DCIT, New Delhi V. M/s Pranidhi Holdings Pvt. Ltd., New Delhi

ITA 2965/DEL/2013

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7396 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 15-10-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 13-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K C SINGHAL
• Assessee Lawyers: SHAMEER SHARMA
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : F NEW DELHI BEFORE SHRI H.S. SIDHU, J .M. AND SHRI J.SUDHAKAR REDDY, A.M. ITA NO.2965/DEL/2013 ASSESSMENT YEAR : 2008-09 DCIT VS. PRANIDHI HOLDING PVT. LTD. CIRCLE 14(1), L-7, GREEN PARK EXTENSION, NEW DELHI. NEW DELHI 110 016. (PAN AACCP7899K) (APPELLANT) (RESPONDENT) CO NO. 199/DEL/20 13 (IN ITA NO. 2965/DEL/ 2013) ASSESSMENT YEAR 2008-0 9 PRANIDHI HOLDING PVT. LTD. VS. DCIT (NOW KNOWN AS PLUS CORPORATE CIRCLE 14 (1), VENTURES PVT. LTD.) L-7, GREEN PARK EXTENSION NEW D ELHI NEW DELHI 110 016 PAN AACCP7899K (APPELLANT) (RESPONDENT) ASSESSEE BY :- SHRI SHAMEER SHARMA, SR. DR DEPARTMENT BY:- SH. K.C. SINGHAL, ADVOCATE O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGA INST THE ORDER OF LD.CIT(APPEALS) NEW DELHI DT. 28.2.2013 FOR THE ASS ESSMENT YEAR 2008-09 ON THE FOLLOWING GROUND :- 1. LD. CIT(A) HAS ERRED IN LAW AND ON THE FACTS IN MA KING THE DISALLOWANCE U/S 14A AT RS. 708632/- INSTEAD OF AT RS. 6801620/-. 2. BRIEF FACTS :- THE ASSESSEE COMPANY IS IN THE BUSINESS OF TRAD ING IN SHARES AND SECURITIES AND RETURN OF INCOME FOR THE ASSTT. YEAR 2008-09 WAS ITA NO. 2965/DEL/2013 DCIT VS. M/S. PRANIDHI HOLDING PVT. LTD CO NO. 199/DEL/2013 PRANIDHI HOLDING PVT. LTD. VS. DCIT PAGE 2 OF 8 E-FILED ON 30.9.2008 DECLARING A TOTAL INCOME RS. 7 ,85,690/-. THE ASSESSMENT U/S 143(3) WAS COMPLETED ON 14.12.2010 A FTER DISALLOWING RS. 68,01,620/- AS PER RULE 8D READ WITH SECTION 14A OF THE I.T. ACT 1961. THE AO HAD DISALLOWED RS. 71,17,332/- UNDER RULE 8D(2)( II) AND RS. 3,11,544/- UNDER RULE 8D(2)(III), BUT THE DISALLOWANCE WAS RES TRICTED TO RS. 68,01,620/- AS THE ASSESSEE HAD ALREADY DISALLOWED RS. 6,27,256 /- IN THE RETURN OF INCOME. RELEVANT PORTION OF ASSESSMENT ORDER IS AS UNDER :- EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCL UDIBLE IN THE TOTAL INCOME : THE ASSESSEE COMPANY, DURING THE YEAR, HAS CLAIMED EXEMPTION OF DIVIDEND AMOUNTING TO RS. 5,84,821/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASSESS EE COMPANY WAS ASKED TO FURNISH DETAILS OF ANY TAX-FRE E INCOME EARNED AND ANY EXPENDITURE INCURRED IN RELATION TO SUCH INCOME HAS BEEN CLAIMED AS DEDUCTION. IN COMPLIANCE, ASSES SEE VIDE ITS LETTER DATED 18.10.2010 HAS SUBMITTED ITS REPLY THA T : THE ASSESSEE HAD APPORTIONED A SUM OF RS. 60,000/ - (ON THE BEST ESTIMATION BASIS CORRESPONDING TO THE EARNING OF THE DIVIDEND AMOUNTING TO RS. 5,84,821/-, HOWEVER, THE FIGURE OF RS. 6,27,256/- WAS INADVERTENTLY SHOWN DISALLOWED WHILE WORKING COMPUTATION OF THE TAXABLE INCOME OF THE ASSESSEE C OMPANY. THE REPLY FILED BY THE AR OF THE ASSESSEE COMPANY H AS BEEN CONSIDERED. AS NO WORKING OF DISALLOWANCE WAS DONE IN THE COMPUTATION OF INCOME AT THE TIME OF FILING RETURN OF THE ASSESSEE, I AM SATISFIED CONSIDERING THE FACTS OF T HE CASE THAT PROVISIONS OF RULE 8D ARE TO BE INVOKED TO QUANTITY THE DISALLOWANCE U/S 14A OF THE ACT. ACCORDINGLY, THE DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT IN A CCORDANCE WITH RULE 8 D OF THE IT RULES IS CALCULATED AS UNDE R :- (I) AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME NIL (II) A AMOUNT OF INTEREST BY WAY OF INTEREST OTHER THAT THE AMOUNT OF INTEREST INCLUDED IN (I) INCURRED DURING THE PREVIOUS YEAR 1,86,83,022 ITA NO. 2965/DEL/2013 DCIT VS. M/S. PRANIDHI HOLDING PVT. LTD CO NO. 199/DEL/2013 PRANIDHI HOLDING PVT. LTD. VS. DCIT PAGE 3 OF 8 B AVERAGE VALUE OF INVESTMENT - OPENING BALANCE OF INVESTMENTS - CLOSING BALANCE OF INVESTMENTS - AVERAGE VALUE OF ABOVE INVESTMENTS 6,30,14,338 6,16,03,462 6,23,08,900 C AVERAGE OF TOTAL ASSETS - OPENING BALANCE OF ASSETS - CLOSING BALANCE OF ASSETS - AVERAGE VALUE OF ABOVE ASSETS 12,76,43,809 19,94,78,360 16,35,61,084 A X B/C = 18683022 X 62308900 ------------- 163561084 71,17,332 (III) AVERAGE VALUE OF INVESTMENT - OPENING BALANCE OF INVESTMENTS - CLOSING BALANCE OF INVESTMENTS - AVERAGE VALUE OF ABOVE INVESTMENT -%OF AVERAGE VALUE OF INVESTMENT 6,30,14,338 6,16,03,462 6,23,08,900 3,11,544 3,11,544 DISALLOWANCE U/S 14A OF THE ACT I.E. AGGREGATE OF (I)(II) AND (III) 74,28,876 AS PER THE AFORESAID WORKING THE TOTAL DISALLOWAN CE U/S 14A IS WORKED OUT TO RS. 74,28,876/-. AS ASSESSEE HAD ITSE LF ADDED BACK AN AMOUNT OF RS. 6,27,256/- AS DISALLOWANCE U/ S 14A. HENCE, THE BALANCE AMOUNT OF RS. 68,01,620/- IS DIS ALLOWED U/S 14A OF THE I.T. ACT AND ADDED TO THE TOTAL TAXABLE INCOME. 3. LD . CIT (A) CONSIDERED A CHART GIVING THE COMPUTATION O F INTEREST EXPENSES AND EARNING OF DIVIDEND INCOME AND CAME TO THE CONCLUSION THAT THE INTEREST EXPENSES DIRECTLY ATTRIBUTABLE TO THE DIVIDEND INCOME EARNED AS RS.10,43,824/-. AS REGARDS DISALLOWANCE UNDER RULE 8D (2)(III) THE LD. CIT(A) RESTRICTED THE DISALLOWANCE MADE BY THE AO TO 0.5% OF THE AVERAGE INVESTMENT I.E RS. 2,92,064/-. 4. AGGRIEVED THE REVENUE IS IN APPEAL AND THE AS SESSEE FILED CROSS OBJECTIONS. 5. THE CROSS OBJECTIONS ON THE FOLLOWING GR OUNDS :- 1. THAT APPEAL OF THE REVENUE IS NOT MAINTAINABLE BEI NG CONTRARY TO THE STATUTORY PROVISIONS. ITA NO. 2965/DEL/2013 DCIT VS. M/S. PRANIDHI HOLDING PVT. LTD CO NO. 199/DEL/2013 PRANIDHI HOLDING PVT. LTD. VS. DCIT PAGE 4 OF 8 2. THAT NO DISALLOWANCE U/S 14A COULD BE LEGALLY MADE REGARDING EXPENDITURE INCURRED, IF ANY, IN RELATION TO SHARES ACQUIRED AS STOCK- IN-TRADE IN VIEW OF THE JUDICIAL OPINION. 3. THAT ACCRUAL OR RECEIPT OF INCOME, NOT FORMING PART OF TOTAL INCOME, IS THE CONDITION PRECEDENT FOR INVOKING THE PROVISIONS OF SECTION 14A.HENCE NO DISALLOWANCE COULD BE MADE BY AO IN RE SPECT OF SHARES NOT YIELDING DIVIDEND INCOME. 4. THAT RULE 8D CANNOT BE APPLIED WHERE EXEMPTED INCOM E U/S 10 IS NOT OUT OF INVESTMENT. 6. THE LD. DEPARTMENTAL REPRESENTATIVE SHRI SH AMEER SHARMA SUBMITTED THAT THE LD. CIT(A) HAS WRONGLY COMPUTED THE INTERE ST IN THIS CASE AS ONLY THE INTEREST FROM THE DATE OF PURCHASE TO THE DATE OF DIVIDEND WAS TAKEN AND NOT INTEREST EXPENSES FOR THE PERIOD FOR WHICH THE SHARES IN QUESTION ARE HELD. HE ARGUED THAT THE LAW MANDATES THAT THE ASSE SSEE SHOULD PROVE THAT THE EXPENSES IN QUESTION HAVE BEEN INCURRED FOR EAR NING TAXABLE INCOME AND ONLY IN SUCH CIRCUMSTANCES, THE SAME CAN BE EXCLUDE D WHILE COMPUTING DISALLOWANCE U/S 14A. ON RESTRICTING THE DISALLOWAN CE TO 0.5% OF AVERAGE INVESTMENT, HE SUBMITTED THAT THE COMMISSIONER WOUL D NOT EXCLUDE CERTAIN ITEMS. 7. LD. COUNSEL FOR THE ASSESSEE SHRI K.C. SINGHAL ON THE OTHER HAND SUBMITTED THAT SINCE THE ASSESSEE WAS TRADING IN SH ARES, THERE CANNOT BE DISALLOWANCE U/S 14A. IT POINTED OUT THAT THIS LEGA L ISSUE WAS ARGUED AT LENGTH BEFORE THE LD. CIT(A) AND WRITTEN SUBMISSION S WERE ALSO GIVEN, BUT LD. CIT(A) HAS NOT DEALT WITH THE ISSUE. HE ARGUED THAT A) EXPENDITURE INCURRED IN RELATION TO INCOME, WHI CH IS CHARGEABLE TO TAX CANNOT BE DISALLOWED U/S 14A ITA NO. 2965/DEL/2013 DCIT VS. M/S. PRANIDHI HOLDING PVT. LTD CO NO. 199/DEL/2013 PRANIDHI HOLDING PVT. LTD. VS. DCIT PAGE 5 OF 8 B) THERE SHOULD BE NEXUS BETWEEN INCURRING OF EXPE NDITURE AND THE EARNING OF DIVIDEND INCOME AND THAT THIS IS A PRECONDITION FOR INVOKING THE PROVISIONS OF SECTION 14A C) FOR ATTRACTING SECTION 14A THERE HAS TO BE PROXI MATE CAUSE OF DISALLOWANCE WHICH IS IN RELATION TO TAX EXEMPT INCOME (CIT VS. WALFORT SHARE AND STOCK BROKERS P. LTD. 326 ITR 1(SC) D) THE EXPRESSION IN RELATION TO MEANS DOMINATE AN D IMMEDIATE CONNECTION. E) EXPENDITURE WHICH RELATES TO EARNING OF DIVIDEND INCOME HAS TO BE SET OFF AGAINST SUCH INCOME AND ONLY THE NET AMOUNT OF DIVI DEND INCOME IS ALLOWED EXEMPTION. F) EXPENDITURE INCURRED FOR EARNING TAXABLE INCOME HAS TO BE SET OFF IN COMPUTING THE TAXABLE INCOME ONLY AND THEREFORE CAN NOT BE DISALLOWED MERELY BECAUSE SOME NEGLIGIBLE AMOUNT OF DIVIDEND W AS RECEIVED. ( CIT VS. EMRALD CO. LTD. 284 ITR 586 (BOM) . G) THERE IS A DISTINCTION BETWEEN THE CASES OF DEA LER IN SHARES AND CASE OF INVESTMENT AND WHERE THE ASSESSEE HAS NOT RETAINED SHARES WITH THE INTENTION OF EARNING DIVIDEND INCOME AND WHERE THE DIVIDEND INCOME IS INCIDENTAL TO HIS BUSINESS OF TRADING IN SHARES, IT CANNOT BE SAID THAT THE EXPENDITURE INCURRED IN ACQUIRING THE SHARES HAS TO BE APPORTIONED, TO THE EXTENT OF DIVIDEND INCOME AND THAT SHOULD BE DISALL OWED FROM DEDUCTION. THE RELIANCE IS PLACED ON THE DECISION OF CIT VS. SMT. LEENA RAMACHANDRAN 339 ITR 296 (KER) AND CCL LTD. VS. JCIT, UDUPI RANG E 250 CTR 291, INDIA ITA NO. 2965/DEL/2013 DCIT VS. M/S. PRANIDHI HOLDING PVT. LTD CO NO. 199/DEL/2013 PRANIDHI HOLDING PVT. LTD. VS. DCIT PAGE 6 OF 8 ADVANTAGE SECURITIES LTD. (ITA NO. 6711/MUM/2011 DA TED 14 TH SEPTEMBER, 2012. 8. ON THE ISSUE OF COMPUTATION OF INTEREST DISA LLOWANCE , THE LD. COUNSEL WAS FAIR ENOUGH TO STATE THAT HE HAS NO OBJECTION I F THE REVENUE WANTS TO VERIFY THE CALCULATION, BUT AT THE SAME TIME INSIST ED THAT NO PORTION OF THE EXPENDITURE COULD BE DISALLOWED, AS THE ASSESSEE IS A DEALER IN SHARES. 9. WE HAVE HEARD SHRI SHAMEER SHARMA, SR. DR ON BEHALF OF THE ASSESSEE AND SHRI K.C. SINGHAL, LD. COUNSEL ON BEHALF OF THE REVENUE. 10. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, A PERUSAL OF THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS CASE LAWS CITED WE HOLD AS FOLLOWS :- ASSESSEE IS IN THE BUSINESS OF REAL ESTATE A ND IS ALSO A DEALER IN SHARES AND SECURITIES. FROM THE PERUSAL OF THE ASSESSMENT ORDER, AS WELL AS THE ORDER OF THE LD. CIT(A) AND FROM THE PAPERS FURNISH ED BY THE ASSESSEE, IT IS NOT CLEAR AS TO WHETHER THE ASSESEE HOLDS ANY SHARE S AS INVESTMENT. IN CASE THE ASSESEE HAS NO INVESTMENTS, AND IS ONLY THE DEA LER IN SHARES, THEN THE PROPOSITION LAID DOWN BY THE HONBLE KERALA HIGH CO URT IN THE CASE OF CIT VS. SMT. LEENA RAMACHANDRAN (SUPRA) AND BY THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF CCL LTD. VS. JCIT (SUPRA) WOUL D APPLY AND NO DISALLOWANCE CAN BE MADE U/S 14A. BUT THIS CLAIM OF THE ASSESSEE HAS TO BE VERIFIED. 11. WE OBSERVED THAT THE ASSESSEE HAS MADE DETAIL ED SUBMISSIONS BEFORE THE FIRST APPELLATE AUTHORITY ON THIS ISSUE. IN FAC T WRITTEN SUBMISSIONS WERE ITA NO. 2965/DEL/2013 DCIT VS. M/S. PRANIDHI HOLDING PVT. LTD CO NO. 199/DEL/2013 PRANIDHI HOLDING PVT. LTD. VS. DCIT PAGE 7 OF 8 MADE ON19.2.2013. THE LD. CIT(A) HAS NOT DEALT WITH ANY OF THESE CONTENTIONS. AS THE LD. CIT(A) HAS NOT APPLIED HIS MIND TO THE CONTENTIONS OF THE ASSESSES AND AS HE HAS NOT DEALT WITH THE CASE LAWS CITED BEFORE HIM IN THE NORMAL COURSE THE MATTER SHOULD BE SENT BACK TO HIM FOR FRESH ADJUDICATION. BUT IN THIS CASE WE FIND ALL THE FACT S HAVE NOT BEEN PROPERLY BROUGHT ON RECORD. THE AO HAS TO VERIFY THE CLAIM O F THE ASSESSEE THAT THERE ARE NO INVESTMENTS AND THAT DIVIDENDS ON THE INVES TMENTS HAVE BEEN EARNED. 12. IN VIEW OF THE ABOVE, WE DEEM IT APPROPRIATE TO SET ASIDE THE ISSUE TO THE FILE OF THE AO FOR FRESH ADJUDICATION IN ACCOR DANCE WITH LAW. THE AO IS DIRECTED TO FOLLOW THE PROPOSITIONS LAID DOWN BY TH E HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. SMT. LEENA RAMACHAND RAN (SUPRA) AND IN THE CASE OF CCL LTD. VS. JCIT (SUPRA) AS THERE IS NO CONTRARY DECISION OF THE JURISDICTIONAL HIGH COURT. 13. IN THE RESULT CROSS OBJECTION OF THE ASSESSE E IS ALLOWED FOR STATISTICAL PURPOSES. 14. CONSEQUENTLY REVENUES APPEAL IS ALSO SET A SIDE TO THE FILE OF THE AO. HENCE THE REVENUE S APPEAL IS ALLOWED FOR STATISTI CAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH OCTOBER, 2014 SD/- SD/- (H.S. SIDHU) ( J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: OCTOBER, 2014 *VEENA COPY OF THE ORDER FORWARDED TO: ITA NO. 2965/DEL/2013 DCIT VS. M/S. PRANIDHI HOLDING PVT. LTD CO NO. 199/DEL/2013 PRANIDHI HOLDING PVT. LTD. VS. DCIT PAGE 8 OF 8 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR