ACIT, New Delhi V. M/s. DARCL Logistics Ltd., New Delhi

ITA 5031/DEL/2012

• Counselvise Citation: 503120114 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-04-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 25-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NIDHI SRIVASTAVA
• Assessee Lawyers: ASHOK KUMAR JAIN; ASHU GOEL CAS
• Keywords: Earning of tax free income; Wholly owned subsidiary
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: B : NEW DELHI BEFORE SHRI G.D. AGRAWAL, VICE PRESIDENT AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO.5031/DEL/2012 ASSESSMENT YEAR: 2009-10 ACLT, VS. DARCL LOGISTICS LTD. CIRCLE 10 (1), (FORMERLY DELHI ASSAM NEW DELHI. ROADWAYS CORPN. LTD.), M-2, HIMLAND HOUSE, KARAMPURA COMMERCIAL COMPLEX, NEW DELHI. PAN: AAACD2086J (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ASHOK KUMAR JAIN & SHRI ASHU GOEL, CAS DEPARTMENT BY : SMT. NIDHI SRIVASTAVA, CIT,D R ORDER PER A.D. JAIN, JUDICIAL MEMBER: THIS IS DEPARTMENT'S APPEAL FOR ASSESSMENT YEAR 200 9-10, EMANATING FROM THE ORDER DATED 17.07.2012, PASSED BY THE LD. CIT ( A)-XIII, NEW DELHI, CONTENDING THAT THE LD. CLT (A) HAS ERRED IN RESTRICTING THE D ISALLOWANCE OF RS.24,74,706/-, AS WORKED OUT BY THE ASSESSING OFFICER IN ACCORDANCE W ITH THE PROVISIONS OF SECTION 14A OF THE IT ACT READ WITH RULE 8D OF THE IT RULES , TO RS.1,82,374/-. 2. THE FACTS ARE THAT THE ASSESSEE COMPANY WAS ENG AGED IN THE BUSINESS OF TRANSPORTATION OF GOODS THROUGH ITS OWN/HIRED TRUCK S AND BY RAIL. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER DISALLOWED U/S 14A OF RS.24,74,706/- AS EXPENSES PERTAINING TO EARNING OF EXEMPT INCOME. DURING THE YEAR, THE ASSESSEE SHOWED INVESTMENT IN SHARES AND SECURITIES OF RS.11,92,91, 986/-, WHICH INCLUDED INVESTMENT OF RS.60,30,414/- MADE IN SHARES AND MUT UAL FUNDS IN EARLIER YEARS, AND INVESTMENT OF RS.11,31,78,272/- MADE IN THE SHA RES OF TRANSRAIL LOGISTICS ITA NO.5031/DEL/2012 2 LTD. BY TRANSFERRING A DIVISION OF THE ASSESSEE'S B USINESS AND CREATING A SUBSIDIARY COMPANY IN THE SAID NAME. THE SAID SUBSI DIARY COMPANY HAD ISSUED 38,86,142 EQUITY SHARES OF RS.10/- EACH, AT A PREMI UM OF RS.6/- PER SHARE, OF RS.6,21,78,272/- AND 50,00,000 NUMBERS OF 10% CUMUL ATIVE OPTIONALLY CONVERTIBLE REDEEMABLE PREFERENCE SHARES OF RS.10/- EACH. THE ASSESSEE HAD ALSO ACQUIRED 1,00,000 EQUITY SHARES OF TRANSRAIL L OGISTICS LTD. FOR RS.10 LACS, WHICH AMOUNT WAS PAID FROM ITS OWN FUNDS DURING THE YEAR. ON THESE INVESTMENTS, THE ASSESSING OFFICER WORKED OUT EXPEN SES OF RS.24,74,706/- U/S 14A FOR EARNING EXEMPT INCOME. 3. ON APPEAL, BY VIRTUE OF THE IMPUGNED ORDER, THE LD. CIT (A) REDUCED THE DISALLOWANCE FROM RS.24,74,706/- TO RS.1,82,374/-. 4. BEFORE US, THE LD. DR HAS CONTENDED THAT THE LD . CIT (A) HAS ERRED IN REDUCING THE DISALLOWANCE CORRECTLY WORKED OUT BY T HE ASSESSING OFFICER ACCORDING TO THE PROVISIONS OF SECTION 14A OF THE A CT, READ WITH RULE 8D OF THE IT RULES. 5. THE ID. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, HAS PLACED STRONG RELIANCE ON THE IMPUGNED ORDER. 6. THE ASSESSEE, IT IS SEEN, HAD RECEIVED ALL THE INVESTMENTS, ON WHICH, DIVIDEND HAD BEEN RECEIVED, PRIOR TO THE YEAR UNDER CONSIDERATION. IT HAD ALSO NOT INCURRED ANY EXPENSE TO EARN THESE DIVIDENDS, T HEY HAVING DIRECTLY BEEN CREDITED TO THE BANK ACCOUNT OF THE COMPANY THROUGH ECS BY THE DIVIDEND PAYING ENTITY. APROPOS THE UNQUOTED EQUITY SHARES O F TRANSRAIL LOGISTICS LTD., IN THE BALANCE SHEET, THESE WERE SHOWN AS OLD INVESTME NTS MADE IN THE EARLIER YEAR IN THE QUOTED EQUITY SHARES AND UNQUOTED MUTUA L FUND UNITS, AMOUNTING TO RS.60,30,414/, AND NEW INVESTMENTS RECEIVED DURING THE YEAR, I.E., UNQUOTED EQUITY SHARES AND OPTIONALLY CONVERTIBLE PREFERENCE SHARES, AMOUNTING TO RS.11,31,78,272/-, TOTAL AMOUNTING TO RS.11,92,91,9 86/-. THE OLD INVESTMENTS WERE ACQUIRED FROM THE ASSESSEE'S OWN FUNDS IN THE EARLIER YEARS. DURING THE YEAR, THE COMPANY DECIDED TO SELL ITS LOSS MAKING C ONTAINER TRAIN BUSINESS AND ITA NO.5031/DEL/2012 3 TRANSFERRED ALL ITS ASSETS AND BORROWED FUNDS UTILI ZED TO ACQUIRE THE SAID BUSINESS. A 100% SUBSIDIARY COMPANY, I.E., M/S TRAN SRAIL LOGISTICS LTD. WAS INCORPORATED FOR THIS PURPOSE. THE LICENCE OBTAINED FROM THE MINISTRY OF RAILWAYS WAS TRANSFERRED TO TRANSRAIL LOGISTICS LTD . ALONG WITH ALL ASSETS AND LIABILITIES PERTAINING TO THE LOSS MAKING CONTAINER TRAIN BUSINESS, AT BOOK VALUE. THE NET ASSETS TRANSFERRED AMOUNTED TO RS.11,31,78, 272/-, I.E., THE TOTAL VALUE OF THE ASSETS TRANSFERRED, AMOUNTING TO RS.15,96,22 ,329/- MINUS THE FOREIGN CURRENCY CORPORATE LOAN USED FOR ACQUIRING THESE AS SETS, AMOUNTING TO RS.4,74,44,057/-. THE PURCHASE CONSIDERATION OF RS. 11,21,78,272/- WAS PAID BY TRANSRAIL LOGISTICS LTD. TO THE ASSESSEE COMPANY BY WAY OF ISSUANCE OF 38,86,142 EQUITY SHARES OF RS.10 EACH AT A PREMIUM OF RS.6/- PER SHARE, AMOUNTING TO RS.6,21,78,272/- AND FIFTY 10% CUMULAT IVE OPTIONALLY CONVERTIBLE REDEEMABLE PREFERENCE SHARES OF RS.10/- EACH AMOUNT ING TO RS.5,00,00,000/-. THE ASSESSEE COMPANY HAD, FURTHER, ACQUIRED 1 LAC E QUITY SHARES OF TRANSRAIL LOGISTICS LTD., WORTH RS.10 LAC. PAYMENT FOR THIS W AS MADE VIDE CHEQUE DATED 14.11.08, DRAWN ON PUNJAB NATIONAL BANK, GURGAON, O UT OF THE ASSESSEE'S OWN FUNDS, ON ACCOUNT OF PROFITS ACCRUED DURING THE YEA R. THUS, THE INVESTMENT WAS MADE OUT OF THE ASSESSEE'S OWN FUNDS AND IT DID NOT HAVE ANY NEXUS WITH BORROWED FUNDS. FURTHER, THE BORROWED FUNDS OF RS.4 ,74,44,057/-, USED TO ACQUIRE THE ASSETS TRANSFERRED TO TRANSRAIL LOGISTI CS LTD., WERE ALSO TRANSFERRED TO TRANSRAIL LOGISTICS LTD. THEN, THE ASSESSEE COMP ANY IS A PROFIT MAKING COMPANY. ITS ACCRUAL OF PROFIT AND CAPITAL AVAILABL E IS MORE THAN THE INVESTMENT MADE IN THE SHARES AND SECURITIES. AS ON 31.03.08, THE ASSESSEE'S BORROWED FUNDS WERE OF RS.18,184 LACS, WHEREAS ITS ASSETS WE RE OF RS.28,189 LACS. AS ON 31.03.09 THE BORROWED FUNDS WERE OF RS.16,603 LA CS AND THE ASSETS WERE OF RS.27,159 LACS. 7. ALL THESE FACTS WERE DULY TAKEN INTO CONSIDERAT ION BY THE LD. CIT (A) WHILE REDUCING THE DISALLOWANCE MADE BY THE ASSESSING OFF ICER AND IT WAS HELD THAT NO DISALLOWANCE COULD BE MADE U/S 14A OF THE ACT READ WITH RULE 8D OF THE RULES. DISALLOWANCE OF INTEREST TO THE EXTENT OF RS.22,92, 332/- WAS, THEREFORE, RIGHTLY DELETED. ITA NO.5031/DEL/2012 4 8. BEFORE US, THE DEPARTMENT HAS NOT BEEN ABLE TO BRIN G ANYTHING TO SHOW THAT THE WELL REASONED ELABORATE FACTUAL FINDINGS R ECORDED BY THE LD. CIT (A) CONTAIN ANY ERROR WHATSOEVER. THESE FINDINGS OF THE LD. CIT (A) ARE HEREBY CONFIRMED AND THE GRIEVANCE SOUGHT TO BE RAISED BY THE DEPARTMENT IS REJECTED AS SHORN OF MERIT. 9. IN THE RESULT, THE APPEAL FILED BY THE DEPARTME NT IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 30.04.201 4. SD/- SD/- [G.D. AGRAWAL] [A.D. JAIN] VICE PRESIDENT JUDICIAL MEMBER DATED, 30 TH APRIL, 2014. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CLT (A) 5. DR, I TAT AR, I TAT, NEW DELHI.