Bhatia Estates Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 4059/DEL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3334 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 15-07-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PADAM SINGH SENIOR
• Assessee Lawyers: R K SINGHAL
• Keywords: Earning of tax free income
• Section: 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A : NEW DELHI) BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.4059/DEL./2016 (ASSESSMENT YEAR : 2012-13) M/S. BHATIA ESTATES PVT. LTD., VS. DCIT, CIRCLE 4 (2), 345, TARUN ENCLAVE, PITAMPURA, NEW DELHI. NEW DELHI 110 034. (PAN : AAACB5182B) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.K. SINGHAL, CA REVENUE BY : SHRI PADAM SINGH, SENIOR DR DATE OF HEARING : 27.02.2018 DATE OF ORDER : 09.03.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, M/S. BHATIA ESTATES PVT. LTD. (HEREI NAFTER REFERRED TO AS THE ASSESSEE COMPANY) BY FILING TH E PRESENT APPEAL, SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 25.05. 2016 PASSED BY LD. CIT(APPEALS)-2, NEW DELHI QUA THE ASSESSMENT YE AR 2012-13 ON THE GROUNDS INTER ALIA THAT :- 1) THAT VIDE ORDER DATED 25.05.2016 THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II HAS ERRED I N FACT AND LAW BY DISMISSING THE APPEAL FILED BY THE ITA NO.4059/DEL./2016 2 APPELLANT AND THEREBY UPHOLDING THE ASSESSMENT ORDE R 26.03.2015 PASSED BY THE LD. ASSESSING OFFICER. 2) THAT VIDE ORDER DATED 25.05.2016 THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II HAS ERRED I N FACT AND LAW BY HOLDING THAT THE ASSESSING OFFICER HAS CORRECTLY MADE THE DISALLOWANCE OF EXPENSES AMOUNTI NG TO RS.5,16,113/-UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX ACT. 3) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II HAS ERRED IN THE MATTER OF FACT IN IGN ORING THAT THE ASSESSEE HAS UTILIZED ITS OWN FUNDS TO MAK E THE INVESTMENT. 4) THAT VIDE ORDER DATED 25.05.2016 THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II HAS ERRED I N FACT AND LAW BY DISALLOWING INTEREST ON TDS AMOUNTI NG TO RS.11,379/- UNDER SECTION 37(1) OF THE INCOME TA X ACT, 1961. 5) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-II HAS ERRED IN THE MATTER OF BET IN IGNO RING THAT THE LEARNED ASSESSING OFFICER HAS DISALLOWED T HE INTEREST ON TDS WITHOUT GIVING ANY JUSTIFIABLE REAS ON FOR THE SAME. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICA TION OF THE CONTROVERSY AT HAND ARE : ASSESSING OFFICER BY INVO KING THE PROVISIONS CONTAINED UNDER SECTION 14A OF THE INCOM E-TAX ACT, 1961 (FOR SHORT THE ACT) READ WITH RULE 8D(II) & (III) OF THE INCOME-TAX RULES, 1962 (FOR SHORT THE RULES) MADE ADDITION OF RS.5,16,113/- ON THE GROUND THAT THE EXPENSE RELATE D TO EXEMPT INCOME ARE TO BE DISALLOWED. ITA NO.4059/DEL./2016 3 3. ASSESSEE COMPANY CARRIED THE MATTER BY WAY OF FI LING APPEAL BEFORE THE LD. CIT (A) WHO HAS CONFIRMED THE ADDITI ON BY DISMISSING THE APPEAL. FEELING AGGRIEVED, THE ASSE SSEE COMPANY HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING TH E PRESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 5. UNDISPUTEDLY, THE ASSESSEE COMPANY HAS EARNED DI VIDEND INCOME OF RS.1,75,000/- BY WAY OF MAKING INVESTMENT IN ITS GROUP COMPANY, NAMELY, M/S. BHATIA NURSERY & PLANTATION P RIVATE LIMITED DURING THE YEAR UNDER ASSESSMENT BY INVESTI NG RS.14,00,000/-. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE COMPANY HAS INCURRED INTEREST EXPENDITURE OF RS.94,01,250/- DURING THE YEAR UNDER ASSESSMENT. 6. LD. DR FOR THE REVENUE RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 7. THE FIRST CONTENTION RAISED BY THE LD. AR FOR TH E ASSESSEE COMPANY THAT SINCE THE ASSESSEE COMPANY IS HAVING S UFFICIENT RESERVES AND SURPLUS, THE PRESUMPTION GOES IN FAVOU R OF THE ASSESSEE COMPANY THAT INVESTMENT HAS BEEN MADE FROM THE SURPLUS ITA NO.4059/DEL./2016 4 FUNDS. FROM THE PERUSAL OF THE BALANCE SHEET DULY PERUSED BY LD. CIT (A) IN PARA 2 OF THE IMPUGNED ORDER, IT IS APPA RENT ON RECORD THAT THE ASSESSEE COMPANY HAS SURPLUS FUND OF RS.6, 97,76,036/- IN FY 2010-11 AND RS.7,85,21,636/- IN FY 2011-12. WHE N THIS FACT IS EXAMINED IN THE LIGHT OF THE FACT THAT THE ASSES SEE COMPANY HAS INVESTED ONLY RS.14,00,000/- DURING THE YEAR UNDER ASSESSMENT ON WHICH IT HAS EARNED DIVIDEND INCOME OF RS.1,75,000/ -, IT GOES TO PROVE THAT THE ASSESSEE COMPANY HAS NOT INCURRED AN Y INTEREST BEARING FUNDS ON THE SAME, THOUGH IT HAS PAID INTER EST OF RS.94,01,250/- WHICH IS ON OTHER INVESTMENTS NOT BE ARING ANY DIVIDEND DURING THE YEAR UNDER ASSESSMENT. 8. BUT AT THE SAME TIME, ASSESSEE COMPANY HAS RECEI VED INTEREST INCOME OF RS.1,55,23,051/- AND HAVING NET INCOME OF RS.61,21,801/-. AO HAS DISALLOWED THE AMOUNT OF RS .4,53,731/- UNDER RULE 8D(II) OF THE ACT. WE ARE OF THE CONSID ERED VIEW THAT WHEN UNDISPUTEDLY THE ASSESSEE COMPANY WAS HAVING S UFFICIENT INTEREST FREE FUNDS AT ITS DISPOSAL NO ADDITION UND ER SUB-RULE (II) OF RULE 8D CAN BE MADE. 9. HOWEVER, AT THE SAME TIME, WHEN UNDISPUTEDLY THE ASSESSEE COMPANY HAS MADE INVESTMENT OF RS.14,00,000/- DURIN G THE YEAR UNDER ASSESSMENT AND EARNED EXEMPT DIVIDEND INCOME OF S.1,75,000/-, THE DISALLOWANCE CANNOT BE 295% OF TH E TAX EXEMPT ITA NO.4059/DEL./2016 5 INCOME. HONBLE HIGH COURT OF DELHI IN JOINT INVESTMENTS PVT. LTD. VS. CIT MANU/DE/1144/2015 HELD THAT THE OPERATION OF TAX EXEMPT INCOME CANNOT SWALLOW THE ENTIRE AMOUNT AS H AS HAPPENED IN THIS CASE, AND THIS IS NOT MANDATE OF SECTION 14 A READ WITH RULE 8D OF THE RULES. 10. THE AO HAS SPECIFICALLY DISALLOWED RS.62,382/- @ % OF THE AVERAGE VALUE OF RS.1,24,76,300/- WHEREAS DIVID END HAS BEEN EARNED BY THE ASSESSEE COMPANY ONLY ON THE INVESTME NT OF RS.14,00,000/- THAT TOO IN ITS GROUP COMPANY. SO, AT THE MOST, DISALLOWANCE CAN BE MADE BY THE AO @ % OF THE AVE RAGE VALUE OF INVESTMENT OF RS.14,00,000/- ON WHICH THE ASSESS EE COMPANY HAS EARNED THE DIVIDEND INCOME. SO, WE DIRECT THE AO TO MAKE DISALLOWANCE U/S 14A READ WITH RULE 8D (III) ACCORD INGLY. SO, THIS ISSUE IS PARTLY DECIDED IN FAVOUR OF THE ASSESSEE C OMPANY. 11. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, THE P RESENT APPEAL FILED BY THE ASSESSEE COMPANY IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 9 TH DAY OF MARCH, 2018. SD/- SD/- (B.P. JAIN) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 9 TH DAY OF MARCH, 2018 TS ITA NO.4059/DEL./2016 6 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-2, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.