Mahagun India Pvt. Ltd., New Delhi V. ACIT, New Delhi

ITA 301/DEL/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2907 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-09-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2013-2014
• Appeal Filed On: 18-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Earning of tax free income; Rule 8D; Set aside
• Section: 201; 10

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E: NEW DELHI BEFORE SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER AND SHRI K.N.CHARY, JUDICIAL MEMBER ITA NO. 301/DEL/2017 (ASSESSMENT YEAR: 2013-14) MAHAGUN INDIA PVT. LTD, C/O. PRAKASH K. PRAKASH, B-1, SAGAR APARTMENTS, 6, TILAK MARG, NEW DELHI PAN: AAACM6572A VS. ACIT, CENTRAL CIRCLE-13, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SAUBHAGYA AGARWAL, ADV MS. SUMAN JAIN, CA REVENUE BY: MS. RINKU SINGH, SR. DR DATE OF HEARING 29/08 / 201 9 DATE OF PRONOUNCEMENT 0 3 / 09 / 2019 O R D E R PER PRASHANT MAHARISHI, A. M. 1. THIS APPEAL IS FILED BY INDIA MAHAGUN INDIA PRIVATE LIMITED (THE ASSESSEE ) AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) XX- VI, NEW DELHI [ THE LD CIT (A) ] DATED 27/10/2016 FOR ASSESSMENT YEAR 2013 14 WHEREIN THE ASSESSEE HAS CHALLENGED THE ADDITION CONFIRMED BY THE LEARNED CIT A WITH RESPECT TO DISALLOWANCE U/S 14 A READ WITH RULE 8D OF RS. 2852029/ AND AD HOC DISALLOWANCE AT THE RATE OF 10% OUT OF THE VEHICLE REPAIR AND MAINTENANCE EXPENDITURE OF RS. 400449/ AND CONSEQUENT DEPRECIATION ON THE CAR OF INR 293603/. 2. BRIEF FACTS OF THE CASE SHOWS THAT ASSESSEE IS A COMPANY WHO FILED ITS RETURN OF INCOME OF RS. 110636480/ . IT HAS EARNED DIVIDEND INCOME OF RS. 55564000/ WHICH IS SHOWN AS EXEMPT INCOME U/S 10 (38) OF THE INCOME TAX ACT. THE ASSESSMENT U/S 143 (3) OF THE ACT WAS PASSED ON 30/3/2016 BY THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 13, NEW DELHI (THE LEARNED AO) DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. MAHAGUN INDIA PVT. LTD VS. ACIT ITA NO. 301/DEL/2017 ASSESSMENT YEAR: 2013-14 PAGE | 2 114182561/. THE LEARNED ASSESSING OFFICER DISALLOWED A SUM OF RS. 2852029/ U/S 14 A OF THE ACT. HE FURTHER DISALLOWED INR 6 94052/ UNDER THE HEAD VEHICLE RUNNING AND MAINTENANCE EXPENSES INCLUDING CAR DEPRECIATION. 3. ASSESSEE AGGRIEVED WITH THE ORDER OF THE LEARNED ASSESSING OFFICER PREFERRED AN APPEAL BEFORE THE LEARNED CIT A , WHO CONFIRMED THE DISALLOWANCE OUT OF MOTOR CAR EXPENDITURE OF INR 400449/- . HE FURTHER CONFIRMED THE DISALLOWANCE U/S 14 A OF INR 1598395/. THEREFORE ASSESSEE IS AGGRIEVED WITH THAT ORDER HAS PREFERRED AN APPEAL BEFORE US. 4. WITH RESPECT TO THE 1 ST DISALLOWANCE U/S 14 A OF THE ACT, THE LEARNED AO NOTED THAT ASSESSEE HAS EARNED EXEMPT INCOME IN THE FORM OF DIVIDEND OF RS. 55564000/-. ASSESSEE WAS ASKED ON 20/11/2005 REGARDING DETAILS OF INTEREST AND OTHER EXPENSES RELATED TO EXEMPT INCOME U/S 14 A OF THE ACT. THE ASSESSEE SUBMITTED THAT IT HAS NOT INCURRED ANY EXPENDITURE ON EXEMPT INCOME THEREFORE NO DISALLOWANCE U/S 14 A IS CALLED FOR. HOWEVER THE LEARNED ASSESSING OFFICER REJECTED THE EXPLANATION OF THE ASSESSEE AS NOT SATISFACTORY. ACCORDING TO HIM THE BORROWED FUNDS HAVE BEEN UTILISED FOR MAKING INVESTMENT IN EQUITY SHARES AND MUTUAL FUNDS DURING THE YEAR AS IT IS A FACT ON RECORD THAT THE ASSESSEE COMPANY HAS INCURRED FINANCIAL CHARGES AND AVAILED BORROWED FUNDS. HE ALSO HELD THAT SOME EXPENSES MIGHT HAVE INCURRED BY THE ASSESSEE. ACCORDINGLY, HE WORKED OUT DISALLOWANCE UNDER RULE 8D OF THE INCOME TAX RULE AND DISALLOWED INTEREST EXPENDITURE OF RS. 2246245/. HE FURTHER CONSIDERED 0.5% OF THE AVERAGE VALUE OF THE INVESTMENT OF RS. 2852029/ AS THE INVESTMENT AS AT THE BEGINNING OF THE YEAR WAS RS 114992691/ AND AT THE END OF THE YEAR OF INR 1 22320663/. ACCORDINGLY, HE WORKED OUT THE DISALLOWANCE UNDER RULE 8D WITH RESPECT TO SECTION 14 A OF THE ACT OF RS. 2852029/. ON APPEAL BEFORE THE LEARNED CIT A, ASSESSEE CONTESTED THAT LEARNED ASSESSING OFFICER WHILE WORKING OUT THE DISALLOWANCE HAS ALSO CONSIDERED THE INVESTMENT IN EQUITY SHARES, SHARE APPLICATION MONEY AND INVESTMENT IN MUTUAL FUNDS. IT WAS FURTHER STATED THAT ASSESSEE HAS THE INTEREST-FREE FUND OF INR 104,21,22,967/ AND THEREFORE NO DISALLOWANCE IS MAHAGUN INDIA PVT. LTD VS. ACIT ITA NO. 301/DEL/2017 ASSESSMENT YEAR: 2013-14 PAGE | 3 CALLED FOR ON ACCOUNT OF INTEREST. ASSESSEE ALSO CONTESTED BEFORE THE LEARNED CIT A THAT FOR WORKING OUT THE DISALLOWANCE UNDER RULE 8D WITH RESPECT TO THE EXPENDITURE, IT SHOULD BE CONSIDERED ONLY WITH RESPECT TO THE INVESTMENT FROM WHICH THE EXEMPT INCOME DURING THE YEAR HAS BEEN EARNED. HOWEVER THE LEARNED CIT A REJECTED THE EXPLANATION OF THE ASSESSEE. HE RESTRICTED THE DISALLOWANCE TO INR 1 598395/ WHEREIN HE CONFIRMED THE DISALLOWANCE ON ACCOUNT OF THE INTEREST EXPENDITURE ON PROPORTIONATE BASIS OF RS. 1113411/ AND EXPENDITURE OF INR 4 84984/. THUS ASSESSEE IS AGGRIEVED WITH THE ABOVE CONFIRMATION OF THE DISALLOWANCE. IT PREFERRED THIS APPEAL. 5. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT ASSESSEE HAS HUGE NON- INTEREST-BEARING FUNDS AVAILABLE WITH IT AMOUNTING TO INR 104,21,22,967/ AND THEREFORE THERE IS NO DIVERSION OF THE INTEREST BEARING FUNDS FOR INVESTING FOR EARNING EXEMPT INCOME. HE FURTHER STATED THAT WITH RESPECT TO THE DISALLOWANCE THE ASSESSEE HAS ONLY RECEIVED DIVIDEND FROM MAHAGUN REAL ESTATE LTD WHERE THE INVESTMENT IS ONLY INR 800,000 AND THEREFORE EXPENDITURE SHOULD ALSO BE WORKED OUT AT THE RATE OF 0.5% ON THE ABOVE SUM. HE REFERRED TO JUDICIAL PRECEDENT OF HON DELHI HIGH COURT FOR SUPPORTING THIS CONTENTION. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE ABOVE DISALLOWANCE HAS BEEN CORRECTLY WORKED OUT BY THE LEARNED CIT A AND THEREFORE SAME SHOULD BE UPHELD. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTION AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. UNDOUBTEDLY THE ASSESSEE HAS EARNED ANY EXEMPT INCOME OF RS . 55564000/. CLAIM OF THE ASSESSEE IS THAT IT IS RECEIVED ON INVESTMENTS OF RS 8,00,000/- IN AN GROUP REAL ESTATE COMPANY. HOWEVER THE ASSESSEE HAS MADE TOTAL INVESTMENT AS PER BALANCE SHEET, AT THE BEGINNING OF THE YEAR OF RS 114992691/ AND AT THE CLOSE OF THE YEAR OF INR 127320663/. THEREFORE IT IS APPARENT THAT ASSESSEE HAS HUGE NON-INTEREST- BEARING FUNDS AVAILABLE WITH IT FOR THE PURPOSE OF MAKING AN INVESTMENT. MAHAGUN INDIA PVT. LTD VS. ACIT ITA NO. 301/DEL/2017 ASSESSMENT YEAR: 2013-14 PAGE | 4 THUS, WE DO NOT FIND ANY REASON TO UPHOLD THE DISALLOWANCE U/S 14 A OF THE INCOME TAX ACT ON ACCOUNT OF INTEREST. 8. FURTHER WITH RESPECT TO THE DISALLOWANCE OF EXPENDITURE AT THE RATE OF 0.5% ASSESSEE HAS RECEIVED DIVIDEND ONLY ON THE INVESTMENT OF INR 800,000 FROM THE COMPANY. THE HONBLE DELHI HIGH COURT IN ITA NUMBER 615/2014 IN CASE OF ACB INDIA LTD VS ASST COMMISSIONER OF INCOME TAX [ 374 ITR 108] FOR ASSESSMENT YEAR 2008 09 DATED 24/3/2015 HAS HELD THAT THE VALUE OF INVESTMENT FOR WORKING OUT AVERAGE VALUE OF INVESTMENT, ONLY THOSE INVESTMENTS ARE REQUIRED TO BE TAKEN FROM WHICH THE ASSESSEE HAS EARNED EXEMPT INCOME DURING THE YEAR. IN THE PRESENT CASE THE ASSESSEE HAS EARNED EXEMPT INCOME ONLY FROM THE INVESTMENT OF INR 800,000 WHICH IS OUTSTANDING AT THE BEGINNING OF THE YEAR ENDED THE CLOSE OF THE YEAR. THUS THE LEARNED ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE ON ACCOUNT OF THE INTEREST EXPENDITURE U/S 14 A OF THE INCOME TAX ACT AND TO RESTRICT THE DISALLOWANCE ON ACCOUNT OF EXPENDITURE UNDER THAT SECTION TO THE EXTENT OF 0.5% OF INR 800,000 ONLY. ACCORDINGLY THE ORDERS OF THE LOWER AUTHORITIES ARE SET ASIDE TO THAT EXTENT. IN THE RESULT THE GROUND NUMBER 2 OF THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 9. THE GROUND NUMBER 3 RELATES TO THE DISALLOWANCE OF RS. 2560771/ BEING 10% OF THE VEHICLE REPAIRS AND MAINTENANCE EXPENDITURE. THE LEARNED ASSESSING OFFICER NOTED THAT ASSESSEE HAS INCURRED THE SUM OF INR 4004492/ OUT OF VEHICLE RUNNING AND MAINTENANCE EXPENDITURE AND INR 2936030 ON ACCOUNT OF THE DEPRECIATION ON MOTOR CARS RESPECTIVELY. HE FURTHER NOTED THAT THE DIRECTORS OF THE COMPANY DOES NOT OWN ANY PERSONAL VEHICLES AND NOT THEY HAVE OFFERED ANY AMOUNT OF REVENUE AS PERQUISITES IT IN THEIR HANDS ON ACCOUNT OF PERSONAL USE OF VEHICLES OWNED BY THE ASSESSEE COMPANY AND THEREFORE 10% OF THE EXPENDITURE AND THE DEPRECIATION ON THE MOTOR CAR AMOUNTING IN ALL INR 2 694052/ IS DISALLOWED ON ACCOUNT OF PERSONAL EXPENSES INCURRED. THE LEARNED CIT A CONFIRMED THE 10% DISALLOWANCE WITH RESPECT TO VEHICLE REPAIRS AND MAINTENANCE EXPENDITURE HOWEVER HE DELETED MAHAGUN INDIA PVT. LTD VS. ACIT ITA NO. 301/DEL/2017 ASSESSMENT YEAR: 2013-14 PAGE | 5 THE DISALLOWANCE ON ACCOUNT OF DEPRECIATION. THE ASSESSEE AGGRIEVED WITH THAT ORDER HAS PREFERRED GROUND NUMBER 3 OF THE APPEAL. 10. THE LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT ASSESSEE IS A COMPANY AND THERE CANNOT BE ANY PERSONAL EXPENDITURE. HE FURTHER SUBMITTED THAT MERE AD HOC DISALLOWANCE CANNOT BE DISALLOWED. 11. THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. 12. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE LEARNED ASSESSING OFFICER HAS GIVEN A REASON THAT THE ASSESSEE HAS INCURRED THE ABOVE EXPENDITURE IS PERSONAL EXPENDITURE AS THE DIRECTOR DOES NOT OWN ANY MOTOR CAR NOR HAVE THEY SHOWN ANY INCOME AS PERQUISITES ON ACCOUNT OF THE USE OF THE MOTOR CAR. WE DO NOT FIND THE ABOVE REASONS APPROPRIATE FOR MAKING THE DISALLOWANCE BECAUSE ASSESSEE IS A COMPANY WHICH CANNOT HAVE ANY PERSONAL EXPENDITURE. FURTHER IF ANY ADDITION IS REQUIRED TO BE MADE ON ACCOUNT OF PERQUISITES , THE SAME IS REQUIRED TO BE MADE IN THE HANDS OF THE DIRECTOR , IF THEY HAVE USED IT FOR THEIR OWN BENEFIT AND NOT FOR THE PURPOSES OF THE BUSINESS OF THE COMPANY. IN VIEW OF THIS, WE REVERSE THE FINDING OF THE LEARNED LOWER AUTHORITIES AND DIRECT THE LEARNED ASSESSING OFFICER TO DELETE AD HOC DISALLOWANCE MADE ON ACCOUNT OF VEHICLE RUNNING AND MAINTENANCE EXPENDITURE. ACCORDINGLY GROUND NUMBER 3 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 13. GROUND NUMBER 1 AND GROUND NUMBER 4 OF THE APPEAL ARE GENERAL AND NO SPECIFIC ARGUMENTS WERE ADVANCED BY THE ASSESSEE, HENCE THEY ARE DISMISSED. 14. ACCORDINGLY APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 03/09/2019. -SD/- -SD/- (K.N.CHARY) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 03/09/2019 A K KEOT MAHAGUN INDIA PVT. LTD VS. ACIT ITA NO. 301/DEL/2017 ASSESSMENT YEAR: 2013-14 PAGE | 6 COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI MAHAGUN INDIA PVT. LTD VS. ACIT ITA NO. 301/DEL/2017 ASSESSMENT YEAR: 2013-14 PAGE | 7 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/ PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/ PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER