M/s Mefcom Agro Industries Ltd., New Delhi V. ITO, New Delhi

ITA 3640/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 52880 (ITAT-DELHI)
• Duration Of Justice: 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 26-09-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 26-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S NEGI
• Assessee Lawyers: ASHWANI TANEJA
• Section: 234B; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI SHAMIM YAHYA ITA NO. 3640/DEL/11 ASSTT. YR: 2007-08 M/S MEFCOM AGRO INDUSTRIES LTD. VS. INCOME-TAX OF FICER, 606, KAILASH BUILDING, WARD-6(3), NEW DELHI. KG MARG, CANNAUGHT PLACE, NEW DELHI-110001. PAN NO. AAACM2047A APPELLANT BY : SH. ASHWANI TANE4JA ADV. REVENUE BY: SHRI R.S. NEGI SR. DR O R D E R PER R.P. TOLANI, J.M: THIS IS ASSESSEES APPEAL AGAINST CIT(A)S ORDER DA TED 11-3-2011 RELATING TO A.Y. 2007-08. EFFECTIVE GROUNDS RAIS ED ARE AS UNDER: A. THAT HAVING REGARD TO THE FATS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN C ONFIRMING THE ACTION OF LD. AO IN MAKING DISALLOWANCE OF RS. 5,47 ,050/- U/S 14A READ WITH RULE 8D. B. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCE S OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN C ONFIRMING THE ACTION OF LD. AO IN CHARGING INTEREST U/S 234B AND 234C OF THE INCOME-TAX ACT, 1961. 2. BRIEF FACTS ARE, FOR A.Y. 2007-08 THE ASSESSEE F ILED ITS RETURN DECLARING INCOME OF RS. 50,055/-, WHICH INCLUDED TAX FREE INC OME OF RS. 51,000/- BY WAY OF DIVIDEND. DURING THE COURSE OF ASSESSMENT TH E AO APPLYING THE PROVISIONS OF SEC. 14A READ WITH RULE 8D RETROSPECT IVELY MADE AN ADDITION OF RS. 5,47,050/-. 2.1. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL, WH ERE THE CIT(A) CONFIRMED THE ADDITION. AGGRIEVED, ASSESSEE IS BEFO RE US. 2 3. LEARNED COUNSEL FOR THE ASSESSEE REFERRED TO THE ANNUAL REPORT FOR F.Y. 2006-07 AND CONTENDS THAT THE TOTAL DIVIDEND INCOME RECEIVED BY ASSESSEE AT RS. 51,000/-, WAS EARNED ON OWN FUNDS, WHICH IS EVI DENT FROM THE FACT THAT THE ASSESSEE HAS NOT PAID ANY INTEREST ON BORROWING S. THE EARNING OF DIVIDEND IS NOT ATTRIBUTABLE TO ANY BORROWED FUNDS OR EXPENDITURE INCURRED IN THIS BEHALF. CIT(A) UPHELD THE DISALLOWANCE BY FOLL OWING OBSERVATIONS: 4.6. IT IS SEEN THAT THE APPELLANT HELD AN INVESTM ENT OF MORE THAN RS. 3.64 CRORES DURING THE YEAR. DURING THE AP PELLATE PROCEEDINGS, IT WAS NOT EXPLAINED/ ESTABLISHED BY T HE APPELLANT AS TO HOW THE DISALLOWANCE OF RS. 5,47,050/- WAS NO T REASONABLE LOOKING TO THE QUANTUM OF INVESTMENT. FURTHER, THE SOURCES OF INVESTMENT HAVE ALSO NOT BEEN EXPLAINED I.E. AS TO WHETHER THE INVESTMENT WAS MADE OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS. SINE THE APPELLANT AHS FAILED TO ESTABLISH T HAT BORROWED FUNDS WERE NOT UTILIZED FOR THE PURPOSE OF INVESTME NT, THE INTEREST ATTRIBUTABLE TO THE FUNDS UTILIZED FOR INV ESTMENT WAS LIABLE TO BE DISALLOWED. IN ADDITION TO THE ABOVE, OTHER EXPENSES LIKE DIRECTORS REMUNERATION, TRAVELING AND CONVEYAN CE, SALARY TO STAFF, STATIONERY AND PRINTING, POSTAGE AND TELEPHO NE, VEHICLE AND VARIOUS OTHER ESTABLISHMENT AND ADMINISTRATIVE EXPENSES ARE REQUIRED TO BE INCURRED FOR MAINTAINING AND MANAGIN G AN INVESTMENT PORTFOLIO OF THE MAGNITUDE OF RS. 3.64 C RORES. IN MY CONSIDERED OPINION AN AMOUNT OF RS. 5,47,050/- CAN SURELY BE ATTRIBUTABLE TO THE ESTABLISHMENT AND ADMINISTRATIV E EXPE4NSES INCURRED FOR MAINTAINING AND MANAGING A PORTFOLIO OF MORE THAN RS. 3.64 CRORES. THUS, THOUGH THE ACTION OF TH E LD. AO INVOKING THE PROVISIONS OF RULE 8D IS NOT UPHELD YE T, THE DISALLOWANCE OF RS. 5,47,050/- U/S 14A IS SUSTAINED ON THE BASIS OF THE REASONS AS DISCUSSED ABOVE. THE GROUND NO.1 IS ACCORDINGLY REJECTED. 3.1. LEARNED COUNSEL VEHEMENTLY ARGUES THAT CIT(A) FAILED TON APPRECIATE THAT FOR EARNING THE DIVIDEND, ASSESSEES DIRECTORS DID NOT HAVE TO TAKE ANY EXERCISE, NO TRAVELING IS INVOLVED AND FOR MAKING T HIS INVESTMENT NO 3 EXPENDITURE IS INCURRED, THEREFORE, THE PRESUMPTIVE DISALLOWANCE, TEN TIMES THAN THE DIVIDEND INCOME IS TOTALLY UNJUSTIFIED. 4. LEARNED DR RELIED ON THE ORDER OF LOWER AUTHORIT IES. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE RELEVANT MAT ERIAL AVAILABLE ON RECORD. THE PROPORTIONATE DISALLOWANCE FOR MAKING THE INVES TMENT IS UNCALLED FOR. RULE 8D IS APPLICABLE FROM A.Y. 2008-09. HONBLE BO MBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT & ANOTHER (2010) 234 CTR (BOM)1 HAS HELD THAT INDIRECT EXPENDITURE CAN B E ATTRIBUTED ONLY ON SCIENTIFIC BASIS, THEREFORE, THE ADHOC DISALLOWANCE IS NOT CALLED FOR IN THIS CASE. IN OUR VIEW, LOWER AUTHORITIES FAILED TO ATT RIBUTE EVEN AN INDIRECT NEXUS OF THE ASSESSEES INVESTMENT OR DIVIDEND INCOME WIT H ITS EXPENDITURE. IT IS ADMITTED THAT THE INVESTMENT WAS NOT MADE WITH BORR OWED FUNDS. UNDER THESE CIRCUMSTANCES, WE ARE INCLINED TO DELETE THE ADDITION. GROUND IS ALLOWED. 5. AS REGARDS CHARGING OF INTEREST U/S 234B AND 234 C, THE SAME IS CONSEQUENTIAL. THE AO SHALL RECALCULATE THE CHARGIN G OF INTEREST, IF ANY, UNDER THE AFORESAID SECTIONS, WHILE GIVING EFFECT T O APPELLATE ORDER. 6. ASSESSEES APPEAL STANDS ALLOWED ACCORDINGLY. ORDER PRONOUNCED IN OPEN COURT ON 30-09-2011. SD/- SD/- ( SHAMIM YAHYA ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 30-09-2011. MP COPY FORWARDED TO: (1) ASSESSEE (5) DR, ITAT. (2) AO (3) CIT (4) CIT(A) 4