DCIT, Gurgaon V. M/s. DLF Info City Developers (Kolkata) Ltd., Gurgaon

ITA 2296/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3806 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 17-04-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHINA NEB
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH 'B, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 2296/DEL/2015 A.Y. 2010-11 DCIT, CIRCLE-1(1), VS. M/S DLF INFO CITY DEVELOPE RS GURGAON (KOLKATA) LTD., 3 RD FLOOR, SHOPPING MALL, ARJUN MARG, DLF CITY, PHASE-I, GURGAON (PAN: AABCD9621N) (APPELLANT) (RESPONDENT) AND C.O. NO. 318/DEL/2015 (IN ITA NO. 2296/DEL/2015) A.Y. 2010-11 M/S DLF INFO CITY DEVELOPERS VS. DCIT, CIRCLE-I, GU RGAON (KOLKATA) LTD,. 3 RD FLOOR, SHOPPING MALL, ARJUN MARG, DLF CITY, PHASE-I, GURGAON (PAN: AABCD9621N) (APPELLANT) (RESPONDENT) DEPARTMENT BY : MS. ASHINA NEB, SR. DR ASSESSEE BY : SH. R.S. SINGHVI, CA ORDER PER H.S. SIDHU, JM : THIS APPEAL BY THE REVENUE AND CROSS OBJECTION BY T HE ASSESSEE, BOTH ARE DIRECTED AGAINST THE ORDER OF THE 2 LD. COMMISSIONER OF INCOME TAX (APPEALS)-I, GURGAO N DATED 10.2.2015 PERTAINING TO ASSESSMENT YEAR 2010-11. SINCE THE IS SUES INVOLVED IN THIS APPEAL AND CROSS OBJECTION ARE INTER-CONNECTED, HE NCE, THE SAME ARE DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE, BY FIRST DEALING WITH REVENUES APPEAL. 2. THE GROUNDS RAISED IN THE REVENUES APPEAL READ AS UNDER:- 1. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN CONSIDERING THE INTEREST ON THE BORROWINGS OF RS. 57,49,383/- INSTEAD OF RS. 66.28 CRORE FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE U/S. 14A READ WITH RULE 8D(2)(II). 2. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN DETERMINATION OF DISALLOWANCE U/S. 14A READ WITH RULE 8D(2)(II) AT RS. 4,45,773/- AS AGAINST AMOUNT OF RS. 85,55,889/- DETERMINED BY THE AO WITHOUT MAKING ANY CORRELATION / NEXUS BETWEEN THE INVESTMENT AND SOURCES OF FUND. 3. WHETHER ON FACTS AND IN CIRCUMSTANCES OF THE CASE THE CIT(A) HAS ERRED BY NOT APPRECIATING THE FACT THAT IT HAS BEEN PROVIDED U/S. 14A(2) THAT IF THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE 3 CLAIM OF THE ASSESSEE THEN DISALLOWANCE HAS TO BE COMPUTED UNDER RULE 8D. 4. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, CHANGE, VARY, SUBSTITUTE OR RAISE ANY ADDITIONAL GROUND OF APPEAL IF IT BECOMES NECESSARY TO DO SO IN THE INTEREST OF JUSTICE AT THE TIME OF HEARING. 3. THE GROUNDS RAISED IN THE ASSESSEES CROSS OBJEC TION READ AS UNDER:- 1. THAT ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN CONFIRMING DISALLOWANCE TO THE EXTENT OF RS. 4,45,773/- UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX ACT, 1961. 2. THAT THE LD. CIT(A) HAS FAILED TO CORRECTLY APPRECIATE THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961. 4. FACTS NARRATED BY THE REVENUE AUTHORITIES ARE NOT D ISPUTED BY BOTH THE PARTIES, HENCE, THE SAME ARE NOT REPEATED HERE FOR THE SAKE OF BREVITY. 5. AT THE TIME OF HEARING, LD. DR RELIED UPON THE OR DER OF THE AO AND REITERATED THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL. 4 6. ON THE CONTRARY, LD. COUNSEL OF THE ASSESSEE HAS STATED THAT THE ISSUES INVOLVED IN THE REVENUES APPEAL AS WEL L AS ASSESSEES CROSS OBJECTION ARE SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF THE ITAT, B BENCH, NEW DELHI IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2011-12 PASSED IN ITA NO. 969/DEL/2016 (AY 2011-12) IN THE CASE ACIT VS. M/S DLF INFO CITY DEVELOPERS (KOLKATA) LIMITED AND C ROSS OBJECTION NO. 167/DEL/2016 (AY 2011-12) VIDE ORDER DATED 07.12 .2017. FOR THE SAKE OF CONVENIENCE, HE FILED THE COPY OF THE SAI D DECISION BEFORE US AND REQUESTED TO RESPECTFULLY FOLLOW THE S AME DECISION AND DISMISS THE APPEAL OF THE REVENUE AND ALLOW THE C ROSS OBJECTION OF THE ASSESSEE. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELE VANT RECORDS, ESPECIALLY THE IMPUGNED ORDER AS WELL AS THE ORDER OF THE ITAT, B BENCH, NEW DELHI IN ASSESSEES OWN CASE F OR THE ASSESSMENT YEAR 2011-12 PASSED IN ITA NO. 969/DEL/20 16 (AY 2011-12) IN THE CASE ACIT VS. M/S DLF INFO CITY DEVEL OPERS (KOLKATA) LIMITED AND CROSS OBJECTION NO. 167/DEL/20 16 (AY 2011- 12) VIDE ORDER DATED 07.12.2017. WE FIND THAT TRIBUNA LS HAS DECIDED THE SIMILAR AND IDENTICAL ISSUES IN THE ASSE SSMENT YEAR 2011-12 VIDE ORDER DATED 07.12.2017, AS RAISED IN R EVENUES APPEAL AS WELL AS IN CROSS OBJECTION. THE RELEVANT FINDING OF THE 5 TRIBUNAL IN THE REVENUES APPEAL AND CROSS OBJECTION ARE REPRODUCED AS UNDER:- 6. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS RELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. UNDISPUTEDLY, THE ASSESSEE COMPANY HAS EARNED DIVIDEND INCOME TO THE TUNE OF RS.6,84,337/- WHICH HAVE BEEN DIRECTLY CREDITED IN THE BANK ACCOUNT OF THE ASSESSEE COMPANY. IT IS ALSO NOT IN DISPUTE THAT AO HAS NOT GIVEN ANY COMPUTATION OF INCOME TO ARRIVE AT THE DISALLOWANCE OF RS.43,67,640/-. 8. LD. DR FOR THE REVENUE CONTENDED INTER ALIA THAT THE AO, AFTER DULY RECORDING HIS DISSATISFACTION, WHICH IS APPARENT FROM ASSESSMENT ORDER ITSELF, WORKED OUT THE DISALLOWANCE UNDER RULE 8D AS PER ACCOUNTS RENDERED BY THE ASSESSEE COMPANY; THAT SECTION 114 OF THE EVIDENCE ACT, 1872 RAISES PRESUMPTION IN FAVOUR OF THE REVENUE THAT THERE 6 WAS NON-SATISFACTION OF THE AO AND RELIED UPON THE ORDER OF THE AO. 9. LD. AR FOR THE ASSESSEE COMPANY TO REPEL THE ARGUMENTS ADDRESSED BY THE LD. DR FOR THE REVENUE CONTENDED INTER ALIA THAT AO PROCEEDED TO INVOKE THE PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D WITHOUT RECORDING HIS SATISFACTION; THAT THE ASSESSEE COMPANY HAS NOT INCURRED ANY EXPENSES TO EARN THE DIVIDEND INCOME FROM INVESTMENT OF MUTUAL FUNDS; THAT THE ASSESSEE COMPANY HAS SUBSTANTIAL SURPLUS FUNDS; THAT ALL THE INVESTMENTS IN MUTUAL FUNDS OUT OF WHICH THE ASSESSEE COMPANY HAS EARNED EXEMPT INCOME ARE OLD INVESTMENT AND IN THE EARLIER YEARS, NO DISALLOWANCE WAS MADE; THAT LD. CIT (A) HAS ERRONEOUSLY SUSTAINED THE ADDITION OF RS.68,433/- BY RESTRICTING THE SAME TO 10% OF THE EXEMPT INCOME ON AD HOC BASIS WITHOUT ANY BASIS. 10. FIRST OF ALL, THE LD. AR FOR THE ASSESSEE COMPANY TO SUBSTANTIATE HIS CONTENTION THAT THE ASSESSEE COMPANY HAS SUBSTANTIAL RESERVE AND SURPLUS FUND AS ON 31.03.2011 DREW OUR ATTENTION 7 TOWARDS BALANCE SHEET WHEREIN RESERVE AND SURPLUS FUNDS AND SHAREHOLDERS FUNDS / SHARE CAPITAL ARE SHOWN AT RS.61,46,85,927/- AND RS.25,00,000/- RESPECTIVELY AS AGAINST INVESTMENT OF RS.14,99,25,994/- MADE ON MARCH 31, 2010. AS PER BALANCE SHEET AVAILABLE ON RECORD, NO INVESTMENT HAS BEEN MADE AS ON MARCH 31, 2011 MEANING THEREBY, THE ENTIRE INVESTMENT ON WHICH THE ASSESSEE COMPANY HAS EARNED DIVIDEND WAS OF EARLIER YEAR. 11. WHEN THE ASSESSEE COMPANY WAS HAVING SUBSTANTIAL RESERVES AND SURPLUS FUND AND SHAREHOLDERS FUNDS / SHARE CAPITAL TO THE TUNE OF RS.61,46,85,927/- AND RS.25,00,000/- RESPECTIVELY, THOUGH PAID INTEREST PAYMENT ON SOME BORROWED FUNDS DURING THE YEAR UNDER ASSESSMENT, THE DISALLOWANCE CANNOT BE MADE U/S 14A READ WITH RULE 8D. MORE PARTICULARLY WHEN NO INVESTMENT HAS BEEN MADE BY THE ASSESSEE DURING THE YEAR UNDER ASSESSMENT. SO, IN THESE CIRCUMSTANCES, THE PRESUMPTION HAS TO BE RAISED IN FAVOUR OF THE ASSESSEE THAT INVESTMENTS, IF MADE, WERE MADE OUT 8 OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE COMPANY. 12. HONBLE HIGH COURT OF BOMBAY IN CASE CITED AS CIT-2, MUMBAI VS. HDFC BANK LTD. (2014) 49 TAXMANN.COM 335 (BOMBAY) WHILE DEALING WITH THE IDENTICAL ISSUE HELD THAT WHEN THE ASSESSEES OWN FUNDS AND OTHER NON-INTEREST BEARING FUNDS WERE MORE THAN INVESTMENT IN TAX FREE SECURITIES, NO DISALLOWANCE ON ACCOUNT OF INTEREST PAYMENT UNDER SECTION 14A CAN BE MADE. 13. FURTHERMORE, THE AO HAS NOT RECORDED HIS DISSATISFACTION AS TO THE COMPUTATION MADE BY THE ASSESSEE COMPANY THAT NO EXPENDITURE HAS BEEN MADE BY THE ASSESSEE COMPANY DURING THE YEAR UNDER ASSESSMENT TO EARN THE INTEREST FREE INCOME RATHER PROCEEDED MECHANICALLY BY EXTRACTING THE BARE LANGUAGE OF RULE 8D. 14. HONBLE APEX COURT IN GODREJ & BOYCE MANUFACTURE COMPANY LTD. VS. DCIT 394 ITR 449 (SC) THRASHED THE ISSUE IN CONTROVERSY AS TO 9 INVOKING OF THE PROVISIONS CONTAINED UNDER RULE 8D OF THE RULES BY OBSERVING AS UNDER :- 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUATION A DIFFERENT VIEW COULD HAVE BEEN TAKEN FOR THE ASSESSMENT YEAR 2002-2003. SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESCRIBE A FORMULA FOR DETERMINATION OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WHERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREAFTER THAT THE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A 10 BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOULD BECOME APPLICABLE. 15. HONBLE DELHI HIGH COURT IN HT MEDIA LIMITED VS. PR. CIT IN ITA NO.548/2015 DATED 23.08.2017 DECIDED THE ISSUE IN CONTROVERSY IN FAVOUR OF THE ASSESSEE BY RETURNING THE FOLLOWING FINDINGS :- 39. TURNING NOW TO THE ORDER OF THE ITAT IN PARA 33, IT RECORDED THE SUBMISSION OF THE AR THAT THE AO DID 1)0T RECORD ANY SATISFACTION ABOUT THE ASSESSEE NOT PROPERLY OFFERING EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME AT RS.3 LAKHS. THE ITAT REPRODUCED THE CONTENTS OF PARA 3.3.1 OF THE ASSESSMENT ORDER, WHICH HAS BEEN EXTRACTED BY THIS COURT HEREINBEFORE, WHICH CONTAINS GENERAL OBSERVATIONS REGARDING EARNING OF EXEMPT INCOME. THIS CANNOT BE ACCEPTED AS A RECORDING BY THE AO OF SATISFACTION REGARDING THE CLAIM OF THE ASSESSEE AFTER EXAMINING ITS ACCOUNTS. AGAIN, IN PARA 34 OF ITS ORDER, THE ITAT SIMPLY REPRODUCED PARA 3.3.6 OF THE ASSESSMENT ORDER WHERE, AGAIN, NO REASONS 11 HAVE BEEN PROVIDED BUT ONLY A CONCLUSION HAS BEEN REACHED THAT THE AO WAS 'SATISFIED THAT THE ASSESSEE HAD INCURRED EXPENSES TO MANAGE ITS INVESTMENTS WHICH MAY YIELD EXEMPT INCOME, AND ASSESSEE GROSSLY FAILED TO CALCULATE SUCH EXPENSES IN A REASONABLE MANNER TO ASCERTAIN THE TRUE AND CORRECT PICTURE OF ITS INCOME AND EXPENSES.' 40. CONSEQUENTLY ON THE ASPECT OF ADMINISTRATIVE EXPENSES BEING DISALLOWED, SINCE THERE WAS A FAILURE BY THE AO TO COMPLY WITH THE MANDATORY REQUIREMENT OF SECTION 14 A (2) OF THE ACT READ WITH RULE 8D (1) (A) OF THE RULES AND RECORD HIS SATISFACTION AS REQUIRED THEREUNDER, THE QUESTION OF APPLYING RULE 8D (2) (III) OF THE RULES DID NOT ARIS E. THE QUESTION FRAMED IN ITA 549 OF 2015 IS ANSWERED ACCORDINGLY. 16. FOLLOWING THE DECISION RENDERED BY HONBLE APEX COURT IN GODREJ & BOYCE MANUFACTURE COMPANY LTD. (SUPRA) AND HONBLE DELHI HIGH COURT 12 IN HT MEDIA LTD. (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE FINDINGS RETURNED BY AO THAT, THE CLAIM OF THE ASSESSEE THAT THE AMOUNT INVESTED IN MUTUAL FUNDS WAS ONLY OUT OF ITS OWN FUNDS AND NO PART OF IT WAS INVESTED OUT OF BORROWED FUNDS CANNOT BE ACCEPTED, AS ENTIRE MONEY OF A COMPANY IS PART OF A COMMON KITTY, AS WAS HELD BY JURISDICTIONAL HIGH COURT IN CIT VS. ABHISHEK INDUSTRIES [2006] 156 TAXMAN 257. ARE NOT SUSTAINABLE BECAUSE THE ASSESSEE COMPANY HAS COME UP WITH CATEGORIC PLEA THAT IT HAS NOT INCURRE D ANY EXPENSES TO EARN THE MUTUAL FUNDS AND THAT THE ASSESSEE HAS SUBSTANTIAL POOL OF SHARE CAPITAL, RESERVES AND SURPLUS AND NO AMOUNT OUT OF INTEREST BEARING FUNDS HAVE BEEN INVESTED TO EARN THE EXEMPT INCOME. 17. THE AO HAS NOT POINTED OUT ANY DEFECT IN THE COMPUTATION MADE BY THE ASSESSEE COMPANY AND AS SUCH, PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D ARE NOT ATTRACTED. BECAUSE SUB-SECTION (2) & (3) OF SECTION 14A WITH RULE 8D OF THE RULES HAS ONLY PRESCRIBED A FORMULA FOR DETERMINATION OF AN 13 EXPENDITURE TO EARN THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, WHICH CAN ONLY BE INVOKED IF THE AO IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. 18. FURTHERMORE, CIT (A) ERRED IN SUSTAINING THE DISALLOWANCE OF RS.68,433/- BY RESTRICTING THE SAME TO 10% OF THE EXEMPT INCOME EVEN DESPITE AGREEING WITH THE ASSESSEE COMPANY THAT NO SATISFACTION HAS BEEN RECORDED BY THE AO THAT NIL EXPENSES HAS BEEN INCURRED TO EARN TAX FREE DIVIDEND INCOME RATHER PROCEEDED TO SUSTAIN THE ADDITION OF RS.68,433/- ON THE BASIS OF SURMISES AND GUESSWORK WHICH IS NOT SUSTAINABLE. IN THE GIVEN CIRCUMSTANCES, THE CONTENTIONS RAISED BY LD. DR ARE NOT SUSTAINABLE. 19. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, APPEAL FILED BY THE REVENUE CHALLENGING TO RESTRICT THE DISALLOWANCE U/S 14A READ WITH RULE 8D FROM RS.43,67,640/- TO RS.68,433/- IS DISMISSED BEING WITHOUT MERIT. HOWEVER, CROSS OBJECTIONS FILED BY 14 THE ASSESSEE ARE HEREBY ALLOWED AND ADDITION OF RS.68,433/- IS HEREBY ORDERED TO BE DELETED. 8. AFTER PERUSING THE AFORESAID FINDINGS OF THE TRIB UNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2011-12, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUES INVOLVED IN REVENUE S APPEAL AS WELL AS ISSUE INVOLVED IN ASSESSEES CROSS OBJECTIO N ARE SQUARELY COVERED IN FAVOUR OF THE AASSESSEE AND AGAINST THE RE VENUE, THEREFORE, RESPECTFULLY FOLLOWING THE AFORESAID PRECED ENT, WE DISMISS THE APPEAL OF THE REVENUE AND ALLOW CROSS OBJECTION O F THE ASSESSEE. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND CROSS OBJECTION FILED BY THE ASSESSEE STAND ALLOWE D. ORDER PRONOUNCED ON 24/01/2018. SD/- SD/- (PRASHANT MAHARISHI) (H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE:24/01/2018 'SRBHATNAGAR' COPY FORWARDED TO:- 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES