DCIT, CIRCLE- 11(1), New Delhi V. Hero Fin Corp Ltd., New Delhi

ITA 4806/DEL/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 2757 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 27-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VED PRAKASH MISHRA
• Keywords: Business income; Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C, NEW DELHI BEFORE SH. AMIT SHUKLA, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 4806/DEL/2017 : ASSTT. YEAR : 2013-14 DCIT, CIRCLE-11(1), NEW DELHI VS HERO FIN CORP LTD., 34, COMMUNITY CENTRE, BASANT LOK, VASANT VIHAR, NEW DELHI-110057 (APPELLANT) (RESPONDENT) PAN NO. A A ACH0157J ASSESSEE BY : SH. GAURAV JAIN, ADV. REVENUE BY : SH. VED PRAKASH MISHRA, SR. DR DATE OF HEARING: 14.01.2021 DATE OF PRONOUNCEMENT: 05.03.2021 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE A GAINST THE ORDER OF THE LD. CIT(A)-18, NEW DELHI DATED 08. 05.2017. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE REVENU E: 1. WHETHER ON THE FACTS & CIRCUMSTANCES OF CASE, THE LD. CIT(A) IS CORRECT IN DELETING THE DISALLOWA NCE U/S 14A OF RS.26,87,782/- IGNORING THE FACT THAT TH E DISALLOWANCE U/S 14A IS NOT DEPENDENT ON THE EXEMPT INCOME EARNED DURING THE YEAR? 2. WHETHER ON THE FACTS & CIRCUMSTANCES OF CASE, TH E LD. CIT(A) IS CORRECT IN DELETING THE DISALLOWANCE OF EXPENSES CLAIMED AGAINST LEASE RENT OF RS.2,15,51,400/-. ITA NO. 4806/DEL/2017 HERO FIN CORP LTD. 2 DISALLOWANCE U/S 14A: 3. ON THE FACTS OF THE CASE, THE LD. CIT (A) DELETE D THE ADDITION MADE BY THE AO U/S 14A OF THE INCOME TAX A CT, 1961 ON THE GROUNDS THAT THE ASSESSEE HAS EARNED TAX FRE E DIVIDEND INCOME OF RS.61,650/- ONLY AND THE COMPANY HAD SUFF ICIENT OWN FUNDS TO INVEST. THE REVENUE FILED APPEAL ON THE GR OUNDS THAT THE DISALLOWANCE U/S 14A IS NOT DEPENDENT ON THE EX EMPT INCOME. 4. WHILE MAKING THE DISALLOWANCE, THE AO HELD AS UN DER: ON GOING THROUGH THE SIMPLE AND PLAIN LANGUAGE, IT IS ABUNDANTLY CLEAR THAT THE RELATION HAS TO BE SEEN B ETWEEN THE EXEMPT INCOME AND THE EXPENDITURE INCURRED IN RELAT ION TO IT AND NOT VICE VERSA . WHAT IS RELEVANT IS TO WORK OUT THE EXPENDITURE IN RELATION TO THE EXEMPT INCOME AND TH E EXPENDITURE INCURRED IN RELATION TO IT AND NOT VICE VERSA. WHAT IS RELEVANT HERE IS WHETHER THE EXPENDITURE INCURRED B Y THE ASSESSEE HAS RESULTED INTO EARNING OF EXEMPT INCOME OR TAXABLE INCOME. FROM THE THREE CLAUSES OF RULE 8D IT CLEARLY EMERGES THAT STIPULATION OF SECTION IS TO COMPUTE T HE AMOUNT OF EXPENDITURE, WHICH IS NOT ALLOWABLE U/S 1 4A AS IS RELATABLE TO THE EXEMPT INCOME AND NOT IN CONSID ERING ALL THE EXPENSES ONE BY ONE FOR ASCERTAINING IF EIT HER OF THEM HAVE RESULTED INTO EXEMPT INCOME AND THEREAFTE R CONSIDERING SUCH AMOUNT AS DISALLOWABLE U/S 14A OF I. TAX ACT. 5. PERUSED THE DETAILS AVAILABLE ON RECORD. GONE TH ROUGH THE RATIONALE AND REASONING GIVEN BY THE LD. CIT (A), A CCEPTING THE ITA NO. 4806/DEL/2017 HERO FIN CORP LTD. 3 SUBMISSION OF THE ASSESSEE WHICH IS BEING REPRODUCE D FOR READY REFERENCE AND CONVENIENCE. 1. THAT THE APPELLANT HAD SUFFICIENT FUND OF ITS OWN AND THEREFORE THERE IS NO NEXUS BETWEEN INVESTMENTS AND THE INTER EST BEARING FUNDS. 2. IN FACT THE APPELLANT DID NOT MAKE ANY NET FRES H INVESTMENT DURING THE YEAR UNDER CONSIDERATION. IT ONLY SOLD T HE CURRENT INVESTMENT HELD IN MUTUAL FUNDS WHICH WAS DULY REPO RTED IN THE FINANCIAL STATEMENT OF THE APPELLANT COMPANY. 3. THE APPELLANT CITED THE JUDICIAL PRONOUNCEMENTS OF BOMBAY HIGH COURT IN 313 ITR 340 WHEREIN THE HONBLE COURT HAS HELD THAT EVEN IF THE APPELLANT HAD BORROWED FUNDS DURING THE YEAR, BUT OTHERWISE HAD SUFFICIENT INTEREST FREE FUNDS AVAILA BLE TO MEET, INVESTMENT IT CAN BE PRESUMED THAT INVESTMENT WERE MADE FROM INTEREST FREE FUNDS........ 6. THERE MUST BE ACTUAL INCURRING OF EXPENDITURE A ND THE EXPENDITURE MUST HAVE CLEAR RELATIONSHIP WITH EXEMP T INCOME. SECTION 14A CANNOT BE INVOKED TO DISALLOW EXPENDITU RE ON THE BASIS OF ASSUMPTION. 7. WHERE THE ASSESSEE CLAIMS THAT NO PART OF EXPEN DITURE WAS INCURRED OR POINTS OUT AND CERTAIN EXPENDITURE ON H AVING BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE ASSESSING OFFICER HAS TO, BEFORE MAKING ANY DISALLOWANCE U/S 14A OF THE ACT, RECORD HIS SATISFACTION GIVING REASON FOR NOT AGREEING THE CLAIM OF THE ASSESSEE. THE REASONS, SA TISFACTION RECORDED MUST JUSTIFY THE GROUND ON WHICH THE CLAIM OF THE APPELLANT IS NOT ACCEPTED. RELIANCE IS PLACED ON THE DECISION OF DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENTS. 8. WITHOUT PREJUDICE TO THE ABOVE THE DISALLOWANCE U/S 14A CANNOT EXCEED THE EXEMPT INCOME (372 ITR 694 DELHI HIGH COURT). ITA NO. 4806/DEL/2017 HERO FIN CORP LTD. 4 6. THE FACTS HAVE NOT BEEN DISPUTED BY EITHER OF TH E PARTIES. 7. KEEPING IN VIEW THE SETTLED POSITION OF THE LAW, WE ARE UNABLE TO AGREE WITH THE INFERENCE OF THE ASSESSING OFFICER AND DECLINE TO INTERFERE WITH THE ORDER OF THE LD. CIT (A). LEASE RENTALS: 8. THE ASSESSEE IS EARNING LEASE RENT FROM THE LEAS E CHARGES OF CARS, PLANT & MACHINERY GIVEN ON HIRE TO M/S HER O MOTOCORP. LTD. THE AO HELD THAT THE INCOME OF THE HIRE CHARGE S ARE TO BE CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S BUT NOT UNDER THE HEAD BUSINESS AND PROFESSION. THE AO HE LD THAT THE ASSESSEE IS NBFC AND DOING FINANCE ACTIVITIES AND E ARNING OF LEASE RENT FROM PLANT & MACHINERY IS NOT THE BUSINE SS OF THE ASSESSEE COMPANY. 9. THE LD. CIT (A) DELETED THE ADDITION HOLDING THA T THE REVENUE HAVING ACCEPTED ALL ALONG THAT THE LEASE RE NTAL INCOME EARNED AS BUSINESS INCOME CANNOT SUDDENLY CHANGE TH E TRACT AND CONSIDER THE BUSINESS INCOME AS INCOME FROM OTH ER SOURCES. THE LD. CIT (A) HELD THAT IT BECOMES ALL THE MORE R ELEVANT WHEN THE EXERCISE TO CHANGES THE HEADS BUSINESS OR OTHER SOURCES IS PURELY ACADEMIC HAVING NO IMPACT ON THE REVENUE. TH E ASSESSING OFFICER HAS NOT BROUGHT OUT ANY NEW FACTS OR CIRCUMSTANTIAL TO JUSTIFY THE CHANGE IN OPINION REG ARDING HEAD OF INCOME. THEREFORE, DISALLOWANCE MADE BY THE AO IN T HE IMPUGNED ORDER IS DELETED. 10. HAVING GONE THROUGH THE RATIONALE GIVEN BY THE ASSESSING OFFICER WHICH IS NOT THE CORRECT POSITION OF THE LA W, THE ORDER OF ITA NO. 4806/DEL/2017 HERO FIN CORP LTD. 5 THE LD. CIT (A) GIVING RELIEF BASED ON THE STAND OF THE REVENUE FOR THE EARLIER YEARS AND ON GOING THROUGH THE PROV ISIONS OF SECTION 71, WE HOLD THAT SUCH CHANGE OF HEAD OF INC OME IS AN INFRUCTUOUS ACADEMIC EXERCISE AND ACCORDINGLY THE A PPEAL FILED BY THE REVENUE IS HEREBY DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/03/2021. SD/- SD/- (AMIT SHUKLA) (DR. B. R. R. KUMAR) JUDICIAL MEMBER ACCOUN TANT MEMBER DATED: 05/03/2021 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR