Harig India Pvt. Ltd, New Delhi V. DCIT, New Delhi

ITA 2768/DEL/2010

• Counselvise Citation: 276820114 RSA 2010
• Duration Of Justice: 1 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 25-10-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 04-06-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Assessee Lawyers: M K GIRI
• Keywords: Opportunity of being heard
• Section: 14A; 80G

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH `C : NEW DELHI) BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER ITA NOS. 2768 & 2769/DEL./2010 (ASSESSMENT YEARS : 2004-05 & 05-06) HARING INDIA PVT. LTD., VS. DCIT, CIRCLE 12(1), 22, VASANT MARG, NEW DELHI. VASANT VIHAR, NEW DELHI-110057. (PAN/GIR NO.AAACH0756M) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.K. GIRI, ADV. REVENUE BY : SHRI SALIL MISHRA, DR ORDER PER C.L. SETHI: JM THESE TWO APPEALS, FILED BY THE ASSESSEE, ARE DIRECTED AGAINST TWO SEPARATE ORDERS DATED 26.3.10 AND 11.3.10, PASSED BY THE CIT(A) FOR THE ASSESSMENT YEARS 2004-05 & 05- 06, RESPECTIVELY. 2. IN THE ASSESSMENT YEAR 2004-05, THE GROUNDS OF A PPEAL RAISED BY THE ASSESSEE REVOLVE AROUND THE FOLLOWING ISSUES: 1. DISALLOWANCE OF RS.9,21,720/- OUT OF TOTAL INTE REST PAYMENT OF RS.1,04,79,143/-. 2. DISALLOWANCE OF RS.31,84,033/- OUT OF THE TOTAL SUM OF RS.1,04,79,143/- ON ACCOUNT OF INTEREST PAID BY THE ASSESSEE, BY INVOKI NG PROVISIONS OF SECTION 14A OF THE I.T. ACT, 1961. 3. DISALLOWANCE OF RS.1,55,189/- ON ACCOUNT OF PRIO R PERIOD EXPENSES. 4. ADDITION OF RS.20,714/- ON ACCOUNT OF DONATION P AID BY THE ASSESSEE. 2. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. I.T.A. NO.2768 & 2769/DEL./2010 (A.Y. : 2004-05 & 05-06) 2 3. THE ASSESSING OFFICER DISALLOWED THE INTEREST EX PENDITURE AMOUNTING TO RS.9,21,720/- ON PROPORTIONATE BASIS FOR THE REASON THAT THE ASSESSEE HAD GIVEN INTEREST FREE ADVANCE TO ITS SISTER CONCERN THOUGH, ON THE O THER HAND, THE ASSESSEE COMPANY HAD RAISED BORROWED FUNDS AND PAID INTEREST THEREUPON. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ADVANCE TO ITS SISTER CONCERN WAS FOR NON-BUSINESS PURPOSES. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSE E HAD NOT GIVEN SEGREGATION OF THE FUNDS UTILIZED BY IT. THEREFORE, THE ASSESSING OFF ICER WORKED OUT THE INTEREST COST OF THE ADVANCES GIVEN TO THE SISTER CONCERN ON PROPORTIONA TE BASIS. 4. ON AN APPEAL, THE CIT(A) OBSERVED THAT HE HAD GI VEN SEVERAL OPPORTUNITIES TO THE ASSESSEE AND LASTLY ON 12.3.10, THE ASSESSEES AR H AD APPEARED AND PLEADED THAT SIMILAR ADDITION MADE DURING EARLIER TWO YEARS HAS BEEN DEL ETED IN ASSESSEES CASE. HOWEVER, THE CIT(A) DID NOT ACCEPT THIS CONTENTION OF THE ASSESS EE AFTER OBSERVING THAT THERE WAS NO FUND FLOW STATEMENT FURNISHED BY THE ASSESSEE TO SH OW AND ESTABLISH THAT THE ASSESSEE DID NOT INCUR ANY EXPENDITURE ON INTEREST IN RESPECT OF THE AMOUNT PAID TO ITS SISTER CONCERN WITHOUT CHARGING ANY INTEREST. THE CIT(A), THEREFO RE, CONFIRMED THE ASSESSING OFFICERS ORDER. 6. FROM THE ORDER OF THE AUTHORITIES BELOW, IT IS S EEN BY US THAT THE DETAILS OF THE FUND FROM WHICH THE ASSESSEE PAID THE AMOUNT TO ITS SIST ER CONCERN HAS NOT BEEN EXAMINED BY ANY AUTHORITY FOR THE REASON THAT THE ASSESSEE FAIL ED TO FURNISH THE FUND FLOW STATEMENT BEFORE THEM. IN THE COURSE OF THE HEARING, LD.COUN SEL FOR THE ASSESSEE CONTENDED THAT SINCE IDENTICAL ADDITIONS DISALLOWED IN EARLIER YEA RS WERE DELETED ON SAME SET OF FACTS, NO DISALLOWANCE OF INTEREST WAS CALLED FOR, AND THE DE TAILS OF FUND FLOW STATEMENT WERE NOT FURNISHED BEFORE THE ASSESSING OFFICER SINCE THERE WAS NO DISCUSSION IN THAT REGARD IN THE COURSE OF ASSESSMENT PROCEEDINGS. LD.COUNSEL FOR T HE ASSESSEE FURTHER CONTENDED THAT IN CASE THE MATTER IS RESTORED BACK TO THE ASSESSING O FFICER, THE ASSESSEE UNDERTAKES THE RESPONSIBILITY TO SUBMIT FULL DETAILS TO SHOW THE N EXUS OF THE BORROWED FUND VIS--VIS THE AMOUNT GIVEN TO THE SISTER CONCERN. IN THIS CASE, IT IS FOUND BY US THAT IN ORDER TO DECIDE AS TO WHETHER ANY DISALLOWANCE OF INTEREST IS CALLE D FOR. WE HAVE TO FIRST SEE AS TO WHETHER THE BORROWED MONEY HAS BEEN UTILIZED FOR TH E PURPOSE OF GIVING INTEREST FREE ADVANCES TO SISTER CONCERN. THESE DETAILS ARE NOT READILY AVAILABLE, WE FIND THAT THE MATTER CAN ONLY BE DECIDED IN ITS RIGHT AND CORRECT PERSPE CTIVE IF THE DETAILS OF THE FUND IS I.T.A. NO.2768 & 2769/DEL./2010 (A.Y. : 2004-05 & 05-06) 3 EXAMINED AND VERIFIED. WE, THEREFORE, FIND IT PROP ER TO RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR HIS FRESH ADJUDICATION AFTER EXAMINING THE BOOKS OF ACCOUNT, BANK STATEMENT AND OTHER DETAILS FOR THE PURPOSE OF ASCERTAINING AS TO WHETHER BORROWED FUNDS HAVE BEEN UTILIZED BY THE ASSESSEE FOR THE PU RPOSE OF GIVING ADVANCES TO SISTER CONCERN WITHOUT ANY INTEREST. THE ASSESSEE SHALL B E UNDER OBLIGATION TO FURNISH FULL DETAILS ABOUT THE UTILIZATION OF FUNDS BORROWED ON INTEREST, IN ABSENCE OF WHICH THE ASSESSING OFFICER SHALL BE AT LIBERTY TO DRAW ADVER SE INFERENCE AND DECIDE THE ISSUE AS PER LAW. NEEDLESS TO MENTION THAT ASSESSING OFFICER SH ALL PROVIDED REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE ORDER ACCORDINGLY. 6. THE NEXT ISSUE IS WITH REGARD TO THE DISALLOWANC E OF RS.31,84,033/- OUT OF INTEREST PAYMENT U/S 14A OF THE ACT. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS CLAIMED DIVIDEND INCOME OF RS.14,500/- AS EXEMPT U/ S 10(34) OF THE ACT. IT WAS OBSERVED BY THE ASSESSING OFFICER THAT EXPENSES INCURRED BY THE ASSESSEE IN RELATION TO THE DIVIDEND INCOME ARE NOT ALLOWABLE AS DEDUCTION AS PER PROVIS IONS OF SECTION 14A OF THE ACT. THE ASSESSING OFFICER, THEREFORE, WORKED OUT THE PROPOR TIONATE EXPENSES OF RS.31,84,033/- RELATABLE TO EARNING OF DIVIDEND INCOME IN THE PROP ORTION OF TOTAL INTEREST PAID TO THE TOTAL INVESTMENT MADE BY THE ASSESSEE. 7. ON AN APPEAL, THE CIT(A) CONFIRMED THE ASSESSING OFFICERS ACTION BY APPLYING THE DECISION OF ITAT, SPECIAL BENCH, MUMBAI IN THE CASE OF DAGA CAPITAL MANAGEMENT, 113 ITD 169. 8. HENCE, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS EARNED DIVIDEND INCO ME OF RS.14,500/- ONLY. THERE IS NO FINDING BASED ON EXAMINATION OF UTILIZATION OF FUND THAT THE BORROWED FUND WAS UTILIZED FOR THE PURPOSE OF MAKING INVESTMENT IN SHARES. FU RTHER, THE CIT(A) HAS APPLIED THE DECISION OF ITAT, SPECIAL BENCH, MUMBAI, WHICH HAS SINCE BEEN REVERSED BY THE HONBLE MUMBAI HIGH COURT IN THE CASE OF GODREJ BOYACE MANU FACTURING CO. LTD. VS. DCIT, 234 CTR 01, WHERE IT HAS BEEN HELD THAT RULE 8D IS PROS PECTIVE IN NATURE AND IS APPLICABLE ONLY FROM THE ASSESSMENT YEAR 2008-09. IN THIS CAS E, THE ASSESSING OFFICER HAS NOT EXAMINED ABOUT THE ACTUAL EXPENSES INCURRED BY THE ASSESSEE FOR EARNING THE DIVIDEND I.T.A. NO.2768 & 2769/DEL./2010 (A.Y. : 2004-05 & 05-06) 4 INCOME. WE, THEREFORE, RESTORE THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR HIS FRESH ADJUDICATION AFTER ASCERTAINING THE EXPENDITU RE ACTUALLY INCURRED BY THE ASSESSEE FOR EARNING DIVIDEND INCOME FOR THE PURPOSE OF DISALLOW ANCE U/S 14A OF THE ACT. THE ASSESSING OFFICER SHALL PROVIDE REASONABLE OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. THE ASSESSEE SHALL BE AT LIBERTY TO FURNISH ANY SUC H OTHER DETAIL BEFORE THE ASSESSING OFFICER IN SUPPORT OF ITS CLAIM, AND MAY RAISE SUCH CONTENTIONS AS ASSESSEE THINK FIT AND PROPER. WE ORDER ACCORDINGLY. 10. THE NEXT GROUND IS WITH REGARD TO THE DISALLOWA NCE OF RS.1,55,189/- ON ACCOUNT OF PRIOR PERIOD EXPENSES WHICH HAS BEEN DISALLOWED BY THE ASSESSING OFFICER BY OBSERVING THAT SINCE THE ASSESSEE HAS BEEN FOLLOWING MERCANTI LE SYSTEM OF ACCOUNTING, EXPENSES PERTAINING TO EARLIER YEAR CANNOT BE ALLOWED. 11. THE CIT(A) CONFIRMED THE ADDITION FOR THE SIMIL AR REASON. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE ASSESSEE SUBMITTED BEFORE THE AUTHORITIES BELOW THAT THE EXPENSES COVERED BY VARIOUS BILLS WERE ACTUALLY CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION IN AS MUCH AS THE BILLS WERE RECEIVED BY THE ASSESSEE COMPANY IN THE YEAR U NDER CONSIDERATION. HOWEVER, NO DETAILS HAVE BEEN FURNISHED BEFORE US BY THE ASSESS EE, AND FURTHER THIS ASPECT OF THE MATTER WAS NOT EXAMINED BY EITHER THE ASSESSING OFFICER O R CIT(A). WE, THEREFORE, RESTORE THIS MATTER BACK TO THE FILE OF THE ASSESSING OFFICER F OR HIS FRESH ADJUDICATION AFTER ASCERTAINING AS TO WHETHER THE LIABILITY TO PAY THE SE EXPENSES WERE CRYSTALLIZED IN THE YEAR UNDER CONSIDERATION AFTER RECEIVING THE BILL FROM R ESPECTIVE PARTIES. THE ASSESSEE SHALL SUBMIT ALL THE DETAILS BEFORE THE ASSESSING OFFICER REGARDING THE CORRESPONDING BILLS IN RESPECT OF WHICH EXPENSES OF RS.1,55,189/- HAVE BE EN CLAIMED AS DEDUCTION. THE ASSESSING OFFICER SHALL PROVIDE REASONABLE OPPORTUN ITY OF BEING HEARD TO THE ASSESSEE. 13. THE LAST GROUND IN THE THIS APPEAL IS IN REGARD TO DISALLOWANCE OF RS.20,714/- ON ACCOUNT OF DONATION MADE BY THE ASSESSEE. 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IT IS NOT IN DISPUTE THAT SUM OF RS.20,714/- WERE INCURRED ON AC COUNT OF DONATION. THE NATURE OF THE DONATION HAS NOT BEEN EXPLAINED BY THE ASSESSEE AND WHETHER IT IS COVERED BY SECTION 80G OF THE ACT IS ALSO NOT KNOWN. IT IS WELL SETTLED T HAT EXPENSES INCURRED BY WAY DONATION ARE I.T.A. NO.2768 & 2769/DEL./2010 (A.Y. : 2004-05 & 05-06) 5 NOT DEDUCTIBLE FROM BUSINESS PROFIT. WE, THEREFORE , SUSTAIN THE DISALLOWANCE OF RS.20,714/- AS CONFIRMED BY THE CIT(A). 15. NOW, WE SHALL COME TO THE APPEAL FILED FOR THE ASSESSMENT YEAR 205-06, WHERE THE FOLLOWING ISSUES HAVE BEEN RAISED: 1.DISALLOWANCE OF RS.1,01,332/- OUT OF INTEREST PA ID BY THE ASSESSEE COMPANY. 2. DISALLOWANCE OF RS.22,32,280/- OUT OF TOTAL INTE REST PAID BY PROVOKING OF SECTION 14A OF THE ACT. 16. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY G ONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THESE AFORESAID TWO ISSUES ARE IDENTICAL TO THE SAME ISSUES RAISED IN ASSESSMENT YEAR 2004-05. VIDE THIS COMMON ORDER, T HESE ISSUESS IN THE ASSESSMENT YEAR 2004-05 HAVE BEEN RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER FOR HIS FRESH ADJUDICATION IN THE LIGHT OF OUR OBSERVATION MADE T HEREIN. ACCORDINGLY, THESE ISSUES IN THE ASSESSMENT YEAR 2005-06 ARE ALSO RESTORED BACK TO T HE FILE OF THE ASSESSING OFFICER FOR HIS FRESH ADJUDICATION IN THE LIGHT OF OUR ORDER PASSED FOR THE ASSESSMENT YEAR 2004-05. 17. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2004-05 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND THAT OF ASSESSM ENT YEAR 2005-06 IS ALLOWED FOR STATISTICAL PURPOSE. THIS DECISION WAS PRONOUNCED IMMEDIATELY AFTER HEA RING THE APPEAL ON 25 TH OCTOBER, 2011. SD/- SD/- (K.G. BANSAL) (C.L. SETHI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, OCT. 25, 2011. SKB COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XII, NEW DELHI 5.CIT(ITAT), NEW DELHI. AR/ITAT I.T.A. NO.2768 & 2769/DEL./2010 (A.Y. : 2004-05 & 05-06) 6