Technopak Advisors (P) Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 4875/DEL/2011

• Counselvise Citation: 487520114 RSA 2011
• Duration Of Justice: 2 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-01-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: H
• Assessment Year: 2008-2009
• Appeal Filed On: 04-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MONGA
• Assessee Lawyers: H P AGGARWAL
• Keywords: Opportunity of being heard; Wholly owned subsidiary; Capital expenditure
• Section: 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `H: NEW DELHI BEFORE SHRI A.D. JAIN, JUDICIAL MEMBER AND SHRI K.G. BANSAL, ACCOUNTANT MEMBER I.T. A. NO.4875/DEL/2011 ASSESSMENT YEAR: 2008-09 TECHNOPAK ADVISORS PRIVATE LIMITED, ADDITIONAL CO MMISSIONER OF 3, PADMINI ENCLAVE, VS. INCOME-TAX, RANGE-16, HAUZ KHAS, NEW DELHI-110016. NEW DELHI. PAN: AABCK8036A (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI H.P. AGGARWAL, CA. RESPONDENT BY : SHRI A.K. MONGA, SR. DR. O R D E R PER K.G. BANSAL, ACCOUNTANT MEMBER: THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPA NY FILED ITS RETURN ON 30.09.2008 DECLARING TOTAL INCOME OF RS.8,77,16, 454/-. THE ASSESSMENT PROCEEDINGS WERE INITIATED BY ISSUING NOTICES UNDER SEC. 143(2) AND 142(1) OF THE ACT. IN THE COURSE OF HEARING, IT WAS FOUND THAT THE ASSESSEE HAS MADE INVESTMENT IN SHARES, THE INCOME FROM WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME. THEREFORE, THE ASSESSEE WAS REQUIRED TO SH OW CAUSE AS TO WHY DISALLOWANCE SHOULD NOT BE MADE IN VIEW OF THE PROV ISIONS CONTAINED IN SEC. 14A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962. IT WAS 2 SUBMITTED THAT THE ASSESSEE HAS NOT INCURRED ANY EX PENDITURE IN EARNING TAX- FREE INCOME AND, THEREFORE, NO DISALLOWANCE HAS BEE N MADE UNDER AFORESAID PROVISIONS. THE ASSESSING OFFICER DID NOT ACCEPT T HIS SUBMISSION. SHE WAS OF THE VIEW THAT IN A CASE WHERE THE ASSESSEE IS CA RRYING ON BUSINESS, THE INCOME FROM WHICH IS LIABLE TO BE TAXED AND AT THE SAME TIME EARNS INCOME WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DISALL OWANCE HAS TO BE MADE UNDER THE AFORESAID PROVISIONS BY APPLYING THE PRIN CIPLE OF APPORTIONMENT OF EXPENDITURE. FOR THIS YEAR, THE EXPENDITURE RELATA BLE TO TAX-FREE INCOME HAS TO BE WORKED OUT AS PER RULE 8D. ACCORDINGLY THE E XPENDITURE OF RS.10,69,839/- WAS DISALLOWED. 1.1 THE LEARNED CIT(A) PARTLY UPHELD THE DISALLOWAN CE BY MENTIONING THAT IT IS VERY UNLIKELY THAT NO EXPENDITURE HAS BE EN INCURRED IN RESPECT OF HUGE INVESTMENT IN SHARES OF ABOUT RS.3.25 CRORE. THEREFORE, THE BEST WAY IS TO COMPUTE DISALLOWANCE UNDER RULE 8D. HE GRANTED S OME RELIEF BY SAYING THAT THE EXPENDITURE OF BANK CHARGES AMOUNTING TO R S.9,98,501/- IS NOT AN EXPENDITURE IN THE NATURE OF INTEREST. 1.2 AGGRIEVED BY THIS ORDER, THE ASSESSEE IS IN APP EAL BEFORE US. THE MAIN GROUND TAKEN BY THE ASSESSEE IS THAT THE LEARNED CI T(A) ERRED ON FACTS AND IN LAW IN APPLYING THE PROVISIONS CONTAINED IN SEC. 14 A OF THE ACT. IT IS ALSO 3 MENTIONED THAT FOR THE PURPOSE OF DISALLOWANCE, ONL Y THOSE INVESTMENTS ARE TO BE TAKEN INTO ACCOUNT ON WHICH TAX-FREE INCOME H AS BEEN EARNED. 2. BEFORE US, THE LEARNED COUNSEL FILED THE BALANCE -SHEET AS ON 31.03.2008. IT SHOWS THAT THE ASSESSEE HAD MADE IN VESTMENT OF RS.25,28,123/- IN EARLIER YEARS IN KOTAK FEP V. TH ESE INVESTMENTS WERE LIQUIDATED IN THIS YEAR. FURTHER, INVESTMENT OF RS .1 CRORE WAS MADE IN SHARES OF POLEY DESIGNS PVT. LTD. THE INVESTMENT WAS MADE AT FACE VALUE AND THIS SHARE IS NOT QUOTED ON ANY STOCK EXCHANGE. INVESTM ENT OF RS.2,50,24,988/- WAS ALSO MADE IN UNQUOTED SHARES OF VERTEBRAND MANA GEMENT CONSULTING PVT. LTD., THE WHOLLY OWNED SUBSIDIARY COMPANY. TH US, THE INVESTMENTS AT THE END OF THE YEAR STOOD AT RS.3,50,24,988/-. 2.1 THE CASE OF THE LEARNED COUNSEL IS THAT THE ASS ESSEE HAD NOT DISALLOWED ANY AMOUNT AS EXPENDITURE INCURRED IN EARNING TAX-F REE INCOME. THE LOWER AUTHORITIES HAVE NOT RECORDED ANY REASON TO SHOW TH AT THIS ASSERTION WAS WRONG. WITHOUT DOING SO, THEY COULD NOT HAVE DISAL LOWED ANY PORTION OF THE EXPENDITURE DEBITED IN PROFIT & LOSS ACCOUNT. FOR THIS PURPOSE, RELIANCE HAS BEEN PLACED ON THE DECISION OF HONBLE DELHI HIGH C OURT IN THE CASE OF MAXOPP INVESTMENTS LTD. VS. CIT IN ITA 687/2009 DAT ED 18.11.2011 AND DCIT VS. JINDAL PHOTO LTD. IN ITA NO.814(DEL)2011 D ATED 23.09.2011 DECIDED BY `D BENCH OF DELHI TRIBUNAL, COPIES OF W HICH HAVE BEEN PLACED 4 ON RECORD. WHEN QUESTIONED ABOUT MANAGERIAL TIME D EVOTED TO INVESTMENT OR DISINVESTMENT DECISIONS, IT WAS SUBMITTED THAT S INCE NO REASON HAS BEEN RECORDED BY THE LOWER AUTHORITIES AS MENTIONED IN T HE AFORESAID DECISIONS, NO DISALLOWANCE CAN BE MADE. 2.2 IN REPLY, THE LEARNED SR. DEPARTMENTAL REPRESEN TATIVE SUBMITTED THAT IT IS NOT A CASE WHERE NO EXPENDITURE HAS BEEN INCURRE D FOR EARNING TAX-FREE INCOME. THEREFORE, RELYING ON THE ORDER OF THE LEA RNED CIT(A) IT IS ARGUED THAT DISALLOWANCE UNDER SEC. 14A HAS TO BE MADE. I N SO FAR AS THIS YEAR IS CONCERNED, THE DISALLOWANCE HAS TO BE MADE UNDER RU LE 8D, IN VIEW OF THE DECISION IN THE CASE OF GODREJ & BOYCE MANUFACTURIN G CO. LTD. VS. DCIT (2010) 194 TAXMAN 203 (BOM.). 3. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUB MISSIONS MADE BEFORE US. SECTION 14A(1) SPEAKS ABOUT DISALLOWANC E OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THE FIRST ARGUMENT OF THE LEARNED COUNSEL IS THAT O NLY THOSE INVESTMENTS CAN BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF RULE 8D FR OM WHICH INCOME HAS BEEN EARNED. NO SPECIFIC ARGUMENT HAS BEEN ADVANCE D IN THIS BEHALF. WE FIND THAT SEC. 57(III) DEALS WITH ANY OTHER EXPENDI TURE (NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF MAKING OR EARNING THE INCOME. IN A NUMB ER OF CASES DECIDED 5 UNDER THIS PROVISION, IT HAS BEEN HELD THAT ACTUAL EARNING OF THE INCOME IS NOT SINE QUA NON FOR DECIDING THE DEDUCTION OF EXPENDIT URE LAID OUT OR EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF EARNING TH E INCOME. THUS, WHERE INVESTMENT HAS BEEN MADE IN SHARES, WHICH DID NOT Y IELD ANY DIVIDEND IN THE YEAR UNDER CONSIDERATION, THE EXPENDITURE INCURRED FOR EARNING THE INCOME IS DEDUCTIBLE NOTWITHSTANDING THE FACT THAT NO SUCH IN COME HAS BEEN EARNED. WE ARE OF THE VIEW THAT RATIO OF THESE CASES WILL A PPLY MUTATIS MUTANDIS UNDER SEC. 14A OF THE ACT ALSO WHILE ASCERTAINING T HE EXPENDITURE INCURRED FOR EARNING TAX-FREE INCOME FROM INVESTMENT. 3.1 COMING TO THE INTERPRETATION OF EXPRESSION EXP ENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, USED IN SEC. 1 4A, IT IS CLEAR THAT SOME NEXUS, DIRECT OR INDIRECT, WILL HAVE TO BE FOUND BE TWEEN THE INCOME AND THE EXPENDITURE. THE LEARNED CIT(A) HAS MENTIONED THAT HUGE INVESTMENT EXCEEDING RS.3 CRORE LEADS TO AN INFERENCE THAT EXP ENDITURE HAS BEEN INCURRED FOR EARNING TAX-FREE INCOME. THE CASE MAD E OUT BY THE LEARNED COUNSEL IS THAT NO REASON HAS BEEN ADVANCED IN THE ORDERS OF THE LOWER AUTHORITIES TO DISPLACE THE ASSERTION OF THE ASSESS EE THAT NO SUCH EXPENDITURE HAS BEEN INCURRED. WE ARE OF THE VIEW THAT SUCH AN ASSERTION STANDS DENIED, ALBEIT INDIRECTLY, WHEN THE LEARNED CIT(A) MENTIONS THAT IT IS VERY UNLIKELY THAT NO EXPENDITURE HAS BEEN INCURRED WHEN HUGE INV ESTMENT OF RS.3.25 6 CRORE IS MADE. WE MAY ALSO ADD THAT TO OUR QUERY R EGARDING TIME DEVOTED BY MANAGEMENT IN INVESTMENT OR DISINVESTMENT DECISION, NO SATISFACTORY ANSWER HAS BEEN FURNISHED EXCEPT THAT INVESTMENT IN VERTEB RAND MANAGEMENT CONSULTING PVT. LTD. IS A LONG TERM INVESTMENT IN T HE SUBSIDIARY COMPANY. IT IS BUT NATURAL THAT MANAGEMENT WOULD HAVE SPENT SOM E TIME IN TAKING DISINVESTMENT IN THE CASE OF KOTAK FEP V AND INVEST MENT DECISION IN POLEY DESIGNS PVT. LTD. AS WELL AS VERTEBRAND MANAGEMENT CONSULTING PVT. LTD. HOWEVER, THIS ISSUE HAS NOT BEEN EXAMINED AT LENGTH BY ANY OF THE LOWER AUTHORITIES. THUS, WHILE THEY HAD JURISDICTION TO CONSIDER THE QUESTION OF DISALLOWANCE, PROPER ENQUIRY HAS NOT BEEN MADE EITH ER BY THE AO OR THE LEARNED CIT(A). IN THESE CIRCUMSTANCES, WE THINK I T FIT TO RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR EXAMINING VARIOUS ASPECTS IN THE LIGHT OF THE DECISIONS IN THE CASES OF GODREJ & BOYCE MAN UFACTURING CO. LTD. (SUPRA), MAXOPP INVESTMENTS LTD. (SUPRA) AND JINDAL PHOTO LTD. (SUPRA). NEEDLESS TO SAY, THAT THE ASSESSEE SHALL BE GRANTED ADEQUATE OPPORTUNITY OF BEING HEARD. 4. IN THE RESULT, THE APPEAL IS TREATED AS ALLOWED FOR STATISTICAL PURPOSE. 5. PRONOUNCED IN THE OPEN COURT ON 09 TH JANUARY, 2012. SD/- SD/- (A.D. JAIN) (K.G. BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 9 TH JANUARY, 2012. 7 ITA NO.4875/DEL/2011 COPY OF THE ORDER FORWARDED TO:- 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR, ITAT.