M/s Hero FinCorp Ltd., New Delhi V. DCIT, New Delhi

ITA 5178/DEL/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74280 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 11-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH SENIOR
• Assessee Lawyers: P RIYANKA JAIN
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NO.5178/DEL./2013 (ASSESSMENT YEAR : 2010-11) M/S. HERO FINCORP LTD., VS. DCIT, CIRCLE 12 (1) , (FORMERLY KNOWN AS HERO HONDA FINLEASE LTD.) NEW DELHI, 34, COMMUNITY CENTRE, BASANT LOK, VASANT VIHAR, NEW DELHI. (PAN : AAACH0157J) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA, ADVOCATE AND MS. P RIYANKA JAIN, CA REVENUE BY : SHRI SATPAL SINGH, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE EMANATES FROM THE ORDER OF THE CIT (A)- XV, NEW DELHI DATED 23.07.2013 FOR THE ASSESSMENT Y EAR 2010-11. 2. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HA S EARNED TAX FREE INCOME OF RS.40,09,432/- FROM INVESTMENT MADE IN SHARES AND M UTUAL FUNDS AMOUNTING TO RS.9,68,74,000/-. THE ASSESSEES CONTENTION IS THA T THERE WAS NO ACTUAL EXPENDITURE INCURRED BY THE ASSESSEE COMPANY FOR MAKING INVESTM ENT FOR EARNING INTEREST INCOME. THE ASSESSING OFFICER DID NOT ACCEPT THE A SSESSEES CONTENTION AND BY APPLYING RULE 8D PROVISIONS, HE MADE A DISALLOWANCE OF RS.55,66,819/-. THE CIT ITA NO.5178/DEL./2013 2 (A) UPHELD THE APPLICABILITY OF THE PROVISIONS OF R ULE 8D. HOWEVER, THE CIT (A) DIRECTED THAT WHILE MAKING THE DISALLOWANCE UNDER R ULE 8D(2)(II) FOR THE PURPOSE OF TAKING INTEREST EXPENSES, THE ASSESSING OFFICER WAS REQUIRED TO TAKE INTO ACCOUNT ONLY AN AMOUNT OF RS.5.18 LACS ON ACCOUNT OF INTERE ST ON CASH CREDIT ACCOUNT AND AMOUNT OF RS.758.07 LACS ON ACCOUNT OF INTEREST ON WORKING CAPITAL AND HELD THAT THE OTHER ITEMS OF INTEREST EXPENDITURE ARE SPECIFICALL Y LINKED EITHER TO BORROWINGS FOR THE BUSINESS PURPOSES OF THE ASSESSEE OR WERE IN TH E NATURE OF BANK CHARGES. THESE INTEREST PAYMENTS NOT TO BE CONSIDERED RELATED TO T AX FREE INCOME. THE CIT (A) ALSO HELD THAT THERE IS AN INADVERTENT MISTAKE OF TAKING THE FIGURES OF AVERAGE OF TOTAL ASSETS AND DIRECTED THE ASSESSING OFFICER TO REVISE THE FIGURES AND RECOMPUTE THE DISALLOWANCE AS PER RULE 8D. CIT (A) DIRECTED ASSE SSING OFFICER TO REVISE THESE FIGURES AND RECOMPUTE DISALLOWANCE UNDER RULE 8D OF THE INCOME-TAX RULES. 3. NOW, THE ASSESSEE IS IN APPEAL BY TAKING THE FOL LOWING GROUNDS OF APPEAL :- 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) E RRED ON FACTS AND IN LAW IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN INVOKING THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT , 1961 ('THE ACT) AND COMPUTING DISALLOWANCE OF EXPENDITURE AS PER TH E PROVISIONS OF RULE 8D OF THE INCOME TAX RULES, 1962 ('THE RULES') . 1.1 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN NOT DELETING THE TOTAL DISALLOWANCE O F RS.55,66,819/- MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT AS PER RULE 8D OF THE RULES. 1.2 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN HOLDING THAT THE ASSESSING OFFICER HA D RECORDED SATISFACTION QUA APPLICATION OF SECTION 14A OF THE ACT BEFORE APPLYING THE PROVISIONS OF RULE 8D OF THE RULES. 1.3 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN HOLDING THAT INVESTMENT ACTIVITY WAS NOT A PASSIVE ACTIVITY AND REQUIRED CERTAIN AMOUNT OF MONITORING. FOLLOW-UP AND ITA NO.5178/DEL./2013 3 STRATEGIC DECISION MAKING, WARRANTING INCURRENCE OF EXPENSES DISALLOWABLE UNDER SECTION 14A OF THE ACT. 1.4 THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED ON FACTS AND IN LAW IN HOLDING THAT IN CASE OF MIXED POOL OF FUNDS, WHERE SURPLUS FUNDS AND BORROWED FUNDS ARC MIXED, THE NEX US OF BORROWED FUNDS WITH INVESTMENTS CANNOT BE RULED OUT. 1.5 THAT THE COMMISSIONER OF INCOME-TAX (APPEALS) ERRED ON FACTS AND IN LAW IN HOLDING THAT INTEREST ON CASH CREDIT AMOUNTING TO RS.5.18 LAC AND INTEREST ON WORKING CAPITAL AMOUNTI NG TO RS.758.07 LACS WERE TO BE CONSIDERED FOR THE PURPOSES OF DISA LLOWANCE UNDER SECTION 14A AS PER SUB RULE 2(II) OF RULE 8D THE RU LES. 4. AT THE OUTSET OF THE HEARING, THE LD. AR SUBMITT ED THAT SIMILAR ISSUE HAS BEEN CONSIDERED BY THE ITAT IN ASSESSEES OWN CASE IN TH E ASSESSMENT YEARS 2008-09 AND 2009-10 WHEN PROVISIONS OF RULE 8D OF INCOME-TA X RULES WERE APPLICABLE. THE ITAT HAS UPHELD THE DISALLOWANCE OUT OF THE ADM INISTRATIVE EXPENSES. HOWEVER, THE ITAT HAS GRANTED THE RELIEF TO THE ASS ESSEE IN THOSE YEARS BY HOLDING THAT ASSESSEE IS ABLE TO DEMONSTRATE THAT NO PART O F INTEREST EXPENDITURE DIRECTLY OR INDIRECTLY ATTRIBUTABLE TO THE INVESTMENT MADE WHIC H YIELDED TAX FREE INCOME. ITAT HELD THAT NO PART OF THE INTEREST EXPENDITURE DESER VED TO BE DISALLOWED U/S 14A OF THE INCOME-TAX ACT, 1961 READ WITH RULE 8D. SHE PL EADED THAT IN THIS YEAR, THE FACTS ARE SAME. ANALYSIS OF FACTS AND FIGURES FOR THE YE AR UNDER CONSIDERATION ESTABLISHES THAT IN THIS YEAR ALSO, NO PART OF INTEREST EXPENDI TURE IS DIRECTLY OR INDIRECTLY ATTRIBUTABLE TO THE INVESTMENT MADE WHICH YIELDED T AX FREE INCOME. SHE PLEADED THAT THE ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY ITAT ORDER. 5. LD. DR RELIED ON THE ORDERS OF THE AUTHORITIES B ELOW. 6. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. WE F IND THAT THE ASSESSEE HAS SUBMITTED BEFORE THE CIT (A) THAT INVESTMENT IN SHA RES WAS MADE OUT OF ITA NO.5178/DEL./2013 4 SURPLUS/INTEREST FREE FUNDS FOR WHICH THE ASSESSEE HAS DEMONSTRATED THAT OPENING BALANCE OF INVESTMENT WAS RS.1,011.03 LACS AND THE INTEREST FREE RESERVES AVAILABLE AS ON 31.03.2010 WERE RS.7,433.39 LACS. THUS, THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE SUFFICIENT TO COVER OPENING INVES TMENTS AT THE BEGINNING OF THE YEAR. IT WAS ALSO FOUND THAT NET SALES OF INVESTME NT OF RS.114.27 LACS DURING THE YEAR SHOWS THAT THERE WAS NO INCREMENTAL INVESTMENT DURING THE YEAR AND THERE IS NO NEXUS OF BORROWED FUNDS WITH THE INVESTMENTS. CONS IDERING THE PLEADINGS OF THE ASSESSEE AND THE ITATS DECISION IN ASSESSEES OWN CASE IN THE IMMEDIATELY PRECEDING YEARS, WE FIND THAT THERE IS A MERIT IN T HE PLEA OF THE ASSESSEE, THEREFORE, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AN D ALLOW THE ASSESSEES APPEAL. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 7 TH DAY OF MARCH, 2014. SD/- SD/- (A.T. VARKEY) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 7 TH DAY OF MARCH, 2014 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XV, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI. ITA NO.5178/DEL./2013 5