Addl.CIT, Special Range-2, New Delhi V. Cleta Real Estate P. Ltd., New Delhi

ITA 3770/DEL/2018

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 0550 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2021
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 18-05-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Revenue expenditure; Rule 8D
• Section: 14A; 37

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B: NEW DELHI BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER ITA NO. 3770/DEL/2018 ASSTT. YEAR: 2014-15 ITA NO. 2938/DEL/2018 ASSTT. YEAR 2014-15 ADDL. CIT, SPECIAL RANGE-2, ROOM NO. 384A, 3 RD FLOOR, C.R. BUILDING, NEW DELHI. VS. CLETA REAL ESTATE P. LTD. 296, FOREST LANE, SAINIK FARMS, NEW DELHI 110 068 (APPELLANT) (RESPONDENT) CLETA REAL ESTATE P. LTD. 296, FOREST LANE, SAINIK FARMS, NEW DELHI 110 068 PAN AAECC3876H VS. ADDL. CIT, SPECIAL RANGE-2, NEW DELHI. (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI MANOJ KUMAR, CA ASSESSEE BY : SHRI MAHESH THAKUR, SR. DR MS. NIDHI SRIVASTAVA, CIT(DR) DATE OF HEARIN G 08/07 /20 21 DATE OF PRONOUNCEMENT 08 /07/2021 2 O R D E R PER AMIT SHUKLA, J.M. THE AFORESAID APPEALS HAVE BEEN FILED BY THE ASSESSEE AS WELL AS BY THE REVENUE AGAINST SEPARATE IMPUGNED ORDERS OF EVEN DATE, 5.1.2018 THE ASSESSMENT YEAR 2014-15 AND ORDER DATED 5.1.2018 FOR THE ASSESSMENT YEAR 2014-15. 2. IN THE REVENUES GROUNDS OF APPEAL, FOLLOWING GROUNDS HAS BEEN RAISED:- 1. WHETHER ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 15,99,87,681/- MADE ON ACCOUNT OF PREMIUM PAYABLE ON REDEMPTION OF DEBENTURES. WHEREAS, IN THE ASSESSEES APPEAL FOLLOWING GROUND OF APPEAL HAS RAISED:- THE HONBLE CIT(A) ERRED ON FACTS AND CIRCUMSTANCE OF THE CASE IN CONFIRMING THE DISALLOWANCE U/S 14A READ WITH RULE 8D MADE BY THE AO AMOUNTING TO RS. 601,453/-. 3. THE FACTS, IN BRIEF, ARE THAT THE LD. AO ON EXAMINATION OF AUDITED ACCOUNTS AND FINANCIAL STATEMENTS NOTED THAT DURING THE RELEVANT FINANCIAL YEAR 2013-14, THE ASSESSEE COMPANY HAD ISSUED NON- CONVERTIBLE DEBENTURES WORTH RS. 86 CRORES ' REDEEMABLE AFTER 7 YEARS AT A PREMIUM OF 11.50%. IN THE PRECEDING FINANCIAL YEAR 2012-13 ALSO IT HAD ISSUED NON-CONVERTIBLE DEBENTURES WORTH RS. 75 CRORES REDEEMABLE AFTER 5 YEARS AT A PREMIUM OF 11%. THE ASSESSEE HAS CLAIMED A TOTAL AMOUNT OF RS. 15,99,87,681/- ON ACCOUNT OF PROVISION 3 FOR PAYMENT OF PREMIUM ON REDEMPTION OF THESE DEBENTURES FOR THE FINANCIAL YEAR 2013-14. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO JUSTIFY, WHY THE PREMIUM PAYABLE ON REDEMPTION OF DEBENTURES IS AN ALLOWABLE EXPENSE. IN ITS REPLY THE ASSESSEE SUBMITTED THAT 'THE ASSESSEE HAS BEEN FOLLOWING THE MERCANTILE/ ACCRUAL BASIS AND ACCORDINGLY THE SUM OF RS. 15,99,87,681/-, BEING THE PROPORTIONATE AMOUNT OF PREMIUM ACCRUED FOR THE YEAR, HAS BEEN BOOKED UNDER THE HEAD PREMIUM ON REDEMPTION OF DEBENTURES UNDER FINANCE EXPENSE'. 4. ASSESSEE HAS ALSO RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF MADRAS INDUSTRIAL INVESTMENT CORPN. LTD. VS. CIT (1997) 225 ITR 802 AND HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. INDIAN RAYON INDUSTRIES LTD. 236 CTR (BOM) 279 TO JUSTIFIED THE ALLOWABILITY OF PAYMENT OF PREMIUM PAYABLE ON REDEMPTION OF DEBENTURES. HOWEVER, THE LD. AO OBSERVED THAT ONLY AT THE TIME OF REDEMPTION OF DEBENTURES WHICH IS DEDUCTIBLE AND NOT ON PROVISIONAL BASIS EVERY YEAR DURING THE TENURE OF THE DEBENTURES. HE ACCORDINGLY DISALLOWED THE CLAIM OF RS. 15,99,87,681/- ON ACCOUNT OF PREMIUM PAYABLE ON REDEMPTION OF DEBENTURES ON PROPORTIONATE BASIS. 5. HOWEVER, LD. CIT (A) ACCEPTED THE ASSESSEES CONTENTION AFTER REFERRING TO THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. JAGATJIT INDUSTRIES LTD. 204 CTR 428 ACCEPTED THE ASSESSEES CONTENTION. THE RELEVANT OBSERVATION AND FINDING OF THE LD. CIT (A) READS AS UNDER:- 7.6 I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSESSING OFFICER AND SUBMISSION MADE BY THE APPELLANT. ON CAREFUL PERUSAL OF THE FACTS OF THE CASE OF THE APPELLANT AND JUDGMENT RELIED UPON BY THE ASSESSING OFFICER IN DECIDING THE ISSUE UNDER CONSIDERATION IT IS 4 NOTICED THAT IN THE CASE OF RAYMOND LTD. (SUPRA), THE HONBLE HIGH COURT OF BOMBAY HAS NOT TOUCHED THE INSTANT ISSUE UNDER APPEAL. THE HONBLE HIGH COURT HAS ONLY DECIDED THE ISSUE AS TO WHETHER THE PREMIUM PAYABLE ON REDEMPTION OF DEBENTURES IS REVENUE EXPENDITURE. THEREFORE, CASE REFERRED TO AND RELIED UPON BY THE ASSESSING OFFICER IS NOT APPLICABLE TO THE ISSUE UNDER APPEAL. 7.7 FURTHER, IT IS ALSO NOTICED THAT THE FACTS AND ISSUE IN THE JUDGMENTS REFERRED TO AND RELIED UPON BY THE APPELLANT ARE IDENTICAL/SIMILAR TO THE FACTS AND ISSUE OF THE INSTANT CASE OF THE APPELLANT. THE DECISION OF THE JURISDICTIONAL HIGH COURT OF DELHI FOLLOWING THE JUDGMENT OF THE HONBLE APEX COURT IN THE CASE OF CIT VS. JAGATJIT INDUSTRIES LTD. (SUPRA) ARE SQUARELY APPLICABLE TO THE ISSUE AND FACTS OF THE CASE UNDER APPEAL AND HENCE, IT ALSO ENDORSES THE APPELLANTS CLAIM IN RESPECT OF APPROPRIATION OF THE PREMIUM PAYABLE ON REDEMPTION OF THE DEBENTURES IN THE PROFIT & LOSS ACCOUNT ON THE PROPORTIONATE BASIS. HENCE, AFTER CONSIDERING THE FACTS OF THE CASE OF THE APPELLANT IN THE LIGHT OF JUDGMENTS CITED BEFORE ME BY THE APPELLANT IT IS HELD THAT THE ADDITION OF RS. 15,99,87,681/- AS MADE BY THE ASSESSING OFFICER IS NOT JUSTIFIED AND, HENCE, DELETED. 6. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE IMPUGNED ORDERS, WE FIND THE ONLY ISSUE BEFORE US IS, WHETHER PREMIUM PAYABLE ON REDEMPTION OF DEBENTURES IS ALLOWABLE WHEN WHICH IT IS ACTUALLY INCURRED IN THE YEAR OF REDEMPTION OF THE DEBENTURES OR COULD BE PROPORTIONATELY SPREAD OVER THE PERIOD PRESCRIBED FOR MATURITY OF SUCH DEBENTURES. THIS ISSUE AS NOTED BY THE LD. CIT(A) IS SQUARELY COVERED BY THE DECISION OF HONBLE HIGH COURT IN THE CASE OF CIT VS. JAGATJIT INDUSTRIES LTD. (SUPRA) WHEREIN THE HONBLE HIGH COURT RELIED UPON THE RATIO AND PRINCIPLE LAID DOWN BY THE HONBLE SUPREME COURT IN THE 5 CASE OF MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. WHEREIN IT WAS OBSERVED AS UNDER:- HAVING HEARD LEARNED COUNSEL FOR THE PARTIES, WE ARE OF THE VIEW THAT THE QUESTION SOUGHT TO BE AGITATED BEFORE US IS NO LONGER EXAMINABLE IN THE FACE OF AUTHORITATIVE PRONOUNCEMENT OF THE SUPREME COURT IN MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. V. COMMISSIONER OF INCOME TAX (SUPRA). THAT BEING SO, THE MOMENT THE DEBENTURES WERE ISSUED, THE LIABILITY HAD ARISEN AGAINST THE ASSESSEE WHICH WOULD CONSTITUTE ON EXPENDITURE ALLOWABLE UNDER SECTION 37 OF THE ACT. WHAT IS ARGUED BY THE REVENUE ALL THE TIME IS THAT THE LIABILITY COULD NOT BE SPREAD OVER ON A PROPORTIONATE BASIS AS HAS BEEN DONE BY THE ASSESSED IN THE INSTANT CASE. A SIMILAR ARGUMENT WAS ADVANCED EVEN BEFORE THE APEX COURT IN MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. V. COMMISSIONER OF INCOME TAX (SUPRA). REPELLING THE CONTENTION THAT THE LIABILITY CANNOT BE SPREAD OVER THE NUMBER OF YEARS FOR WHICH THE DEBENTURES WERE ISSUED, THEIR LORDSHIP OBSERVED THAT THE FACTS MAY JUSTIFY THE SPREADING OF THE LIABILITY OVER THE ENSUING YEARS. ALLOWANCE OF THE ENTIRE EXPENDITURE IN ONE YEAR, OBSERVED THEIR LORDSHIP, MIGHT GIVE A VERY DISTORTED PICTURE OF THE PROFITS OF A PARTICULAR YEAR. THERE IS IN THE LIGHT OF THE ABOVE AUTHORITATIVE PRONOUNCEMENT, NO ROOM FOR ANY CONTRARY VIEW. THE FACT THAT THE DEBENTURES COULD NOT HAVE BEEN REDEEMED ON BEFORE THE DATE OF THEIR MATURITY DOES NOT, IN OUR OPINION, MAKE ANY MATERIAL DIFFERENCE IN SO FAR AS THE APPLICATION OF THE PRINCIPLE STATED BY THE SUPREME COURT TO THE FACTS OF THE PRESENT CASE ARE CONCERNED. WHAT IS IMPORTANT IS THAT THE LIABILITY TO PAY PREMIUM ARISES IN THE YEAR IN WHICH THE DEBENTURES WERE ISSUED AND COULD BE PROPORTIONATELY SPREAD OVER 6 THE PERIOD PRESCRIBED FOR MATURITY OF SUCH DEBENTURES. IT MATTERS LITTLE WHETHER THE DEBENTURES WERE REDEEMABLE AT WILL OR ONLY UPON MATURITY. THE TRIBUNAL WAS IN THAT VIEW PERFECTLY JUSTIFIED IN ALLOWING THE DEDUCTION CLAIMED BY THE ASSESSEE. 7. THIS VIEW HAS BEEN REITERATED BY DIFFERENT HIGH COURTS IN THE FOLLOWING CASES A) CIT VS. FIRST LEASING COMPANY OF INDIA LTD. (MADRAS HIGH COURT) - TAX CASE B) NATIONAL ENGG. INDUSTRIES LTD. VS. CIT (CAL.) 236 ITR 577 C) CIT VS. TUBE INVESTMENTS (INDIA) LTD. 261 ITR 753 (MAD.) 8. THUS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) THAT ASSESSEES CLAIM IN RESPECT OF PROPORTIONATE PREMIUM ON REDEMPTION OF DEBENTURES AND IN THE PROFIT AND LOSS ACCOUNT ON THE PROPORTIONATE BASIS IS ALLOWED. THEREFORE, THE ADDITION HAS RIGHTLY BEEN DELETED. 9. NOW WE COME TO THE ASSESSEES APPEAL WHEREIN THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RS. 6,01,453/- U/S 14A READ WITH RULE 8D. 10. BRIEF FACTS ARE THAT THE AO NOTED THAT THE ASSESEE COMPANY HAS MADE AN INVESTMENT OF RS. 97,00,000/- AS ON 31.03.2014 AND AS ON 31.03.2014 IT WAS NIL. THE ASSESSEE HAS CLAIMED EXEMPT INCOME IN THE NATURE OF DIVIDEND ON MUTUAL FUNDS OF RS. 5,54,289/- AND HAS NOT DISALLOWED ANY EXPENDITURE U/S 14A IN COMPUTATION OF INCOME. THE AO COMPUTED THE DISALLOWANCE U/S 14A READ WITH RULE 8D AT RS. 6,01,453/-. THE AO HAD MADE THE DISALLOWANCE MAINLY ON THE COMPUTATION OF DISALLOWANCE PROVIDED BY THE ASSESSEE BEFORE THE AO. 7 11. HOWEVER, BEFORE THE LD. CIT(A) ASSESEE STATED IN THE WRITTEN SUBMISSIONS THAT HE HAD INVESTMENT AMOUNTING TO RS. 97,00,00/- IN THE GROWTH SCHEME OF INDIABULLS LIQUID FUND INCOME FROM WHICH IT IS TAXABLE AND FORM PART OF TOTAL INCOME. NO EXEMPT INCOME HAS BEEN EARNED ON THE SAID INVESTMENT IN THE ENTIRE PERIOD. EVEN ON MUTUAL FUND ASSESSEE HAS EARNED SHORT TERM CAPITAL GAIN ON THE SAID INVESTMENT WHICH WAS OFFERED TO TAX. LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE ON THE GROUND THAT FIRSTLY ASSESSEE HAS NOT MADE SUO MOTO DISALLOWANCE U/S 14A DESPITE THE FACT THAT IT HAD EARNED EXEMPT INCOME DURING THE YEAR AND SECONDLY ASSESSEE HAD ITSELF GIVEN A COMPUTATION OF DISALLOWANCE UNDER RULE 8D BEFORE THE AO AS AO HAD NO OPTION IN ABSENCE OF DETAILS OF COST RELATING TO EXEMPT INCOME. 12. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF IMPUGNED ORDERS , WE FIND THAT THE INVESTMENT WHICH HAS BEEN NOTED BY THE AO IS ON ACCOUNT OF INVESTMENT OF RS. 97,00,000/-IN THE GROWTH SCHEME OF INDIABULLS LIQUID FUND THE INCOME FROM WHICH IS TAXABLE AND FORM PART OF THE TOTAL INCOME. NO EXEMPT INCOME HAS BEEN EARNED ON SUCH INVESTMENT. AS ON 31 ST MARCH, 2014 THERE WAS NO INVESTMENT AS IT WAS DISCLOSED AS NIL. WHATEVER EXEMPT INCOME WAS EARNED WAS FROM MUTUAL FUND HELD EARLIER WHICH TOO WAS LIQUIDATED IN THIS YEAR AND SHORT TERM CAPITAL GAIN WAS OFFERED TO TAX. WHEN ASSESSEE HAD NOT MADE ANY DISALLOWANCE IN THE COMPUTATION OF INCOME AO AS PER MANDATE OF SECTION 14A(2) WAS REQUIRED TO EXAMINE THE ACCOUNTS OF THE ASSESSEE IF HE IS SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. HE HAS FAILED TO EVEN NOTE THAT THE INVESTMENT AS NOTED BY HIM WAS NOT CAPABLE OF YIELDING EXEMPT INCOME. THIS CLEARLY SHOWS THAT THERE WAS NO APPLICATION OF MIND BEFORE MECHANICALLY PROCEEDING TO MAKE THE DISALLOWANCE UNDER RULE 8D. HOWEVER NOWHERE IT IS BORNE 8 OUT THAT ASSESSEE HAD MADE ANY OFFER OR SURRENDER OF DISALLOWANCE BEFORE THE AO. IT IS JUST THAT WHAT SHOULD BE THE COMPUTATION OF DISALLOWANCE UNDER RULE 8D WHICH WAS WORKED OUT BY THE ASSESSEE BEFORE THE AO WITHOUT EVEN NOTING THE FACT THAT DISALLOWANCE ITSELF IS MORE THAN THE EXEMPT INCOME. UNDER THESE CIRCUMSTANCES WE DO NOT FIND ANY REASON FOR UPHOLDING THE DISALLOWANCE UNDER RULE 14A BECAUSE AO HAS FAILED TO RECORD HIS SATISFACTION HAVING REGARD TO THE ACCOUNTS MAINTAINED BY THE ASSESSEE AS REQUIRED U/S 14A (2). 13. IN THE RESULT THE APPEAL OF THE REVENUE AS WELL AS ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH JULY, 2021. SD/- SD/- (N.K. BILLAIYA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 08/07/2021 VEENA COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI