M/s Minda Investments Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 2536/DEL/2011

• Counselvise Citation: 253620114 RSA 2011
• Duration Of Justice: 7 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 23-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 16-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S MOHANTHY
• Keywords: Rule 8D; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E NEW DELHI) BEFORE SHRI RAJPAL YADAV AND SHRI B.C. MEENA ITA NO. 2536/DEL/2011 ASSESSMENT YEAR: 2007-08 MINDA INVESTMENTS LTD., VS. ADDITIONAL CIT, B-64/1, WAZIRPUR IND.AREA, RANGE-6, NEW DELHI. NEW DELHI. (PAN: AAACL1433F) (APPELLANT) (RESPONDENT) ITA NO. 2635/DEL/2011 ASSESSMENT YEAR: 2007-08 ADDITIONAL CIT, VS. MINDA INVESTMENTS LTD., RANGE-6, B-64/1, WAZIRPUR IND.AREA, NEW DELHI. NEW DELHI. (PAN: AAACL1433F) (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI PRADEEP DINODIA, CA RESPONDENT BY: SMT. S. MOHANTHY , SR.DR DATE OF HEARING : 23.12.2011 DATE OF PRONOUNCEMENT : 13.01.2012 ORDER PER RAJPAL YADAV: JUDICIAL MEMBER THE ASSESSEE AND REVENUE ARE IN CROSS APPEALS AGAI NST THE ORDER OF LEARNED CIT(APPEALS) DATED 28.1.2011 PASSED FOR ASSESSMENT YEAR 2007-08. FIRST, WE TAKE UP THE APPEAL OF THE ASSESSEE. THE SOLITARY GRIEVANCE OF THE ASSESSEE IS THAT LEARNED CIT(APPEALS) HAS ERRED IN CONFIRMING THE ADDITION O F RS.6,81,247. 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY AT THE RELEVANT TIME WAS ENGAGED IN LEASING FINANCE, TRADING IN TRADE SE CURITIES AND INVESTMENT IN SALES. IT HAS FILED ITS RETURN OF INCOME-TAX ON 30 TH OCTOBER, 2007 DECLARING AN INCOME OF RS.98,56,600. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT AND A NOTICE UNDER SEC. 143(2) OF THE INCOME-TAX ACT, 196 1 DATED 26.09.2008 WAS ISSUED AND SERVED UPON THE ASSESSEE. ON SCRUTINY OF THE AC COUNTS, IT REVEALED TO THE ASSESSING OFFICER THAT ASSESSEE IS A 50% SHAREHOLDE R IN A COMPANY, NAMELY, PT MINDA ASIAN AUTOMOTIVE LTD. INDONESIA. ACCORDING TO THE ASSESSEE, THIS COMPANY WAS FORMED ON 30 TH NOVEMBER 2001. THE JOINT VENTURE PARTNERS HAVE GIV EN TEMPORARY LOAN TO THE SAID COMPANY APART FROM THE C APITAL CONTRIBUTION. ASSESSING OFFICER WAS OF THE VIEW THAT ASSESSEE HAS PAID INTE REST @ 9% PER ANNUM ON THE LOAN TAKEN BY IT WHEREAS IT HAS CHARGED INTEREST @ 6.5% TO 7% FROM M/S. PT MINDA ASIAN AUTOMOTIVE LTD., INDONESIA. I.E. JOINT VENTUR E COMPANY. ASSESSING OFFICER FURTHER OBSERVED THAT BY CHARGING A LOWER RATE OF I NTEREST, ASSESSEE HAS EXTENDED BENEFIT TO THE JOINT VENTURE AND, THEREFORE, SECTIO N 40A(2)(A)(B) OF THE INCOME-TAX ACT, 1961 IS APPLICABLE. HE WORKED OUT THE DIFFEREN CE ON THE ALLEGED INTEREST RATE DIFFERENCE. THE AMOUNT HAS BEEN WORKED OUT AT RS.6, 81,247. ASSESSING OFFICER IN THIS WAY, MADE THE ADDITION OF THIS AMOUNT IN THE TOTAL INCOME OF THE ASSESSEE. 3. THE LEARNED COUNSEL FOR THE ASSESSEE WHILE IMPUG NING THE ORDERS OF THE LEARNED REVENUE AUTHORITIES BELOW, RAISED TWO FOLD SUBMISSIONS. IN HIS FIRST FOLD OF SUBMISSIONS, HE SUBMITTED THAT SECTION 40A(2)(A)(B) OF THE ACT IS NOT APPLICABLE IN 3 THE PRESENT CASE. HE POINTED OUT THIS SECTION IS AP PLICABLE ON THE EXPENSES INCURRED BY THE ASSESSEE BY MAKING PAYMENTS TO ANY PERSON CO VERED BY THIS SECTION WHICH IS IN EXCESS THEN THE ONE, SUCH FACILITY AVAILED FROM THE OPEN MARKET. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE, IN THE PRESENT CA SE, ASSESSEE IS NOT PAYING ANY INTEREST RATHER IT IS EARNING INTEREST INCOME. THER EFORE, ASSESSING OFFICER CANNOT COMPEL THE ASSESSEE TO EARN A HIGHER INTEREST INCOM E. IN HIS NEXT FOLD OF HIS SUBMISSIONS, HE POINTED OUT THAT LOAN WAS GIVEN TO A FOREIGN COMPANY. THE RATE OF INTEREST HAS TO BE SEEN ACCORDING TO THE RATES AVAI LABLE IN THE INTERNATIONAL MARKET. THE ASSESSEE WAS REQUIRED TO CHARGE LIBOR ON SUCH L OAN AND NO INTEREST. THE LIBOR IN THE INTERNATIONAL MARKET WAS BETWEEN 4% TO 5% AT TH AT POINT OF TIME. THE LOAN WAS GIVEN IN US $ AND THE AMOUNT WAS RECEIVED BACK IN T HE FOREIGN CURRENCY. THE RATES CHARGED BY THE ASSESSEE IN BETWEEN 6.5% TO 7% WAS M ORE THAN THE LIBOR RATES AVAILABLE IN THE INTERNATIONAL MARKET, THEREFORE, N O DISALLOWANCE COULD BE MADE OUT OF THE INTEREST EXPENSES ON SUCH LOANS WHICH WERE U SED BY THE ASSESSEE FOR MAKING ADVANCE TO THE JOINT VENTURE . HE ALSO SUBMITTED TH AT THE ASSESSEE HAD GAINED A PROFIT ON FOREIGN EXCHANGE FLUCTUATION. THIS AMOUNT RECEIV ED BY THE ASSESSEE ON FLUCTUATION GAIN IS RS.16 LACS. 4. IN HIS NEXT FOLD SUBMISSION, HE POINTED OUT THAT THE AMOUNT WAS GIVEN BY THE ASSESSEE FOR BUSINESS CONSIDERATION. THE ASSESSEE I S A 50% SHAREHOLDER OF THE JOINT VENTURE , THEREFORE, THE AMOUNT WAS GIVEN ON ACCOUN T OF BUSINESS EXIGENCIES AND NO DISALLOWANCE CAN BE MADE ON THE GROUND THAT LOWER RATES OF INTEREST WAS CHARGED. THE ASSESSEE COULD GIVE THE AMOUNT EVEN WITHOUT CHA RGING ANY INTEREST. HE MADE 4 REFERENCE TO THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS REPORTED IN 288 ITR 1. ON THE OTHER HAND, LEARNED D R RELIED UPON THE ORDER OF THE LEARNED CIT(APPEALS). 5. WE HAVE DULY CONSIDERED THE RIVAL CONTENTIONS AN D GONE THROUGH THE RECORD CAREFULLY. IN OUR OPINION, LEARNED FIRST APPELLATE AUTHORITY WAS NOT JUSTIFIED IN OBSERVING THAT LOAN WAS GIVEN BY THE ASSESSEE WITHO UT ANY BUSINESS EXIGENCIES. LEARNED CIT(APPEALS) HAS OBSERVED THAT EXPLANATION GIVEN BY THE ASSESSEE THAT IT WILL GET RETURN IN FUTURE IS NOT TENABLE. LEARNED F IRST APPELLATE AUTHORITY HAS NOT ASSIGNED ANY REASON WHY IT IS NOT TENABLE. THE ASSE SSEE IS A 50% SHAREHOLDER OF THE JOINT VENTURE EXPLORING THE BUSINESS POSSIBILITY A ND MADE THE INVESTMENT IN THE JOINT VENTURE . IN SUCH SITUATION, EVEN IF IT HAS CHARGED A LOWER RATE OF INTEREST, THE INTEREST EXPENSES CANNOT BE DISALLOWED IN VIEW OF THE DECISI ON OF HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS (SUPRA). APART FROM THE A BOVE, WE FIND THAT LOAN WAS GIVEN IN FOREIGN CURRENCY TO AN INDONESIAN COMPANY. ASSES SING OFFICER OUGHT TO HAVE COMPARED THE LIBOR RATES PREVALENT IN THE INTERNATI ONAL MARKET AT THAT POINT OF TIME. THE ASSESSEE HAS DEMONSTRATED THAT SUCH RATE WAS IN BETWEEN 4% TO 5%. IT HAS CHARGED THE RATE IN BETWEEN 6.5% TO 7%. THUS, IN SU CH SITUATION, EVEN ON THIS COUNT ALSO, NO DISALLOWANCE CAN BE MADE. TAKING INTO CON SIDERATION ALL THESE ASPECTS, WE ALLOW THE GROUND RAISED BY THE ASSESSEE AND DELETE THE DISALLOWANCE . 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. 5 7. IN THE REVENUE S APPEAL, THE SOLITARY ISSUE IS THAT LEARNED CIT(APPEALS) HAS ERRED IN RESTRICTING THE DISALLOWANCE UNDER SEC. 1 4A TO RS. 1 LAC AS AGAINST RS.36,61,921 MADE BY THE ASSESSING OFFICER. 8. WITH THE ASSISTANCE OF LEARNED REPRESENTATIVES, WE HAVE GONE THROUGH THE RECORDS CAREFULLY. IT EMERGES OUT FROM THE RECORD T HAT ASSESSING OFFICER MADE THE DISALLOWANCE FOR THE PURPOSE OF SEC. 14A WITH THE A ID OF RULE 8D OF THE INCOME-TAX RULES, 1962. LEARNED CIT(APPEALS) HAS OBSERVED THAT RULE 8D WILL NOT BE APPLICABLE IN THE PRESENT CASE IN VIEW OF THE DECISION OF HON' BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOYCE REPORTED IN 328 ITR 81 WHEREIN HON BLE HIGH COURT HAS HELD THAT RULE 8D HAS BEEN BROUGHT ON THE STATUTE BOOK W.E.F. 24.3.2008 AND IT WILL BE APPLICABLE FROM ASSESSMENT YEAR 2008-09. LEARNED CI T(APPEALS) HAS ACCEPTED THE CONTENTIONS OF THE ASSESSEE AND RESTRICT THE DISALL OWANCE AT RS.1 LAC, WHICH ACCORDING TO THE LEARNED CIT(APPEALS) IS A REASONABLE AMOUNT FOR EARNING TAX FREE DIVIDEND INCOME. 9. AT THE TIME OF HEARING, IT HAS BEEN CONCEDED BY THE PARTIES THAT DISALLOWANCE FOR THE PURPOSE OF SECTION 14A, IN THE ABSENCE OF R ULE 8D, HAS TO BE MADE AFTER TAKING INTO CONSIDERATION THE SURROUNDING CIRCUMSTA NCES AND THE DETAILS OF INVESTMENT ETC. THE LEARNED COUNSEL FOR THE ASSESSE E CONCEDED THAT HON'BLE DELHI HIGH COURT HAS ALSO REMITTED A LARGE NUMBER OF CASE S BACK TO THE FILE OF THE ASSESSING OFFICER FOR RECONSIDERATION. HE PLACED ON RECORD THE COPY OF THE JUDGMENT 6 RENDERED BY THE HONBLE HIGH COURT IN THE CASE OF M AXOPP. INVESTMENT LTD. & ORS. REPORTED IN 2011 TIOL 753-HC-DELHI. 10. ON DUE CONSIDERATION OF THE FACTS AND CIRCUMSTA NCES AND THE DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOY CE AS WELL AS THE DECISION OF DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT & ORS. (SUPRA). THE HONBLE COURT DELHI HIGH COURT HAS CONSIDERED THE ORDER OF SPECIAL BENCH OF THE ITAT IN THE CASE OF DAGGA CAPITAL REPORTED IN 312 ITR PAGE 1 (AT) AS WELL AS THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT, THE RULE 8D IS NOT AP PLICABLE IN THE PRESENT ASSESSMENT YEAR, THEREFORE, THE DISALLOWANCE HAS T O BE WORKED OUT AFTER TAKING INTO CONSIDERATION THE SURROUNDING CIRCUMSTANCES. FROM T HE ORDER OF LEARNED CIT(APPEALS), IT DOES NOT REVEAL THAT LEARNED CIT(A PPEALS) HAS CONSIDERED THE RELEVANT DETAILS BEFORE RESTRICTING THE DISALLOWANC E TO RS.1 LACS ON AN ESTIMATE BASIS. THEREFORE, WE ALLOW THE SOLITARY GROUND OF APPEAL R AISED BY THE REVENUE AND SET ASIDE THE ORDER OF THE LEARNED CIT(APPEALS). 11. THE ISSUE IS REMITTED TO THE FILE OF THE ASSESS ING OFFICER FOR READJUDICATION. IT IS NEEDLESS TO SAY THAT OUR OBSERVATIONS WILL NOT I MPAIR OR INJURE THE CASE OF THE ASSESSING OFFICER OR WILL NOT CAUSE ANY PREJUDICE T O THE DEFENCE/EXPLANATION OF THE ASSESSEE. LEARNED ASSESSING OFFICER SHALL DECIDE TH E ISSUE IN ACCORDANCE WITH LAW. THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTIC AL PURPOSES. 7 12. IN THE RESULT, ITA NO.2536/DEL/2011 IS ALLOWED AND THE ITA NO.2635/DE/2011 IS ALLOWED FOR STATISTICAL PURPOSES. DECISION PRONOUNCED IN THE OPEN COURT ON 13.01.2012 SD/- SD/- ( B.C. MEENA ) ( RAJPAL YADAV ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 13 /01/2012 MOHAN LAL COPY FORWARDED TO: 1) APPELLANT 2) RESPONDENT 3) CIT 4) CIT(APPEALS) 5) DR:ITAT ASSISTANT REGISTRAR