Farmers Hybrid Seeds Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 4951/DEL/2012

• Counselvise Citation: 495120114 RSA 2012
• Duration Of Justice: 2 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 13-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 19-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARWINDER KAUR
• Assessee Lawyers: VED JAIN CA SH P SRIVASTAVA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

PAGE 1 OF 5 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH. T .S. KAPOO R, ACCOUNTANT MEMBER I.T.A .NO. - 4951 /DEL/201 2 (ASSESSMENT YEAR - 200 9 - 10 ) FARMERS HYBRID SEEDS PVT.LTD., SSI - 30, SMALL SCALE CO - OPERATIVE INDL. AREA, G.T.KARNAL ROAD, NEW DELHI - 110033. PAN - AABCG1173E (A PPELLANT) VS DCIT , CIRCLE - 11(1), NEW DELHI (RESPONDENT) APPELLANT BY SH.VED JAIN, CA, SH. P.SRIVASTAVA, ADV. & SH.ASHISH GOYAL, CA RESPONDENT BY SMT. PARWINDER KAUR, SR.DR ORDER PER DIVA SINGH, JM BY THE PRESENT APPEAL, THE ASSESSEE ASSAILS THE CORRECTNESS OF THE ORDER DATED 06.07.2012 OF CIT(A) - XIII, NEW DELHI PE RTAINING TO 200 9 - 10 ASSESSMENT YEAR ON THE FOLLOWING GROUNDS: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [(CIT(A))] IS BAD BOTH IN THE EYE OF LAW AND ON FACTS. 2. O N THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN CONFIRMING AN ADDITION OF RS.4,30,583/ - INVOKING THE PROVISION OF SECTION 14A OF THE ACT. 2. THE LD. AR INVITING ATTENTION TO THE ASSESSMENT ORDER QUA THE ISSUE OF DISALLOWANCE MADE U/S 14A SUBMITTED THAT THE AO HAS MADE DISALLOWANCE IN A MECHANICAL MANNER WITHOUT ADDRESSING THE FACTS OF THE CASE . INVITING ATTENTION TO THE IMPUGNED ORDER IT WAS H IS SUBMISSION THAT ARGUMENT S TO THI S EFFE CT HAVE BEEN RECORDED AND REPRODUCED IN PAGES 5 & 6 OF THE IMPUGNED ORDER AND DESPITE THIS FACT THE CIT(A ) HAS UPHELD THE ADDITIONS MADE BY THE AO HOLDING THAT RULE 8D IS APPLICABLE . THE SAID ACTION IT WAS DATE OF HEARING 13 .0 7 .2015 DATE OF PRONOUNCEMENT 1 9 .0 8 .2015 I.T.A .NO. - 4951 /DEL/201 2 PAGE 2 OF 5 SUBMITTE D IS CONTRARY TO THE SETTLED LEGAL POSITION AS ADMITTEDLY THE ADDITION BY WAY OF DISALLOWANCE UNDER RULE 8D CANNOT BE MADE MECHANICALLY. 3 . THE LD. SR.DR INVITING A TTENTION TO PARA 5.3 OF THE IMPUGNED ORDER SUBMITTED THAT THE ASSESSEE HAS HIMSELF ADMITTED THAT FOR MAINTAINING INVESTMENT, IT HAS PAID FEES TO ABN AMRO BANK FOR LOOKING AFTER THE INVEST MENT TRANSACTION S , THEREFORE, EXPENSES RELATED TO EARNING OF EXEMPT HAVE TO BE DISALLOWED. 4 . A PERUSAL OF THE RECORD SHOWS THAT THE ASSESSEE RETURNED AN INCOME OF RS.3,36,53,720/ - WHICH WAS SELECTED UNDER CASS FOR SCRUTINY ASSESSMENT. THE NATURE OF THE ASSESSEE S BUSINESS IS FOUND ADDRESSED IN PARA 2 OF THE ASSESSMENT ORDER AND THE SAME IS REPROD UCED HEREUNDER FOR READY - REFERENCE : - 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF PRODUCING OF VEGETABLE SEEDS ON OWNED/LEASED FARMS AND THROUGH FARMERS OF VARIOUS CENTRES ON ALL INDIA BASIS, BY PROVIDING THEM ITS HYBRID SEEDS, TO PROCURE SEEDS F ROM THEM AND AFTER PROCESSING THE SAME AT ITS PROCESSING PLANT, MARKET THESE SEEDS FROM THEM AND AFTER PROCESSING THE SAME AT ITS PROCESSING PLANT, MARKET THESE SEEDS TO THE FARMERS THROUGH ITS ESTABLISHED BRANCH OFFICES/DISTRIBUTORS/DEALERS ALL OVER INDIA . 4 .1. T HE AO REQUIRED THE ASSESSEE TO FURNISH THE BREAK - UP OF THE DIVIDEND INCOME RECEIVED AMOUNTING TO RS.1,55,78,139/ - . AS PER RECORD, THE SAME WAS PROVIDED AS UNDER: - GOLDRIVER AGRO HI - TECH PVT.LTD. RS.80,00,000/ - PRINCIPAL FLOATING FUND RS.15,1 7,325/ - RELIANCE MEDIUM TERM FUND RS.7,95,015/ - FIDELITY ULTRA SHORT TERM FUND RS.52,65,799/ - TOTAL RS.1,55,78,139 4 .2. CONSIDERING THE FACTS, THE AO PROCEEDED TO MAKE A DISALLOWANCE OF RS.4,30,583/ - . AGGRIEVED BY WHICH THE ASSESSEE ASSAILED THE ACTION UNSUCCESSFULLY BEFORE THE CIT(A) WHO C ONSIDERING THE SUBMISSIONS ADVANCED SUSTAINED, THE ADDITION OBSERVING AS UNDER: - 5.3 DECISION I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND OBSERVATION OF THE ASSESSING OFFICER. IT IS SEEN THAT APPELLANT HAS RECEIVED DIVIDEND INCOME OF RS. 75,78,139/ - FROM INVESTMENTS MADE IN MUTUAL FUNDS AND RS, 80,00,000/ - FROM ITS SUBSIDIARY COMPANY M / S GOLDRIVER AGRO HI - TECH PVT . LTD. DURING THE YEAR. THESE DIVIDENDS ARE EXEMPT FROM TAX AND SUCH INCOME DOES N OT I.T.A .NO. - 4951 /DEL/201 2 PAGE 3 OF 5 FORM PART OF TOTAL INCOME. THE APPELLANT HAS CONTENDED THAT INVESTMENTS ARE MADE THROUGH ABN AMRO BANK AND APPELLANT IS NOT ACTIVELY INVOLVED IN THE INVESTMENTS. THE ABN AMRO BANK CHARGED FEE FOR ALL INVESTING T RANSACTIONS, HENCE, NO DAY TODAY INVOLVEME NT O F THE APPELLANT IS REQUIRED. APPELLANT FURTHER CLAIMED THAT DISALLOWANCE OF EXPENDITURE U / S 14A CAN BE M ADE ONLY WHEN THERE IS A DOMINANT AND IMMEDIATE CONNECTION BETWEEN THE EXPENDITURE INCURRED AND TAX FREE INCOME EARNED. THE APPELLANT HAS FURTHER STATED THERE IS NO EVIDENCE FROM RECORD THAT ANY EXPENSES HAVE BEEN INCURRED TOWARDS EARNING OF TAX FREE INCOME. IT IS SEEN THAT APPELLANT HAS SHOWN TOTAL AVERAGE INVESTMENTS OF RS.8,61,16,666/ - ON WHICH EXEMPT INCOME IN THE FORM OF DIVIDEND AND LONG TERM CAPITAL GAIN WAS RECEIVABLE TO THE APPELLANT. IT IS OBSERVED THAT EARNING OF EXEMPT INCOME IS NOT A PASSIVE ACTIVI TY. IN THE PRESENT AGE OF MAKING OF INVESTMENT, MAINTAINING OR CONTINUING WITH INVESTMENT AND TIME OF EXIT FROM THE INVESTMENT ARE WELL INFORMED AND WELL COORDINATED MANAGEMENT DECISION INVOLVING NOT ONLY INPUTS FROM VARIOUS SOURCES BUT ALSO ACUMEN OF SENI OR MANAGEMENT FUNCTIONARIES. THEREFORE, COST IS INBUILT EVEN IN SO CALLED PASSIVE INVESTMENT. THERE ARE INCIDENTAL EXPENDITURE OF COLLECTION, TELEPHONE AND FOLLOW UP ETC . THE APPELLANT HAS HIMSELF ADMITTED THAT FOR MAINTAINING INVESTMENTS IT HAS PAID FEES TO ABN AM RO BANK FOR LOOKING AFTER THE INVESTING TRANSACTION, THEREFORE, EXPENSES RELATED TO EARNING OF EXEMPT INCOME ARE EMBEDDED IN THE EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT. THE PROVISIONS OF SECTION 14A READ WITH RULE 8D ARE APPLICABLE WHEREVE R THE EXEMPT INCOME IS EARNED AND COMMON EXPENSES ARE INCURRED FOR EARNING SUCH EXEMPT INCOME. (EMPHASIS PROVIDED) 5 . IN THE LIGHT OF THE ABOVE FACTS, CONSIDERING THE ARGUMENTS OF THE PARTIES WHEREIN THE SOLE STAND TAKEN BY THE L D. AR IS THAT THE DISALLO WANCE HAS BEEN MADE MECHANICALLY IS CONTRARY TO THE SETTLED LEGAL POSITION AS CONSIDERED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS CIT [2012] 347 ITR 272 (DEL.) AND THE LD. SR. DR APART FROM RELYING UPON THE ORDERS OF THE A UTHORITIES BELOW ALSO HAS VEHEMENTLY CONTENDED THAT THE ADDITION IS JUSTIFIED BASED ON ASSESSEE S OWN ADMISSION RECORDED IN THE ORDER THAT FEES HAVE BEEN PAID TO ABN AMRO BANK FOR LOOKING AFTER THE INVESTING TRANSACTIONS. THE LD.AR HAS TRIED T O C O N T R O V E R T THAT BY STATING THAT THE FEE CHARGED ARE STANDARD CHARGES AND THE ASSESSEE ANY WAY GETS O N L Y NET OF T H E FEE PAID IN MUTUAL FUNDS. IN THE AFORE - MENTIONED PECULIAR FACTS AND CIRCUMSTANCES, CONSIDERING THE ISSUES RAISED, WE DEEM IT APPROPRIATE TO SET ASIDE THE IMPUGNED ORDER RESTORING THE ISSUE BACK TO THE FILE OF THE AO AS ADMITTEDLY THE ASSESSING OFFICER PASSING THE ORDER ON I.T.A .NO. - 4951 /DEL/201 2 PAGE 4 OF 5 12.12.2012 MAY NOT HAVE HAD THE BENEFIT OF THE ORDER OF THE JURISDICTIONAL HIGH OCURT IN MAXOPP INVESTMENT LTD. VS CIT [201 2] 347 ITR 272 (DEL.) PASSED ON 18.11.2011 ONLY A FEW DAYS PRIOR TO THE PASSING OF THE ASSESSMENT ORDER WHICH MANDATES THAT THE AO IS FIRST TO ARRIVE AT FINDING SETTING OUT HIS REASONS WHY THE DISALLOWANCE WORKED BY THE ASSESSEE IS NOT ACCEPTABLE. THUS , A LLOWING THE ASSESSEE S APPEAL IN PART , WE RESTORE ONLY TO ADDRESS THE ADMISSION OF THE ISSUE FOR VERIFICATION BACK TO THE AO FOR THE LIMITED PURPOSE TO VERIFY THE SPECIFIC PAYMENT MADE TO ABN AMRO BANK FOR MAINTAINING ITS INVESTMENTS. IF ANY PAYMENT HAS B EEN MADE AS PER THE ALLEGED ADMISSION THEN ONLY THAT MAY BE DISALLOWED AND INCASE THE ASSESSEE S CLAIM IS FOUND TO BE CORRECT THAT THE MUTUAL FUNDS REFLECT NET OF EXPENSES. THEN T H E OCCASION T O M A K E T H E A D D I T I O N DOES NOT ARISE . A S PRINCIPALLY , WE ARE SATISFIED THAT LAW IS WELL - S ETTLED AS HAD THE SAID ADMISSION NOT BEEN ON RECORD, DISALLOWANCE UNDER RULE 8D CANNOT BE MADE MECHANICALLY. THE AO BEFORE PROCEEDINGS TO SUB - RULE (2) OF RULE 8D IS FIRST REQUIRED TO RECORD A SATISFACTION UNDER RULE (1) OF RULE 8D. SINCE THE LD. SR. DR INSISTED THAT THIS CLAIM HAS BEEN MADE BY THE ASSESSEE ITSELF AND IS FOUND RECORDED I N THE IMPUGNED ORDER WHICH AS OBSERVED LD. AR CLAIMS IS THAT THERE IS NO PAYMENTS MADE OVER AND ABOVE THE NORMAL STANDARD FEES TO THE ABN AMRO BANK THEN WHAT IS NORMALLY PAID IN MUTUAL FUND AND THE IMPUGNED ORDER IS MERELY RECORDING A KNOWN FACT THAT THE MUTUAL FUND FIGURES REFLECTIVE NET OF EXPENSES, WE RESTORE THE ISSUE BACK FOR VERIFICATION FOR THIS LIMITED PURPOSE . 6 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOW ED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 1 9 T H OF AUGUST , 2015. S D / - S D / - ( T . S. KAPOO R) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 1 9 / 0 8 /2015 *AMIT KUMAR* I.T.A .NO. - 4951 /DEL/201 2 PAGE 5 OF 5 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI