARLY BRINGS INTO PICT URE EXPENDITURE BY WAY OF COST OF FUNDS, INVESTED. CO MPOSITE FUND HAVING COST NEEDS TO BE SPREAD SO AS TO APPORT ION APPROPRIATE COST OF FUNDS INVESTED IN THE ACTIVITY LENDING TO CARRYING OF EXEMPT INCOME. 3. ASSESSEE HAS CLAIMED THAT IT HAS NOT INCURRED AN Y EXPENDITURE TO EARN DIVIDEND INCOME IS NOT ACCEPTAB LE AS FOR AS POINT 1) AND 2) ABOVE. 2.3. THE ASSESSING OFFICER COMPUTED THE DISALLOWANC E U/S 14A READ WITH RULE 8D AS UNDER: AMOUNT A. DIRECTLY ATTRIBUTED EXPENSES NIL B. INTEREST EXPENSES INTEREST OR OTHER EXPENSES WHICH CANNOT BE DIRECTLY ATTRIBUTED NIL AVERAGE VALUE OF INVESTMENT RELATED TO TAX FREE INCOME OPENING INVESTMENT 164971632 CLOSING INVESTMENT 247455094 206213363 AVERAGE TOTAL ASSETS IN BS OPENING TOTAL ASSETS 995555832 CLOSING TOTAL ASSETS 1001139512 998347672 INTEREST EXPENSES NIL C. DEEMED EXPENSES AVERAGE VALUE OF INVESTMENT RELATED TO TAX FREE INCOME OPENING INVESTMENT 164971632 CLOSING INVESTMENT 247455094 206213363 0.5% OF AVERAGE INVESTMENT 10,31,066 LESS: ALREADY DISALLOWED BY THE ASSESSEE IN THE COMPUTATION OF INCOME 1,00,000 TOTAL 14A DISALLOWANCE 9,31,066 ITA NO. 206/DEL/2013 DCIT VS. SPAN HOLDING (P) LTD. 4 2.4. LD. CIT(A) DELETED THE DISALLOWANCE, INTER ALI A, OBSERVING THAT ASSESSING OFFICER COULD NOT MAKE DISALLOWANCE U/S 1 4A READ WITH RULE 8D WITHOUT POINTING OUT DEFICIENCY IN THE ALLOCATION M ADE AND WITHOUT POINTING OUT ANY DEFECT IN THE COMPUTATION. 3. LD. DR SUBMITTED THAT THERE IS NO DISPUTE THAT R ULE 8D WAS APPLICABLE FOR THE ASSESSMENT YEAR UNDER CONSIDERATION AND ACC ORDINGLY THE ASSESSING OFFICER HAD APPLIED THE SAME AFTER GIVING REASONS F OR NOT ACCEPTING THE ASSESSEES CONTENTION, AS NOTED EARLIER. HE, THEREF ORE, SUBMITTED THAT THE DISALLOWANCE MADE BY ASSESSING OFFICER BE RESTORED. 4. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT AS P ER THE MANDATE OF SECTION 14A READ WITH RULE 8D, THE ASSESSING OFFICE R WAS REQUIRED TO RECORD SATISFACTION THAT THE ASSESSEES CLAIM REGARDING EX PENDITURE INCURRED IN RELATION TO EXEMPT INCOME WAS NOT CORRECT. THEN ONL Y, HE COULD DETERMINE THE DISALLOWANCE. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORD OF THE CASE. THERE IS NO DISPUTE WITH THE PROPOSITION ADVANCED BY THE LD. COUNSEL FOR THE ASSESSEE THAT A SSESSING OFFICER HAS TO RECORD HIS SATISFACTION WITH REGARD TO THE CORRECTN ESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE IN RELATION TO I NCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. IN THE PRESENT CASE, WE F IND THAT ASSESSING OFFICER HAS CATEGORICALLY RECORDED A FINDING THAT ASSESSEE DID NOT GIVE ANY BASIS FOR THE APPORTIONMENT OF EXPENDITURE FOR EARNING TAX FR EE INCOME. THEREFORE, INVOCATION OF RULE 8D BY THE ASSESSING OFFICER WAS FULLY JUSTIFIED. THE ASSESSEE HAS NOT POINTED OUT ANY MISTAKE IN THE COM PUTATION MADE BY THE ITA NO. 206/DEL/2013 DCIT VS. SPAN HOLDING (P) LTD. 5 ASSESSING OFFICER UNDER RULE 8D. WE, THEREFORE, SET ASIDE THE ORDER OF LD. CIT(A) AND RESTORE THE ORDER OF ASSESSING OFFICER. 6. IN THE RESULT, REVENUES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 05-09-2014. SD/- SD/- ( H.S. SIDHU ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 05-09-2014. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR