M/s. Interglobe Enterprises Ltd., Gurgaon V. DCIT, New Delhi

ITA 4698/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3417 (ITAT-DELHI)
• Duration Of Justice: 8 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 18-07-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 28-10-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: TAPASH RAM MISHRA S
• Keywords: Business income; Earning of tax free income; Question of law
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C NEW DELHI) BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER I.T.A. NO.4698/D/2010 ASSESSMENT YEAR: 2005-06 M/S INTERGLOBE ENTERPRISES LTD., VS. D.C.I.T., BLOCK-2B, DLF CORPORATE PARK, CIRCLE 11(1), DLF CITY, PHASE-III, GURGAON NEW DELHI (HARYANA) PAN NO.AAACI 1393M I.T.A. NO.4895/D/2010 ASSESSMENT YEAR :2005-06 D.C.I.T., VS. M/S INTERGLOBE ENTERPRISES LTD., CIRCLE 11(1), BLOCK-2B, DLF CORPORATE PARK, NEW DELHI DLF CITY, PAHSE-III, GURGAON (HARYANA) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI TAPASH RAM MISHRA, ADVOCATES DEPARTMENT BY : SHRI ROHIT GARG, SR. DR ORDER PER K.G. BANSAL: AM: THESE CROSS APPEALS OF THE ASSESSEE AND THE REVENUE ARISE FR OM THE ORDER OF CIT(A)-XIII, NEW DELHI, PASSED ON 15.09. 2010 IN APPEAL NO.117/2009-10. THE FACTS OF THE CASE, RELEVANT FOR OUR PURPOSE, ARE THAT THE ASSESSEE FILED ITS RETURN ON 19.10.2005 DECLARI NG TOTAL INCOME OF `2,10,61,809/-. THE RETURN WAS PROCESSED U/S 143(1) OF THE INCOME- TAX ACT, 1961, ON 18.11.2006 AND THEREAFTER IT WAS T AKEN UP FOR SCRUTINY BY ISSUING STATUTORY NOTICES U/S 143(2) AND 142( 1). IT WAS INTER ALIA FOUND THAT THE ASSESSEE EARNED DIVIDEND INCO ME OF `26,26,94,700/-, WHICH IS NOT INCLUDIBLE IN THE TOTA L INCOME BY DINT OF THE PROVISION CONTAINED IN SECTION 10(34) OF THE ACT. THE EXPENSES 4895-4698-2010-IE 2 INCURRED IN EARNING SUCH AN INCOME HAVE TO BE DISALLO WED U/S 14A. THEREFORE, THE ASSESSEE WAS REQUIRED TO FURNISH THE DETAI LS OF EXPENSES INCURRED FOR EARNING DIVIDEND INCOME. NO SUCH DETAI L WAS FILED. HOWEVER, IT WAS SUBMITTED THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE DIVIDEND INCOME. NOT SATISFIED WITH THIS EXPLANATION, THE ASSESSEE WAS REQUIRED TO STATE WHY A DISALLOWANCE SHOULD NO T BE MADE FROM THE TOTAL EXPENDITURE INCURRED IN THIS YEAR IN PROPORTION OF DIVIDEND INCOME AND TOTAL INCOME. CERTAIN OBJECTIO NS WERE MADE REGARDING THE COMPUTATION, WHICH WERE ACCEPTED BY T HE ASSESSING OFFICER. FINALLY, HE CAME TO THE CONCLUSION THAT AN AMOUNT OF `4,31,89,482/- IS REQUIRED TO BE DISALLOWED UNDER THE AFORESAID PROVISION. 1.1 AGGRIEVED BY THIS ORDER, THE ASSESSEE MOVED AN APPEA L BEFORE THE LEARNED CIT(A). IT WAS SUBMITTED THAT THE EXPEND ITURE WHICH HAS NEXUS WITH THE EARNING OF EXEMPT INCOME CAN BE DISALL OWED UNDER THE AFORESAID PROVISION. THE ASSESSEE HAD A MIXED POOL OF FU NDS IN WHICH OWN FUNDS WERE MORE THAN THE BORROWED FUNDS. IT WAS F URTHER SUBMITTED THAT THERE IS NO NEXUS BETWEEN BORROWED FUND S AND INVESTMENT MADE IN DIVIDEND YIELDING INSTRUMENTS, THE BURDEN OF WHICH WAS ON THE ASSESSING OFFICER. IN ABSENCE THEREOF, NOTHIN G COULD BE DISALLOWED FROM INTEREST EXPENDITURE. THE ADMINISTRAT IVE AND MANAGERIAL EXPENSES ALSO DO NOT RELATE TO THE EARNING OF DIVIDEND INCOME. THE LEARNED CIT(A) CONSIDERED THESE SUBMISSIONS. HE CAME TO THE CONCLUSION THAT WHILE MOST OF THE EXPENDITURE HAS BEEN INCURRED IN THE COURSE OF NORMAL BUSINESS ACTIVITIES, IT CANNOT B E RULED OUT THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE DIV IDEND INCOME. HE LISTED A NUMBER OF EXPENSES ON PAGE 15 OF HIS ORDER FOR THIS PURPOSE. THEREAFTER, HE PROCEEDED TO DISALLOW A PART OF EXPEN DITURE ON A REASONABLE BASIS. IN THIS CONNECTION, IT IS MENTIONED T HAT THE TOTAL ASSETS OF THE COMPANY ARE ABOUT `98.3 CRORES. THE INVE STMENT IN DIVIDEND YIELDING INCOME IS ABOUT `5.2 CRORES, I.E., ABOUT 5% OF THE 4895-4698-2010-IE 3 TOTAL ASSETS. IN VIEW THEREOF, IT WAS HELD THAT IT WOU LD BE REASONABLE TO DISALLOW 15% OF SALARY AND REMUNERATION PAID TO TWO D IRECTORS AND EMPLOYEES AND 2% OF THE ADMINISTRATIVE EXPENSES. THESE AMOUNTS WERE WORKED OUT AT `2,62,132/- AND `23,74,752/- RESP ECTIVELY. THE DISALLOWANCE TO THE EXTENT OF AFORESAID EXPENDITURE H AS BEEN UPHELD. AGGRIEVED BY THIS ORDER, BOTH THE ASSESSEE AND THE REVEN UE ARE IN APPEAL BEFORE US. 2. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE REITER ATED THE SUBMISSIONS MADE BEFORE THE LOWER AUTHORITIES. RELIANCE HAS BEEN PLACED ON THE DECISION IN THE CASE OF CIT VS. HERO CYC LES LIMITED, (2010) 323 ITR 518 (P & H). A REFERENCE HAS ALSO BEE N MADE TO THE DECISION IN THE CASE OF GODREJ & BOYCE MANUFACTURING COMPANY LIMITED VS. DCIT, (2010) 194 TAXMAN 203 (MUM.). ON THE BASIS OF THESE DECISIONS, THE CASE OF THE LEARNED COUNSEL IS THAT NO DISALLOWANCE CAN BE MADE U/S 14A ON THE FACTS OF THIS CASE. ON THE OTHER HAND, LEARNED DR RELIED ON THE DECISION OF HONBLE MUMBAI HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING COMPANY (SUPRA). IT HAS BEEN HELD IN THIS CASE THAT THE PROVISIONS CONTAINED IN RULE 8D OF THE I.T. RULES, 1962, ARE NOT ULTRA VIRUS THE PROVISIONS CONTAIN ED IN SECTION 14A. HOWEVER, THIS RULE IS APPLICABLE TO THE PROCEEDINGS OF ASSESSMENT YEAR 2008-09 AND SUBSEQUENT YEARS. IT HAS BEEN FURTHER HELD THAT IN EARLIER YEARS, THE DISALLOWANCE CAN BE MADE BY THE ASSESSING OFFI CER ON A REASONABLE BASIS AFTER CONSIDERING ALL THE FACTS. AT TH IS STAGE, WE MAY ALSO SUMMARIZE THE FINDINGS IN THE CASE OF HERO CYCLES L IMITED (SUPRA). IT HAS BEEN HELD THAT THE QUESTION AS TO WHETHER ANY E XPENDITURE HAS BEEN INCURRED FOR EARNING TAX-FREE INCOME IS ESSENTIAL LY A QUESTION OF FACT. THE GENERAL CONTENTION OF THE REVENUE THAT D IRECTLY OR INDIRECTLY SOME EXPENDITURE IS ALWAYS INCURRED WHICH MUST BE DISALL OWED U/S 14A AND THE IMPACT OF EXPENDITURE SO INCURRED CANNOT BE ALLOWED TO BE SET OFF AGAINST THE BUSINESS INCOME WHICH MAY NULLIFY THE M ANDATE OF SECTION 14A, CANNOT BE ACCEPTED. THE DISALLOWANCE UN DER THIS 4895-4698-2010-IE 4 PROVISION REQUIRES FINDING OF INCURRING OF EXPENDITUR E AND WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME, NO EXPENDIT URE HAS BEEN INCURRED, DISALLOWANCE U/S 14A CANNOT STAND. FINALLY, IT HAS BEEN HELD THAT SINCE THE FINDING OF FACT GIVEN BY THE TRIBUNAL IS NOT SHOWN TO BE PERVERSE, NO SUBSTANTIAL QUESTION OF LAW ARISES IN THIS CA SE 3. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIO NS MADE BEFORE US. WE FIND THAT THE ASSESSING OFFICER HAS MADE T HE DISALLOWANCE ON A PRO RATA BASIS WITHOUT GOING INTO TH E QUESTION AS TO WHETHER DISALLOWANCE SO MADE IS REASONABLE OR NOT. THE LEARNED CIT(A) HAS GONE INTO THE DETAILS OF THE EXPENDITURE, BUT HAS NOT GIVEN A CLEAR FINDING AS TO WHETHER THE EXPENDITURE HAD PROX IMATE CONNECTION WITH THE EARNING OF DIVIDEND INCOME. SUCH CONNECTI ON WAS REQUIRED TO BE FOUND OUT IN TERMS OF THE DECISION IN THE CASE OF H ERO CYCLES LIMITED (SUPRA). HOWEVER, HONBLE MUMBAI HIGH COURT HAS TAKE N A BROADER VIEW WHEN IT HELD THAT THE ASSESSING OFFICER CAN EXAMIN E ALL THE FACTS AND MAKE A REASONABLE DISALLOWANCE. THE QUESTION OF E XAMINATION OF ALL THE FACTS WAS DISCUSSED WITH THE REPRESENTATIVES FROM BOTH THE SIDES WHO FAIRLY SUBMITTED THAT DETAILED ANALYSIS HAS NOT BEEN MADE IN THIS BEHALF BY ANY OF THE LOWER AUTHORITIES. THEREFO RE, WE THINK IT FIT TO RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING THE EXPENSES INCURRED IN DETAIL AND THEREAFTER DECIDE THE MATTER OF DISALLOWANCE AS PER LAW AFTER HEARING THE ASSESSEE. 4. IN RESULT, BOTH THE APPEALS ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. THIS ORDER WAS PRONOUNCED IN OPEN COURT ON 22.07.2011 . SD/- SD/- ( C.L. SETHI ) ( K.G. BANSA L ) JUDICIAL MEMBER ACCOUNTANT ME MBER DT.22.07.2011. NS 4895-4698-2010-IE 5 COPY FORWARDED TO:- 1. M/S INTERGLOBE ENTERPRISES LTD. BLOCK-2B, DLF CORPO RATE PARK, DLF CITY, PHASE-III, GURGAON-2 (HARYANA). 2. ACIT, CIRCLE 11(1), NEW DELHI. 3. THE CIT 4. THE CIT (A), NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. TRUE COPY BY ORDER (ITAT, NEW DELHI).