M/s. Paliwal GDR Homestyles (P) Ltd., New Delhi V. DCIT, New Delhi

ITA 5465/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3398 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-02-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 07-09-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAVI KANT GUPTA SENIOR
• Keywords: Rule of consistency; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A : NEW DELHI) BEFORE HONBLE PRESIDENT, SHRI G.D. AGRAWAL AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.5465/DEL./2015 (ASSESSMENT YEAR : 2012-13) M/S. PALIWAL GDR HOMESTYLES (P) LTD., VS. DCIT, 38, FUNCTIONAL INDL. ESTATE, PATPARGANJ, CIRCLE 14 (1), NEW DELHI 110 092. NEW DELHI. (PAN : AACCP3904F) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANJAY SHARMA, CA REVENUE BY : SHRI RAVI KANT GUPTA, SENIOR DR DATE OF HEARING : 06.02.2018 DATE OF ORDER : 23.02.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, M/S. PALIWAL GDR HOMESTYLES (P) LTD. (HEREINAFTER REFERRED TO AS THE ASSESSEE COMPANY) BY FILING THE PRESENT APPEAL, SOUGHT TO SET ASIDE THE IMPUGNED OR DER DATED 09.07.2015 PASSED BY LD. CIT(APPEALS)-7, NEW DELHI QUA THE ASSESSMENT YEAR 2012-13 ON THE GROUNDS INTER ALIA T HAT :- 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- 7, NEW DELHI HAS ERRED BOTH IN LAW AND ON FACTS IN SUSTAINING THE DISALLOWANCE OF RS.3,83,063/- REPRESENTING EXPENDIT URE DISALLOWABLE BY INVOKING SECTION 14A READ WITH RULE 8D OF THE ACT. ITA NO.5465/DEL./2015 2 2. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) IGNORED THE FACT THAT, ONLY A PORTION OF INVESTMENT IS GENERATING DIVIDEND WHICH IS TAX FREE AND ALSO FAILED TO APPRE CIATE THAT EVEN ON THE PRINCIPLE OF CONSISTENCY THE DISALLOWANCE MA DE IS UNTENABLE. IT IS THEREFORE PRAYED THAT DISALLOWANCE MADE AND SUSTAINED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) MAY KINDLY BE DELETED AND APPEAL OF THE APPELLANT C OMPANY BE ALLOWED. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICA TION OF THE CONTROVERSY AT HAND ARE : ASSESSING OFFICER BY INVO KING THE PROVISIONS CONTAINED UNDER SECTION 14A OF THE INCOM E-TAX ACT, 1961 (FOR SHORT THE ACT) READ WITH RULE 8D(2) OF THE INCOME-TAX RULES, 1962 (FOR SHORT THE RULES) MADE DISALLOWANC E OF RS.3,83,063/- ON THE GROUND THAT EXPENDITURE INCURR ED IN RELATION TO THE FORMING PART OF THE TOTAL INCOME ARE REQUIRED T O BE DISALLOWED. 3. ASSESSEE COMPANY CARRIED THE MATTER BY WAY OF FI LING APPEAL BEFORE THE LD. CIT (A) WHO HAS CONFIRMED THE DISALL OWANCE MADE BY THE AO AND THEREBY DISMISSED THE APPEAL. FEELIN G AGGRIEVED, THE ASSESSEE COMPANY HAS COME UP BEFORE THE TRIBUNA L BY WAY OF FILING THE PRESENT APPEAL. 4. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES OF THE PARTIES TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.5465/DEL./2015 3 5. THE LD. AR FOR THE ASSESSEE CHALLENGING THE IMPU GNED ORDER CONTENDED INTER ALIA THAT THE ASSESSEE IS A MANUFAC TURING COMPANY AND IS ALSO INVESTING SURPLUS MONEY IN MUTUAL FUNDS (DIVIDEND PLAN) AND GETS DIVIDEND INCOME CREDITED TO ITS BANK ACCOUNT NOT FORMING THE PART OF THE TOTAL INCOME; THAT NO SPECI FIC LOAN HAS BEEN USED BY THE ASSESSEE FOR INVESTMENT EXCEPT THE CASH FLOWS GENERATED BY WAY OF PROFIT; THAT THE ENTIRE INVESTM ENT HAS BEEN MADE BY THE ASSESSEE IN MUTUAL FUNDS OUT OF ITS OWN FUNDS IN THE REGULAR COURSE OF ITS BUSINESS; THAT OUT OF AN AMOU NT OF RS.10.98 CRORES OF FREEHOLD INTEREST FREE FUNDS IN ITS GENER AL RESERVE AND FROM ITS SHARE CAPITAL, THE ASSESSEE HAS INVESTED RS.6.4 6 CRORES IN TAXABLE SECURITY AND RS.0.78 CRORES WERE INVESTED IN TAX FR EE SECURITIES. HOWEVER, ON THE OTHER HAND, THE LD. DR FOR THE REVE NUE RELIED UPON THE DECISION RENDERED BY THE AO AS WELL AS THE LD. CIT (A). 6. PERUSAL OF THE COPY OF FINANCIAL STATEMENT, TAX AUDIT REPORT, COMPUTATION OF INCOME AND INCOME-TAX RETURN, AVAILA BLE AT PAGES 29 TO 74 OF THE PAPER BOOK, IT IS APPARENTLY CLEAR THAT THERE ARE SUFFICIENT INTEREST FREE FUNDS AVAILABLE WITH THE A SSESSEE SUFFICIENT TO MAKE INVESTMENT IN QUESTION. IN SUCH CIRCUMSTAN CES, THE INVESTMENT IN QUESTION HAS TO BE CONSIDERED HAVING BEEN MADE OUT OF INTEREST FREE FUNDS. AS AGAINST TOTAL INTEREST FREE FUNDS OF RS.10.98 CRORES AVAILABLE WITH THE ASSESSEE, IT HAS ONLY INVESTED ITA NO.5465/DEL./2015 4 ROUGHLY RS.7.25 CRORES. UNDISPUTEDLY, THE ASSESSEE HAS NOT UTILIZED ANY BORROWED FUNDS FOR INVESTMENT NOR MADE ANY INTEREST PAYMENT DURING THE YEAR UNDER ASSESSMENT. 7. HOWEVER, IN THE INSTANT CASE, THE AO HAS MADE ADDITION BY MAKING DISALLOWANCE OF RS.3,83,063/- BY INVOKING TH E PROVISIONS CONTAINED U/S 14A READ WITH RULE 8D(2)(III) OF THE RULES. WHEN THIS FACT IS EXAMINED IN THE LIGHT OF THE UNDISPUTE D FACT THAT THE ASSESSEE EARNED DIVIDEND INCOME TO THE TUNE OF RS.1 0,03,840/- DURING THE YEAR UNDER ASSESSMENT CLAIMED AS EXEMPT INCOME U/S 10(34) OF THE ACT, IT CANNOT BE DENIED THAT THE ASS ESSEE COMPANY HAS MADE EXPENDITURE IN INVESTING AND MAINTAINING T HE STOCK, EARNING INTEREST FREE DIVIDEND INCOME. SO, THE EXP ENDITURE INCURRED BY THE ASSESSEE COMPANY IN RELATION TO THE INCOME W HICH DOES NOT FORM PART OF THE TOTAL INCOME SHALL HAVE TO BE DISA LLOWED. 8. SO, THE CONTENTION OF THE LD. AR FOR THE ASSESSE E COMPANY THAT SINCE THE ENTIRE INVESTMENT HAS BEEN MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE COMPANY AND NO PA YMENT HAS BEEN MADE ON ACCOUNT OF INTEREST DURING THE YEAR UN DER ASSESSMENT, NO DISALLOWANCE CAN BE MADE IS NOT SUSTAINABLE AS T HE DISALLOWANCE IN THIS CASE HAS BEEN MADE UNDER SECTION 14A READ W ITH RULE 8D (2)(III) AND NOT UNDER RULE 8D(2)(II). SO, THE AO AFTER RECORDING HIS DISSATISFACTION QUA THE CORRECTNESS OF THE CLAI M OF THE ASSESSEE ITA NO.5465/DEL./2015 5 THAT NO EXPENSES WERE INCURRED FOR EARNING THE DIVI DEND INCOME HAS RIGHTLY CALCULATED THE AMOUNT OF EXPENSES EQUAL TO % OF THE AVERAGE OF THE VALUE OF THE INVESTMENT AND THEREBY MADE DISALLOWANCE OF RS.3,83,063/-. LD. CIT (A) HAS RIG HTLY CONFIRMED THE DISALLOWANCE MADE BY THE AO. 9. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, WE FIN D NO ILLEGALITY OR PERVERSITY IN THE IMPUGNED ORDER, HEN CE APPEAL FILED BY THE ASSESSEE IS HEREBY DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 23 RD DAY OF FEBRUARY, 2018. SD/- SD/- (G.D. AGRAWAL) (KULDIP SINGH) PRESIDENT JUDICIAL MEMBE R DATED THE 23 RD DAY OF FEBRUARY, 2018 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-7, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.