ACIT, New Delhi V. M/s Hexa Securities & Finance Company Ltd., New Delhi

ITA 5350/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53003 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 12-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 29-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALIL MISHRA
• Keywords: Earning of tax free income
• Section: 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C DELHI) BEFORE SHRI C.L. SETHI AND SHRI SHAMIM YAHYA ITA NO. 5350(DEL)2010 ASSESSMENT YEAR: 2005-06 ASSTT.COMMISSIONER OF INCOME TAX, M/S. HEXA SECURITIES & FINANCE CIRCLE 12(1), NEW DELHI. V. CO. LTD., 28, NAJAFGARH ROAD, NEW DELHI. (APPELLANT) (RESPO NDENT) APPELLANT BY: SHRI SALIL MISHRA, SR. DR RESPONDENT BY: SHRI AN IL JAIN, CA ORDER PER SHAMIM YAHYA, A.M. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)- X , NEW DELHI DATED 14.09.2010 AND PERTAINS TO ASS ESSMENT YEAR 2005-06. THE GROUNDS RAISED ARE AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE ORDER OF THE CIT(A) IS ERRONEOUS, PERVERSE, ILLEGAL AND AGAI NST THE PROVISIONS OF LAW WHICH IS LIABLE TO BE SET ASIDE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN NOT APPRECIATING THE FACTS OF T HE CASE THAT THE AO HAD RIGHTLY MADE THE DISALLOWANCE OF ` 1,06,31,440/- ON ACCOUNT OF EXPENSES INCURRED FOR EARNING DIVIDEND INCOME UNDER SECTION 14A OF THE ACT. ITA NO.5350(DEL)2010 2 2. IN THIS CASE, DURING THE YEAR THE ASSESSEE HAD E ARNED DIVIDEND INCOME OF ` 1,61,95,816/- FROM INVESTMENT AND INTEREST INCOME O F ` 1,43,61,573/- AS AGAINST IT HAS INCURRED EXPENSES OF ` 1,41,97,697/- INCLUDING INTEREST EXPENSES OF ` 1,41,63,360/-. WHILE FRAMING THE ASSESSMENT THE A O DISALLOWED A SUM OF ` 1,06,13,241/- OUT OF THE INTEREST EXPENDITURE BY HOLDING THE SAME AS INCURRED IN EARNING DIVIDEND IN COME. UPON THE LD. CIT(A) HAS CONSIDERED THE ISSUE AND HELD AS UNDER:- 4. I HAVE GONE THROUGH THE ASSESSMENT ORDER AND TH E CONTENTIONS OF THE AO. I HAVE ALSO GONE THROUGH THE DETAILED CON TENTIONS OF THE APPELLANTS COUNSEL AND I AGREE WITH THE DECISIONS OF THE AO THAT THE TOTAL INTEREST EXPENDITURE OF ` 1,41,63,360/- INCURRED BY THE APPELLANT CANNOT BE ALLOWED IN TOTALITY U/S 36(1)(III). TO THE EXTENT INTEREST IS ATTRIBUTABLE TO EARNING EXEMPT INCOME NAMELY DIVIDE ND INCOME OF ` 1,61,95,816/- THE SAME HAS TO BE DISALLOWED IN VIEW OF THE PROVISIONS OF SECTION 14A. HOWEVER, NOW THE QUESTION ARISES W HAT SHOULD BE THE BASIS OF DETERMINING INTEREST EXPENDITURE ATTRIBUTA BLE TO SUCH INCOME. THE AO HAS ALLOCATED THE SAME IN THE RATIO OF INVES TMENT IN SHARES TO AGGREGATE AMOUNT OF MONEY ADVANCED AS LOANS. I D O NOT AGREE WITH THIS BASIS OF ALLOCATION. THE CIT, DELHI IV, NEW DELHI VIDE HER ORDER DATED 24.3.2004 IN REVISIONARY PROCEEDINGS IN APPEL LANTS OWN CASE FOR ASSTT.YEAR 1999-2000 HAS HELD THAT THE ASSESSEE S EXPENSES SHOULD BE ALLOCATED BETWEEN EXEMPT INCOME AND TAXABLE INC OME PRO RATA IN THE RATIO OF THEIR EXEMPT INCOME TO TOTAL INCOME AN D WHATEVER IS ALLOCABLE TO EXEMPT INCOME SHOULD BE DISALLOWED U/S 14A. THE APPELLANT HAS FILED AN APPEAL TO THE ITAT DELHI BEN CH AGAINST THE ORDER OF CIT. THE ITAT DELHI BENCH D, NEW DELHI IN ITA ITA NO.5350(DEL)2010 3 2308(DEL)2004 DATED 30.11.2006 HAS DISMISSED THE AP PELLANTS APPEAL AND UPHELD THE ORDER OF CIT, DELHI IV PASSED U/S 263. FOLLOWING THIS COURSE OF EVENTS MY PREDECESSOR IN A PPELLANTS APPEAL FOR ASSTT.YEAR 2004-05 VIDE HIS ORDER DATED 276.11. 2007 IN APPEAL NO. 28/07-08 HAS HELD THAT THE ORDER OF THE AO IS AGAIN ST JUDICIAL PROPRIETARY AS HE IS BOUND BY THE ORDER OF CIT, DEL HI IV, AND HAS NO AUTHORITY TO CHANGE THE BASIS OF ALLOCATION OF INTE REST EXPENDITURE. IT IS SIGNIFICANT TO NOTE THAT THE AO HAS FILED NO APP EAL AGAINST THE SAME BUT SUBSEQUENTLY WITHDRAWN THE SAME. RESULTANTLY THE CIT(A)S ORDER FOR ASSESSMENT YEAR 2004-05 HAS BECOME FINAL. RES PECTFULLY FOLLOWING THE SAME I HOLD THAT THE INTEREST EXPENDI TURE OF APPELLANT BE ALLOCATED TO EXEMPT INCOME IN PROPORTION OF INCOME INSTEAD OF ASSET BASIS. AS PER THIS THE WORKING OF DISALLOWANCE WO ULD WORK OUT AS UNDER AS PER THE APPELLANT:- S.NO. PARTICULARS OF INCOME AMOUNT OF INCOME % AGES AMOUNT OF INTEREST EXPENSE 1. INTEREST 1,43,61,573 47% 66,56,779 2. DIVIDEND 1,61,95,816 53% 75,06,581 TOTAL 3,05,57,389 1,41,63,360 THE AO IS DIRECTED TO MAKE NECESSARY VERIFICATIONS AND REDUCE THE DISALLOWANCE ACCORDINGLY. HELD ACCORDINGLY. 3. AGAINST THE ABOVE ORDER, THE REVENUE IS IN APPEA L BEFORE US. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CONSIDER ED THE PRECEDENT RELIED UPON. WE FIND THAT THE AO HAS ALLOCATED TH E EXPENDITURE IN THE RATIO OF INVESTMENT IN SHARES TO AGGREGATE AMOUNT OF MONE Y ADVANCED AS LOANS. IN ASSESSMENT YEAR 1999-2000 THE LD. CIT BY HIS REV ISIONARY ORDER U/S 263 OF THE ACT HAS HELD THAT THE ASSESSEES EXPENSES SHOUL D BE ALLOCATED BETWEEN EXEMPT INCOME AND TAXABLE INCOME PRO RATA IN THE RA TIO OF THEIR EXEMPT INCOME TO TOTAL INCOME AND WHATEVER IS ALLOCABLE TO EXEMPT INCOME SHOULD ITA NO.5350(DEL)2010 4 BE DISALLOWED. THIS WAS CONFIRMED BY THE ITAT, DE LHI. SUBSEQUENTLY, THE CIT, IN THE LIGHT OF CITS ORDER U/S 263 OF THE ACT , IN HIS ORDER FOR ASSESSMENT YEAR 2004-05, HAS HELD THAT THE ALLOCATI ON SHOULD BE ON THE BASIS OF INCOME TO MAINTAIN THE CONSISTENCY IN THE ASSESS EES CASE. FINALLY, TO MAINTAIN CONSISTENCY, THE CIT(A) HAS FOLLOWED THE A BOVE ORDERS IN THE YEAR UNDER APPEAL, AND WE DO NOT FIND ANY INFIRMITY IN H IS ORDER. ACCORDINGLY, WE UPHOLD THE SAME. 5. IN THE RESULT, THE APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.10.2011. SD/- SD/- ( C.L. SETHI) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT ME MBER DATED: 21.10.2011 *RM COPY FORWARDED TO: 1. APPELLANT. 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR TRUE COPY BY ORDER DEPUTY REGISTRAR .