DCIT, New Delhi V. M/s. Oscar Investments Ltd., New Delhi

ITA 4088/DEL/2014

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6801 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 09-02-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 21-07-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E : NEW DELHI BEFORE SHRI H.S.SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. : 40 88/D EL/2014 (ASSESSMENT YEAR: 2011 12 ) DCIT CIRCLE 13 (1) NEW DELHI VS. OSCAR INVESTMENTS LIMITED 54 J ANPATH CONNOUGHT PLACE NEW DELHI PAN AAACO1722C (APPELLANT) (RESPONDENT) APPELLANT BY : SH. RAJESH KUMAR SENIOR DEPARTMENTAL REPRESENTATIVE RESPONDENT BY: SH. TARANDEEP SINGH , CA DATE OF HEARING 09/02/2017 DATE OF PRONOUNCEMENT 09 /0 2 /2017 O R D E R PER PRASHANT MAHARISHI, A. M. 01. THIS APPEAL IS PREFERRED BY REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) XVII - B, NEW DELHI DATED 30/04/2014. 02. THE REVENUE HAS RAISED IN ALL 3 EFFECTIVE GROUNDS OF APPEAL AS UNDER: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ADDED IN DELETING THE DISALLOWANCE OF RS. 1, 92, 77, 595/ UNDER SECTION 14 A OF THE ACT WITHOUT APPRECIATING THE FACTS GIVEN BY THE AO IN ITS ASSESSMENT ORDER AND THE DETAILED CALCULATIONS AS PER THE PROVISIONS OF THE ACT. 2. ON THE FACTS AND THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ADDED IN DELETING THE ABOVE DISALLOWANCE BY IGNORING THE FACT THAT THE ASSESSEE HAS FAILED TO P RODUCE ANY JUSTIFICATION REGARDING NEXUS BETWEEN BORROWINGS AND INVESTMENTS AND LOANS AND ADVANCES WHICH INVARIABLY INDICATES THAT FINANCE COSTS HAVE BEEN INCURRED TOWARDS FINANCING OF INVESTMENTS, YIELDING EXEMPT INCOME. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) HAS ADDED IN DELETING THE ABOVE DISALLOWANCE BY FAILING TO APPRECIATE THAT THE PROVISIONS LAID DOWN BY THE ACT THROUGH SECTION 14 A READ WITH RULE 8D AS PER WHICH ALL THE CLAUSES (I), (II) AND (III) OF SUBSECTION TO ARE DULY APPLICABLE EVEN IF SUCH DIRECT EXPENSES HAVE BEEN ADDED BACK BY THE ASSESSEE ON ITS OWN. 03. BRIEFLY STATED ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF INVESTMENT/DEALING IN SHARES AND SECURITIES AND FINANCING ACTIVITIES, WHO FILED ITS RETURN OF INCOME ON 23/09/2011 DECLARING AN INCOME OF RS. 6 9, 00, 44, 440/ . DURING THE YEAR THE COMPANY HA S EARNED DIVIDEND INCOME OF RS. 1, 10, 58, 833/ WHICH IS BEEN CLAIMED AS EXEMPT IN THE RETURN OF INCOME AND THEREFORE THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY DISALLOWANCE UNDER SECTION 14 A READ WITH RULE 8D BE NOT MADE AT THE RATE OF 0.5% ON AVERA GE VALUE OF INVESTMENT AS PER THE BALANCE SHEET. IN RESPONSE TO THIS, THE ASSESSEE SUBMITTED THAT IT HAS ALREADY MADE DISALLOWANCE OF EXPENDITURE OF RS. 2.13 CRORES AGAINST THE EXEMPT DIVIDEND INCOME OF RS. 1.11 CRORES. IT IS FURTHER SUBMITTED THAT IT IS D ISALLOWED THE ENTIRE EXPENDITURE OF RS. 2.13 CRORES INCURRED BY THE ASSESSEE ON ACCOUNT OF PERSONNEL, ADMINISTRATIVE AND OTHER EXPENSES. HOWEVER THE LD. ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND THEREFORE HE COMPUTED THE DISALLOWA NCE AS PER RULE 8D (2) (III) OF RS. 4 055 1458/ BEING 0.5% OF THE AVERAGE VALUE OF INVESTMENT. OUT OF THIS THE ASSESSEE HAS ALREADY DISALLOWED RS. 2 127 3863/ AND THEREFORE HE MADE AND BALANCE DISALLOWANCE OF RS. 1 927 7595/ . ASSESSEE AGGRIEVED WITH THE ORDER OF THE LD. AO PREFERRED APPEAL BEFORE THE LD. CIT (A) WHO IN TURN DELETED THE DISALLOWANCE OF RS. 1 927 7595/ . REVENUE BEING AGGRIEVED WITH THE ORDER OF THE LD. CIT APPEAL HAS PREFERRED AN APPEAL BEFORE US RAISING ABOVE GROUNDS OF APPEAL. 04. ALL THE 3 GROUNDS OF APPEAL ARE RELATED TO THE DISALLOWANCE UNDER SECTION 14 A OF THE INCOME TAX ACT READ WITH RULE 8D OF THE INCOME TAX RULES 1962. 05. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT PROVISIONS OF RULE 8D ARE APPLICABLE IN THE CASE OF THE ASSESSEE AND THE ASSESSEE IS DISALLOWED A SUM LESS THAN THAT AND THEREFORE THE BALANCE DISALLOWANCE OF RS. 19277595/ - HAS BEEN CORRECTLY MADE BY THE ASSESSING OFFICER. 06. THE LD. AUTHORIZED REPRESENTATIVE SUBMITTED THAT THAT ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 1.11 CRORES AND AGAINST WHICH THE DISALLOWANCE ALREADY MADE BY THE ASSESSEE IS RS. 2.13 CRORES THEREFORE THERE IS NO ERROR IN THE ORDER OF THE LOADED CIT APPEAL. HE FURTHER SUBMITTED THAT EVEN OTHERWISE THE DISALLOWANCE UNDER RULE 8D CANNOT EXCEED THE AMOU NT OF EXEMPT INCOME. HE FURTHER STATED THAT ALL EXPENDITURE INCURRED BY THE ASSESSEE HAS BEEN DISALLOWED OF RS. 2.13 CRORES AND THEREFORE THERE IS NO OTHER EXPENDITURE INCURRED BY THE ASSESSEE. 07. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND ALSO PR ODUCED THE ORDERS OF THE LOWER AUTHORITIES. IN THE PRESENT CASE THE ASSESSEE HAS EARNED EXEMPT DIVIDEND INCOME OF RS. 11058833/ - AND ASSESSEE ON ITS OWN HAS DISALLOWED A SUM OF RS. 21952010/ IN THE FORM OF RS. 678146/ - OUT OF INTEREST AND RS. 21273864/ I N ACCORDANCE WITH THE CLAUSE (III) OF SUB RULE 2 OF RULE 8 D UNDER SECTION 14 A OF THE INCOME TAX ACT. RECENTLY, THE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS VS ACIT [TS - 92 - HC - 2015(DEL) - O ] HELD THAT DISALLOWAN CE UNDER SECTION 14A OF THE ACT MUST NOT BE MADE TO THE EXTENT THAT IT IS ALMOST EQUAL TO OR MORE THAN THE ACTUAL DIVIDEND INCOME RECEIVED BY THE ASSESSEE. SIMILAR VIEW HAS ALSO BEEN TAKEN RECENTLY BY THE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PR. CIT V. EMPIRE PACKAGE PVT. LTD.: ITA NO. 415 OF 2015. AS IN THE PRESENT CASE DISALLOWANCE UNDER SECTION 14 A READ WITH RULE 8D HAS ALREADY EXCEEDED BY THE SUO MOTO DISALLOWANCE MADE OF THE ASSESSEE AMOUNTING TO RS. 21952010/ AGAINST THE EXEMPT INCOME OF RS. 11058833/ THEREFORE NO FURTHER DISALLOWANCE CAN BE IMPUTED. IN VIEW OF THIS, WE DISMISS GROUND NO. 1 TO 3 OF THE APPEAL OF THE REVENUE. 08. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRO NOUNCED IN THE OPEN COURT ON 09 /02/ 2017. - SD/ - - SD/ - (H.S.SIDHU) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 09 /02/2017 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI