DCIT, New Delhi V. M/s. Interglobe Enterprises Ltd., New Delhi

ITA 5315/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74286 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 03-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 17-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATPAL SINGH SENIOR
• Assessee Lawyers: TAPAS RAM MISRA
• Keywords: Business income
• 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.5315/DEL./2012 (ASSESSMENT YEAR : 2007-08) DCIT, CIRCLE 11 (1), VS. M/S. INTERGLOBE ENTERPRI SES LTD., NEW DELHI. GROUND FLOOR, CENTRAL WING, THAPAR HOUSE, 124, JANPATH, NEW DELHI 110 001. (PAN : AAACI1393M) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI TAPAS RAM MISRA, ADVOCATE REVENUE BY : SHRI SATPAL SINGH, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE REVENUE EMANATES FROM THE ORDER OF THE CIT (APPEALS)-XV, NEW DELHI DATED 04.09.2012 FOR THE AS SESSMENT YEAR 2007- 08. 2. THE ASSESSEE IS A LIMITED COMPANY FILED RETURN O F INCOME ON 24.10.2007 DECLARING INCOME AT RS.11,19,41,794/-. THE ASSESSI NG OFFICER MADE A DISALLOWANCE OF RS.22,17,677/- BY INVOKING SECTION 14A OF THE INCOME-TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME-TAX RULES . THE CIT (A) GRANTED THE RELIEF BY HOLDING AS UNDER :- ITA NO.5315/DEL./2012 2 4. I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND PERUSED THE ORDER OF THE AO AND HAVE ALSO CONSIDERED THE FACTS AND THE EVIDENCES PLACED ON RE CORD IN RESPECT OF THE APPELLANT'S CLAIM OF COMPUTING THE D ISALLOWANCE UNDER SECTION 14A AT RS.1,00,000 AS AGAINST THE AMO UNT OF RS.22,17,677 DISALLOWED BY THE AO UNDER SECTION 14A READ WITH RULE 80. IT HAS BEEN EXPLAINED THAT THE APPELLANT DOES NOT H AVE ANY DE-MAT ACCOUNT AND THE SALES / PURCHASES OF SHARES ENTIRELY PERTAIN TO SHARES OF GROUP COMPANIES. THE INVESTMEN TS IN MUTUAL FUNDS HAVE BEEN EXPLAINED TO BE ENTIRELY IN LIQUID FUNDS AND ULTRA SHORT FUNDS ON WHICH THERE WAS NO ENTRY / EXIT LOAD . THE ENTIRE DIVIDEND OF RS.66,04,239 CLAIMED AS EXEMPT UNDER SE CTIONS 10(34) AND 10(35) HAS BEEN EXPLAINED TO HAVE ARISEN CONSEQUENT TO THE INVESTMENTS MADE OUT OF INTERNAL ACCRUALS EX CEPT FOR SOME FUNDS USED OUT OF THE OVERDRAFT FACILITY FROM BANKS FOR WHICH THE INTEREST HAS BEEN COMPUTED AT RS.13,938 AS PER CALC ULATIONS AND DETAILS FILED. THE APPELLANT HAS SUO-MOTO DISALLOWE D AN AMOUNT OF RS.1,00,000 UNDER SECTION 14A IN THE RETURN OF I NCOME FILED FOR ASSESSMENT YEAR 2007-2008 WHICH HAS BEEN COMPUT ED BY CONSIDERING THE ABOVE EXPLAINED INTEREST EXPENDITUR E OF RS.13}938 BESIDES 10% SALARY PAID TO THE CONCERNED PERSONS OF THE TREASURY TEAM FOR THE FINANCIAL YEAR 2006-2007. THE APPELLANT HAS CLAIMED THAT NO OTHER EXPENDITURE OF ANY NATURE WAS INCURRED TOWARDS THE INVESTMENT IN MUTUAL FUNDS AND SHARES F ROM WHICH THE EXEMPT DIVIDEND INCOME OF RS.66,04,239 HAS ARIS EN. 4.1 THE COUNSEL OF THE APPELLANT HAS ALSO DRAWN MY ATTENTION TO THE FACT THAT RULE 80 IS NOT APPLICABLE FOR THE ASSESSMENT YEAR 2007-2008 AS HELD BY DELHI HIGH COURT IN THE CASE O F MAXOPP INVESTMENT LTD. VS. CIT. 4.2 DURING THE COURSE OF THE APPELLATE PROCEEDING T HE APPELLANT WAS ASKED TO GIVE THE BASIS AS TO HOW THE 10% SALARY OF TREASURY DEPARTMENT AMOUNTING TO RS.86,401 IS TA KEN TO BE THE BASIS IN COMPUTING THE DISALLOWANCE UNDER SECTION 1 4A} TO THIS APPELLANT STATED THAT IT IS} GUESS WORK. IN MY HUMB LE VIEW IT IS NOT CORRECT THAT FOR COMPUTING THE DISALLOWANCE UND ER SECTION 14A ONLY SALARY COMPONENT ABOVE IS TO BE CONSIDERED WHILE TOTALLY IGNORING ALL OTHER ADMINISTRATIVE EXPENDITU RE RELATED TO ITA NO.5315/DEL./2012 3 THE ACTIVITY OF MAKING INVESTMENTS IN SHARES AND MU TUAL FUNDS AND THE EARNING OF THE DIVIDEND INCOME. IT IS WORTH MENTIONING HERE THAT DURING THE YEAR UN DER CONSIDERATION THE APPELLANT HAS MADE TOTAL SALES AN D PURCHASE OF SUCH A HUGE VOLUME AMOUNTING TO RS. 65.49 CRORES ON WHICH THEY HAVE DIVIDEND INCOME OF RS.66,04,239 AND JUST RS.86,401 IS BEING ATTRIBUTED TO EARNING AND TRADING IN SHARE OF SUCH HUGE VOLUMES IS MEAGER. I THEREFORE HOLD THAT THE ADMINI STRATIVE EXPENSES HAVING A DIRECT AND PROXIMATE NEXUS WITH T HE INVESTMENTS MADE AND THE EXEMPT DIVIDEND EARNED BE COMPUTED AT 0.1% OF THE TOTAL VALUE OF PURCHASES AND SALES ( WHICH IS THE NORMAL BROKERAGE IN THIS TIME OF BUSINESS) OF THE S HARES OF GROUP COMPANIES OF RS.65,49,99,000 I.E. AT RS.6,54,999, A S IT WOULD MEET THE ENDS OF JUSTICE IN ACCORDANCE WITH THE PRO VISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961. IN VIEW OF THE ABOVE DISCUSSIONS, THE DISALLOWANCE UNDER SECTION 14A THUS WORKS OUT TO RS.6,68,937 BEING THE SUM TOTAL OF THE INTEREST EXPENDITURE PERTAINING TO THE INVESTME NTS OF RS.13,938 AND THE ADMINISTRATIVE EXPENSES ESTIMATED AT 0.1% OF RS.65,49,99,000 I.E. RS.6,54,999. I THEREFORE HOLD THAT AN EXPENDITURE OF RS.6,68,937 BE DISALLOWED UNDER SECT ION 14A THEREBY INCREASING THE DISALLOWANCE BY RS.5,68,937 OVER THE AMOUNT OF RS.1,00,000 SUO-MOTO DISALLOWED BY THE AP PELLANT IN ITS RETURN OF INCOME. THE APPELLANT THUS GETS A REL IEF OF RS.15,48,740. NOW, THE REVENUE IS IN APPEAL BEFORE US BY TAKING T HE FOLLOWING EFFECTIVE GROUND OF APPEAL :- ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT (A) HAS ERRED IN DELETING ADDITION OF RS.15,48, 740/- MADE UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME-T AX RULES, 1962. 3. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THE ASSESSEE DOES NOT HAVE ANY DE-MAT ACCOUNT AND THE SALES/PURCHASES OF SHARE S ARE MADE ONLY TO THE ITA NO.5315/DEL./2012 4 GROUP COMPANIES. THE INVESTMENTS MADE OUT OF WHICH THE EXEMPTED INCOME HAS EARNED BY THE ASSESSEE IS FROM INTERNAL ACCRUAL S EXCEPT FOR SOME FUNDS USED OUT OF THE OVERDRAFT FACILITY FROM THE BANKS F OR WHICH THE INTEREST HAD BEEN COMPUTED AT RS.13,938/-. AFTER TAKING INTO A CCOUNT THE HUGE VOLUME OF SHARES PURCHASES / SALES AMOUNTING TO RS.65.49 CROR ES AND ON WHICH DIVIDEND INCOME EARNED OF RS.66,04,239/-, CIT (A) OBSERVED T HAT THERE ARE CERTAIN ADMINISTRATIVE EXPENSES HAVING A DIRECT AND PROXIMA TE NEXUS WITH THE INVESTMENTS MADE AND OUT OF WHICH ASSESSEE HAS EARN ED EXEMPTED INCOME, THEREFORE, HE DIRECTED TO COMPUTE 0.1% OF THE TOTAL VALUE OF PURCHASES AND SALES OF SHARES OF GROUP COMPANIES TO MEET THE ENDS OF JUSTICE FOR DISALLOWANCE U/S 14A OF THE INCOME-TAX ACT, 1961 AN D THE TOTAL DISALLOWANCE SUSTAINED WAS OF RS.6,68,937/- INCLUDING THE RELATE D EXPENDITURE ON INTEREST OF RS.13,938/-. AFTER CONSIDERING ALL THE ASPECTS, WE FIND THAT THERE IS NO MERIT IN THE APPEAL OF THE REVENUE AND WE DISMISS THE SAM E. 4. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. 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 ITA NO.5315/DEL./2012 5 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A), BAREILLY. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.