DCIT, New Delhi V. M/s. Lemon Tree Hotels Pvt. Ltd., New Delhi

ITA 209/DEL/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7338 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2009-2010
• Appeal Filed On: 10-01-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RAMAN KANT GARGSR
• Assessee Lawyers: VED JAIN CA SHRI NEM SINGH
• Keywords: 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. 209/DEL/2014 ASSESSMENT YEAR-2009-10 DCIT, CIRC. 4(1), NEW DELHI. (APPELLANT) VS M/S LEMON TREE HOTELS PVT. LTD., LEMON TREE HOTEL PVT. LTD., B-6/7, SAFDARJUNG ENCLAVE, NEW DELHI. (PAN: AACCK1698R) (RESPONDENT) APPELLANT BY SHRI RAMAN KANT GARG,SR. DR RESPONDENT BY SHRI VED JAIN, CA SHRI NEM SINGH, ADV. ORDER PER BEENA A. PILLAI, JM THE PRESENT APPEAL FILED BY THE REVENUE, ARISES FR OM THE ORDER OF THE LD. CIT(A)-VIII, NEW DELHI VIDE ORDER DATED 11.10.2013 FOR ASSESSMENT YEAR 2009-10 ON THE FOLLO WING GROUNDS OF APPEAL:- 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE ADDITION U/S 14A READ WITH RULE 80 FROM RS. 1,78,71,632/- TO RS. 35,10,8441- ? DATE OF HEARING 7.1.2016 DATE OF PRONOUNCEMENT 18.1.2016 I.T.A.NO. 209/DEL/2014 ASSESSMENT YEAR 2009-10 2 2 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES .OF THE CASE & LAW, THE LD. CIT(A) ERRED IN DELETIN G THE ADDITION OF RS. 1,68,10,2431- MADE BY THE A.O. IN RESPECT OF EXPENSES DEBITED IN P&L A/C UNDER THE 'EMPLOYEE STOCK OPTION COST'? 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE & LAW, THE LD. CIT(A) IS PERVERSE IN NA TURE AS THE SAME IS IN CONTRADICTION WITH THE FACTS AS CLARIFIED BY CBDT VIDE CIRCULAR NO. 9/2007 ISSUED O N 20.12.2007? 4 THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 5 THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 6. THAT THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER OR AMEND ANY GROUND OF THE APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 2. BRIEF FACTS AS RECORDED BY THE AUTHORITIES BELO W ARE AS UNDER: - 2.1. THE RETURN WAS FILED BY THE ASSESSEE ON 30.09. 2008 DECLARING TOTAL LOSS OF RS.4,22,08,912/-. THE CASE WAS SELEC TED FOR SCRUTINY AND NOTICE U/S 143(2) WAS ISSUED TO THE ASSESSEE. THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF OWNING, OPER ATING AND MANAGING HOTELS, MOTELS, RESORTS, RESTAURANT ETC. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS MADE VARIOUS INVESTMENTS AND, THEREFORE, THE LD. ASSESSING OFFICER COMPUTED THE I.T.A.NO. 209/DEL/2014 ASSESSMENT YEAR 2009-10 3 DISALLOWANCE U/S 14A R/W RULE 8D TO THE EXTENT OF RS.1,78,71,632/-. THE LD. ASSESSING OFFICER ALSO M ADE ADDITION OF ESOP EXPENSES TO THE EXTENT OF RS.1,68,10,243/- . 3. AGGRIEVED BY THE ORDER OF THE LD. ASSESSING OFFI CER, THE ASSESSEE PREFERRED AN APPEAL TO LD. CIT(A). BEFORE THE LD. CIT(A), THE ASSESSEE MADE VARIOUS SUBMISSIONS IN RESPECT OF THE ADDITIONS MADE BY THE LD. ASSESSING OFFICER. ACCOR DINGLY, THE LD. CIT(A) RESTRICTED THE ADDITION U/S 14A R/W RULE 8D TO AN EXTENT OF RS.35,10,844/-. IN RESPECT OF THE ESOP EXPENSES , THE LD. CIT(A) HELD IT TO BE AN ALLOWABLE DEDUCTION AND, TH EREFORE, DELETED THE ADDITION MADE BY THE LD. ASSESSING OFFICER. 3. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE RE VENUE IS IN APPEAL BEFORE US NOW. 3.1. AT THE OUTSET, THE ASSESSEE SUBMITS THAT GROUN D NO. 2 AND 3 STAND COVERED BY THE ORDER OF THIS TRIBUNAL IN ASSE SSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 VIDE ORDER DATED 2 3.6.2014 IN I.T.A. NO. 4588/DEL/13. HE SUBMITTED THAT THE REVE NUE HAD PREFERRED AN APPEAL BEFORE THE HON'BLE JURISDICTION AL HIGH COURT AGAINST THE DELETION OF THE DISALLOWANCE OF ESOP EX PENSES FOR ASSESSMENT YEAR 2008-09 IN I.T.A. NO. 107/2015. TH E HON'BLE I.T.A.NO. 209/DEL/2014 ASSESSMENT YEAR 2009-10 4 DELHI HIGH COURT HAS UPHELD THE ORDER OF THIS TRIBU NAL AND HELD THAT ESOP COULD BE DEBITED TO THE PROFIT & LOSS ACC OUNT OF THE ASSESSEE BY FOLLOWING THE DECISION OF MADRAS HIGH C OURT IN THE CASE OF CIT-III CHENNAI VS PVP VENTURES LTD. IN TC( A) NO.1023 OF 2005 AND IN THE CASE OF CIT VS OSWAL AGRO MILLS LTD . IN I.T.A. NO. 2/2002 BY THE JURISDICTIONAL HIGH COURT VIDE ORDER DATED 4 TH AUGUST, 2015. THE HON'BLE HIGH COURT DISMISSED THE APPEAL FILED BY THE REVENUE FOR ASSESSMENT YEAR 2008-09 VIDE ITS ORDER DATED 18.8.2015. 3.2. WE, THEREFORE, RESPECTFULLY FOLLOWING THE ORDE R OF THE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE, D ISMISS THESE GROUNDS OF APPEAL FILED BY THE REVENUE. 3.3. GROUND NO. 4 AND 5 ARE GENERAL IN NATURE AND, THEREFORE, THE SAME ARE NOT ADJUDICATED UPON. GROUND NO.1 4. THIS ISSUE RELATES TO THE RESTRICTION OF THE DIS ALLOWANCE U/S 14A R/W RULE 8D AMOUNTING TO RS.35,10,844/-. LD. AR SUBMITTED THAT THE ASSESSEE HAD SURPLUS INTEREST FR EE FUNDS AVAILABLE IN ITS CASH FLOW STATEMENT AND BALANCE SH EET, FOR THE INVESTMENT MADE IN SHARES. LD. AR SUBMITTED THAT T HE ASSESSEE I.T.A.NO. 209/DEL/2014 ASSESSMENT YEAR 2009-10 5 HAD SHAREHOLDERS FUND AMOUNTING TO RS. 279.82 CRORE S AS ON 1.4.2008, AND DURING THE FINANCIAL YEAR 2008-09, TH E NET CASH FLOW FROM OPERATING ACTIVITIES AMOUNTED TO RS.12.94 CRORES. HE FURTHER SUBMITTED THAT THE PROCEEDS FROM ISSUANCE O F SHARE CAPITAL AMOUNTED TO RS.79.84 CRORE AND, THEREFORE, THE SHAREHOLDERS FUND OF THE ASSESSEE FOR THE RELEVANT YEAR INCREASED FROM RS. 279.82 CRORES TO RS.363.91 CRORES AS ON 31 .3.2009. 4.1. LD. AR SUBMITS THAT THE TOTAL INVESTMENT MADE IN SHARES DURING THE YEAR UNDER CONSIDERATION AMOUNTED TO RS. 78.47 CRORES. HE ARGUED THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS TO MAKE SUCH INVESTMENT IN SHARES AND NO FRES H BORROWINGS WERE REQUIRED FOR SUCH INVESTMENT MADE D URING THE YEAR. 4.2. LD. AR SUBMITTED THAT THE LOANS ON WHICH INTER EST HAS BEEN PAID BY THE ASSESSEE DURING THE YEAR UNDER CONSIDER ATION PERTAIN TO SPECIFIC HOTEL PROJECTS UNDERTAKEN BY THE ASSESS EE ACROSS THE COUNTRY. HE SUBMITTED THAT THE SANCTION LETTERS OF VARIOUS LOANS ON WHICH INTEREST HAS BEEN PAID BY THE ASSESSEE ARE PLACED AT PAGES 83 TO 135 OF THE PAPER BOOK. LD. AR SUBMITTE D THAT SINCE THE ASSESSEE DID NOT OBTAIN ANY LOAN SPECIFICALLY F OR INVESTMENT IN SHARES, NO INTEREST EXPENDITURE IS ATTRIBUTABLE TO SUCH INVESTMENT I.T.A.NO. 209/DEL/2014 ASSESSMENT YEAR 2009-10 6 AND QUESTION OF DISALLOWANCE OF ATTRIBUTABLE INTERE ST EXPENDITURE DOES NOT ARISE TO THE FACTS IN HAND. LD. AR PLACED HIS RELIANCE ON THE FOLLOWING DECISIONS:- A) RELAXO FOOTWEARS LTD. VS ACIT (20-12) 18 TAXMANN.CO M 333 (DELHI) B) ACIT VS SIL INVESTMENT LTD. (2012) 54 SOT 54 (DEL) C) ACIT VS MOHAN EXPORTS (P) LTD. (2012) 138 ITD 108 ( DELHI) D) SIVA PROJECTS ENGINEERING & ENTERPRISES LTD. (I.T.A.NO.1896/MDS/2011) E) REI AGRO LTD. (I.T.A.NO. 1331 & 1423/KOL/2011) F) CIT VS METALMAN AUTO (P) LTD. (2011) 336 ITR 434 (P &H) G) GODREJ AND BOYCE MFG. CO. LTD. VS DCIT (2010) 328 I TR 81 (BOM) H) MAXOPP INVESTMENT LTD. VS CIT (2012) 247 CTR 162 (D ELHI) 4.3. WITHOUT PREJUDICE TO THE ABOVE SUBMISSIONS, TH E LD. AR SUBMITTED THAT THE DISALLOWANCE SUSTAINED BY THE LD . CIT(A) IS TOWARDS THE INTEREST PAID ON OTHER LOANS. LD. AR S UBMITTED THAT THE ASSESSEE IS RUNNING HOTELS UNDER THE BRAND NAME LEMON TREE AND IT HAS MADE INVESTMENT IN SHARES OF CERTAIN SUB SIDIARY COMPANIES THAT ARE ALSO OPERATING OR SETTING UP LEM ON TREE HOTELS WITH A VIEW TO OBTAIN CONTROLLING INTERESTS. HE SUBMITTED I.T.A.NO. 209/DEL/2014 ASSESSMENT YEAR 2009-10 7 THAT THE INVESTMENTS MADE BY THE ASSESSEE DURING TH E YEAR UNDER CONSIDERATION ARE IN THE SUBSIDIARY COMPANIES FROM ITS OWN SURPLUS INTEREST FREE FUNDS AVAILABLE WITH THE ASSE SSEE ON WHICH NO INTEREST EXPENDITURE HAS BEEN INCURRED. 5. ON THE CONTRARY, LD. DR RELIES UPON THE ORDERS O F THE AUTHORITIES BELOW. 6. WE HAVE PERUSED THE ORDERS OF THE AUTHORITIES BE LOW, THE PAPER BOOK FILED BY THE ASSESSEE AND THE DECISIONS RELIED UPON BY THE ASSESSEE. 6.1. THERE IS NO DOUBT THAT THE ASSESSEE HAS MADE I NVESTMENTS IN SHARES OF ITS SISTER CONCERNS TO ACQUIRE CONTROLLIN G INTEREST IN THOSE COMPANIES WHICH ARE ALSO IN THE SAME LINE OF BUSINESS AS THE ASSESSEE. FURTHER, THE ASSESSEE HAS EARNED DIV IDEND INCOME OF RS.9,10,081 DURING THE YEAR WHICH HAS BEEN CLAIM ED AS EXEMPT IN THE RETURN OF INCOME. IT IS ALSO AN UNDI SPUTED FACT THAT THE ASSESSEE HAS NOT MADE ANY SUO MOTO DISALLOWANCE U/S 14A R/W RULE 8D. 6.2. IT IS AN ACCEPTED POSITION THAT AS THE YEAR UN DER CONSIDERATION IS 2009-10, RULE 8D IS APPLICABLE TO THE ASSESSEE AND THAT THERE HAS TO BE A DISALLOWANCE U/S14 A OF THE ACT, THAT I.T.A.NO. 209/DEL/2014 ASSESSMENT YEAR 2009-10 8 NEEDS TO BE MADE IN THE EVENT OF EARNING ANY EXEMPT INCOME FROM INVESTMENTS MADE BY THE ASSESSEE DURING AN ASSESSME NT YEAR. THE DISALLOWANCE U/R. 8D HAS TO MADE BY APPLYING, S UB CLAUSE (I), (II) AND (III) OF SUB SECTION 2 OF R.8D. SUB C LAUSE (I) & (II) RELATES TO DIRECT AND INDIRECT EXPENSES THAT COULD BE ATTRIBUTABLE TO THE EARNING OF THE EXEMPT INCOME. 6.3. THE CONTENTION OF THE ASSESSEE, THAT THE TERM LOANS RAISED BY IT HAVE BEEN UTILIZED FOR THE PURPOSE OF SETTING UP AND OPERATING THE HOTELS AND THAT IT HAS NO CONNECTION WHATSOEVER WITH THE INVESTMENT IN SHARES, COULD NOT BE IGNORED. THE SA NCTION LETTERS PLACED BY THE ASSESSEE AT PAGES 83 TO 135 ARE SELF- EXPLANATORY TO THAT EFFECT. FOR CALCULATING THE DISALLOWANCE U/S 14A R/W RULE 8D (2) SUB-SECTION (I) AND SUB-SECTION (II) IS, THE REFORE, NOT APPLICABLE AS THERE HAS BEEN NO DIRECT AND INDIRECT INTEREST EXPENDITURE INCURRED BY THE ASSESSEE THAT COULD BE ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME FROM THE INVESTMENT S MADE BY THE ASSESSEE. 6.4. THE THIRD LIMB OF RULE 8D (2), DEALS WITH DISA LLOWANCE AN AMOUNT EQUAL TO 1 OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART O F THE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASS ESSEE ON THE I.T.A.NO. 209/DEL/2014 ASSESSMENT YEAR 2009-10 9 FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. T HE LANGUAGE OF THIS SUB-SECTION IS VERY CLEAR TO HOLD THAT ONLY TH OSE INVESTMENTS SHOULD BE CONSIDERED UNDER THIS LIMB FROM WHICH EXE MPT INCOME HAS BEEN EARNED DURING THE YEAR UNDER CONSIDERATION BY THE ASSESSEE. THE ARGUMENT RAISED BY THE ASSESSEE THAT SINCE THERE HAS BEEN NO DIRECT OR INDIRECT INTEREST EXPENDITURE , THAT COULD BE ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME AND TH EREFORE, NO DISALLOWANCE COULD BE MADE U/S 14A R/W 8D OF THE AC T, CANNOT BE ACCEPTED. RULE 8D (2)(III) WOULD BE APPLICABLE AND THE DISALLOWANCE U/S 14A R/W RULE 8D HAS TO BE MADE IN ACCORDANCE TO SUB SECTION (III) OF SECTION (2) OF RULE 8D. 6.4. WE, ACCORDINGLY, ON THE BASIS OF THE ABOVE DIS CUSSION AND FINDINGS, SET ASIDE THIS ISSUE TO THE FILE OF THE A SSESSING OFFICER FOR RE-COMPUTING THE DISALLOWANCE U/S 14A R/W RULE 8D(I II), WITH A SPECIFIC DIRECTION TO CONSIDER ONLY THOSE INVESTMEN TS FROM WHICH THE ASSESSEE HAS EARNED TAX FREE INCOME FOR THE YEA R UNDER CONSIDERATION. IT IS SPECIFICALLY MENTIONED THAT T HE DISALLOWANCE HAS TO BE MADE IN ACCORDANCE WITH LAW UNDER RULE 8D (2)(III) FOR THE YEAR UNDER CONSIDERATION. 13. ACCORDINGLY, THIS GROUND FILED BY THE REVENUE I S STATISTICALLY ALLOWED. I.T.A.NO. 209/DEL/2014 ASSESSMENT YEAR 2009-10 10 THE APPEAL FILED BY THE REVENUE, THEREFORE, STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18/01/2016 SD/- SD/- (S.V. MEHROTRA) (BEENA A. PIL LAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 18.01.2016 GS COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4.CIT(A) 4. DR BY ORDER ASSTT. REGISTRAR