Escotrac Finance & Investments Pvt. Ltd., Faridabad V. ITO, New Delhi

ITA 5399/DEL/2012

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8376 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-04-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-03-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 23-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V R SONBHADRA
• Assessee Lawyers: R M MEHTA
• Keywords: Earning of tax free income; Question of law
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI H.S. SIDHU, JUDICIAL MEMBER ITA NO. 5399/DEL/ 2012 ASSESSMENT YEAR: 2009-10 M/S ESCOTRAC FINANCE & INVESTMENTS VS. INCOME TAX OFFICER, PVT. LTD. WARD 11(12), C/O ESCORTS LTD., CORPORATE TAXATION, NEW DELHI 15/5, MATHURA ROAD, FARIDABAD 121003 HARYANA (PAN: AAACE0088R) (APPELLANT) (RESPONDENT) AND ITA NO. 5684/DEL/2012 ASSESSMENT YEAR : 2009-10 INCOME TAX OFFICER, VS. M/S ESCOTRAC FINANCE & WARD 11(12), INVESTMENTS PVT. LTD., NEW DELHI C/O ESCORTS LTD., CORPORATE TAXATION , 15/5, MATHURA ROAD, FARIDABAD 121003 HARYANA (PAN: AAACE0088R) (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. R.M. MEHTA, CA DEPARTMENT BY : SH. V.R. SONBHADRA, SR. D R DATE OF HEARING : 28-03-2016 DATE OF ORDER : 04-04-2016 ORDER PER BENCH THESE ARE THE CROSS APPEALS FILED BY THE ASSESSEE AND REVENUE AGAINST THE IMPUGNED ORDER DATED 21.8.2012 PERTAINI NG TO ASSESSMENT YEAR 2009-10. SINCE THE ISSUES INVOLVED IN THE THES E APPEALS ARE COMMON ITA NOS. 5399 & 5684/DEL/2012 2 AND IDENTICAL, HENCE, THEY ARE BEING CONSOLIDATED A ND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF BREVITY. 2. THE GROUNDS RAISED IN ASSESSEES APPEAL NO. 5399 /DEL/2012 (AY 2009-10) READ AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOW ANCE OF RS. 65,58,705/- OUT OF TOTAL DISALLOWANCE OF RS. 1,80,80,533/- U/S. 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. 2. THAT THE LD. CIT(A) ERRED IN NOT APPRECIATING TH E FACT THAT THE APPELLANT DID NOT EARN ANY EXEMPT INCOME DURING THE YEAR AND ACCORDINGLY DID NOT INCUR ANY EXPENDITURE ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME. 3. WITHOUT PREJUDICE TO ABOVE, THE LD. CIT(A) OUGHT TO HAVE EXCLUDED THOSE EXPENSES WHICH ARE NOT DIRECTLY OR INDIRECTLY ATTRIBUTABLE TO THE EARNING OF EXEMPT IN COME FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S. 14A READ WITH RULE 8D. 4. THE APPELLANT RESERVES TO ITSELF, THE RIGHT TO ADD, ALTER, AMEND, SUBSTITUTE, WITHDRAW AND / OR ANY GROUND(S) OF APPEAL ON OR BEFORE THE DATE OF HEARING. 3. THE GROUNDS RAISED IN REVENUES APPEAL NO. 5684/ DEL/2012 (AY 2009-10) READ AS UNDER:- 1. THE LD. CIT(A) HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN RESTRICTIN G THE EXPENDITURE TO RS. 65,58,705/- INSTEAD OF RS. 81,79,179/- CALCULATED U/S. 14A READ WITH RULE 8D OF THE INCOME TAX AT, 1961. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW IN GIVING RELIEF OF RS. 1,29,46,714/- TO THE ASSESSEE BY IGNORING SECTION 14A READ WITH RULE 8D OF THE INCOME TAX ACT, 1961. ITA NOS. 5399 & 5684/DEL/2012 3 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESS EE FILED ITS RETURN OF INCOME OF RS. 6,870/- ON 30-09-2009. THE SAME WAS P ROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (HEREINA FTER REFERRED ACT) ON 24-01-2011. THE AO SELECTED THE CASE FOR SCRUTINY B Y ISSUE OF NOTICE UNDER SECTION 143(2) OF THE ACT DATED 19-08-2010. T HE AO ALSO ISSUED DETAILED QUESTIONNAIRE ON 20-10-2010 AS WELL AS VAR IOUS NOTICES UNDER SECTION 143(2)/143(1) OF THE ACT CALLING FOR DETAIL S AND ATTENDANCE FROM TIME TO TIME. IN RESPONSE TO THESE NOTICES, LD. AR OF THE ASSESSEE ATTENDED THE PROCEEDINGS AND FILED NECESSARY DETAIL S. 4.1 THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF FINANCING AND INVESTMENT ACTIVITIES. DURING THE YEAR UNDER CONSID ERATION, GROSS RECEIPTS ARE DECLARED AT RS.1.79 CRORES AGAINST THE PRECEDIN G YEARS RECEIPTS OF RS.2.21 CRORES. THE ASSESSEE COMPANY HAS DEBITED A SUM OF RS. 1,13,26,240/- AS INTEREST PAID. IT HAS ALSO INVESTE D A SUM OF RS. 163.58 CRORES IN QUOTED AND UNQUOTED INVESTMENTS. HOWEVER, AS PER PROFIT AND LOSS ACCOUNT NO DIVIDEND INCOME HAS BEEN SHOWN ON S UCH INVESTMENTS. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE PRO VISIONS OF SECTION 14A READ WITH RULE 8D BE NOT INVOKED AS THE ASSESSE E HAS CLAIMED INTEREST EXPENSES WHICH IS ATTRIBUTABLE TO EARNING OF EXEMPTED INCOME. THOUGH NO DIVIDEND INCOME IS EARNED DURING THE YEAR BUT THE INVESTMENT HAS BEEN MADE IN SUCH INVESTMENTS, INCOME FROM WHIC H IN THE FORM OF DIVIDEND IS EXEMPT TO TAX. IN RESPONSE TO THE SAME, ASSESSEE STATED THAT COMPANY HAS NOT CLAIMED ANY EXEMPT INCOME DURING TH E RELEVANT ASSESSMENT YEAR AND THEREFORE, THERE IS NO DISALLOW ANCE REQUIRED U/S. 14A OF THE ACT. SECONDLY, THE ENTIRE INVESTMENTS IN THE SHARES OF VARIOUS COMPANIES HAS BEEN MADE BY THE ASSESSEE COMPANY OUT OF ITS OWN FUNDS. THE ASSESSEE COMPANY HAD A NET WORTH OF RS. 157.30 CRORES AT THE ITA NOS. 5399 & 5684/DEL/2012 4 BEGINNING OF THE ASSESSMENT YEAR AND THERE HAS BEEN NO FURTHER INVESTMENTS AS WELL AS BORROWINGS DURING THE RELEVA NT ASSESSMENT YEAR. 4.2 THE AO CONSIDERED THE REPLY OF THE ASSESSEE AND HELD WHILE INVOKING THE PROVISIONS OF SECTION 14A, IT IS NOT NECESSARY THAT THE INVESTMENTS YIELD ANY EXEMPTED INCOME DURING THE YE AR UNDER CONSIDERATION. SINCE THE MONEY BORROWED HAD BEEN U TILIZED IN THE PURCHASE OF SHARES HELD AS INVESTMENT, THE INTEREST PAID ON SO BORROWED MONIES IS ALLOWABLE AGAINST THE INCOME FROM DIVIDEN D ON SUCH SHARES IRRESPECTIVE OF WHETHER OR NOT THERE IS ANY YIELD O F DIVIDEND ON THE SHARES PURCHASED AND HELD AS INVESTMENT. IN OTHER WORDS, I N SUCH A CASE, THE INTEREST IS ATTRIBUTABLE TO OR RELATABLE TO EARNING OF DIVIDEND ON THE SHARES PURCHASED AND HELD AS INVESTMENT AND HE HELD THAT DISALLOWANCE U/S. 14A OF THE ACT HAS TO BE MADE TOWARDS THE EXPE NSES INCURRED ON EARNING OF EXEMPT INCOME. HE DISALLOWED THE TOTAL EXPENDITURE OF RS. 1,82,80,533/- U/S. 14A OF THE I.T. ACT READ WITH RU LE 8D OF THE I.T. RULES AND COMPUTED THE TOTAL INCOME OF THE ASSESSEE AT RS . 1,82,87,403/- AND COMPLETED THE ASSESSMENT U/S. 143(3) OF THE I.T. AC T, 1961 ON 16.11.2011. 5. AGAINST THE ASSESSMENT ORDER DATED 16.11.2011 T HE ASSESSEE FILED THE APPEAL BEFORE THE LD. CIT(A) WHO VIDE IMPUGNED ORDER DATED 21.8.2012 PARTLY ALLOWED THE APPEAL OF THE ASSESSEE AND RESTRICTED THE DISALLOWANCE TO THE AMOUNT OF RS. 65,58,705/- AND A LLOWED THE RELIEF TO THE ASSESSEE OF RS. 1,29,46,714/- AND PASSED THE IM PUGNED ORDER DATED 21.8.2012. AGGRIEVED WITH THE IMPUGNED ORDER DA TED 21.8.2012 BOTH THE ASSESSEE AND REVENUE ARE IN CROSS APPEALS BEFO RE THE TRIBUNAL. 6. AT THE TIME OF HEARING, SH. RM MEHTA, CA/AR OF THE ASSESSEE STATED THAT THE SIMILAR ISSUE HAS ALREADY BEEN DECI DED BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHEMINVES T LIMITED VS. COMMISSIONER OF INCOME TAX-VI IN ITA 749/2014 VIDE ORDER DATED 02.09.2015. HE STATED THAT THE HONBLE HIGH COURT O F DELHI HAS HELD THAT SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS R ECEIVED OR RECEIVABLE ITA NOS. 5399 & 5684/DEL/2012 5 DURING THE RELEVANT PREVIOUS YEAR. HE HAS ALSO FIL ED THE COPY OF THE SAID ORDER DATED 02.9.2015 PASSED BY THE HONBLE HIGH CO URT. 7. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE O RDERS OF THE REVENUE AUTHORITIES ALONGWITH THE ORDER DATED 02.9. 2015 PASSED BY THE HONBLE HIGH COURT OF DELHI IN THE CASE OF CHEMINVE ST LIMITED VS. COMMISSIONER OF INCOME TAX-VI (SUPRA). FOR THE SAK E OF CONVENIENCE, WE WOULD LIKE TO REPRODUCE THE FOLLOWING QUESTIONS OF LAW FRAMED BY THE HONBLE HIGH COURT ON THE ISSUE IN DISPUTE AND ITS ANSWER, AS MENTIONED IN PARA NOS. 3 & 23 AT PAGE 1-2 & 13 RESPECTIVELY O F THE AFORESAID ORDER. 3. THE FOLLOWING SUBSTANTIAL QUESTION OF LAW IS AR ISES FOR DETERMINATION: WHETHER DISALLOWANCE UNDER SECTION 14A OF THE AC T CAN BE MADE IN A YEAR IN WHICH NO EXEMPT INCOME HAS BEE N EARNED OR RECEIVED BY THE ASSESSEE? 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREINBE FORE THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT T HE EXPRESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF THE ENVISAGES THAT THERE SHOULD BE A N ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE I N THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SECTIO N 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 8.1 KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF THE ORDER DATED 02.09.2015 PASSED BY THE HO NBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LIMITED VS. COMMIS SIONER OF INCOME TAX-VI (SUPRA), WE ARE OF THE CONSIDERED OPINION TH AT THE AO HAS WRONGLY ITA NOS. 5399 & 5684/DEL/2012 6 DISALLOWED THE TOTAL EXPENDITURE BY APPLYING THE PR OVISIONS OF SECTION 14A READ WITH RULE 8D OF THE I.T. ACT AND SIMILARLY , LD. CIT(A) HAS ALSO WRONGLY RESTRICTED THE DISALLOWANCE ON ACCOUNT OF A DMINISTRATIVE EXPENSES OF RS. 65,58,705/- IN SPITE OF THE FACT TH AT ASSESSEE HAS NOT RECEIVED ANY EXEMPT INCOME DURING THE RELEVANT PREV IOUS YEAR. THEREFORE, RESPECTFULLY, FOLLOWING THE DECISION OF THE HONBLE HIGH COURT IN THE CASE OF CHEMINVEST LIMITED VS. COMMISSIONER OF INCOME TAX-VI (SUPRA), WE ALLOW THE APPEAL OF THE ASSESSEE AND DI SMISS THE APPEAL FILED BY THE REVENUE BY HOLDING THAT THE PROVISIONS OF SE CTION 14A IS NOT APPLICABLE IN THE CASE OF THE ASSESSE, BECAUSE THE ASSESSEE COMPANY HAS NOT CLAIMED ANY EXEMPT INCOME DURING THE RELEVA NT ASSESSMENT YEAR AND THEREFORE, NO DISALLOWANCE U/S 14A OF THE ACT I S PERMISSIBLE. 9. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED AND REVENUES APPEAL STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 04/04/2016. SD/- SD/- (N.K. SAINI) (H.S. SIDHU) ACCOUNTANT MEMBER JUDICIA L MEMBER DATED: 04/04/2016 *SR BHATNAGAR* COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR