DCIT, New Delhi V. M/s Gulshan Polyols Ltd., Delhi

ITA 4150/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86622 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 6 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 29-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 05-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROBIN RAWAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

ITA NO. 4150/ DEL/ 2013 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C , NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI J.S. REDDY, ACCOUNTANT MEMBER I.T.A.NO. 4150 /DEL/201 3 A.Y. : 200 9 - 10 DCIT, CIRCLE 12(1), NEW DELHI VS. M/S GULSHAN POLYOLS LTD., G - 81, PREET VIHAR, DELHI 110 092 (PAN: AABCG3954F) (APPELLANT) (RESPONDENT) DEPARTMENT BY : SH. ROBIN RAWAL, SR. D.R. ASSESSEE BY : NONE DATE OF HEARING : 2 9 - 0 1 - 201 5 DATE OF ORDER : 30 - 01 - 201 5 ORDER PER H.S. SIDHU : J M THE REVENUE HAS FILED THE PRESENT APPEAL AGAINST THE IMPUGNED ORDER DATED 15 / 4 /20 1 3 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - XV , NEW DELHI ON THE FOLLOWING GROUNDS: - 1 . WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN DELETING THE ADDITION OF RS. 4,05,169/ - MADE BY THE AO U/S. 14A R.W.R. 8D? 2. WHETHER LD. CIT(A) WAS CORRECT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN RESTRICTING THE ADDITION OF RS. 14,31,859/ - ITA NO. 4150/ DEL/ 2013 2 MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF TRAVELLING EXPENSES OF THE ASSESSEE TO RS. 5,90,464/ - DESPITE THE FACT THAT THE LD. CIT(A) HAS CONFIRMED FINDINGS OF AO REGARDING NON MAINTENANCE AND NON FURNISHING OF DETAILS OF FOREX HANDED OVER TO THE DIRECTORS AN D THIS FACT ITSELF IS SUFFICIENT TO PROVE UTILIZATION OF CURRENCY FOR PERSONAL AND NON BUSINESS PURPOSES? 3. THE APPELLANT CRAVES LEAVE, TO ADD, ALTER OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 2. THE FACTS IN BRIEF ARE T HAT T HE ASSESSEE IS ENGAGED IN THE MANUFACTURING AND MARKETING OF SORBITOL, LIQUID GLUCOSE AND CALCIUM CARBONATE. DURING THE ASSESSMENT PROCEEDINGS, THE LD. AO OBSERVED THAT THE APPELLANT HAD MADE INVESTMENT FOR EARNING DIVIDEND INCOME AND ACCORDINGLY ASKE D THE APPELLANT TO EXPLAIN AS TO WHY DISALLOWANCE UNDER SECTION 14A MAY NOT BE MADE. THEREFORE, INVOKING THE PROVISIONS OF RULE 8D DISALLOWANCE OF AN AMOUNT OF RS. 405,169/ - WAS MADE. SECONDLY, IT WAS OBSERVED THAT THE ASSESSEE HAD SHOWN TRAVELING EXPENSES OF RS. 1,43,18,592/ - WHICH INCLUDED FOREIGN TRAVEL OF THE DIRECTORS AND FAMILY MEMBERS AND ACCORDINGLY, 10% OF THE TOTAL TRAVELLING EXPENSES WERE DISALLOWED FOR THE ELEMENT OF PERSONAL USE. 3. BEING AGGRIEVED WITH THE ASSESSMENT ORDER DATED 31.3.2009 , AS SESSEE APPEALED BEFORE THE LD. CIT(A), WHO VIDE IMPUGNED ORDER DATED 15 . 4 .201 3 HAS DELETED THE PART ADDITION BY PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. ITA NO. 4150/ DEL/ 2013 3 4 . NOW THE REVENUE IS AGGRIEVED AGAINST THE IMPUGNED ORDER AND FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 5 . NOTICE WAS SENT TO THE ASSESSEE ON THE ADDRESS GIVEN BY IT, HOWEVER, NONE APPEARED ON BEHALF OF THE ASSESSEE NOR ANY REQUEST FOR ADJOURNMENT IS FILED. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED OPINION THAT NO USEFUL PUR POSE WOULD BE SERVED TO ADJOURN THE CASE AGAIN AND AGAIN. THEREFORE, WE ARE DECIDING THE APPEAL , EXPARTE QUA ASSESSEE, AFTER HEARING THE LD. DR AND PERUSING THE RECORDS AVAILABLE ON RECORD. 6. HOWEVER, ASSESSEE HAS FILED THE WRITTEN SUBMISSIONS DATED 3 1 .1 2 .201 3 AND ALSO FILED A PAPER BOOK CONTAINING PAGES 1 TO 74 HAVING THE DETAILS/DOCUMENTS OF THE ASSESSMENT AND APPELLATE STAGE . 7 . AT THE TIME OF HEARING LD. DR RELIED UPON THE ORDER OF THE AO AND REITERATED THE CONTENTIONS RAISED BY THE REVENUE IN THE GROUNDS OF APPEAL . 8 . WE HAVE HEARD THE LD. DR AND PERUSED AND CONSIDERED THE RELEVANT RECORD AVAILABLE WITH US SPECIALLY THE IMPUGNED ORDER S PASSED BY THE REVENUE AUTHORITIES; WRITTEN SUBMISSIONS FILED BY THE ASSESSEE ALONGWITH THE PAPER BOOK . WE FIND THAT LD. FIRST APPELLATE AUTHORITY HAS E LABORATELY DISCUSSED THE ISSUE S IN DISPUTE BY CONSIDERING THE SUBMISSIONS OF THE LD. COUNSEL OF THE ASSESSEE AND ADJUDICATED THE ISSUE S IN DISPUTE AS UNDER: - 6. BEFORE ME, THE LD. APPELLATE COUNSEL MADE DETAILED SUBMISSIONS. REGARDING THE GROUND NO.1 OF THE APPEAL, IN RESPECT OF DISALLOWANCE UNDER SECTION 14A, IT WAS SUBMITTED THAT NONE OF THE INVESTMENTS ITA NO. 4150/ DEL/ 2013 4 WERE MADE OUT OF THE BORROWED FUNDS. IN THIS REGARD RELIANC E WAS PLACED ON THE DECISION OF PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES 323 ITR 518, IN WHICH THE HON'BLE HIGH COURT HAS HELD THAT NO DISALLOWANCE UNDER SECTION 14A IS REQUIRED UNLESS THERE IS EVIDENCE TO SHOW THAT INTEREST FREE F UNDS WERE INVESTED IN THE INVESTMENTS WHICH HAVE GENERATED THE 'TAX EXEMPT DIVIDEND INCOME.' THE LD. COUNSEL ALSO INFORMED THAT THE COMPANY HAD MADE INVESTMENT OF RS.2 CRORES IN THE SHARES BY UTILIZING THE SALE PROCEEDS OF INVESTMENTS EARLIER HELD BY THE A PPELLANT AND THEREFORE, PLEADED THAT NO BORROWED FUNDS WERE USED FOR MAKING INVESTMENT ON WHICH DISALLOWANCE UNDER SECTION 14A COULD HAVE BEEN MADE. 6.2 ON TRAVELLING EXPENSES, VIDE GROUND NO.2 OF THE APPEAL, THE APPELLANT SUBMITTED THAT NONE OF THE FAMIL Y MEMBERS OF THE APPELLANT COMPANY TRAVELLED ON COMPANY EXPENSE AS WAS HELD BY THE LD. AO. IT WAS INFORMED THAT THE FOREIGN TRAVEL EXPENSES WERE INCURRED BY COMPANY'S CHAIRPERSON AND MANAGING DIRECTOR FOR THEIR REGULAR TECHNOLOGY UPGRADATION. IT WAS INFORM ED THAT THE MANAGING DIRECTOR TRAVELLED TO VARIOUS EUROPEAN COUNTRIES TO HOLD DISCUSSION AND TO UNDERSTAND TECHNOLOGY OF SETTING UP OF SITE PLAN AT CUSTOMER'S SITE IN INDIA WHICH THEY SET UP WITH MAGNUM PAPER, SAHIBABAD. IT WAS SUBMITTED THAT THERE WAS NO PERSONA I ELEMENT EMBEDDED IN SUCH EXPENSES. REGARDING THE BALANCE DOMESTIC EXPENSES, IT WAS SUBMITTED THAT THE SAME WAS FOR ITA NO. 4150/ DEL/ 2013 5 BUSINESS PURPOSE AND WAS ALLOWABLE UNDER SECTION 37(1} AND NO ADVERSE OBSERVATIONS WERE MADE BY THE AUDITORS IN THIS REGARD. THE LD . COUNSEL FURNISHED TRAVEL - WISE DETAILS OF EXPENDITURE INCURRED BY THE CHAIRPERSON AND THE MANAGING DIRECTOR OF THE COMPANY FOR VARIOUS FOREIGN VISITS. 7. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE IN THE LIGHT OF THE SUBMISSION MADE BY THE APPELLA NT AND THE APPLICABLE LAW IN THIS REGARD. REGARDING GROUND NO.1 OF THE APPEAL RELATING TO DISALLOWANCE UNDER SECTION 14A, I FIND THAT THE LD. AO HAS APPLIED THE PROVISIONS OF RULE 8D AS A MANNER IT WAS MANDATORY BY LAW. 7.2 THE PROVISIONS OF RULE 8 D ARE N OT APPLICABLE FOR EACH AND EVERY CASE AND ARE TO BE APPLIED ONLY WHERE THE A.O. IS NOT SATISFIED WITH THE CLAIM OF THE APPELLANT, HAVING REGARD TO THE ACCOUNT OF THE APPELLANT IN RESPECT OF SUCH EXPENSES WHICH WERE ACTUALLY INCURRED FOR EARNING TAX EXEMPT INCOME. THE HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA) HAS HELD THAT THE LACK OF SATISFACTION OF THE AO SHOULD BE ON COGENT REASONS. THEREFORE, BEFORE INVOKING RULE 8D, THE AO OUGHT TO HAVE POINTED OUT ANY DISCREPANCY IN THE CLA IM MADE BY THE APPELLANT, HAVING REGARD TO ITS ACCOUNTS. IN THE ABSENCE OF ANY COGENT FINDING, THE LAW DOES NOT ALLOW THE AO TO USE THE PROVISIONS OF RULE 80 IN AN AUTOMATIC MANNER. ITA NO. 4150/ DEL/ 2013 6 7.2.2 IN VIEW OF THE ABOVE, I HOLD THAT THE AO HAS NOT RECORDED ANY SATISFACTION BEFORE INVOKING RULE 8D ON COGENT REASONS, AS IS THE REQUIREMENT UNDER SECTION 14A{2} AS INTERPRETED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS MAXOPP INVESTMENTS LTD. (64 DTR 122), AS THE CLAIM OF THE APPELLANT IN THIS REGARD WAS N OT REJECTED BY THE LD. AO ON COGENT GROUNDS, THE LD. AO WAS NOT EMPOWERED TO AUTOMATICALLY INVOKE THE PROVISIONS OF RULE 80. IN VIEW OF THIS, THE ADDITION MADE BY THE LD. AO BY INVOKING RULE 8 D FOR MAKING DISALLOWANCE UNDER SECTION 14A IS DELETED. 7.3 REG ARDING THE DISALLOWANCE OUT OF THE TRAVEL EXPENSES, I FIND THAT THE AO HAS NOT IDENTIFIED ANY ITEM OF EXPENDITURE WHICH WAS NOT ALLOWABLE UNDER SECTION 37{1} OF THE ACT. HE HAD OBSERVED THAT THE DIRECTORS AND FAMILY MEMBERS HAVE TRAVELLED ABROAD AND BY MAK ING SUCH GENERAL OBSERVATIONS, DISALLOWANCE OUT OF THE ENTIRE TRAVELLING EXPENSES {BOTH FOREIGN AND DOMESTIC} WAS MADE EQUAL TO 10% OF SUCH EXPENSES. THE LD. AR OF THE APPELLANT FURNISHED BEFORE ME THE DETAILS OF FOREIGN TRAVEL EXPENSES, WHICH SHOW THAT SU CH EXPENSES WERE IN RESPECT OF FOREIGN TRAVEL OF DR. C.K. JAIN, M.D OF THE COMPANY AND MRS. MRIDULA JAIN, CHAIRPERSON AND NO OTHER RELATIVE OR FAMILY MEMBER HAS TRAVELLED AT COMPANY'S EXPENSE. KEEPING IN VIEW THE SAME, THE VERY BASIS OF THE DISALLOWANCE MA DE BY THE LD. AO WAS FAULTY. DURING THE APPELLATE PROCEEDINGS I HAD ASKED THE AR TO FURNISH DETAILS OF FOREIGN TRAVELS ITA NO. 4150/ DEL/ 2013 7 ALONG WITH ITS BREAK UP IN AIR TRAVEL, HOTEL AND OTHER RELEVANT EXPENSES. I FIND THAT THE APPELLANT HAD INCURRED TOTAL AMOUNT OF RS.33,84 ,999 ON ACCOUNT OF FOREIGN TRAVEL EXPENSES. OUT OF THIS, AN AMOUNT OF RS.4,32,07 5 WAS INCURRED TOWARDS AIR TICKET EXPENSES, WHILE THE BALANCE AMOUNT OF RS.29, 5 2,324 WAS FOR PURCHASE OF FOREIGN EXCHANGE BY THE CHAIRPERSON/MD OF THE APPELLANT COMPANY. THE AP PELLANT DID NOT FURNISH DETAILS IN RESPECT OF THE USE OF FOREIGN CURRENCY PURCHASED, FOR THE PURPOSE OF BUSINESS OF THE APPELLANT COMPANY. KEEPING IN VIEW THE SAME, 20% OF THE AMOUNT SPENT ON PURCHASE OF FOREIGN CURRENCY IS BEING DISALLOWED BEING FOR USE FOR NON - BUSINESS PURPOSE DURING THE FOREIGN TRAVEL. ACCORDINGLY, THE ADDITION IS CONFIRMED TO THE EXTENT OF 5 ,90 ,4 64. THE APPELLANT, THEREFORE GETS RELIEF OF RS.8 4 L,394. IN THE ABSENCE OF ANY ADVERSE OBSERVATION, DOMESTIC TRAVEL EXPENSES ARE HELD AS ALLOW ABLE TO THE FULL EXTENT. 9 . WE FIND THAT CIT(A) HAS DECIDED THE ISSUE S IN DISPUTE IN FAVOR OF THE ASSESSEE AFTER APPRECIATING THE EVIDENCE FILED BY THE ASSESSEE AS WELL AS DECISION RENDERED BY THE HON BLE HIGH COURT. 9 .1 W ITH REGARD TO DISALLOWANCE O F EXPENDITURE RELATED TO EXEMPTED INCOME U/S. 14A RULE 8D IS CONCERNED, T HE PROVISIONS OF RULE 8D ARE NOT APPLICABLE FOR EACH AND EVERY CASE AND ARE TO BE APPLIED ONLY WHERE THE A.O. IS NOT SATISFIED WITH THE CLAIM OF THE ITA NO. 4150/ DEL/ 2013 8 A SSESSEE , HAVING REGARD TO THE AC COUNT OF THE APPELLANT IN RESPECT OF SUCH EXPENSES WHICH WERE ACTUALLY INCURRED FOR EARNING TAX EXEMPT INCOME. THE HON'BLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA) HAS HELD THAT THE LACK OF SATISFACTION OF THE AO SHOULD BE ON COGENT R EASONS. THEREFORE, BEFORE INVOKING RULE 8D, THE AO OUGHT TO HAVE POINTED OUT ANY DISCREPANCY IN THE CLAIM MADE BY THE APPELLANT, HAVING REGARD TO ITS ACCOUNTS. IN THE ABSENCE OF ANY CO GENT FINDING, THE LAW DOES NOT ALLOW THE AO TO USE THE PROVISIONS OF RUL E 8D IN AN AUTOMATIC MANNER. THEREFORE, WE FIND THAT LD. CIT(A) HAS RIGHTLY OBSERVED THAT THE AO HAS NOT RECORDED ANY SATISFACTION BEFORE INVOKING RULE 8D ON COGENT REASONS, AS IS THE REQUIREMENT UNDER SECTION 14A{2} AS INTERPRETED BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS MAXOPP INVESTMENTS LTD. (64 DTR 122), AS THE CLAIM OF THE A SSESSEE IN THIS REGARD WAS NOT REJECTED BY THE LD. AO ON COGENT GROUNDS, THE LD. AO WAS NOT EMPOWERED TO AUTOMATICALLY INVOKE THE PROVISIONS OF RULE 8 D . THEREFORE, THE LD. CIT(A) HAS DELETED THE ADDITION MADE BY THE AO. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE WELL REASONED ORDER PASSED BY THE LD. CIT(A) , HENCE, UPHOLD THE SAME BY DISMISSING THE AP PEAL FILED BY THE REVENUE . 9 .2 WITH REGARD TO GROUND RELATED TO RESTRICTING THE ADDITION OF RS. 14,31,859/ - MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF TRAVELLING EXPENSES OF THE ASSESSEE TO RS. 5,90,464/ - IS CONCERNED, ITA NO. 4150/ DEL/ 2013 9 WE FIND LD. CIT(A) HAS FOUND THAT THE AO HAS NOT IDENTIFIE D ANY ITEM OF EXPENDITURE WHICH WAS NOT ALLOWABLE UNDER SECTION 37{1} OF THE ACT. AO HAD OBSERVED THAT THE DIRECTORS AND FAMILY MEMBERS HAVE TRAVELLED ABROAD AND BY MAKING SUCH GENERAL OBSERVATIONS, DISALLOWANCE OUT OF THE ENTIRE TRAVELLING EXPENSES {BOTH FOREIGN AND DOMESTIC} WAS MADE EQUAL TO 10% OF SUCH EXPENSES. THE LD. AR OF THE ASSESSEE FURNISHED BEFORE THE CIT(A) THE DETAILS OF FOREIGN TRAVEL EXPENSES, WHICH SHOW THAT SUCH EXPENSES WERE IN RESPECT OF FOREIGN TRAVEL OF DR. C.K. JAIN, M.D OF THE COMPAN Y AND MRS. MRIDULA JAIN, CHAIRPERSON AND NO OTHER RELATIVE OR FAMILY MEMBER HAS TRAVELLED AT COMPANY'S EXPENSE. KEEPING IN VIEW THE SAME, THE VERY BASIS OF THE DISALLOWANCE MADE BY THE LD. AO WAS FAULTY. WE FIND THAT D URING THE APPELLATE PROCEEDINGS LD. CI T(A) ASKED THE AR TO FURNISH DETAILS OF FOREIGN TRAVELS ALONG WITH ITS BREAK UP IN AIR TRAVEL, HOTEL AND OTHER RELEVANT EXPENSES. LD. CIT(A) FOUND THAT THE A SSESSEE HAD INCURRED TOTAL AMOUNT OF RS.33,84,999 ON ACCOUNT OF FOREIGN TRAVEL EXPENSES. OUT OF THI S, AN AMOUNT OF RS.4,32,075 WAS INCURRED TOWARDS AIR TICKET EXPENSES, WHILE THE BALANCE AMOUNT OF RS.29,52,324 WAS FOR PURCHASE OF FOREIGN EXCHANGE BY THE CHAIRPERSON/MD OF THE APPELLANT COMPANY. THE ASSESSEE DID NOT FURNISH DETAILS IN RESPECT OF THE USE O F FOREIGN CURRENCY PURCHASED, FOR THE PURPOSE OF BUSINESS OF THE APPELLANT COMPANY. KEEPING IN VIEW THE SAME, 20% OF THE AMOUNT SPENT ON PURCHASE OF FOREIGN CURRENCY IS BEING ITA NO. 4150/ DEL/ 2013 10 DISALLOWED BEING FOR USE FOR NON - BUSINESS PURPOSE DURING THE FOREIGN TRAVEL. ACCO RDINGLY, THE ADDITION IS CONFIRMED TO THE EXTENT OF 5,90,464. THE ASSESSEE , THEREFORE GETS RELIEF OF RS.84L,394. IN THE ABSENCE OF ANY ADVERSE OBSERVATION, DOMESTIC TRAVEL EXPENSES ARE HELD AS ALLOWABLE TO THE FULL EXTENT. IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE WELL REASONED ORDER PASSED BY THE LD. CIT(A) , HENCE, UPHOLD THE SAME BY DISMISSING THE AP PEAL FILED BY THE REVENUE. 10 . IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE O PEN C OURT ON 30 / 0 1 /20 1 5 . SD/ - SD/ - [ J.S. REDDY] [ H.S. SIDHU ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 30 / 0 1 /201 5 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES ITA NO. 4150/ DEL/ 2013 11