DCIT, New Delhi V. M/s. Honda Siel Power Products Ltd., New Delhi

ITA 3157/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86606 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 20-01-2015
• Assessment Year: 2000-2001
• Appeal Filed On: 20-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROBIN RAWAL
• Assessee Lawyers: BHARTIA KUMAR
• Keywords: Earning of tax free income
• Section: 14A; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI S.V. MEHROTRA : ACCOUNTANT MEMBER AND SHRI H.S. SIDHU : JUDICIAL MEMBER ITA NO. 3157/DEL/2013 A.Y. 2000-01 DCIT, CIRCLE 12(1), VS. HONDA SIEL POWER PRODUCTS LTD., NEW DELHI. 3 & 4/48, 2 ND FLOOR, ENKAY HOUSE, MALCHA MARG, SHOPPING COMPLEX, CHANKAYAPURI, NEW DELHI. AAACH 8464 L ITA NO. 3262/DEL/2013 A.Y. 2000-01 HONDA SIEL POWER PRODUCTS LTD., VS. DCIT, CIRCLE 12 (1), 3 & 4/48, 2 ND FLOOR, ENKAY HOUSE, NEW DELHI. MALCHA MARG, SHOPPING COMPLEX, CHANKAYAPURI, NEW DELHI. ( APPELLANT ) ( RESPONDENT ) DEPARTMENT BY : SHRI ROBIN RAWAL SR. DR RESPONDENT BY : SHRI AJAY VOHRA SR. ADV. & MS. BHARTIA KUMAR ADV. DATE OF HEARING : 20-01-2015 DATE OF ORDER : 23-01-2015. O R D E R PER S.V. MEHROTRA, A.M:- THESE CROSS APPEALS, PREFERRED BY THE DEPARTMENT AS WELL AS THE ASSESSEE, ARE DIRECTED AGAINST THE ORDER DATED 28 -2--2013, PASSED BY THE 2 CIT(APPEALS)-XV, NEW DELHI IN APPEAL NO. 37/11-12/C IT(A)-XV, RELATING TO A.Y. 2000-01. 2. THE ASSESSEE, A PUBLIC LIMITED COMPANY UNDER TH E COMPANIES ACT, IN THE RELEVANT ASSESSMENT YEAR, WAS ENGAGED IN THE BUSINE SS OF MANUFACTURING OF PORTABLE GENERATING SETS, I.C. ENGINES, WATER PUMPI NG SETS. IT HAD FILED ITS RETURN OF INCOME DECLARING INCOME OF RS. 14,35,73,320/- AND THE ASSESSMENT WAS COMPLETED ON 7-3-2003 AT AN INCOME OF RS. 15,73,66,280/- U/S 143(3). THEREAFTER, NOTICE U/S 148 WAS ISSUED TO THE ASSESSEE ON 30-7-2007, IN RES PONSE TO WHICH ASSESSEE FILED RETURN OF INCOME DECLARING INCOME OF RS. 14,35,73,3 20/-. THE ASSESSEE HAD FILED A WRIT PETITION AGAINST NOTICE U/S 148 OF THE ACT, WH ICH WAS DISMISSED BY HONBLE HIGH COURT VIDE ORDER DATED 14-2-2011. THE AO NOTIC ED THAT ASSESSEE HAD RECEIVED DIVIDEND INCOME OF RS. 188.73 LACS. HE FURTHER NOTI CED THAT THE ASSESSEE HAD INVESTED ABOUT RS. 2800 LAKHS IN MUTUAL FUNDS. APPL YING RULE 8D, THE AO MADE DISALLOWANCE OF EXPENSES U/S 14A OF THE ACT OF RS. 31,31,000/-. 2.1. LD. CIT(A), WHILE PARTLY ALLOWING THE ASSESSEE S APPEAL, RECORDED A FINDING THAT OUT OF THE TOTAL INTEREST PAYMENT OF RS. 82,04 ,177/-, ONLY AN AMOUNT OF RS. 25,86,290/- RELATED TO CC ACCOUNT ONLY COULD BE CON SIDERED AS AN INSTANCE OF USE OF MIXED FUNDS, WHICH MIGHT HAVE BEEN PARTLY USED FOR BUSINESS PURPOSES AND PARTLY FOR MAKING INVESTMENT FOR GENERATING TAX EXEMPT IN COME. IN ADDITION SOME AMOUNT ON ACCOUNT OF PERSONAL EXPENSES WERE ALSO AT TRIBUTABLE TOWARDS MAKING INVESTMENT FOR EARNING DIVIDEND INCOME. HE, ACCORDI NGLY, ESTIMATED THE DISALLOWANCE AT RS. 14,66,547/- BY APPLYING RULE 8D . 2.2. BEING AGGRIEVED, WITH THE ORDER OF LD. CIT(A) BOTH THE ASSESSEE AS WELL AS THE DEPARTMENT ARE IN APPEAL BEFORE US, RAISING RE SPECTIVE GROUNDS OF APPEAL. 3 3. AT THE TIME OF HEARING LD. COUNSEL FOR THE ASESS SEE DID NOT PRESS GROUND NOS. 1 TO 5, RELATING TO VALIDITY OF REASSESSMENT PROCEE DINGS. GROUND NOS. 6 TO 8 READ AS UNDER: 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN SUSTAINING DISALLOWANCE OF RS. 14,66,547 ALLEGING T HE SAME TO BE INCURRED FOR EARNING EXEMPT DIVIDEND INCOME IN T ERMS OF PROVISIONS OF SECTION 14A OF THE ACT. 6.1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN NOT APPRECIATING THAT THE FUNDS FROM INTERNAL ACCRUALS AND EQUITY AVAILABLE WITH THE APPELLANT WERE INVESTED IN MUTUA L FUNDS FROM WHICH EXEMPT DIVIDEND INCOME OF RS.188.73 LACS WAS EARNED. 6.2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN NOT APPRECIATING THAT EXPENDITURE ON INTEREST ON CASH C REDIT AGGREGATING TO RS. 25,86,290 FOR AVAILING OVERDRAFT FACILITIES WERE INCURRED BY THE APPELLANT FOR PURPOSES FOR THE BUSINESS OF THE APPELLANT AND WERE NOT ATTRIBUTABLE TO EARNING OF THE EXEMPT DIVIDEND INCOME. 6.3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN HOLDING THAT SOME AMOUNT OF PERSONNEL EXPENSES WERE ALSO ATTRIBUTABLE TO EARNING OF EXEMPT DIVIDEND INCOME. 7. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ER RED IN NOT APPRECIATING THAT IN ABSENCE OF NEXUS BEING ESTABLI SHED BETWEEN THE EXPENSES AND EARNING OF TAX FREE DIVIDEND INCOM E, NO DISALLOWANCE INVOKING SECTION 14A COULD BE MADE. 8. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT 4 APPRECIATING THAT DISALLOWANCE UNDER SECTION 14A OF THE ACT COULD NOT BE MADE ON ESTIMATE BASIS BY FOLLOWING PR ESUMPTIVE METHOD PRESCRIBED UNDER RULE 80 OF THE INCOME TAX R ULES, 1962. 4. SOLE EFFECTIVE GROUND RAISED IN DEPARTMENTS APP EAL IS AS UNDER: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN TAKING INTO ACCOUNT THE INTERES T OF RS. 25,86,290/- ONLY FOR THE PURPOSE OF COMPUTING DISAL LOWANCE U/S 14A THEREBY GIVING A RELIEF OF RS. 16,64,453/-. 5. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN T HE RELEVANT ASSESSMENT YEAR 2000-01, RULE 8D WAS NOT APPLICABLE AND, THEREFORE, BOTH THE REVENUE AUTHORITIES COMMITTED AN ERROR IN APPLYING RULE 8D. 6. LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER O F AO. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORD OF THE CASE. ADMITTEDLY, FOR THE RELEVAN T ASSESSMENT YEAR 2000-01, RULE 8D WAS NOT APPLICABLE, THEREFORE, THE DISALLOWANCE MADE BY APPLYING THE SAME CANNOT BE SUSTAINED. 8. WE FIND THAT LD. CIT(A) HAS SPECIFICALLY CONSIDE RED THE INTEREST PAID BY ASSESSEE ON VARIOUS LOANS AND HAS RECORDED A SPECIF IC FINDING AS REGARDS INTEREST ON CASH CREDITS OF RS. 25,86,290/- AS NOTED EARLIER. W E ARE IN AGREEMENT WITH LD. CIT(A)S FINDING THAT APART FROM PART INTEREST ON CASH CREDIT, NO OTHER INTEREST WAS RELATABLE TO EARNING OF EXEMPT INCOME. AS FAR AS IN TEREST ON CASH CREDIT OF RS. 25,86,290/- IS CONCERNED, THE SAME NEEDS TO BE BIFU RCATED BETWEEN THE EARNING OF EXEMPT INCOME AND FOR USE IN BUSINESS. THE ENTIRE I NTEREST EXPENDITURE CANNOT BE ALLOCATED FOR EARNING OF EXEMPT INCOME. WE, THEREFO RE, RESTORE THE MATTER TO THE FILE OF AO FOR DECIDING THIS ISSUE DE NOVO ON REASONABLE BASIS, IN VIEW OF THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT OF DELHI IN TH E CASE OF MAXOPP INVESTMENT 5 247 CTR 162, SUBJECT TO AFOREMENTIONED OBSERVATIONS WITH RESPECT TO DISALLOWANCE RELATING TO INTEREST. 9. IN THE RESULT, DEPARTMENTS APPEAL IS DISMISSED AND THE ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 23-01-2015. SD/- SD/- ( H.S. SIDHU ) ( S.V. MEHROTRA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 23-01-2015. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR