DCIT, New Delhi V. M/s Cyber Media (India) Ltd., New Delhi

ITA 2396/DEL/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 69572 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 01-10-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 11-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KRISHNA CH
• Keywords: Depreciation; Earning of tax free income; Retrospective amendment; Wholly owned subsidiary
• Section: 14A

Judgement Text

TAX APPELLATE TRIBUNAL DELHI BENCH B : NEW DELHI BEFORE SHRI R. P. TOLANI , JUDICIAL MEMBER AND SHRI J SUDHAKAR REDDY , ACCOUNTANT MEMBER ITA NO. 2396 /DEL/ 2011 ASSESSMENT YEAR: 2007 - 08 DCIT CIRCLE - 3(1) NEW DELHI VS. CYBER MEDIA (INDIA) LTD. D - 74, P ANCHSHEEL ENCLAVE, NEW DELHI PAN AAACC1023E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI RA J AN BHATIA , ADVOCATE RESPONDENT BY : SHRI KRISHNA. CH, DR O R D E R PER J. SUDHAKAR REDDY , A CCOUNTA N T M EMBER THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD CIT(A), - VI , NEW DELHI DATED 01.03.2011 PERTAINING TO THE ASSESSMENT YEAR 2007 - 08 . 2. THE GROUND RAISED READ AS UNDER: 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETI NG ADDITION UP TO RS. 7,14,928/ - MADE ON ACCOUNT OF DISALLOWANCE OF EXPENSES ATTRIBUTABLE TO EXEMPT INCOME U/S 14A OF THE I.T. ACT READ WITH RULE 8D. LD. CIT(A) HAS FAILED TO TAKE COGNIZANCE OF SUB - SECTION (3) OF SECTION 14A WHICH SPECIFIED THAT EVEN IF TH E ASSESSEE MAKES A CLAIM THAT NO EXPENDITURE HAS BEEN INCURRED IN EARNING THE EXEMPTED INCOME, SUB - SECTION (2) OF SECTION 14A SHALL APPLY, MEANING THEREBY, DISALLOWANCE U/S 14A(1) IS CALLED FOR. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD CIT(A) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF RS. 37141/ - ON ACCOUNT OF DISALLOWANCE OF EXTRA DEPRECIATION ON COMPUTER PERIPHERALS/ ACCESSORIES IGNORING THAT AS PER THE IT RULES 60% PAGE NO. 2 ITA NO. 2396/DEL/2011 DEPRECIATION IS ALLOWABLE ONLY ON COMPUTER AND COMPUTER SOFTWARE A ND NOT ON COMPUTER PERIPHERALS AND ACCESSORIES. 3. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN DELETING ADDITION OF RS. 405205/ - MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST ATTRIBUTABLE TO INTEREST FREE LOAN GRANTED TO SISTER CONCERNS IGNORING THAT TH E ASSESSEE IS PAYING INTEREST @ 10.74% ON THE LOANS FROM THE BANK AND FORWARDING LOANS TO SISTER CONCERNS WITHOUT CHARGING ANY INTEREST. 3. APROPOS DELETION OF ADDITION OF RS. 7 , 14 , 928/ - MADE ON ACCOUNT OF DISALLOWANCE OF EXPENSES ATTRIBUTABLE TO EXEMPTE D INCOME U/S 14A OF THE IT ACT READ WITH RULE 8D. 3(A) . BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY WAS CARRYING ON BUSINESS IN M EDIA AND MEDIA SERVICES EITHER THROUGH ITSELF OR THROUGH SUBSIDIARIES, JOINT VENTURE AND ASSOCIA TES. THE ME DIA BUSINESS INCLUDED PUBLICATIONS SUCH AS DATAQUEST, VOICE & DATA, DQ CHANNELS, DQ WEEKS, PC QUEST, LIVING DIGITAL, CONDUCT OF BUSINESS CONVENTIONS, ONLINE PORTAL. THE MEDIA SERVICES BUSINESS INCLUDED MARKET RESEARCH, TRADING OF SOFTWARE TITLES, CONTENT B PO ETC. 3(B) . FOR THE RELEVANT ASSESSMENT YEAR THE ASSESSEE FURNISHED RETURN DECLARING TOTAL INCOME OF RS. 6,11,79,430/ - . THE ASSESSEE COMPANY HAD CLAIMED DIVIDEND INCOME OF RS. 15,00,000/ - . DURING THE ASSESSMENT PROCEEDING THE ASSESSING OFFICER RAISED QU ERIES WITH REGARD TO DISALLOWANCE UNDER SECTION 14A AS PER RULE 8D. THE ASSESSEE EXPLAINED THAT NO EXPENDITURE HAS BEEN INCURRED IN EARNING THE DIVIDEND INCOME RECEIVED FROM A WHOLLY OWNED SUBSIDIARY IN A SINGLE TRA NCHE. THE AFORESAID DIVIDEND HAD BEEN REC EIVE D ON INVESTMENT MADE BY THE ASSESSEE FROM ITS OWN FUNDS. THE SAID INVESTMENT IN IDC (INDIA) LIMITED AMOUNTS TO RS. 1,500,000/ - AND THEY HA VE RECEIVED A DIVIDEND OF RS. 4 9 , 50,000/ - OVER A PERIOD OF VARIOUS PREVIOUS YEARS FROM IDC (INDIA) LTD. THE ASSESS ING OFFICER INVOKED THE PROVISION OF SECTION 14A AND APPLIED RULE 8D, AND RELIED ON THE JUDGMENT OF SPECIAL BENCH OF ITAT AND HELD THAT A DISALLOWANCE U/S 14A COMES TO RS. 7,14,928/ - AS EXPENSE IN EARNING DIVIDEND INCOME OF RS. 15,00,000/ - AND THUS THE ASS ESSING OFFICER PAGE NO. 3 ITA NO. 2396/DEL/2011 DISALLOWED A SUM OF RS. 7,14,928 AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL THE LD. CIT(A) DELETED THE SAID ADDITION RELYING ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN ITO VS DAGA CAPITAL MANAGEMENT (P) LTD. (2009 ) 3 ITR (AT) 1 MUMBAI (SB). 3(C) . AT THE OUTSET LD. COUNSEL REPRESENTING THE ASSESSEE SUBMITS THAT THE HONBLE BOMBAY HIGH COURT HAS OPINED THAT RULE 8D IS NOT RETROSPECTIVE. HE, IN THIS REGARD, REFERRED TO THE DECISION OF BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. PVT. LTD. AS REPORTED IN 43 DTR 177 (BOM.) AND THE SAME VIEW HAS BEEN TAKEN RECENTLY BY THE HONBLE JURISDICTIONAL HIGH COURT (DELHI) WHICH IS REPORTED IN (2012) 347 ITR 272 (DELHI) . 3(D) . ON THE OTHER HAND, LD. DR RELIED UPON THE O RDER OF THE ASSESSING OFFICER AND CITED JUDGMENT OF HONBLE ITAT, SPECIAL BENCH MUMBAI IN THE CASE OF ITO VS. DAGA CAPITAL MANAGEMENT (P) LTD. IN ITA NO. 8057/MUMBAI/2003 DATED 20.10.2008. 3(E) . WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSION IN THE LIGH T OF THE MATERIAL P L A CED BEFORE US. THE HONBLE BOMBAY HIGH COURT IN GODREJ & BOYCE (2010) 328 ITR 81 (BOM) HAS HELD THAT RULE 8D WHICH WAS NOTIFIED ONLY ON MARCH 24, 2008 WOULD APPLY ONLY FROM ASSESSMENT YEAR 2008 - 09 AND THAT IT CANNOT HAVE RETROSPECTIVE EFFECT, SO THAT THE DECISION OF THE TRIBUNAL IN ITO VS. DAGA CAPITAL MANAGEMENT (P) LTD. (2009) 3 ITR ( AT) 1 MUMBAI (SB) STANDS IMPLIEDLY DISAPPROVED. THEREFORE THE ASSESSING OFFICER, ERRED IN APPLYING THE LAW AS DECIDED BY SPECIAL BENCH OF ITAT (MUMBAI), WHEN THE MUMBAI HIGH COURT HAS HELD THAT RULE 8 WILL BE PROSPECTIVE IN ITS OPERATION AND WILL BE APPLICABLE ONLY FOR ASSESSMENT YEAR 2008 - 09. WE FIND NO INFIRMITY IN THE DECISION OF THE LD CIT(A) WHO HAVE RELIED ON THE DECISION OF THE BOMBAY HIGH COURT . WE HAVE TAKEN NOTICE OF THE FACT THAT AFTER THE LD CIT(A) HAS PASSED THIS IMPUGNED ORDER ON 01 ST MARCH, 2011 . THE HONBLE DELHI HIGH COURT DEALT WITH THE SAME ISSUE AND VIDE JUDGMENT DATED 18 TH NOVEMBER, 2011, IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT 2 012 347 ITR 272 (DELHI) WHEREIN IT HAS PAGE NO. 4 ITA NO. 2396/DEL/2011 REITERATED THAT RULE 8D IS NOT RETROSPECTIVE AND WOULD BE WORKABLE ONLY WITH EFFECT FROM THE DATE OF INTRODUCTION OF RULE 8D I.E. ON MARCH 24, 2008. THE HONBLE DELHI HIGH COURT IN THE SAID JUDGMENT HAS TAKEN INTO CON SIDERATION THE HONBLE BOMBAY HIGH COURTS DECISION IN GODREJ (SUPRA) . THEREFORE, WE FIND NO INFIRMITY IN THE IMPUGNED ORDER OF LD CIT(A) IN THIS RESPECT. HOWEVER WE WOULD LIKE TO MODIFY THE ORDER OF THE LD CIT(A) AND DIRECT THE A.O. TO APPLY THE LAW AS LA ID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD (SUPRA). THE HONBLE HIGH COURT OF DELHI IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT (SUPRA) HELD AS FOLLOWS: PARA 42. HOW IS SECTION 14A TO BE WORKED FOR THE PERIOD PRIOR TO T HE INTRODUCTION OF RULE8D? SUB - SECTION (2) OF SECTION 14A, AS WE HAVE SEEN, STIPULATES THAT THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME 'IN ACCORDANCE WITH S UCH METHOD AS MAY BE PRESCRIBED'. OF COURSE, THIS DETERMINATION CAN ONLY BE UNDERTAKEN IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE. THIS PART OF SECTION 14A(2) WHICH EXPLICITLY REQUIRES THE FULFILLMENT OF A CONDITION PRECEDENT IS ALSO IMPLICIT IN SECTION 14A(1) (AS IT NOW STANDS) AS ALSO IN ITS INITIAL AVATAR AS SECTION 14A. IT IS ONLY THE PRESCRIPTION WITH REGARD TO THE METHOD OF DETERMINING SUCH EXPENDITURE WHICH IS NEW AND WH ICH WILL OPERATE PROSPECTIVELY. IN OTHER WORDS, SECTION 14A, EVEN PRIOR TO THE INTRODUCTION OF SUB - SECTIONS (2) AND (3) WOULD REQUIRE THE ASSESSING OFFICER TO FIRST REJECT THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXTENT OF SUCH EXPENDITURE AND SUCH REJ ECTION MUST BE FOR DISCLOSED COGENT REASONS. IT IS THEN THAT THE QUESTION OF DETERMINATION OF SUCH EXPENDITURE BY THE ASSESSING OFFICER WOULD ARISE. THE REQUIREMENT OF ADOPTING A SPECIFIC METHOD OF DETERMINING SUCH EXPENDITURE HAS BEEN INTRODUCED BY VIRTUE OF SUB - SECTION (2) OF SECTION 14A. PRIOR TO THAT, THE ASSESSEE WAS FREE TO ADOPT ANY REASONABLE AND ACCEPTABLE METHOD. PARA 43. THUS, THE FACT THAT WE HAVE HELD THAT SUB - SECTIONS (2) AND (3) OF SECTION 14A AND RULE 8D WOULD OPERATE PROSPECTIVELY (AND , NOT RETROSPECTIVELY) DOES NOT MEAN THAT THE ASSESSING OFFICER IS NOT TO SATISFY HIMSELF WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE WITH REGARD TO SUCH EXPENDITURE. IF HE IS SATISFIED THAT THE ASSESSEE HAS CORRECTLY REFLECTED THE AMOUNT OF SUCH EXP ENDITURE, HE HAS TO DO NOTHING FURTHER. ON THE OTHER HAND, IF HE IS SATISFIED ON AN OBJECTIVE PAGE NO. 5 ITA NO. 2396/DEL/2011 ANALYSIS AND FOR COGENT REASONS THAT THE AMOUNT OF SUCH EXPENDITURE AS CLAIMED BY THE ASSESSEE IS NOT CORRECT, HE IS REQUIRED TO DETERMINE THE AMOUNT OF SUCH EXPE NDITURE ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. IT WOULD BE APPROPRIATE TO RECALL THE WORDS OF THE SUPREME COURT IN WALFORT [2010] 326 ITR1 (S C)TO THE FOLLOWING EFFECT (PAGE 17 ) : 'THE THEORY OF APPORTIONMENT OF EXPENDITURE BE TWEEN TAXABLE AND NON - TAXABLE HAS, IN PRINCIPLE, BEEN NOW WIDENED UNDER SECTION 14A.' SO, EVEN FOR THE PRE - RULE 8D PERIOD, WHENEVER THE ISSUE OF SECTION 14A ARISES BEFORE AN ASSESSING OFFICER, HE HAS, FIRST OF ALL, TO ASCERTAIN THE CORRECTNESS OF THE CLA IM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE ASSESSING OFFICER WILL HAVE TO VERIFY THE CORRECTNESS OF SUCH CLAIM. IN CASE, THE ASSESSING OFFICER IS SATISFIED WITH THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, THE ASSESSING OF FICER IS TO ACCEPT THE CLAIM OF THE ASSESSEE IN SO FAR AS THE QUANTUM OF DISALLOWANCE UNDER SECTION 14A IS CONCERNED. IN SUCH EVENTUALITY, THE ASSESSING OFFICER CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE FOR THE PURPOSES OF SECTION 14A (1). IN CASE, THE ASSESSING OFFICER IS NOT, ON THE BASIS OF THE OBJECTIVE CRITERIA AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO. HAVING DONE SO, THE ASSESSING OFFICER WILL HAVE TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. HE IS REQUIRED TO DO SO ON THE BASIS OF A REASONABLE AND AC CEPTABLE METHOD OF APPORTIONMENT. 3(F) IN THE RESULT THIS GROUND OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES AND THE MATTER IS REMANDED TO THE AO. THE AO SHALL FOLLOW THE STEP S OUTLINED IN PARA 42 & 43 BY HONBLE HIGH COURT OF DELHI IN THE CASE O F MAXOOP INVESTMENT LTD. 4. APROPOS DELETION OF ADDITION OF RS. 37141/ - ON COMPUTER PERIPHERALS/ACCESSORIES. 4(A) BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY MADE ADDITION TO FIXED ASSETS UNDER THE HEAD COMPUTER AND CLAIMED DEPRECIA TION @ 60%. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD PAGE NO. 6 ITA NO. 2396/DEL/2011 MADE PURCHASES OF COMPUTER ACCESSORIES AND PERIPHERAL AMOUNTING TO RS.90,817/ - . THE ASSESSING OFFICER WAS OF THE VIEW THAT ONLY COMPUTER AND COMPUTER SOFTWARE ARE ELIGIBLE FOR DEPRECIATION O F 60% AND THE SAME CANNOT BE EXTENDED TO COMPUTER ACCESSORIES AND PERIPHERALS. ASSESSING OFFICER THEREFORE, RESTRICTED THE DEPRECIATION @ 15% ON SUCH ITEMS AND THUS MAD E A DISALLOWANCE OF DEPRECIATION CLAIM OF RS. 37,141/ - . ON APPEAL BY THE ASSESSE E , THE L D CIT(A) DIRECTED ALLOWANCE OF DEPRECIATION @ 60 % . ASSAILING THE SAID DECISION THE REVENUE HAS THIS ISSUE. 4(B) ACCORDING TO THE DR, THOUGH T HE ASSESSEE CLAIMED DEPRECIATION ON PRINTERS AND SCANNER @ 60% I.E., THE RATE APPLICABL E TO THE COMPUTERS, THE ASSES SING OFFICER RIGHTLY DECIDED THAT THE DEPRECIATION APPLICABLE TO COMPUTERS COULD NOT BE ALLOWED O N THE PRINTERS AND SCANNERS. T HEREFORE, THE AO, RESTRICTED THE DEPRECIATION ON THE PRINTERS AND SCANNERS TO 15% AND HAS MADE THE DISALLOWANCE . ON THE OTHER H AND THE THE AR SUPPORTED THE DECISION OF THE LD CIT(A) WHO HAS ALLOWED THE SAID CLAIM OF THE ASSESSEE FOLLOWING THE DECISION OF CALCUTTA BENCH AND DELHI BENCHES IN THE FOLLOWING CASES: - I) ITO VS. SAMIRAN MAJUMDAR (2006) 98 ITD 119 (KOL) II) EXPEDITORS INTER NATIONAL (INDIA) (P) LTD. (2008) 118 TTJ 652 (DEL) III) CONTAINER CORPORATION OF INDIA VS. ACIT (2009) 30 SOT 284 (DEL) 4( C ) . WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE AND WE FIND THAT LD. CIT(A) HAS RIGHTLY ALLOWED THE DEPRECIATION CLAIMED BY THE AS SESSEE @ 60% AS THE SAME IS IN ACCORDANCE WITH THE AFOREMENTIONED DECISIONS OF THE TRIBUNAL. FOR THE SAKE OF CONVENIENCE THE OBSERVATIONS OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF CONTAINER CORPORATIONS OF INDIA VS. ACIT (SUPRA) ARE REPRODUCE D BELOW: - 40. THE ACCESSORIES AND PERIPHERALS OF COMPUTERS PROVIDE INPUT PROCESSING, STORAGE AND VARIOUS OUTPUT DEVICES. THE OUTPUT DEVICES SUCH AS PRINTER, SCANNER, ETC. ARE COMPUTER PERIPHERALS AND FORM ESSENTIAL PARTS OF PC. THESE OUTPUT DEVICES CANNOT WORK IN ISOLATION AND ALSO WORKING ON COMPUTER SYSTEM WITHOUT AN OUTPUT DEVICE SUCH AS PRINTER WOULD BE FUTILE. IN VIEW OF THE ABOVE, THE CLAIM OF PAGE NO. 7 ITA NO. 2396/DEL/2011 DEPRECIATION AT 60% ON PRINTER, SCANNER AND OTHER COMPUTER PERIPHERALS IS COMPLETELY JUSTIFIED. THE CLAIM OF DEPRECIATION OF 60 % FURTHER GETS JUSTIFIED IN VIEW OF THE FACT THAT EVEN COMPUTER SOFTWARE WHICH IS INSTALLED ON COMPUTER SYSTEM SUPPORTS THE COMPUTER HARDWARE AND IS ELIGIBLE FOR DEPRECIATION AT 60% PER CENT. 4( D ) . IN THIS VIEW OF THE SITUATION, WE FIN D NO MERIT IN THE APPEAL FILED BY THE DEPARTMENT ON THIS GROUND AND THEREFORE CONFIRM THE ORDER PASSED BY THE LD CIT(A) ON THIS ISSUE . THIS GROUND OF THE REVENUE IS DISMISSED. 5. APROPOS DELETION OF ADDITION OF RS.4,05,205/ - ON INTEREST FREE LOAN GIVEN TO SISTER CONCERN S . 5(A) BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY GRANTED LOAN TO ITS SISTER CONCERN COMPANY NAMELY M/S. CYBER MEDIA FOUNDATION LTD. AND M/S. CYBER MEDIA DICE CAREERS LTD. ON WHICH NO INTEREST WAS CHARGED. DURING THE A SSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY INTEREST TO THE EXTENT OF FUNDS UTILIZED FOR GRANTING INTEREST FREE LOANS TO SISTER CONCERNS SHOULD NOT BE DISALLOWED. AFTER CONSIDERING THE ASSESSEES SUBMISSION THE ASSESSING OFFICER DISA LLOWED INTEREST @ 15 % AT RS. 4,05,202/ - . HOWEVER ON APPEAL, THE LD CIT(A) WAS PLEASED TO ORDER DELETION OF THE SAID ADDITION OF RS. 4,05,202/ - 5 (B) THE LD DR SUBMITTED THAT THE ASSESSE E HAD GRANTED INTEREST FREE LOANS FROM CASH CREDIT ACCOUNT AND THE ASSE SSE HAD PAID INTEREST @ 10.74% TO THE BANK AND OTHER BANK CHARGES TOO. ON THE OTHER HAND THE LD AR SUBMITTED THAT THE AO HAS MISERABLY FAILED TO ESTABLISH ANY NEXUS BETWEEN THE BORROWED FUNDS AND INTEREST FREE LOAN GIVEN BY THE ASSESSEE TO THE SISTER CONCE RNS AND IT HAD BEEN FULLY ESTABLISHED THAT THE ASSESSEE HAD SUFFICIENT FUNDS AND PROFITS AND LOAN HAS BEEN GIVEN OUT OF THE OWN FUNDS AND NOT INTEREST BEARING FUNDS AND THAT FACT HAS BEEN CONFIRMED BY THE LD CIT(A) BASED ON PRECEDENTS SET BY THE HON'BLE BO MBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. [2009] 178 TAXMAN 135 . 5( C ) . WE HAVE DULY CONSIDERED THE RIVAL CONTENTION AND GONE THROUGH THE RECORD CAREFULLY THE ORDER OF LD CIT(A) . WE FIND THAT LD FIRST APPELLATE PAGE NO. 8 ITA NO. 2396/DEL/2011 AUTHORITY HAS MAD E LUCID ENUNCIATION OF LAW AND FACTS ON THIS ISSUE. THE FINDINGS OF LD CIT(A) IS WORTH TO NOTE: 6. 2 DURING THE PROCEEDINGS BEFORE ME, IT WAS SUBMITTED THAT ASSESSING OFFICER HAS FAILED TO ESTABLISH ANY NEXUS BETWEEN THE BORROWED FUNDS AND INTEREST FREE LO AN GIVEN BY THE ASSESSEE. IN FACT, THE ASSESSEE ON THE OTHER HAND HAD FULLY ESTABLISHED THAT THE ASSESSEE HAD SUFFICIENT FUNDS AND PROFITS AND LOAN HAS BEEN GIVEN OUT OF OWN FUNDS AND NOT INTEREST BEARING FUNDS. THE ASSESSEE'S FINANCIAL POSITION WITH RESPE CT TO OWN FUNDS AS PER AUDITED ACCOUNTS IS AS UNDER. OC PARTICULARS AS ON 31.03.07 (RS.) AS ON 31.03.06 (RS.) SHARE CAPITAL 10,00,12,420 10,00,12,420 RESERVES & SURPLUS 27,24,04,258 24,37,12,203 SUB - TOTAL 37,24,16,678 34,37,24,623 LESS: MI SCELLANEOUS EXPENDITURE 4,15,60,174 5,25,96,861 TOTAL OWN FUNDS 33,08,56,504 29,11,27,762 I PROFIT AFTER TAX 4,29,79,585 5,06,68,520 INTEREST FREE LOANS TO CMFL & CMDCL 80,08,000 17,00,000 OWN FUNDS - AVERAGE 31,09,92,133 LOAN TO CMFL - AVERAGE PRODUCT 26,16,986 LOAN TO CMDCL - AVERAGE PRODUCT 84,384 HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. [2009] 178 TAXMAN 135 A CASE DEALING WITH THE INTERPRETATION OF SECTION 36(1 )(III) REGARDING DEDUC TION OF INTEREST HAS HELD THAT IN CASE OF A MIXED FUND, IF THE ASSESSEE IS IN POSSESSION OF SUFFICIENT INTEREST FREE FUNDS, THEN, THE PRESUMPTION WOULD BE THAT INVESTMENTS YIELDING NO RETURN WOULD BE OUT OF INTEREST FREE FUNDS. FROM THE ABOVE STATEMENT IT IS EVIDENT THAT INTEREST FREE LOAN TO CYBER MEDIA FOUNDATION LIMITED AND CYBER MEDIA DICE CAREER LIMITED IS MERELY 2.43% OF THE OWN FUNDS HELD BY THE ASSESSEE AS ON 31.03.07 WHICH IS QUITE INSIGNIFICANT. EVEN INTEREST FREE LOANS OF RS. 80.08 LACS ARE MUCH LESS THAN THE PROFIT AFTER TAX OF RS. 4.23 CRORES EARNED DURING THE YEAR BY THE ASSESSEE. MOREOVER PROFIT AFTER TAX AS AT BEGINNING OF THE YEAR STANDS AT RS. 5.07 CRORES MUCH HIGHER THAN THE INTEREST FREE LOAN GIVEN TO THE SAID CONCERNS. THE ASSESSING OFFI CER HAD NOT BEEN ABLE TO CONTROVERT OR DISPROVE THE FACTS THAT THE ASSESSEE HAD SUBSTANTIAL CAPITAL AND INTEREST FREE FUNDS AVAILABLE WITH IT, NOT ONLY IN THE PRECEDING YEARS BUT ALSO IN THE Y E AR UNDER CONSIDERATION: WHICH FAR EXCEEDED THE INTEREST FREE AD VANCES TO THE SAID CONCERNS. THE PAGE NO. 9 ITA NO. 2396/DEL/2011 ASSESSING OFFICERS CONTENTION THAT THE ASSESSEE COMPANY IS CHARGING HIGHER INTEREST @ 15% FROM OTHER SISTER CONCERNS BECAUSE OF BANK CHARGES IS ALSO INCORRECT AND IS DENIED. RELIANCE WAS PLACED ON THE CASE OF EAST INDIA PH ARMACEUTICALS WORKS LIMITED VS. COMMISSIONER OF INCOME - TAX 224 ITR 627. 5(C) THE LD DR COULD NOT DISPUTE THE FACTS AND FIGURES REPRODUCED ABOVE BY THE CIT(A) IN HIS IMPUGNED ORDER IN RESPECT TO THE ASSESSEES SHARE CAPITAL, RESERVE AND SURPLUS WHICH AMOU NTS TO MORE THAN 33 CRORES AND PROFIT AFTER TAX IS RS. 4.23 CRORES EARNED DURING THE YEAR AND RS. 5.07 CRORES AT THE BEGINNING OF THE YEAR. THERE IS NO DISPUTE THAT ONLY RS. 80.08 LACS WAS GIVEN AS INTEREST FREE LOAN TO CMFL & CMDCI WHICH IS ONLY 2.43 % OF THE ASSESSEE OWN FUND HELD AS ON 31.03.2007. THEREFORE IT IS CR Y STAL CLEAR THAT ASSESSEE POSSESSES SUFFICIENT INTEREST - FREE FUNDS DURING THE RELEVANT P.Y. THIS FACT IS ESTABLISHED . NOW HAVING RECORDED A CLEAR FINDING THAT THE ASSESSEE POSSESSED SUFFICIENT INTEREST - FREE FUNDS OF ITS OWN WHICH WERE GENERATED IN THE COURSE OF THE RELEVANT YEAR APART FROM SUBSTANTIAL SHARE HOLDERS FUND , RELYING ON THE HONBLE BOMBAY HIGH COURT DECISION PRESUMPTION STANDS ESTABLISHED THAT THE INVESTMENT IN SISTER CONCERNS WERE MADE BY THE ASSESSEE OUT OF INTEREST - FREE FUNDS AND THEREFORE NO PART OF INTEREST ON BORROWING CAN BE DISALLOWED ON THE BASIS THAT INVESTMENTS WERE MADE OUT OF INTEREST BEARING FUNDS. THEREFORE THERE IS NO INFIRMITY IN THE ORDER OF THE LD CIT(A ) REGARDING THIS ISSUE ALSO AND WE UPHOLD THE ORDER OF LD CIT(A) AND THEREFORE THIS GROUND OF THE REVENUE ALSO FAILS. 6. IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE IMPUGNED ORDER PASSED BY THE LD CIT(A) . THE SAME IS HEREBY SUSTAINED. 7. IN THE RESULT, THE APPEAL FILED BY THE APPELLANT - REVENUE IS HEREBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 .11 .2013. PAGE NO. 10 ITA NO. 2396/DEL/2011 SD/ - SD/ - ( R. P. TOLANI) ( J SUDHAKAR REDDY ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED 29 / 11 /2013 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI