ITO, New Delhi V. M/s Hexa Securities & Finance Co. Ltd., New Delhi

ITA 4425/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82179 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-12-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 01-10-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 22-07-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Revision of order; Rule of consistency
• Section: 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C, NEW DELHI) BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. NO.4425 /DEL/2013 ASSESSMENT YEAR : 2006-07 ITO, WARD 12(3), VS. M/S. HEXA SECURITIES & NEW DELHI FINANCE CO. LTD., 28, NAJAFGARH ROAD, NEW DELHI. GIR / PAN:AABCH0137K (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIVEK NANGIA, SR. DR RESPONDENT BY : SHRI ANIL JAIN, CA ORDER PER T.S. KAPOOR, AM: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST ORD ER OF LD. CIT(A) DATED 21.05.2013. THE REVENUE HAS TAKEN ONLY ONE G ROUND OF APPEAL WHICH READS AS UNDER: WHETHER LD. CIT(A) ERRED IN FACTS AND IN LAW IN DE LETING THE ADDITION OF RS.55,33,675/- U/S 14A OF THE I.T. ACT IGNORING THAT PROPORTIONATE AMOUNT OF INTEREST EXPENSES OF RS.2,97,68,883/- REL ATES TO EARNING OF DIVIDEND INCOME? 2. AT THE OUTSET, LD. A.R. INVITED OUR ATTENTION TO THE FACT THAT RULE 8D WAS NOT APPLICABLE IN THIS CASE AS THE YEAR UNDER C ONSIDERATION IS ASSESSMENT YEAR 2006-07 AND THE ASSESSEE HAS BEEN FOLLOWING TH E SYSTEM OF DISALLOWANCE U/S 14A ON THE BASIS OF LD. CIT(A)S O RDER U/S 263 IN 1999- 2000. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE H AS BEEN FOLLOWING THIS ITA NO.4425/DEL/2013 2 METHOD CONTINUOUSLY AND, THEREFORE, CIT(A) HAS ALLO WED THE RELIEF FOLLOWING THE ABOVE CONSISTENT POLICY OF THE ASSESSEE. 3. LD. D.R. ON THE OTHER HAND INVITED OUR ATTENTION TO THE ASSESSMENT ORDER DATED 26.12.2008 AND SUBMITTED THAT WHEN ASSE SSMENT ORDER WAS PASSED, RULE 8D WAS APPLICABLE BECAUSE THE SAME IS APPLICABLE FROM ASSESSMENT YEAR 2008-09 AND, THEREFORE, A.O. HAS RI GHTLY CALCULATED THE DISALLOWANCE. 4. IN HIS REJOINDER, LD. A.R. SUBMITTED THAT THE DA TE OF PASSING THE ASSESSMENT ORDER IS NOT RELEVANT AND SUBMITTED THAT RULE OF CONSISTENCY IS APPLICABLE TO THE ASSESSEE. 5. WE HAVE HEARD RIVAL PARTIES AND HAVE GONE THROUG H THE MATERIAL PLACED ON RECORD. WE FIND THAT THE A.O. HAS REJECTED THE DISALLOWANCE OFFERED BY ASSESSEE BY HOLDING AS UNDER: 17. IN VIEW OF THE ABOVE, THE EXPENSES INCURRED B Y THE ASSESSEE FOR MAKING INVESTMENT IS CLEARLY THE EXPENDITURE INCURRED BY I T FOR EARNING THE DIVIDEND INCOME WHICH IS NOT ALLOWABLE UNDER THE PROVISIONS OF SECTION 14A OF THE I.T. ACT, 1961. THE ASSESSEE ON ITS OWN HAS ADDED BACK OF RS. 2.42 CRORES FOLLOWING THE METHOD ADOPTED AND ADJUDICATED B THE CIT IN 1999-2000. THE SAME WAS FOLLOWED BY THE LD., CIT(A )IN 2004-05. HO WEVER, THE ORDER OF THE LD. CIT(A) IN ASSESSMENT YEAR 2004-05 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEAL TO RESTORE THE ORDER O THE A. O. HAS BEEN PREFERRED TO THE ITAT. THE ASSESSEE HAD INCURRED EXPENSES OF RS .3,21,33,662/- OUT OF WHICH EXPENSE OF RS.3,20,74,461/-, WAS INCURRED AS INTEREST PAID TO INTER CORPORATE LOANS. THESE BORROWED FUNDS WERE UTILIZE D FOR INVESTMENT IN SHARES AS WELL AS FOR ADVANCING LOANS ON WHICH DIVI DEND INCOME ARE RECEIVED. THEREFORE, THE EXPENSES ON BORROWED FUN DS ARE TO BE ALLOCATED IN RESPECT OF THEIR UTILIZATION. THE ASSESSEE HAS INV ESTED RS.56,64,79.938/- IN SHARES AND RS. 4,50,00,000/-FOR LOANS GIVEN BY IT. THEREFORE, THE INTEREST EXPENSES PERTAINING TO INVESTMENT MADE BY THE ASSES SEE ON PROPORTIONATE BASIS ARE RS. 2,97,14,039/-,. THESE EXPENSES ARE P ERTAINING TO THE INTEREST COST FOR EARNING THE DIVIDEND INCOME. BESIDES THE I NTEREST EXPENSES, THE ASSESSEE HAS INCURRED OTHER EXPENSES OF RS. 59201/- FOR EARNING THE TOTAL INCOME SHOWN BY IT. THE PROPORTIONATE EXPENSES RELA TED TO DIVIDEND INCOME ITA NO.4425/DEL/2013 3 COME TO RS. 54844/-. THEREFORE, THE TOTAL EXPENSES INCURRED BY THE ASSESSEE FOR EARNING DIVIDEND INCOME AMOUNTS TO RS. 29768883 /-. THESE EXPENSES OF RS. 2,97, 68,883/- INCURRED BY THE ASSESSEE FOR EAR NING' DIVIDEND INCOME ARE NOT ALLOWABLE UNDER THE PROVISIONS OF SECTION 14A. HOWEVER, SINCE THE ASSESSEE HAS ON ITS OWN ADDED BACK AN AMOUNT OF RS. 2,42,35,208/- BY FOLLOWING THE ORDER OF THE LD. CIT(A) WHICH IN TUR N HAS NOT BEEN ACCEPTED BY THE DEPARTMENT THE BALANCE AMOUNT OF EXPENSES AT TRIBUTABLE TO EARNING INCOME NOT FORMING PART OF TOTAL INCOME I.E. RS. (2 ,97,68,883/- (-) 2,42,35,208/-) I.E. RS.55,33,675/- IS DISALLOWED UN DER THE PROVISIONS OF SECTION 14A AND ADDED BACK TO THE INCOME OF THE ASS ESSEE. SINCE, I AM SATISFIED THAT THE ASSESSEE HAS FURNISHED INACCURAT E PARTICULARS OF ITS INCOME, PENALTY PROCEEDINGS U/S 271 (1) (C) ARE BEING INITI ATED SEPARATELY. (ADDITION OF RS. 55,33,675/-) 6. FROM THE ABOVE, WE FIND THAT A.O. WAS AWARE OF T HE FACT THAT THE ASSESSEE MADE DISALLOWANCE U/S 14A FOLLOWING THE ME THOD ADOPTED AND ADJUDICATED BY CIT IN 1999-2000. LD. CIT(A) HAS AL SO MADE FINDING OF FACT THAT ASSESSEE HAS BEEN FOLLOWING THE METHOD OF DISA LLOWANCE FROM 1999- 2000. THE RELEVANT FINDING OF CIT(A) IS REPRODUCED BELOW: 2.3. AFTER GOING THROUGH THE FACTS OF THE CASE, TH E OBSERVATIONS OF THE A.O. AND THE SUBMISSIONS OF THE A.R. OF THE APPELLA NT, THESE GROUNDS ARE BEING FINALIZED AFTER MAKING THE FOLLOWING OBSE RVATIONS: (I) ON THE BASIS OF THE VARIOUS FACTS AND PRONOUNC EMENTS ON THE ISSUE, IT APPEARS THAT THE APPELLANT HAS BEEN FOLLO WING A CONSISTENT METHOD OF MAKING DISALLOWANCE U/S 14A OF THE LT. AC T IN VARIOUS EARLIER AND SUBSEQUENT YEARS. THE ASSESSING OFFICER HAS HIMSELF MENTIONED IN THE ORDER THAT THE APPELLANT HAD MADE THE DISALLOWANCE AS PER THE METHOD DEVISED BY THE CIT U/S 263 FOR A. Y. 1999-2000, COPIES OF THE DECISIONS OF THE HON'BLE ITAT FOR A.Y . 2007-08 AS WELL AS THE ORDERS OF CITCA) FOR EARLIER YEARS WERE ALSO PROVIDED BY THE A.R. OF THE APPELLANT. THESE ORDERS HAVE CONSISTENT LY HELD THAT SINCE PRIOR TO AY 2007-08 THERE WAS NO REQUIREMENT TO FOL LOW RULE 8D FOR DISALLOWANCE U/S 14A, A CONSISTENT METHODOLOGY WHIC H WAS REASONABLE WAS BEING FOLLOWED BY THE APPELLANT AND THERE WAS NO REASON TO DISTURB THE SAME. THE HON'BLE ITAT FOR AY 2007-08 HAS ALSO DECIDED THE ISSUE IN FAVOUR OF THE APPELLANT. ITA NO.4425/DEL/2013 4 (B) AFTER GOING THROUGH THE VARIOUS PRONOUNCEMENTS IN THE APPELLANT'S OWN CASE FOR EARLIER YEARS AS WELL AS C ONSISTENT METHODOLOGY ON THE BASIS OF WHICH THE APPELLANT HAS BEEN DISALLOWING THE EXPENSES U/S 14A, IT IS CLEAR THAT ASSESSING OF FICER DID NOT HAVE ANY PROPER JUSTIFICATION FOR DISTURBING THE CONSISTENT AND REASONABLE SYSTEM OF DISALLOWANCE BEING FOLLOWED BY THE APPELL ANT IN EARLIER AND LATER YEARS ALSO. ACCORDINGLY, KEEPING IN VIEW THE ISSUE OF REASONABLENESS AS WELL AS THE CONSISTENCY, I DO NOT FIND ANY REASON FOR UPHOLDING THE ADDITION MADE BY THE ASSESSING OFFICE R IN THIS REGARD. AS A RESULT, THESE GROUNDS OF THE APPELLANT SUCCEEDS T O THE EXTENT THAT THE INITIAL DISALLOWANCE MADE BY THE APPELLANT AMOUNTIN G TO RS.2,42,35,208/- SHOULD BE ACCEPTED. AS A RESULT, T HESE GROUNDS OF THE APPELLANT ARE TREATED AS ALLOWED. 7. FROM THE ABOVE FINDING OF LD. CIT(A), WE OBSERVE THAT CIT(A) HAS ALLOWED RELIEF TO THE ASSESSEE BY FOLLOWING RULE OF CONSISTENCY AND ALSO ON THIS BASIS THAT ITAT FOR ASSESSMENT YEAR 2007-08 HA S ALSO FOLLOWED THE SAME RULE OF CONSISTENCY. THEREFORE, WE DO NOT FIN D ANY INFIRMITY IN THE ORDER OF LD. CIT(A). 8. IN VIEW OF ABOVE, APPEAL FILED BY THE REVENUE IS DISMISSED. 9. ORDER PRONOUNCED IN THE OPEN COURT ON 05 TH DEC., 2014. SD./- SD./- (GEORGE GEORGE K.) (T.S. KAPOOR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE: 05 TH DEC., 2014 SP COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT (A)-, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DEL HI. TRUE COPY. BY ORDER (ITAT, NEW DELHI). ITA NO.4425/DEL/2013 5 S.NO. DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON SR. PS/PS 2 DRAFT PLACED BEFORE AUTHOR SR. PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/AM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR. PS/PS 6 KEPT FOR PRONOUNCEMENT SR. PS/PS 7 FILE SENT TO BENCH CLERK SR. PS/PS 8 DATE ON WHICH THE FILE GOES TO HEAD CLERK 9 DATE ON WHICH FILE GOES TO A.R. 10 DATE OF DISPATCH OF ORDER