ACIT, New Delhi V. M/s. Escotrac Finance and Investment Pvt. Ltd., New Delhi

ITA 5381/DEL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3818 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Assessment Year: 2011-2012
• Appeal Filed On: 01-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRAVAN GOTRU
• Assessee Lawyers: R M MEHTA
• Keywords: Business income; Notional interest; Revised return

Judgement Text

ACIT V ESCOTRAC FINANCE & INVESTMENTS P LTD ITA NO. 5381/DEL/2015 ASSESSMENT YEAR 2011 12 1 | P A G E INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D : NEW DELHI BEFORE SHRI H.S.SIDHU , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 5381/DEL/2015 (ASSESSMENT YEAR: 2011 - 12 ) ACIT, CIRCLE - 8(2), ROOM NO. 194, 1 ST FLOOR, CR BUILDING, NEW DELHI VS. ESCOTRAC FINANCE AND INVESTMENT PVT. LTD, C - 30, FRIENDS COLONY EAST, NEW DELHI PAN:AAACE0088R (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SHRAVAN GOTRU, SR. DR ASSESSEE BY: SHRI RM MEHTA, CA DATE OF HEARING 24/08 / 2017 DATE OF PRONOUNCEMENT 2 6 / 1 0 / 2017 O R D E R PER PRASHANT MAHARISHI, A. M. 1. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD CIT ( A) - 3, NEW DELHI DATED 18.06.2015 FOR THE ASSESSMENT YEAR 2011 - 12. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, LD CIT(A) HAS ERRED IN ACCEPTING THE PLEA OF THE ASSESSEE IN RESPECT OF ALLOWING THE DISALLOWANCE U/S 14A/ RULE 8D AT RS. 7657883/ - FILED DURING ASSESSMENT PROCEEDINGS BEYON D THE DUE DATE OF REVISION OF RETURN INSTEAD OF ACCEPTING THE DISALLOWANCE U/S 14A/ RULE 8D AT FIGURE OF RS. 12811505/ - FILED BY THE ASSESSEE IN THE COMPUTATION ATTACHED TO THE RETURN OF INCOME. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT(A) WAS CORRECT IN DELETING THE ADDITION OF RS. 4349510/ - MADE BY THE AO ON ACCOUNT OF NOTIONAL DISALLOWANCE OF INTEREST. 3. BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS A NONBANKING FINANCE COMPANY ENGAGED IN THE BUSINESS OF INVESTMENT AND FINANCING AND TRADING IN SHARES. FOR THE ASSESSMENT YEAR 2011 12. IT FILED ITS RETURN OF INCOME ON 27/09/2011 DECLARING NIL INCOME. IN THE COMPUTATION OF THE ACIT V ESCOTRAC FINANCE & INVESTMENTS P LTD ITA NO. 5381/DEL/2015 ASSESSMENT YEAR 2011 12 2 | P A G E TOTAL INCOME ASSESSEE HAS SUO MOTO DISALLOWED UNDER SECTION 14 A OF THE INCOME TAX ACT OF RS. 1 281 1505/ - . HOWEVER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS VIDE LETTER DATED 18/10/2013. THE ASSESSEE SUBMITTED THAT THE CORRECT DISA LLOWANCE UNDER SECTION 14 A SHOULD BE RS. 7 657883/ INSTEAD OF RS. 1 281 1505/ . ASSESSEE SUBMITTED THAT THE ONLY DIFFERENCE THAT HAS ARISEN FOR CORRECTION OF THE ABOVE AMOUNT IS BECAUSE OF THE DISALLOWANCE OF INTEREST EXPENDITURE, WHEREIN THE CONTENTIO N OF THE ASSESSEE IS THAT THE INCOME FROM INTEREST IS MORE THAN ITS INTEREST EXPENSES AND THEREFORE NO DISALLOWANCE ON THE ACCOUNT OF INTEREST EXPENDITURE SHOULD BE MADE. THE LD. ASSESSING OFFICER STATED THAT THE CLAIM OF THE ASSESSEE. IN THIS REGARD HAS B EEN EXAMINED AND FOUND NOT CORRECT. IT WAS FURTHER CONTENDED BY THE LD. ASSESSING OFFICER THAT ASSESSEE HAS NOT MAINTAINED ANY SEPARATE BANK ACCOUNT FOR THE PURPOSE OF INVESTMENT AND THERE IS A COMMON FUND MAINTAINED BY THE ASSESSEE FOR THE BUSINESS AS WEL L AS INVESTMENT PURPOSES AND ASSESSEE IS NOT ABLE TO CORRELATE THE ENTRY OF INVESTMENT MADE WITH THE FUNDS AVAILABLE WITH EITHER OWN FUNDS OR BORROWED FUNDS. THEREFORE, THE ASSESSEE HAS FAILED TO CORRECTLY EXACT THE NATURE OF THE FUNDS HENCE DISALLOWANCE U NDER RULE 8D (2) (II) IS REQUIRED. HENCE, HE SUSTAINED THE DISALLOWANCE OF RS. 1 281 1505/ WITHOUT GRANTING THE REDUCTION IN THE RETURNED INCOME OF THE ASSESSEE. FURTHER, THE LD. ASSESSING OFFICER MADE A DISALLOWANCE OF RS. 4 349510/ ON ACCOUNT OF THE IN TEREST PAID BY THE ASSESSEE ON VARIOUS LOANS AS WELL AS AMOUNT OF INTEREST RECEIVED FROM ITS SISTER CONCERN. HE NOTED THAT THE ASSESSEE HAS GIVEN LOAN TO ITS SISTER CONCERN FOR RS. 1 260.90 LACS AT ONLY 10%, WHEREAS RS. 12 TAX AT THE RATE OF 17% AND RS. 2, 67 LAKHS AT THE RATE OF 16% AND RS. 94.50 LAKHS AT 15.55% WHICH SHOWS THAT THE OUT OF THE TOTAL AMOUNT GIVEN TO THE SISTER CONCERN APPROXIMATELY 77% OF THE LOAN WAS GIVEN AT THE LOWER RATE OF INTEREST AT THE RATE OF 10% ONLY. IT WAS FURTHER NOTED BY HIM T HAT THE ASSESSEE HAS RECEIVED INTEREST INCOME AT THE RATE OF 13% TO 17% FROM MOST OF THE OTHER BORROWERS. THEREFORE, HE WORKED OUT THE DIFFERENCE OF RS. 4 349510 ESTIMATING THE INTEREST THAT SHOULD HAVE BEEN RECEIVED BY THE ASSESSEE AT THE RATE OF INTEREST 15% FROM ITS SISTER CONCERN INSTEAD OF 10% AND THEREFORE MADE A ADDITION OF RS. 4 349510/ - TO THE TOTAL INCOME OF THE ASSESSEE ON ACCOUNT OF NOTIONAL INTEREST. CONSEQUENTLY, THE ASSESSMENT UNDER SECTION 143 (3) OF THE INCOME TAX ACT WAS PASSED ON 28/2/2014 ACCORDINGLY DETERMINING THE TOTAL INCOME OF THE ASSESSEE AT RS. 1 495 0173/ - BEFORE SETTING OF THE LOSSES AGAINST BUSINESS INCOME OFFERED BY THE ASSESSEE OF RS. 1 060 0663/ . 4. THE ASSESSEE AGGRIEVED WITH THE ORDER OF THE LD. ASSESSING OFFICER PREFERRED APP EAL BEFORE THE LD. CIT (A) 3, DELHI, WHO PER ORDER DATED 18/06/2015 DIRECTED THE LD. ASSESSING OFFICER TO ACIT V ESCOTRAC FINANCE & INVESTMENTS P LTD ITA NO. 5381/DEL/2015 ASSESSMENT YEAR 2011 12 3 | P A G E RESTRICT THE DISALLOWANCE UNDER SECTION 14 A OF RS. 7 657883 INSTEAD OF RS. 1 281 1505/ . IT WAS FURTHER NOTED BY HIM THAT THE ASSESSEE HAS EARNED I NTEREST INCOME OF RS. 2.04 CRORES WHICH IS MORE THAN THE INTEREST PAID BY THE COMPANY THEREFORE THERE CANNOT BE ANY LOGIC TO MAKE THE DISALLOWANCE OF INTEREST UNDER RULE 8D (II) OF THE RULES. 5. THE LD. CIT APPEAL NOTED THAT THE ASSESSEE HAS MADE THE ADDITION OF RS. 4 349510 ON ACCOUNT OF NOTIONAL INTEREST ON THE INTER CORPORATE DEPOSIT GIVEN BY THE ASSESSEE TO ITS SISTER CONCERN. THEREFORE HE RELYING ON THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF TAPARIA TOOLS VERSUS JCIT DATED 23/03/2015 DELETED THE DISALLOWANCE. 6. REVENUE, AGGRIEVED WITH THE ORDER OF THE LD. IS CIT (A) HAS PREFERRED AN APPEAL BEFORE US AS PER THE GROUNDS OF APPEAL. THE LD. DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF THE LD. ASSESSING OFFICER AND SUBMITTED THAT THE ASSESSEE HA S NOT FILED THE REVISED RETURN OF INCOME BUT HAS MADE THE CLAIM BY WAY OF LETTER WHICH IS NOT ENTERTAINED CORRECTLY BY THE LD. ASSESSING OFFICER. HE FURTHER SUBMITTED THAT THE LD. CIT APPEAL HAS ALSO ADDED IN AGREEING WITH THE CONTENTION OF THE ASSESSEE IG NORING THE FACT THAT THERE WAS NO REVISED RETURN FILED BY THE ASSESSEE. WITH RESPECT TO THE ADDITION ON ACCOUNT OF INTEREST SHE SUBMITTED THAT ASSESSEE HAS GRANTED LOAN TO ITS SISTER CONCERN AT THE LOWER RATE OF INTEREST AND THEREFORE THE LORD ASSESSING OF FICER HAS CORRECTLY TAXED THE NOTIONAL INTEREST. 7. LD. AUTHORIZED REPRESENTATIVE SUBMITTED ON THE ISSUE OF THE INTEREST DISALLOWANCE THAT THE ISSUE IS SQUARELY COVERED IN FAVOR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FO R ASSESSMENT YEAR 2010 11 IN ITA NO. 1278/DEL/2014 DATED 13/12/2016 WHEREIN ON IDENTICAL FACTS AND CIRCUMSTANCES THE ORDER OF THE LD. CIT APPEAL DELETING THE ADDITION ON ACCOUNT OF NOTIONAL INTEREST WERE APPELLANT. ON THE ISSUE OF DISALLOWANCE UNDER SECT ION 14 A OF THE INCOME TAX ACT. IT WAS SUBMITTED THAT THE ASSESSING OFFICER IS NOT RECORDED ANY SATISFACTION THAT WHY THE CLAIM OF THE ASSESSEE IS INCORRECT. HE THEREFORE SUBMITTED THAT WITHOUT RECORDING THE SATISFACTION ABOUT THE CLAIM OF THE ASSESSEE LD . AO HAS MADE THE DISALLOWANCE. HE FURTHER SUBMITTED THAT THE LD. CIT APPEAL AS NOTED THAT THE ASSESSEE HAS HIGHER INTEREST INCOME THEN THE INTEREST EXPENDITURE AND THEREFORE THERE CANNOT BE ANY DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE UNDER SECTION 14 A OF THE ACT. 8. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. WE HAVE ALSO PERUSED THE ORDERS OF THE LOWER AUTHORITY. GROUND NO. 1 OF THE APPEAL OF THE REVENUE IS AGAINST THE DISALLOWANCE CONFIRMED BY THE LD. CIT (A ) OF RS. 7657883/ AGAINST RS. 128 11505/ FILED BY THE ASSESSEE IN THE COMPUTATION OF THE TOTAL INCOME FILED WITH THE ORIGINAL RETURN OF INCOME. THE ONLY ACIT V ESCOTRAC FINANCE & INVESTMENTS P LTD ITA NO. 5381/DEL/2015 ASSESSMENT YEAR 2011 12 4 | P A G E DIFFERENCE THAT HAS ARISEN IS BECAUSE OF THE INTEREST EXPENDITURE DISALLOWANCE EARLIER MADE BY THE ASSESSEE IN THE COMPUTATION OF THE TOTAL INCOME UNDER SECTION 14 A , WAS CORRECTED FOR THE REASON THAT THE ASSESSEE HAS HIGHER INTEREST INCOME THEN THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE. THE LD. CIT APPEAL AS NOTED THAT THE ASSESSEE HAS EARNED INTEREST INCOME OF RS. 2 041 5041, W HICH IS MORE THAN THE INTEREST PAID BY THE ASSESSEE COMPANY AND THEREFORE NO DISALLOWANCE ON ACCOUNT OF INTEREST CAN BE MADE. WE DO NOT FIND ANY INFIRMITY IN THE FINDING OF THE LD. CIT (A) IN DELETING THE DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE UND ER SECTION 14 A OF THE INCOME TAX ACT. WE HAVE FURTHER NOTED THAT THE LD. ASSESSING OFFICER HAS NOT AT ALL RECORDED ANY SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE AND HAS MERELY MADE GENERAL ASSERTIONS ABOUT THE SAME. IN THE LATEST DECISION OF THE HONBLE DELHI HIGH COURT IN HT MEDIA VERSUS PRINCIPLE CIT THE HONBLE DELHI HIGH COURT HAS HELD WHERE THERE WAS A FAILURE BY ASSESSING OFFICER TO COMPLY WITH MANDATORY REQUIREMENT OF SECTION 14A(2) READ WITH RULE 8D ( 1)(A) AND RECORD HIS SATISFACTION AS REQUIRED THERE UNDER , QUESTION OF APPLYING RULE 8D ( 2)(III) DID NOT ARISE. IN VIEW OF THIS WE DO NOT FIND ANY INFIRMITY IN T HE ORDER OF THE LD. CIT (A) IN RESTRICTING THE DISALLOWANCE UNDER SECTION 14 A OF THE INCOME TAX ACT OF RS. 7 657883/ AGAINST RS. 1 281 1505/ . IN THE RESULT GROUND NO. 1 OF THE APPEAL OF THE REVENUE IS DISMISSED. 9. GROUND NO. 2 OF THE APPEAL OF THE REVENU E IS W ITH RESPECT TO THE NOTIONAL ADDITION ON ACCOUNT OF INTEREST INCOME. THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010 11 IN ITA NO. 1278/DEL/2014 DATED 13/12/2016 WHEREIN IN PARA N O. 6. THE COORDINATE BENCH HAS NOTED THAT: - WE HEARD THE ARGUMENTS OF BOTH THE SIDES AND HAVE PERUSED THE MATERIAL PLACED BEFORE US. AFTER CONSIDERING THE FACTS OF THE CASE AND SUBMISSION OF BOTH THE SIDES, WE DO NOT FIND ANY INFIRMITY IN THE ABOVE ORDER OF THE LD. CIT (A). THE ASSESSEE HAS BORROWED THE MONEY BY WAY OF INTER CORPORATE DEPOSIT AT THE RATE OF 10% TO 17%. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE LENT THE MONEY AT THE RATE OF 13% TO 17%. THERE IS ONLY ONE INSTANCE WHERE THE INTEREST IS BEEN CHARGED AT THE RATE OF 10% PER AND AM. HOWEVER, IT WAS IN RESPECT OF THE MONEY ADVANCED EARLIER AND THEREFORE INTEREST CONTINUED TO BE CHARGED AT THE RATE ON WHICH THE MONEY WAS ADVANCED. NO NEXUS HAS BEEN POINTED OUT BY THE ASSESSING OFFICER THAT THE MONEY BORROWED AT A HIGHER RATE OF INTEREST HAS BEEN ADVANCED TO SISTER CONCERN AT A LESSER RATE. IN VIEW OF ACIT V ESCOTRAC FINANCE & INVESTMENTS P LTD ITA NO. 5381/DEL/2015 ASSESSMENT YEAR 2011 12 5 | P A G E THE ABOVE, WE DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE LD. CIT (A). THE SAME IS UPHELD. THE LD. DEPARTMENTAL REPRESENT ATIVE COULD NOT DISTINGUISH THAT HOW THE ISSUE IS NOT COVERED BY THE ORDER OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR EARLIER YEAR. IN VIEW OF THIS RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE ON IDENTICAL FACT S AND CIRCUMSTANCES, WE UPHELD THE DELETION OF ADDITION ON ACCOUNT OF NOTIONAL INTEREST INCOME OF RS. 4 349510/ . IN THE RESULT GROUND NO. 2 OF THE APPEAL OF THE REVENUE IS DISMISSED. 10. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN TH E OPEN COURT ON 2 6 / 10 / 2017 . - S D / - - S D / - ( H.S.SIDHU ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 6 / 1 0 / 2017 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI