DCIT, New Delhi V. M/s V.K. International, New Delhi

ITA 3565/DEL/2013

• Counselvise Citation: 356520114 RSA 2013
• Duration Of Justice: 1 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-09-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 25-09-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 03-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SAMEER SHARMA
• Keywords: Business income; Earning of tax free income; Additional evidence
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : H NEW DELHI BEFORE SHRI H.S.SIDHU, JM AND SHRI J.SUDHAKAR REDDY,A.M. ITA NO. 3565/DEL/2013 ASSESSMENT YEAR : 2009-10 DCIT, CIRCLE 32(1) VS. VK INTERNATIONAL NEW DELHI 71, AMRIT NAGAR NEW DELHI PAN: AAAFV 4599 H (APPELLANT) (RESPONDENT) APPELLANT BY:- S/SHRI R.S.SINGHVI & SATYAJEET, C.A. RESPONDENT BY :- SHRI SAMEER SHARMA, SR.D.R. O R D E R PER J.SUDHAKAR REDDY, AM THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGA INST THE ORDER OF THE LD.COMMISSIONER OF INCOME TAX (APPEALS)-XXVI, NEW D ELHI DT. 21.3.2013 FOR THE ASSESSMENT YEAR 2009-10. 2. FACTS OF THE CASE ARE BROUGHT OUT AT PARA 2 OF THE LD.CIT(A)S ORDER, WHICH IS EXTRACTED FOR READY REFERENCE. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE APPEL LANT, A PARTNERSHIP FIRM, IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF GARMENTS. APART FROM BUSINESS INCOME, THE APPELLANT ALSO DERIVED INCOME FROM HOUSE PROPERTY, INCOME FROM CAPITAL GAIN AND INCOME FROM OTHER SOUR CES. THE APPELLANT FILED ITS RETURN OF INCOME ON 29.9.2009 DECLARING A TOTAL INCOME OF RS.1,82,46,200/- THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. TH EREAFTER, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE DT. 22.8.2010 U/S 143(2) WAS ISSUED AND SERVED UPON THE APPELLANT. THE ASSESSMENT WAS COMP LETED IN TERMS OF ORDER U/S 143(3) AT AN INCOME OF RS.2,19,52,720/- AS AGAI NST RETURNED INCOME OF RS.1,82,46,200/-. 3. AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEA L. THE FIRST APPELLATE AUTHORITY GRANTED RELIEF. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS. ITA NO. 3565/DEL/2013 AY 2009-10 V.K.INTERNATIONAL PAGE 2 OF 5 1. WHETHER THE CIT(A) WAS JUSTIFIED IN ADMITTING THE ADDITIONAL EVIDENCES FILED BY THE ASSESSEE AT APPELLATE STAGE IN SPITE O F THE FACT THAT ASSESSEE DOES NOT FULFILL THE FOUR MANDATORY CONDITIONS OF RULE 4 6A, MERELY BY OBSERVING ADDITIONAL EVIDENCE FILED ARE VITAL (PARA 7). 2. WHETHER THE CIT(A) HAS ERRED IN THE FACTS AND CI RCUMSTANCES OF THE CASE IN HOLDING THAT CLAUSE (II) OF SUB RULE (II) OF 8D IS NOT ATTRACTED IN CASE OF THE ASSESSEE. 3. WHETHER THE CIT(A) WAS JUSTIFIED BY IGNORING THA T THE INTEREST IS ALSO DISALLOWABLE U/S 36(1)(III) AND NOT ACCEPTING THE A OS ARGUMENT MADE IN THE REMAND REPORT. 4. LD.D.R. SHRI SAMEER SHARMA RELIED ON THE ORDER OF THE AO AND SUBMITTED THAT ADDITIONAL EVIDENCE WAS WRONGLY ADMI TTED BY THE LD.CIT(A) AT THE APPELLATE STAGE. HE FURTHER SUBMITTED THAT THE FIRST APPELLATE AUTHORITY WAS WRONG IN HOLDING THAT CLAUSE (II) OF SUB RULE ( II) OF RULE 8D IS NOT ATTRACTED IN THE CASE OF THE ASSESSEE. 5. SHRI R.S.SINGHVI, THE LD.COUNSEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE FIRST APPELLATE AUTHORITY. HE FURTHER RELIE D ON THE DECISION OF ITAT B CHENNAI BENCH IN THE CASE OF ACIT VS. M.BHASKARAN I N ITA NO. 1717/MADRAS/2013 FOR THE AY 2009-10 JUDGEMENT DT. 3 1 ST JULY,2014 FOR THE PROPOSITION THAT NO DISALLOWANCE CAN BE MADE U/S 1 4A, WHEN THE ASSESSEE HAS NOT RECEIVED ANY EXEMPT INCOME AND POINTED OUT THAT THE TRIBUNAL HAD IN TURN RELIED ON A NUMBER OF HONBLE HIGH COURT JU DGEMENTS. 5.1. HE FURTHER RELIED ON THE DECISION OF THE JURISDICT IONAL HIGH COURT IN THE CASE OF CIT-IV VS. HOLCIM INDIA P.LTD. IN ITA 4 86/2014 AND ITA 299/2014 JUDGEMENT DT. 5 TH SEPTEMBER,2014 FOR THE PROPOSITION THAT NO DISALLOWANCE CAN BE MADE U/S 14A, WHERE NO DIVIDEND INCOME WAS EARNED BY THE ASSESSEE. 6. AFTER HEARING RIVAL CONTENTIONS AND PERUSING PAPE RS ON RECORD AND ORDERS OF THE AUTHORITIES BELOW, CASE LAWS CITED, W E HOLD AS FOLLOWS. 6.1. THE FACTS LEADING TO THE ADDITION ARE BROUGHT OUT AT PARA 5 OF LD.CIT(A)S ORDER WHICH IS EXTRACTED FOR READY REFE RENCE. ITA NO. 3565/DEL/2013 AY 2009-10 V.K.INTERNATIONAL PAGE 3 OF 5 THE FACTS LEADING TO THE IMPUGNED DISALLOWANCE ARE THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER, ON PERUSAL OF THE BALANCE SHEET OF THE APPELLANT, NOTICED THAT THE APPELLANT HAD SHOWN INVESTMENTS IN SHARES AMOUNTING TO RS.2,20,75,8301- AS ON 31.3.200 9 AS COMPARED TO RS.4,09,33,033/- AS ON 31.3.2008. THE ASSESSING OFF ICER OBSERVED THAT OUT OF THE SHARES HELD AS ON 31.3.2008, THE APPELLANT SOLD 802000 SHARES OF GLOBUS PROJECTS AND HAD SHOWN LONG TERM CAPITAL GAIN OF RS .2,96,74,000/-, WHICH WAS REDUCED FROM 'INCOME FROM BUSINESS' WHILE COMPU TING THE TAXABLE INCOME FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THE AS SESSING OFFICER OBSERVED THAT THE EXPENDITURE INCURRED IN CONNECTION WITH TH E INVESTMENT IN SHARES AND IN REAL ESTATE/PROPERTIES WOULD HAVE BEEN INCLUDED IN THE EXPENSES DEBITED TO P&L ACCOUNT. THE ASSESSING OFFICER OBSERVED THAT BE SIDES DEBIT OF RS.1,01,14,155/- ON ACCOUNT OF INTEREST, VARIOUS OT HER ADMINISTRATIVE EXPENSES PERTAINING TO BOTH READYMADE GARMENTS BUSI NESS AND SHARE TRANSACTION HAVE BEEN DEBITED TO P&L ACCOUNT. THERE FORE, THE ASSESSING OFFICER OBSERVED THAT DISALLOWANCE OUT INTEREST EXP ENDITURE PERTAINING TO INVESTMENTS IN SHARES ETC. MADE OUT OF BUSINESS FUN DS AND OUT OF OTHER ADMINISTRATIVE EXPENSES ARE CALLED FOR IN THIS CASE . ACCORDINGLY, THE AO ASKED THE APPELLANT TO FURNISH COMMENT ON THE APPLI CABILITY OF THE PROVISIONS OF SECTION 14A OF THE ACT. IN RESPONSE TO THE SAME , THE APPELLANT MADE THE FOLLOWING SUBMISSIONS: THIS HAS REFERENCE TO YOUR QUERY REGARDING EXEMPT INCOME. IN THIS REGARD, IT IS SUBMITTED THAT DURING THE YEAR UNDER ASSESSMENT, THE ASSESSEE FIRM HAD NOT EARNED ANY EXEMPT INCOME, AND EARNED ONLY LONG TERM CAPITAL GAIN ON SALE OF SHARES. THUS, SECTION 14A OF THE IT ACT, IS NOT APPLICABLE. 6.2. THE LD.CIT(A) CALLED FOR REMAND REPORT AS WELL AS FOR OBJECTIONS ON THE ADMISSION OF ADDITIONAL EVIDENCE FROM THE AO AND AF TER CONSIDERING THE REPORTS AND REPLIES OF THE ASSESSEE, ADMITTED THE ADDITIONAL EVIDENCE ON THE GROUND THAT THEY ARE VITAL AND WILL GO TO THE ROOT OF THE MATTER. WE FIND NO INFIRMITY IN THE ACTION OF THE LD.CIT(A). ITA NO. 3565/DEL/2013 AY 2009-10 V.K.INTERNATIONAL PAGE 4 OF 5 6.3. THEREAFTER AT PARA 9 TO 9.2 THE LD.CIT(A) HELD AS FOLLOWS. 9. ON PERUSAL OF THE BANK ACCOUNT OF THE PARTNER S AND OTHER EVIDENCES FILED, I FIND THAT EXCEPT THE INVESTMENT MADE IN THE SHARE S OF M/S. GLOBUS PROJECTS PVT. LTD., ALL OTHER INVESTMENTS WERE MADE BY THE P ARTNERS EITHER OUT OF THEIR SAVING BANK ACCOUNTS OR OUT OF CREDIT BALANCES IN T HEIR CAPITAL ACCOUNTS WITH THE APPELLANT FIRM. THE FUNDS INVESTED IN PURCHASE OF SHARES OF M/S. GLOBUS PROJECTS PVT. LTD. WERE UTILIZED FROM CURRENT ACCOU NT OF THE APPELLANT FIRM WITH ANDHRA BANK. DURING THE YEAR UNDER CONSIDERATION, T HE APPELLANT HAD SOLD SHARES OF THIS COMPANY AND SHOWN LONG TERM CAPITAL GAIN OF RS.2,96,74,OOOF.-. THE ASSESSING OFFICER HAS NOT BE EN ABLE TO PROVE THAT ANY INTEREST EXPENDITURE WAS INCURRED FOR EARNING THE T AX FREE INCOME FROM M/S. GLOBUS PROJECTS PVT. LTD. THEREFORE, CONSIDERING TH E FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE DECISIONS R ELIED UPON BY THE AR, I HOLD THAT THERE IS NO SUBSTANCE IN THE FINDING OF THE AS SESSING OFFICER THAT THE APPELLANT HAD USED THE BORROWED FUNDS FOR MAKING IN VESTMENT IN SHARES. THEREFORE, CLAUSE (II) OF SUB-RULE(2) OF THE RULE 8 D IS NOT ATTRACTED IN THE CASE OF THE APPELLANT. SINCE, THE INVESTMENTS IN SHARES WE RE MADE BY THE PARTNERS OF THE FIRM OUT OF THEIR OWN SOURCES, NO DISALLOWANCE UNDER CLAUSE (II) OF SUB-RULE (2) OF RULE 8D CAN BE MADE ON ACCOUNT OF INTEREST E XPENDITURE. 9.1 AS REGARDS, THE DISALLOWANCE OF RS.1,57,522 /- UNDER CLAUSE (III) OF SUB- RULE (2) OF RULE 80 ON CONSIDERATION OF THE FACTS O F THE CASE, I FIND THAT THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT ARE NOT ACCEPTABLE. THEREFORE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IN T ERMS OF RULE 80 (2)(III) OF THE INCOME-TAX RULES 1962 WITH REFERENCE TO INDIREC T EXPENSES IS SUSTAINED. 9.2 IN VIEW OF THE ABOVE, THE DISALLOWANCE OF R S.10,97,041/- MADE BY THE ASSESSING OFFICER IN TERMS OF RULE 80(2)(II) IS DEL ETED AND THE DISALLOWANCE OF RS.1 ,57,522/- MADE BY THE ASSESSING OFFICER IN TER MS OF RULE 80(2)(III) IS CONFIRMED. 6.4 . THE LD.D.R. COULD NOT CONTROVERT THIS FACTUAL FIN DINGS OF THE FIRST APPELLATE AUTHORITY. HENCE WE UPHOLD THIS FINDING AND DISMISS THE APPEAL OF THE REVENUE. ITA NO. 3565/DEL/2013 AY 2009-10 V.K.INTERNATIONAL PAGE 5 OF 5 7. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH SEPTEMBER, 2014. SD/- SD/- (H.S.SIDHU) (J.SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: THE 29 TH SEPTEMBER, 2014 *MANGA COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR