ACIT, New Delhi V. M/s. J.V. Strips Ltd., New Delhi

ITA 364/DEL/2012

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 2653 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 08-05-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 24-01-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHUMANA SEN
• Keywords: Rule of consistency; Additional evidence
• Section: 143(3); 14A; 80IB; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI R. P. TOLANI, JUDICIAL MEMBER AND SHRI J. S. REDDY, ACCOUNTANT MEMBER I.T.A. NO. 364/DEL/2012 ASSESSMENT YEARS: 2008-09 ACIT VS. M/S J.V. STRIPS LTD. CIRCLE 4 (1), ROOM NO.407, Z-222, LOHA MANDI, C.R. BUILDING, I.P. ESTATE NARAINA, NEW DELHI. NEW DELHI-110028 PAN: AAACJ2278G (APPELLANT) (RESPONDENT) REVENUE BY : MS. SHUMANA SEN, DR. ASSESSEE BY : SHRI. AKHILESH KUMAR, ADV. ORDER PER J. S. REDDY, AM : THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGA INST THE ORDER OF LD. CIT (A)-VII, NEW DELHI, DATED 17.11.2011 FOR THE A. Y. 2008-09. FACTS IN BRIEF 2. THE ASSESSEE IS A COMPANY AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE OF C.R. STEEL STRIPS. IT FIL ED ITS RETURN OF INCOME ON 26.08.2008 DECLARING TOTAL INCOME OF RS.53,11,170/- . THE AO PASSED AN ITA NO. 364/DEL/2012 2 ORDER U/S 143(3) ON 8.12.2010, ASSESSING THE TOTAL INCOME AT RS.80,04,978/-, DISALLOWING INTER ALIA AND AMOUNT OF RS.20,88,791/- U/S 14A OF THE IT ACT 1961 (HEREAFTER REFERRED TO AS THE ACT) R.W. RULE 8D OF THE IT RULES 1962 AND AN AMOUNT OF RS.52,200/- U/S 35D OF THE ACT. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE F IRST APPELLATE AUTHORITY GRANTED RELIEF. 4. AGGRIEVED THE REVENUE IS IN APPEAL ON THE FOLLOW ING GROUNDS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LEARNED CIT (A) HAS ERRED IN DELETING ADDITION U/S 14A OF THE INCOME TAX ACT AMOUNTING TO RS.20,88,791/-. 2. LD. CIT (A) ERRED IN CONCLUDING THE ASSESSMENT O RDER DOES NOT INDICATE ANY SATISFACTION OF THE ASSESSING OFFICER REGARDING CORRECTNESS OF THE CLAIM OF THE ASSESSEE, DESPITE T HE FACT THAT THE SATISFACTION OF THE ASSESSING OFFICER IS CLEARLY EV IDENT FROM PARAGRAPHS 3.1 AND 3.2 OF THE ASSESSMENT ORDER. 3. THE LD. CIT (A) ERRED IN DELETING ADDITION ON AC COUNT OF DISALLOWANCE OF DEDUCTION U/S 35D OF THE ACT IS RES PECT OF INCREASE IN SHARE CAPITAL MERELY ON THE GROUND OF C ONSISTENCY THAT IT WAS BEING ALLOWED IN ASSESSMENT YEAR 2005-0 6 AND 2006-07. 4. THE APPELLANT CRAVES LEAVE TO ADD, TO ALTER, OR AMEND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF T HE HEARING. ITA NO. 364/DEL/2012 3 5. WE HAVE HEARD MS. SHUMANA SEN THE LD. DR ON BEHA LF OF THE REVENUE AND MR. AKHILESH KUMAR, THE LD. ADVOCATE ON BEHALF OF THE ASSESSEE. 6. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRC UMSTANCES OF THE CASE AND A PERUSAL OF THE PAPERS ON RECORD, AND THE ORDE RS OF THE AUTHORITIES BELOW AS WELL AS CASE LAWS CITED. WE HOLD AS FOLLOWS: THE FIRST ISSUE FOR ADJUDICATION IS WHETHER THE LD . CIT (A) WAS RIGHT IN DELETING A DISALLOWANCE MADE U/S 14A OF THE IT ACT R.W. RULE 8D OF THE IT RULES. 7. THE AO MADE THE DISALLOWANCE BY OBSERVING AS FOL LOWS: A) SEPARATE BANK ACCOUNTS WERE NOT MAINTAINED IN R ESPECT OF INVESTMENTS AND OTHER ACTIVITIES. INSTEAD THE FU NDS HAVE BEEN USED FROM THE COMMON BANK ACCOUNT OF THE COMPANY. T HAT IS THERE IS NO FEATURE DISTINGUISHING THE FUNDS USED F OR INVESTING IN SHARES/ MUTUAL FUNDS. THE ASSESSEES CONTENTION CAN NOT BE ACCEPTED AS THERE IS COMMON POOL OF FUNDS AND IT CA NNOT BE ASCERTAINED WHETHER INVESTMENTS WERE MADE OUT OF IN TERNAL ACCRUALS OR FROM BORROWED FUNDS. FURTHER, THE NEED FOR BORROWING FUNDS WOULD NOT HAVE ARISEN IF THE INVEST MENTS WERE NOT MADE. IN OTHER WORDS, HAD THE COMPANY NOT MADE INVESTMENTS, THE TOTAL BORROWINGS OF THE COMPANY WO ULD HAVE BEEN LOWER LEADING TO REDUCTION IN INTEREST COSTS. B) APART FROM THE ABOVE, THE ASSESSEE HAS NOT ATTRI BUTED ANY ADMINISTRATIVE EXPENSES TOWARDS EARNING OF EXEMPT I NCOME. THE FACT THAT THERE ARE CERTAIN EXPENSES FOR EARNING EX EMPT INCOME ITA NO. 364/DEL/2012 4 CANNOT BE DENIED. THESE EXPENSES CONSIST OF TIME DE VOTED BY DIRECTORS IN DECIDING ON THE INVESTMENT, COST OF LEGAL/FINANCIAL/ADMINISTRATIVE ADVICE OBTAINED, COS T OF PORTFOLIO MANAGEMENT ETC. THEREFORE, I AM SATISFIED THAT ADMINISTRATIVE EXPEN SES SHOULD BE ATTRIBUTABLE TOWARDS EARNING OF DIVIDEND. THEREAFTER HE APPLIED RULE 8D AND MADE THE DISALLOW ANCE. 8. THE FIRST APPELLATE AUTHORITY DELETED THE ADDITI ON BY OBSERVING AS FOLLOWS: A) THE ASSESSEE WAS ABLE TO PROVE THAT BORROWED FUNDS HAVE NOT BEEN USED FOR MAKING INVESTMENTS. THE ASSESSEE HAD INTEREST FREE FUNDS OF OVER RS.20 CRORE AGAINST INVESTMENT O F ONLY RS.3.39 CRORES. B) THE ASSESSEE IS NOT CARRYING OUT ANY REGULAR ACTIVI TY OF INVESTMENT. THUS NO ADMINISTRATIVE EXPENDITURE WAS INCURRED. C) THE ASSESSMENT ORDER DOES NOT INDICATE ANY SATISFAC TION RECORDED BY THE AO ON THE ISSUE REGARDING CORRECTN ESS OF THE CLAIM OF THE ASSESSEE. D) THE ONUS WAS ON THE AO TO ESTABLISH THAT THE ASSESS EE HAS INCURRED EXPENDITURE IN RELATION TO EARNING OF INCO ME, WHICH DOES NOT FROM PART OF THE ASSESSEES TOTAL INCOME. E) RELIANCE WAS PLACED ON CERTAIN CASE LAWS BY THE LD. CIT (A), WHICH WE WOULD REFER IN DUE COURSE. ITA NO. 364/DEL/2012 5 8. THE LD. DR SUBMITTED THAT THE CIT (A) WAS WRONG IN HOLDING THAT THE AO HAS NOT RECORDED HIS SATISFACTION BEFOR E MAKING A DISALLOWANCE U/S 14A. SHE POINTED OUT THE ASSESSEE WAS MAKING I NVESTMENTS FROM A COMMON POOL OF FUNDS, AND THAT SEPARATE BANK A/C WE RE NOT MAINTAINED AND THAT IN THOSE CIRCUMSTANCES RULE 8D WAS RIGHTLY APP LIED. THE LD. COUNSEL FOR THE ASSESSEE ARGUES THAT THE INVESTMENTS WERE MADE IN THE A.Y. 2005-06 AND 2006-07 AND THAT IN THE CURRENT A.Y. ONLY AN AMOUNT OF RS.4 LAKH WAS INVESTED. THE QUANTUM OF INTEREST FREE FUNDS, IN TH E EARLIER A.YS. AS WELL AS IN THE CURRENT A.Y. WERE GIVEN. IT WAS ALSO POINTED OUT THAT THE INTEREST BEARING FUNDS WERE TIDE UP FOR SPECIFIC BUSINESS PU RPOSE AND THAT DURING THE YEAR THERE IS A DECREASE FROM THE QUANTUM OF BORROW ED FUNDS. RELIANCE WAS PLACED ON A NUMBER OF CASE LAWS. 9. ON CONSIDERING THE FACTS OF THE CASE, WE FIND TH AT 99% OF THE INVESTMENT HELD BY THE ASSESSEE DURING THE YEAR, WE RE MADE IN THE PREVIOUS A.YS.. IN THE A.Y. 2005-06, THE ASSESSEE HAD INVEST ED 1.6 CRORES IN MUTUAL FUNDS / SHARES. IT HAD INTEREST FREE FUNDS OF 4.1 C RORE IN THAT YEARS. LATTER IN THE A.Y. 2006-07 THE ASSESSEE INVESTED 1.78 CRORE I N MUTUAL FUNDS / SHARES AND IN THAT YEAR IT HAD INTEREST FREE FUNDS OF 4.04 CRORE. 10. DURING THE YEAR ONLY AN AMOUNT OF 4 LAKH WAS IN VESTED OUT OF THE TOTAL INVESTMENT OF 3.39 CRORES. IN THE EARLIER YEARS THE ASSESSMENT OF THE ASSESSEE ITA NO. 364/DEL/2012 6 WERE COMPLETED U/S 143(3) AND THE AO DID NOT MAKE A NY DISALLOWANCE U/S 14A. THE TERM LOAN TAKEN BY THE ASSESSEE WAS FOR SP ECIFIC PURPOSES AND IT CANNOT BE ALLEGED WITHOUT PROOF THAT THE TERM LOAN GRANTED BY THE BANK FOR SPECIFIC PURPOSES, WERE DIVERTED FOR PURPOSES OTHER THAN FOR WHICH IT WAS GRANTED. IN FACT DURING THE YEAR THERE IS A DECREAS E IN THE BORROWED FUNDS FROM, RS.23.45 CRORE TO RS.22.35 CRORES. THUS WE HA VE TO UPHOLD THE FINDING OF THE LD. CIT (A) THAT THE BORROWED FUNDS HAD NOT BEEN UTILIZED FOR THE PURPOSE OF MAKING INVESTMENT IN SHARES/MUTUAL FUNDS . THE FACTUAL FINDING OF THE LD. CIT (A) THAT THE ASSESSEE HAD INTEREST FREE FUNDS OF RS.25.13 CRORE AT THE END OF THE YEAR, AS AGAINST INVESTMENT OF 3.39 CRORE, IS ALSO NOT DISPUTED BY THE LD. DR. IN FACT THE LD. CIT (A) HAS CONSIDER ED THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE, BY ADMITTED THE SAME AND CAL LED FOR REMAND REPORT FROM THE AO AND ON CONSIDERATION OF THIS REMAND REP ORT HAS GIVEN THESE FACTUAL FINDINGS. THE REVENUE HAS NOT DISPUTED THE ADMISSION OF ADDITIONAL EVIDENCE. 11. UNDER THESE FACTS AND CIRCUMSTANCES, WE RELY UP ON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INV ESTMENT LTD. VS. CIT 203 TAXMAN 364 AND UPHOLD THE ORDER OF THE LD. CIT (A) ON THIS ISSUE. 12. COMING TO THE ISSUE OF DISALLOWANCE OF PROPORTI ONATE ADMINISTRATIVE EXPENSES, WE FIND THAT THE ASSESSEE HAS DEMONSTRATE D THAT THERE IS NO REGULAR ITA NO. 364/DEL/2012 7 ACTIVITY CARRIED OUT BY THE ASSESSEE FOR MAKING INV ESTMENT. WHEN THERE IS NO ACTIVITY OF INVESTMENT WORTH NOTING, NO ADMINISTRAT IVE EXPENDITURE CAN BE APPORTIONED. UNDER THESE CIRCUMSTANCES, IN A CONSID ERED OPINION, THE FIRST APPELLATE AUTHORITY HAS RIGHTLY RELIED ON THE DECIS ION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CY CLES 323 ITR 518 ( P& H ) AND GRANTED RELIEF TO THE ASSESSEE. WE UPHOL D THE SAME. 13. IN THE RESULT GROUND NO. 1 & 2 OF THE REVENUE I S DISMISSED. 14. GROUND NO. 3 IS ON THE DISALLOWANCE OF DEDUCTIO N CLAIMED U/S 35D. THE LD. CIT (A). AT PARA 4.1 PAGE 24 OF HIS ORDER O BSERVED THAT SIMILAR CLAIM WAS ALLOWED BY THE AO IN THE A.YS. 2005-06 & 2006-0 7 AND ON THE PRINCIPLE OF CONSISTENCY THE CLAIM CANNOT BE DISALL OWED THIS YEAR. ALLOWABILITY OF CLAIM OF AMORTIZATION HAVE TO BE CO NSIDERED IN THE FIRST YEAR OF THE CLAIM. IN THE CASE OF JANAK DEHYDRATION PVT. LTD. VS. ACIT (2010) 134 TTJ (AHD.), IT HAS BEEN LAID DOWN THAT THE COND ITION PRECEDENT FOR ALLOWING DEDUCTION U/S 80IB HAS TO BE EXAMINED THE INITIAL YEAR ONLY. THE PRINCIPLES LAID DOWN IN THIS CASE APPLIES TO THE IS SUE ON HAND. ONCE A CLAIM FOR AMORTIZATION IS EXAMINED IN THE INITIAL YEAR AN D ALLOWED, IT CANNOT BE DISALLOWED IN THIS LATTER YEARS OF AMORTIZATION. ITA NO. 364/DEL/2012 8 15. IN VIEW OF THE ABOVE DISCUSSION, WE FIND NO INF IRMITY IN THE ORDER OF THE FIRST APPELLATE AUTHORITY. IN THE RESULT THIS G ROUND OF THE REVENUE IS DISMISSED. 16. IN THE RESULT THIS APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/07/2013. SD/- SD/- ( R. P. TOLANI ) (J. S. REDDY) JUDICIAL MEMBER ACCOUNTANT ME MBER DATED: 05/07/2013 *AK VERMA* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR