Holcim (India) Pvt. Ltd., New Delhi V. DCIT (OSD), New Delhi

ITA 5123/DEL/2012

• Counselvise Citation: 512320114 RSA 2012
• Duration Of Justice: 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 26-09-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 03-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH
• Keywords: Earning of tax free income
• Section: 14A; 148; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C NEW DELHI BEFORE SHRI R.K. GUPTA: JUDICIAL MEMBER AND SHRI T.S. KAPOOR : ACCOUNTANT MEMBER ITA NOS. 5123 & 5124/DEL/2012 ASSTT. YRS: 2008-09 & 2007-08 RESPECTIVELY HOLCIM (INDIA) PVT. LTD., VS. DCIT (OSD) CIR. 1 2(1), SUITE 304, 3 RD FLOOR, DLF SAKET, NEW DELHI. A-1, SAKET, NEW DELHI-110002. PAN: AABCH 3635 C ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI R.S. SINGHVI CA RESPONDENT BY : SHRI SATPAL SINGH SR. DR O R D E R PER R.K. GUPTA, J.M : THESE ARE ASSESSEES APPEALS AGAINST CIT(A)-XV, NE W DELHIS SEPARATE ORDERS DATED 1-8-2012 FOR A.Y. 2007-08 AND DATED 2-8-2012 FOR A.Y. 2008-09. BOTH THESE APPEALS ARE HEARD TOGETHER AND DISPOSED OF BY A COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. SIMILAR ISSUES ARE INVOLVED IN BOTH APPEALS OF T HE ASSESSEE I.E. AGAINST FRAMING THE DISALLOWANCE OF TOTAL BUSINESS EXPENDIT URE INCURRED DURING THESE TWO YEARS U/S 14A. FOR AY 2007-08 THE DISALLOWANCE U/S 14A HAS BEEN 2 MADE AT RS. 8,61,50,315/- AND FOR AY 2008-09 THE DI SALLOWANCE U/S 14A HAS BEEN MADE AT RS. 6,60,93,678/- BY THE CIT(A). 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSING OFFIC ER FOUND THAT BUSINESS OF THE ASSESSEE HAS NOT BEEN STARTED, THEREFORE, HE H ELD THAT BUSINESS IS NOT SET UP. ACCORDINGLY HE DISALLOWED VARIOUS EXPENSES CLAI MED BY THE ASSESSEE IN ITS P&L A/C. WHILE DISALLOWING EXPENSES THE ASSESSI NG OFFICER HAS OBSERVED IN LAST PARA OF THE ORDER FOR AY 2007-08 THAT MERE INCORPORATION AND RECEIPT OF SHARE APPLICATION MONEY CANNOT BE SAID TO BE COM MENCEMENT OF THE BUSINESS. NEITHER ANY INTEREST INCOME HAS BEEN EARN ED FROM THESE ADVANCES NOR ANY GOODS OR SERVICES BEEN OBTAINED AGAINST THE M. MOREOVER, THE ASSESSEE HAS ALSO NOT DISCLOSED ANY DIVIDEND INCOME FROM ITS INVESTMENT AMOUNTING TO RS. 18509150756/- WITH M/S AMBUJA CEME NTS LTD., AS APPEARING IN THE BALANCE SHEET. THEREFORE, HE DISAL LOWED THE EXPENSES AMOUNTING TO RS. 8,75,35,452/- CLAIMED IN THE P&L A /C. 4. SIMILARLY, THE DISALLOWANCE WAS MADE FOR AY 2008 -09 AT RS. 7,02,54,564/-. 5. ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) FOR BOTH THE YEARS. CIT(A) AFTER CONSIDERING THE SUBMISSIONS AND PERUSI NG THE MATERIAL ON RECORD HELD THAT BUSINESS OF THE ASSESSEE HAS BEEN SET UP, THEREFORE, DISALLOWANCE OF THE EXPENSES AT THE END OF THE ASSE SSING OFFICER WAS NOT 3 JUSTIFIED. THESE FINDINGS HAVE BEEN RECORDED BY CIT (A) IN PARA 5 OF ITS ORDER FOR AY 2007-08. FINAL FINDING HAS BEEN RECORDED BY THE CIT(A) IN PARA 5.6, WHEREIN IT HAS BEEN HELD THAT THE ASSESSEE IS ENGAG ED IN THE BUSINESS OF HOLDING OF INVESTMENT, IS ENTITLED TO CLAIM EXPENDI TURE PROVIDED THERE IS A DIRECT CONNECTION BETWEEN EXPENDITURE INCURRED AND BUSINESS OF THE ASSESSEE COMPANY. IN THE INSTANT CASE, THE EXPENDITURE INCUR RED IS ON SALARIES OF EMPLOYEES OF THE ASSESSEE COMPANY AND OTHER OPERATI NG EXPENSES OF THE COMPANY. THE ASSESSEE HAS ALSO ADMITTED THAT THE SA ID EXPENSES HAVE BEEN INCURRED IN ORDER TO PROTECT THEIR INVESTMENT AS WE LL AS FOR EXPLORATION OF NEW INVESTMENTS. THESE FINDINGS OF CIT(A) HAVE NOT BEEN CHALLENGED BY THE DEPARTMENT AS NO APPEAL HAS BEEN FILED BY THE DEPAR TMENT FOR BOTH OF THE YEARS. 6. HOWEVER, WHILE ALLOWING THE GROUND OF THE ASSESS EE, THE CIT(A) FOUND THAT THE EXPENSES CLAIMED BY THE ASSESSEE ARE TO BE DISALLOWED U/S 14A. ACCORDINGLY, A SHOW CAUSE NOTICE WAS GIVEN TO THE ASSESSEE THAT AS TO WHY THE EXPENDITURE CLAIMED IN ITS P&L A/C SHOULD N OT BE DISALLOWED U/S 14A. DETAIL REPLY WAS FILED BEFORE THE CIT(A). HOWE VER, CIT(A) HELD THAT EVEN IF THERE IS NO ACTUAL EXEMPT INCOME, ONCE AN E XPENDITURE HAS BEEN INCURRED FOR EARNING EXEMPT INCOME SECTION 14A OF T HE ACT APPLIES. FINAL FINDING AHS BEEN GIVEN IN PARA 5.15 BY WHICH IT HAS BEEN HELD THAT, 4 THEREFORE, BY APPLYING THE ABOVE JUDICIAL DECISION TO THE FACTS OF THE INSTANT CASE, I FIND ADMITTEDLY AND UNDISPUTEDLY, ENTIRE EX PENDITURE INCURRED TO THE TUNE OF RS. 8,75,35,452/- HAS BEEN INCURRED FOR IN VESTMENT AND HENCE IN THE LIGHT OF THE ABOVE FACTUAL POSITION, THE ENTIRE EXP ENDITURE IS NOT ALLOWABLE IN VIEW OF SECTION 14A OF THE ACT. THUS, DISALLOWANCE MADE BY THE ASSESSING OFFICER IS CONFIRMED THOUGH ON A DIFFERENT GROUND A ND AS SUCH, THE APPEAL PREFERRED BY THE APPELLANT IS DISMISSED. 7. SIMILAR FINDING HAS BEEN RECORDED BY CIT(A) FOR A.Y. 2008-09. 8. NOW THE ASSESSEE IS IN APPEAL HEREIN BEFORE THE TRIBUNAL AGAINST THE FINDING OF CIT(A) FOR BOTH OF THE YEARS. 9. LD. COUNSEL FOR THE ASSESSEE VEHEMENTLY ARGUED T HAT THE LD. CIT(A) HAS NO JURISDICTION TO ENHANCE THE INCOME ON AN ISS UE WHICH WAS NOT CONSIDERED BY THE ASSESSING OFFICER. FOR THIS PURPO SE RELIANCE IS PLACED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF GURINDER MOHAN SINGH NINDRAJOG V. CIT (2012) 18 TAXMANN.COM 176 (D EL.). RELIANCE WAS ALSO PLACED ON VARIOUS OTHER CASE LAWS, COPIES OF THESE JUDGMENTS ARE ALSO PLACED ON RECORD. IT WAS FURTHER SUBMITTED THAT EVE N ON MERITS NO DISALLOWANCE IS WARRANTED U/S 14A AS ASSESSEE HAS N OT MADE ANY INVESTMENT FOR EARNING THE DIVIDEND. THE ASSESSEE HAS MADE HUG E INVESTMENT WITH THE APPROVAL OF THE APPELLATE AUTHORITY TO ACQUIRE THE CONTROLLING INTEREST IN THE 5 COMPANIES OF WHOM THE ASSESSEE HAD PURCHASED SHARES . IT WAS FURTHER STATED THAT TILL DATE THE ASSESSEE HAS NOT EARNED ANY DIVI DEND BUT DOING ITS BUSINESS IN THOSE COMPANIES OF WHICH THE SHARES HAVE BEEN PU RCHASED BY THE ASSESSEE. IT WAS FURTHER EXPLAINED THAT THESE SHARES WERE PUR CHASED FOR ACQUIRING THE CONTROLLING INTEREST OF THOSE COMPANIES. IT WAS FUR THER SUBMITTED THAT EVEN FOR A.Y. 2007-08 RULE 8D IS NOT APPLICABLE AND THER EFORE THE DISALLOWANCE, IF ANY, IS TO BE MADE, THEN IT IS TO BE SEEN AS T O HOW MUCH DISALLOWANCE CAN BE MADE WHICH RELATED TO EARNING OF DIVIDEND INCOME . NO INTEREST HAS BEEN PAID BY THE ASSESSEE AS ENTIRE EXPENDITURE IS MADE ON ACCOUNT OF SALARY, OTHER ADMINISTRATIVE EXPENSES ETC. ETC. WHICH HAVE NO CONNECTION FOR EARNING OF DIVIDEND AS ALL THESE EXPENSES ARE INCURRED FOR BUSINESS PURPOSES AND AS ASSESSEE HAS CONTROLLING INTEREST IN THESE COMPANIE S. FOR THIS PURPOSE RELIANCE WAS PLACED ON THE DECISION OF HONBLE DELH I HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. 15 TAXMANN.COM 390 (DEL. ). FURTHER RELIANCE WAS PLACED ON THE DECISION OF CHANDIGARH BENCH OF T HE ITAT IN THE CASE OF M/S SPRAY ENGINEERING DEVICES LTD. RENDERED IN ITA NO. 701/CHD/2009 VIDE ORDER DATED 22-6-2012, WHERE IDENTICAL ISSUE WAS IN VOLVED. RELEVANT FINDING GIVEN BY THE TRIBUNAL WERE ALSO READ, WHICH ARE INC ORPORATED IN PARA 39 TO 42. 6 10. ON THE OTHER HAND LD. DR PLACED RELIANCE ON TH E ORDERS OF ASSESSING OFFICER AND CIT(A). IT WAS FURTHER SUBMITTED BY LD. DR THAT CIT(A) HAS POWER TO ENTER INTO THE SHOES OF ASSESSING OFFICER AND THEREFORE DISALLOWANCE U/S 14A WAS CORRECTLY MADE. 11. IN REPLY IT WAS SUBMITTED BY LD. AR THAT LD. CI T(A) HAS NOT GIVEN ANY FINDING THAT ASSESSEE HAS NOT MADE INVESTMENT FOR T HE PURPOSE OF DOING BUSINESS OR ACQUIRING THE CONTROLLING INTEREST IN T HOSE COMPANIES OF WHICH SHARES WERE PURCHASED. NO BODY WILL INVEST SUCH A H UGE AMOUNT I.E. TWO THOUSAND CRORES OF RUPEES JUST FOR EARNING OF DIVID END. AS AGAINST, ASSESSEE IS DOING THE BUSINESS IN THOSE COMPANIES. NEITHER A NY DIVIDEND HAS BEEN EARNED BY THE ASSESSEE NOR THOSE COMPANIES HAVE DEC LARED ANY DIVIDEND TILL DATE. THEREFORE, THIS IS NOT A CASE OF EARNING THE EXEMPT INCOME BUT THIS IS A CASE OF DOING BUSINESS. 12. WE HAVE HEARD RIVAL SUBMISSIONS AND CONSIDERED THEM CAREFULLY. WE HAVE ALSO PERUSED THE MATERIAL ON RECORD ALONG WITH VARIOUS CASE LAWS, RELIED UPON BY LD. AR. WE FIND THAT THE DECISION IN THE CA SE OF GURINDER MOHAN SINGH NINDRAJOG (SUPRA) IS SQUARELY APPLICABLE ON T HE FACTS OF THE PRESENT CASE. IN THIS CASE THE HONBLE HIGH COURT HAS HELD THAT, THERE IS NO DOUBT ABOUT THE FACT THAT WHILE FRAMING THE ASSESSMENT EV EN U/S 143(3), THE ASSESSING OFFICER MAY OMIT TO MAKE CERTAIN ADDITION S OF INCOME OR OMIT TO 7 DISALLOW CERTAIN CLAIMS WHICH ARE NOT ADMISSIBLE UN DER THE PROVISIONS OF THE ACT THEREBY LEADING TO ESCAPEMENT OF INCOME. THE AC T PROVIDES FOR REMEDIAL MEASURES WHICH CAN BE TAKEN UNDER THESE CIRCUMSTAN CES . 13. THEREAFTER, THE HONBLE HIGH COURT HAS HELD TH AT CIT(A) HAS NO POWER TO MAKE THE DISALLOWANCE OR ADDITION WHERE AS SESSING OFFICER HAS NOT APPLIED HIS MIND. IT WAS FURTHER HELD BY THE HONBL E HIGH COURT THAT IF ANY DISALLOWANCE ESCAPED ATTENTION OF THE ASSESSING OFF ICER, THEN REMEDIAL ACTION CAN BE TAKEN EITHER BY ISSUING NOTICE U/S 148 OR IN ITIATING PROCEEDINGS U/S 263 OF THE ACT, BUT LD. CIT(A) HAS NO POWER TO MAK E SUCH DISALLOWANCE WHICH ASSESSING OFFICER HAS NOT MADE. THE FACTS ARE IDENTICAL HEREIN BEFORE US AS THE ASSESSING OFFICER HAS NOT MADE ANY DISALL OWANCE U/S 14A, AS HE DISALLOWED THE ENTIRE EXPENDITURE BY HOLDING THAT B USINESS OF THE COMPANY HAS NOT SET UP. 14. LD. CIT(A) HAS ACCEPTED THE GROUND OF THE ASSES SEE THAT BUSINESS WAS SET UP AND EXPENDITURE CLAIMED IN THE P&L A/C CANNO T BE DISALLOWED. HOWEVER, HE DISALLOWED THE ENTIRE EXPENDITURE U/S 14A WHICH WAS NOT DISALLOWED BY THE ASSESSING OFFICER. IN VIEW OF THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF GURINDER MOHAN SING H NINDRAJOG (SUPRA), NO SUCH DISALLOWANCE CAN BE MADE BY LD. CIT(A) , TH EREFORE, RESPECTFULLY 8 FOLLOWING THE DECISION OF THE HONBLE HIGH COURT WE HOLD THAT CIT(A) HAS ASSUMED JURISDICTION WRONGLY FOR MAKING DISALLOWANC E U/S 14A OF THE ACT. 15. EVEN ON MERITS, WE NOTE THAT DISALLOWANCES MADE U/S 14A WERE UNWARRANTED AS ASSESSEE HAS NOT INVESTED IN SHARES FOR EARNING OF DIVIDEND BUT ACQUIRED THE CONTROLLING INTEREST IN THE RESPEC TIVE COMPANIES FOR DOING THE BUSINESS. LD. CIT(A) HIMSELF HAS ADMITTED THAT ASSESSEE IS DOING THE BUSINESS AND THE BUSINESS OF THE ASSESSEE COMPANY H AS BEEN SET UP, THEREFORE, THERE IS NO QUESTION THAT ASSESSEE HAS INVESTED THE FUNDS FOR EARNING OF DIVIDEND. 16. SIMILAR ISSUE CAME UP BEFORE THE CHANDIGARH BEN CH OF THE TRIBUNAL IN THE CASE OF M/S SPRAY ENGINEERING DEVICES LTD. (*SU PRA). IN THIS CASE ALSO THE DISALLOWANCES WERE MADE U/S 14A BY THE ASSESSIN G OFFICER BY OBSERVING THAT ASSESSEE HAS PURCHASED SHARES OF RS. 3.01 CROR ES OF M/S SHRI SAI BABA SUGAR MILLS LTD. FOR EARNING EXEMPT INCOME. THIS AC TION OF THE ASSESSING OFFICER WAS CONFIRMED BY CIT(A). ON SECOND APPEAL B EFORE THE TRIBUNAL, THE TRIBUNAL HELD THAT, WE FIND MERIT IN THE PLEA OF THE ASSESSEE THAT WHER E A BUSINESS STRATEGY HAD BEEN ADOPTED BY THE ASSESSEE BY WAY OF INVESTMENT IN SHARES OF SICK COMPANY IN ORDER TO MAKE OVER THE SA ID COMPANY FOR WIDENING ITS OPERATION OF BUSINESS, CANNOT BE HELD TO BE INV ESTMENT PER SE. THE DECISION MAKING OF A BUSINESS MAN BY WAY OF STRATEG Y PLANNING IN ALLIED LINE 9 OF BUSINESS IS A DECISION MADE IN THE COURSE OF CAR RYING ON THE BUSINESS AND THE ASSESSING OFFICER CANNOT SIT IN JUDGMENT SEAT T O COMMENT UPON THE SAME. ONE THE ASSESSEE HAS BEEN FOUND TO HAVE MADE A BUSI NESS INVESTMENT BY WAY OF SHARES IN RELATED LINE OF BUSINESS, THE SAID INV ESTMENT THOUGH HELD BY WAY OF SHARES IN THE SAID COMPANY CANNOT BE SUBJECTED T O DISALLOWANCE UNDER SECTION 14A OF THE ACT, WHICH IN ANY CASE IS RELATA BLE TO DISALLOWANCE OF THE EXPENDITURE OUT OF THE EXEMPT INCOME EARNED BY THE ASSESSEE, BY WAY OF ITS INVESTMENT IN SHARES OF OTHER COMPANY. IN THE FACTS OF THE PRESENT CASE THE INVESTMENT WAS PURELY OF BUSINESS NATURE AS THE COM PANY IN WHICH THE AMOUNT WAS INVESTED WAS A LOSS MAKING COMPANY AND T HERE WAS NO QUESTION OF EARNING ANY DIVIDEND INCOME FROM SUCH INVESTMENT . IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND NO MERI T IN THE ORDER OF THE AUTHORITIES BELOW IN DISALLOWING ANY EXPENDITURE UN DER THE GARB OF SECTION 14A OF THE ACT . 17. IDENTICAL FACTS ARE INVOLVED IN THE PRESENT CAS E IN HAND, AS IN THIS CASE ALSO THE ASSESSEE HAS INVESTED IN THE COMPANIES WHI CH WERE NOT SHOWING ANY PROFITS. THE ASSESSEE ACQUIRED CONTROLLING INTEREST IN THOSE COMPANIES JUST TO RUN THESE COMPANIES PROPERLY. LD. AR HAS STATED THA T TILL DATE NO DIVIDEND HAS BEEN EARNED BY THE ASSESSEE AS ASSESSEE IS DOIN G THE BUSINESS IN THESE COMPANIES FROM THE AMOUNTS INVESTED THROUGH SHARES. THEREFORE, IN OUR 10 CONSIDERED VIEW THIS IS NOT A CASE OF DISALLOWANCE U/S 14A OF THE ACT. ACCORDINGLY, WE DELETE THE DISALLOWANCE MADE BY LD. CIT(A) U/S 14A OF THE FOR BOTH THE YEARS IN QUESTION. 18. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 27-09-2013. SD/- SD/- ( T.S. KAPOOR ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27 TH SEPT. 2013. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR