HB Portfolio Ltd., New Delhi V. ITO, New Delhi

ITA 2241/DEL/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 0453 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 06-01-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 12-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Assessee Lawyers: SANTOSH K AGGARWAL
• Keywords: Depreciation; Business expenditure; Opportunity of being heard; Source of fund; Retrospective amendment
• Section: 14A

Judgement Text

I.T.A. NO. 2241 /DEL/2010 1/5 IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, IN THE INCOME TAX APPELLATE TRIBUNAL, NEW DELHI, BENCH C NEW DELHI, BENCH C NEW DELHI, BENCH C NEW DELHI, BENCH C BEFORE SHRI R. P. TOLANI, JUDICIAL MEMBER AND SHRI K. D. RANJAN, ACCOUTANT MEMBER ITA NO. 2241 /DEL/2010 (ASSESSMENT YEAR 2005-06) H B PORTFOLIO LTD., VS. I.T.O., WARD 12(3), H-72, CONNAUGHT CIRCUS, NEW DELHI. NEW DELHI. (APPELLANTS) (RESPONDENTS) PAN / GIR NO. AAACH3112P APPELLANT BY: SHRI SANTOSH K AGGARWAL, ADV. RESPONDENT BY: SMT. MONA MOHANTY, SR. DR ORDER ORDER ORDER ORDER PER K. D. RANJAN, AM: PER K. D. RANJAN, AM: PER K. D. RANJAN, AM: PER K. D. RANJAN, AM: 1. THIS APPEAL BY THE ASSESSEE FOR THE ASSESSMENT Y EAR 2005-06 ARISES OUT OF THE ORDER OF LD. CIT(A) VIII, NEW DEL HI. THE GROUNDS RAISED BY THE ASSESSEE ARE REPRODUCED AS UNDER: 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN CONFIRMING THE ACTION OF A.O. O F MAKING ADDITION/ DISALLOWANCE OF INTEREST AND FINANCIAL CH ARGES AMOUNTING TO ` 1,17,46,197/-. THE ADDITION/DISALLO WANCE MADE BY THE A.O. WAS NOT SUSTAINABLE AND CIT(A) SHO ULD HAVE DELETED THE SAME. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN DIRECTING THE A.O. TO WORK OUT THE DISALLOWANCE IN RESPECT OF ADMINISTRATIVE AND OTHER EXPENSES AMOUNTING TO ` 46,60,984/- BY APPLYING RULE 8D READ WITH SECTION 14A OF I. T. ACT, 1961. ON THE FACTS AND C IRCUMSTANCES OF CASE AND IN LAW, THE RETROSPECTIVE EFFECT COULD NOT BE GIVEN TO RULE 8D AND THE CIT(A) SHOULD HAVE DELETED THE E NTIRE DISALLOWANCE OF 1 46,60,984/- MADE BY THE A.O. 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT(A) ERRED IN CONFIRMING DISALLOWANCE MADE BY THE A.O. OF DEPRECIATION AMOUNTING TO `3,04,180/-. 4) ON THE FACTS AND CIRCUMSTANCES OF CASE AND IN LA W, THE CIT(A) ERRED IN NOT CONSIDERING THE FACT THAT THE A CTION OF A.O. HAS RESULTED INTO MAKING DISALLOWANCE OF EXPENSES M ORE THAN WHAT WERE CLAIMED BY APPELLANT. THE CIT(A) ERRED I N NOT ADJUDICATING THE GROUND OF APPEAL TAKEN IN THIS REG ARD. I.T.A. NO. 2241 /DEL/2010 2/5 2. THE FIRST ISSUE FOR CONSIDERATION RELATES TO DIS ALLOWANCE OF INTEREST AND FINANCIAL CHARGES AMOUNTING TO ` 1,17, 46,197/- U/S 14A OF THE I. T. ACT. THE FACTS OF THE CASE STATED IN B RIEF ARE THAT THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION DISCLO SED INCOME ON ACCOUNT OF SHORT-TERM CAPITAL GAIN AND LONG TERM CA PITAL GAINS; DIVIDEND; AND SALE OF SECURITIES. APART FORM THESE SOURCES OF INCOME, ASSESSEE HAD ALSO EARNED INTEREST INCOME ON FIXED DEPOSITS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE A.O. THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAD AGGREGATE FUNDS OF ` 74,09,07,294/- AND ALSO A LIABILITY ON ACCOUNT OF VARIOUS PROVISIONS AGGREGATING TO ` 6 CRORES APPROXIMATELY. HE FURTHER NOTED THAT FUNDS AVAILAB LE AT THE DISPOSAL OF THE ASSESSEE WERE UTILIZED FOR MAKING INVESTMENT S OF ` 51,71,73,178/- AND INTEREST FREE LOANS AND ADVANCES GIVEN TO THE SISTER CONCERNS AND OTHER RELATED PARTIES AMOUNTING TO ` 18,78,47,318/- AND THE BALANCE AMOUNT WAS INVESTED IN FDRS. THUS, AS PER THE A.O., THE TOTAL FUNDS OF ` 80 CRORES APP ROXIMATELY WERE UTILIZED BY THE ASSESSEE EITHER FOR MAKING INVESTME NTS, GIVING INTEREST FREE LOANS AND ADVANCES TO THE SISTER CONC ERNS OR FOR MAKING FIXED DEPOSITS WITH THE BANKS. THEREFORE, I N HIS VIEW, THE FINANCIAL COST INCLUDING INTEREST AND OTHER FINANCI AL CHARGES WERE RELATING TO EITHER TO THE INCOME NOT FORMING PART O F TOTAL INCOME OR THE INCOME, WHICH WAS ASSESSABLE AS CAPITAL GAINS O R INCOME FROM OTHER SOURCES. THEREFORE, HE OBTAINED THE EXPLANAT ION OF THE ASSESSEE AND RECORDED THE FINDINGS THAT INTEREST AN D FINANCIAL CHARGES DEBITED TO P & L ACCOUNT DO NOT QUALIFY AS BUSINESS EXPENDITURE AND ACCORDINGLY, THE SAME WAS TO BE DIS ALLOWED IN TERMS OF SECTION 14A OF THE ACT. 3. ON APPEAL BEFORE CIT(A), IT WAS SUBMITTED THAT T HE ISSUE RELATING TO ALLOWING THE EXPENDITURE ON ACCOUNT OF INTEREST AND FINANCIAL CHARGES HAS BEEN A SUBJECT MATTER OF DISP UTED INCOME OF THE ASSESSEE AND THE REVENUE RECEIPT FOR ASSESSMENT YEAR 2001-02 IN WHICH YEAR THE DISALLOWANCE ON ACCOUNT OF COST O F INVESTMENT MADE BY THE ASSESSEE WAS MADE FOR THE FIRST TIME. IT WAS FURTHER I.T.A. NO. 2241 /DEL/2010 3/5 ARGUED THAT THE ISSUE IN QUESTION HAS TRAVELLED UP TO THE LEVEL OF ITAT AND ITAT IN ASSESSMENT YEAR 2002-03 VIDE ORDER DATED 5.12.2008 RESTRICTED THE DISALLOWANCE TO THE EXTENT ON 15% ON DIVIDEND INCOME. THEREFORE, THE A.O. WAS NOT JUSTI FIED IN MAKING THE DISALLOWANCE OF ENTIRE INTEREST AND FINANCIAL CHARG ES OF ` 1,17,46,197/-. LD. CIT(A) AFTER CONSIDERATION OF S UBMISSIONS, UPHELD THE ADDITION BY OBSERVING AS UNDER: I HAVE CAREFULLY PERUSED THE FINDINGS RECORDED BY THE LD. A.O. AND THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT COMPANY. ON CONSIDERATION, I FIND THAT THE LD. A.O . HAS RECORDED A CATEGORICAL FINDING THAT AFTER TAKING IN TO ACCOUNT THE TOTAL POSITION OF FUNDS INCLUDING INTEREST BEAR ING FUNDS AND THE UTILIZATION THEREOF, THE PICTURE WHICH EMERGES WAS THAT THE BORROWED CAPITAL/FUNDS WERE UTILIZED BY THE APPELLA NT EITHER FOR MAKING INVESTMENTS, INCOME/SURPLUS OF WHICH WAS ASSESSABLE UNDER THE HEADS CAPITAL GAINS OR DIVIDEN D INCOME OR FOR ADVANCING INTEREST FREE LOANS TO THE SISTER CONCERNS. THEREFORE HE WAS OF THE OPINION THAT WHEN THE FINAN CIAL COST WAS NOT INCURRED IN CONNECTION WITH THE INCOME ASSE SSABLE AS INCOME FROM BUSINESS OR PROFESSION, THE SAME WAS NO T TO BE ALLOWED AS BUSINESS EXPENDITURE. THIS FINDING OF T HE LD. A.O. REMAINS UNASSAILED. THE APPELLANT COMPANY HAS NOT FILED ANY CLAUSABLE EXPLANATION/COGENT EVIDENCE, WHICH CAN CO NTROVERT THE A.O.S CATEGORICAL FINDING. THEREFORE, THE ISS UE IN QUESTION HAS TO BE ANALYZED AND SEEN IN THIS PERSPECTIVE. M ERELY BECAUSE, THE HONBLE ITAT HAS RESTRICTED THE DISALL OWANCE ON ACCOUNT OF INTEREST AND FINANCIAL COST TO 15% OF TH E DIVIDEND INCOME FOR ASSESSMENT YEAR 2002-03 BY ITSELF WOULD NOT ENTITLE THE APPELLANT COMPANY TO SEEK THE SIMILAR R ELIEF DURING THE YEAR UNDER CONSIDERATION ALSO. A CAREFUL PERUS AL OF THE ASSESSMENT ORDERS FOR ASSESSMENT YEARS 2001-02, 200 2-03, 2003-04 & THE YEAR UNDER CONSIDERATION CLEARLY REVE ALS THAT IN NONE OF THE EARLIER YEARS THE A.O. HAS ANALYZED AS THE POSITION OF AVAILABILITY AND SOURCES OF TOTAL FUNDS WITH THE APPELLANT COMPANY AND UTILIZATION THEREOF. FURTHER, THE ISSU E OF DISALLOWANCE OF U/S 14A OF THE ACT HAS ALSO BEEN DE ALT WITH IN GREATER DETAIL BY THE SPECIAL BENCHES OF THE ITAT M UMBAI & DELHI IN THE CASES OF DAGA CAPITAL MANAGEMENT PVT. LTD. AND CHEMINVESTMENT LTD. RESPECTIVELY AND THE APPLICABIL ITY OF PROVISIONS OF SECTION 14A OF THE ACT AND RULE 8D OF I T RULES W.R.E. HAS BEEN UPHELD. IN THIS FACTS SITUATION, I N MY OPINION HUMBLE VIEW, THE DECISION OF THE HONBLE ITAT FOR A SSESSMENT YEAR 2002-03 IN ASSESSEES OWN CASE WOULD NOT APPLY BECAUSE FACTS OF THE ASSESSMENT YEAR 2002-03 AND THE ASSESS MENT YEAR UNDER CONSIDERATION ARE CLEARLY DISTINGUISHABL E. IN VIEW OF THE AFORESAID, I DO NOT FIND ANY MERITS IN THE A RGUMENTS OF THE LD. COUNSEL AND THEREFORE, THE DISALLOWANCE OF ` 1,17,46,197/- IS BEING SUSTAINED. I.T.A. NO. 2241 /DEL/2010 4/5 4. BEFORE US, LD. A.R. SUBMITTED THAT THE ISSUE IS COVERED BY THE DECISION OF ITAT IN FAVOUR OF THE ASSESSEE AND THER EFORE, 15% OF EXPENDITURE COULD BE DISALLOWED. ON THE OTHER HAND LD. SR. DR SUPPORTED THE ORDER OF CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES AND HAVE GONE THR OUGH THE MATERIAL AVAILABLE ON RECORD. WE FIND FORM THE ORD ER OF LD. CIT(A) THAT IN NONE OF THE YEARS, I.E. ASSESSMENT YEARS 20 01-02, 2002-03 & 2003-04, THE A.O. HAS NOT ANALYZED THE POSITION OF AVAILABILITY OF SOURCES OF TOTAL FUNDS WITH THE ASSESSEE AND UTILIZ ATION THEREOF. FURTHER THE ISSUE OF DISALLOWANCE OF EXPENSES U/S 1 4A OF THE ACT, AS HAS BEEN DEALT WITH IN GREAT DETAILS BY THE SPECIAL BENCH OF ITAT, MUMBAI AND DELHI IN THE CASE OF DAGA CAPITAL MANAGE MENTS PVT. LTD. AND CHEMINVESTMENTS LTD., RESPECTIVELY AND THE APPLICABILITY OF THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE I T RULES HAS BEEN UPHELD. HE, THEREFORE, CAME TO THE CONCLUSION THAT DECISION OF ITAT FOR THE ASSESSMENT YEAR 2002-03 WO ULD NOT BE APPLICABLE TO THE FACTS OF THE ASSESSEES CASE FOR THE ASSESSMENT YEAR 2005-06. HE ACCORDINGLY UPHELD THE DISALLOWAN CE MADE BY THE A.O. WE FIND THAT THE ISSUE IS NOW COVERED BY THE DECISION OF HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF GODREJ & BOYCE MFG. PVT. LTD. VS DCIT (2010) TIOL 164 DT. 12.8.2010 WHE REIN IT HAS BEEN HELD THAT THE EXPENDITURE HAVING NEXUS WITH EXEMPTE D INCOME CAN BE DISALLOWED. IN THE CASE BEFORE US, THE A.O. HAS NOT EXAMINED THE MATTER ON THE LINES SUGGESTED BY HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF GODREJ & BOYCE (SUPRA). WE, THEREFORE, SET ASIDE THIS MATTER TO THE FILE OF THE A.O. WITH THE DIRECTION T O EXAMINE THE CASE IN THE LIGHT OF DECISION OF HON'BLE HIGH COURT OF B OMBAY IN THE CASE OF GODREJ & BOYCE (SUPRA) AFTER AFFORDING THE ASSES SEE, A REASONABLE OPPORTUNITY OF BEING HEARD. THE A.O. IS DIRECTED A CCORDINGLY. 6. THE NEXT ISSUE FOR CONSIDERATION RELATES TO CONF IRMATION OF DISALLOWANCE MADE BY THE A.O. ON ACCOUNT OF DEPRECI ATION OF ` 3,04,180/-. BEFORE CIT(A), IT WAS SUBMITTED BY THE ASSESSEE THAT DEPRECIATION IN QUESTION WAS ALREADY DISALLOWED BY THE A.O. WHILE I.T.A. NO. 2241 /DEL/2010 5/5 COMPUTING THE TOTAL INCOME AS PER THE PROVISIONS OF THE I. T. ACT AND, THEREFORE, A.O. WAS NOT JUSTIFIED IN DISALLOWING TH E SAME AMOUNT. THIS CONTENTION OF THE ASSESSEE WAS FOUND TO BE INC ORRECT. THE LD .CIT(A) OBSERVED THAT THE ASSESSEE COMPANY HAD FIRS T DISALLOWED DEPRECIATION OF ` 3,40,261/- AND THEREAFTER, CLAIME D DEPRECIATION OF ` 3,04,180/-. THEREFORE, IN EFFECT, THE ASSESSEES CLAIM WAS CORRECT TO THE EXTENT OF ` 36,081/-. HE ACCORDINGLY DIRECTE D THE A.O. TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF 3,04,180 /-. ON THE OTHER HAND, LD. SR. DR SUPPORTED THE ORDER OF LD. CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT A. O. WHILE DISALLOWING DEPRECIATION OF ` 3,40,261/- HAS NOT DI SCUSSED AS TO WHY THE DEPRECIATION WAS DISALLOWED. SINCE THE A.O. HA S NOT GIVEN ANY REASON AS TO WHY THE DEPRECIATION WAS DISALLOWABLE, WE FEEL IT PROPER TO SET ASIDE THE MATTER TO THE FILE OF THE A .O. WITH THE DIRECTION TO PASS A SPEAKING ORDER ON MERITS AFTER AFFORDING THE ASSESSEE A REASONABLE OPPORTUNITY OF BEING HEARD. 8. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSES. 9. PRONOUNCED IN THE OPEN COURT ON 18 TH FEB., 2011. SD./- SD./- (R. P. TOLANI) (K. D. RANJAN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:18 TH FEB., 2011 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR, ITAT, NEW DELHI