M/s. RDS Project Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 5486/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 81969 (ITAT-DELHI)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-10-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 22-10-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 30-10-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHAMEER SHARMA
• Assessee Lawyers: RAKESH GUPTA S HRI ROHAN KHARE
• Keywords: Earning of tax free income; Question of law
• Section: 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : F NEW DELHI BEFORE SHRI H.S. SIDHU, J.M. AND SHRI J.SUDHAKAR REDDY, A.M. ITA NO. 5486/DEL/2012 ASSESSMENT YEAR : 2009-10 M/S. RDS PROJECT LTD. VS. ADDL . CIT 427, SOMDUTT CHAMBERS 11, RANGE-15 (1) 9, BHIKAJI CAMA PLACE, N EW DELHI. NEW DELHI 110 066 (PAN AACR4761J) (APPELLANT) (RESPONDENT) ASSESSEE BY :- SHRI RAKESH GUPTA, S HRI ROHAN KHARE, ADVOCATE DEPARTMENT BY:- SHRI SHAMEER SHARMA, SR. DR O R D E R PER J.SUDHAKAR REDDY, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGA INST THE ORDER OF LD.CIT(APPEALS) FARIDABAD DT. 24.8.2012 FOR THE ASS ESSMENT YEAR 2009-10 ON THE FOLLOWING GROUNDS :- 1. BECAUSE THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 24,68,942/- UNDER SECTION 14A O F THE INCOME TAX ACT, 1961 READ WITH RULE 8D OF THE INCOM E TAX RULES, 1962. 2. BECAUSE THE LD. CIT(A) ERRED IN APPRECIATING THE FA CT THAT THE ASSESSEE HAD SUFFICIENT SELF OWNED FUNDS IN THE SHA PE OF CAPITAL AND FREE RESERVES. 3. BECAUSE THE LD. CIT(A) ERRED IN NOT APPRECIATING TH E FACT THAT THE INVESTMENTS IN SHARE CAPITAL OF OTHER COMPANIES (RS. 8.98 CRORES) WAS MADE BY THE ASSESSEE OUT OF SHARE HOLDE RS ITA NO. 5486/DEL/2012 AY 2009-10 M/S. RDS PROJECT LTD. VS. ACIT PAGE 2 OF 5 FUNDS STANDING AT RS. 48.95 CRORES AS PER BOOKS OF ACCOUNTS OF THE COMPANY. 4. BECAUSE THE LD. CIT(A) ERRED IN NOT ACCEPTING THE F ACT THAT SUFFICIENT SELF OWNED FUNDS BEING AVAILABLE WITH TH E ASSESEE, BORROWED FUNDS HAD NOT BEEN UTILIZED FOR MAKING THE INVESTMENTS AND AS SUCH NO EXPENDITURE WAS INCURRED TOWARDS INTEREST BY THE ASSESSEE LIABLE TO BE DISAL LOWED U/S 14A OF THE ACT. 5. BECAUSE THE LD. CIT(A) HAS ERRED IN NOT APPRECIATIN G THE FACT THAT THE AO APPLIED THE PROVISIONS OF RULE 8D OF TH E INCOME TAX RULES, 1962 WITHOUT GIVING ANY COGENT REASON AS TO WHY HE WAS NOT SATISFIED WITH THE APPELLANTS SUBMISSI ONS THAT NO EXPENDITURE WAS INCURRED BY THE ASSESSEE FOR MAK ING THE INVESTMENTS UNDER QUESTION. 6. BECAUSE THE LD. CIT(A) ERRED IN NOT ACCEPTING THE C ONTENTION OF THE ASSESSEE THAT THE ASSESSING OFFICER HAVING N OT ESTABLISHED ANY NEXUS BETWEEN THE BORROWED FUNDS AN D THE INVESTMENTS MADE, NO ADDITION U/S 14A WAS CALLED FO R. 7. BECAUSE IN CASE OF MIXED FUNDS IT COULD NOT ALWAYS BE SAID THAT THE ASSESSEE HAD INCURRED OUT OF BORROWED FUND S. 8. BECAUSE THE LD. CIT(A) ERRED IN HOLDING THAT TO EAR N ANY INCOME SOME EXPENDITURE MUST HAVE BEEN EARNED, THER EFORE THE DISALLOWANCE U/S 14A WAS RIGHTLY MADE. 9. BECAUSE THE LD. CIT(A) ERRED IN HOLDING THAT EVEN I F NO INCOME WAS EARNED BY THE ASSESSEE DURING THE YEAR W HICH WAS CLAIMED EXEMPT UNDER THE INCOME TAX ACT YET U/S 14A WAS CALLED FOR. 2. WE HAVE HEARD DR. RAKESH GUPTA, LD. COUNSEL FOR THE ASSESSEE AND SHRI SHAMEER SHARMA, SR. DEPARTMENTAL REPRESENTATIV E ON BEHALF OF THE REVENUE. 3. ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRC UMSTANCES OF THE CASE AND ON PERUSAL OF THE PAPERS ON RECORD AND THE ORDE RS OF THE AUTHORITIES BELOW WE HOLD AS FOLLOWS :- ITA NO. 5486/DEL/2012 AY 2009-10 M/S. RDS PROJECT LTD. VS. ACIT PAGE 3 OF 5 THE UNDISPUTED FACT IS THAT THE ASSESEE HAS NO INCOME WHICH IS EXEMPT FROM TAX UNDER THE INCOME TAX ACT. THE ISSUE AS TO WHETHER DISALLOWANCE U/S 14A CAN BE MADE, WHEN THERE IS NO DIVIDEND INCO ME EARNED BY THE ASSESEE WHICH IS EXEMPT FROM TAX IS SETTLED BY THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. HO LCIM INDIA P. LTD. AND ITA NOS. 486/2014 AND 299/2014 DATED 5 TH SEPTEMBER, 2014 WHEREIN THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF CHEMINVEST LTD. VS. ITO 317 ITR (AT) 86 (DELHI) HAS BEEN REVERSED. THE HONBLE HIGH COURT HELD AS FOLLOWS :- 14. ON THE ISSUE WHETHER THE RESPONDENT-ASSESS EE COULD HAVE EARNED DIVIDEND INCOME AND EVEN IF NO DIVIDEND INCO ME WAS EARNED, YET SECTION 14A CAN BE INVOKED AND DISALLOWANCE OF EXPENDITURE CAN BE MADE, THERE ARE THREE DECISIONS OF THE DIFFERENT HI GH COURTS DIRECTLY ON THE ISSUE AND AGAINST THE APPELLANT-REVENUE. NO CON TRARY DECISION OF A HIGH COURT HAS BEEN SHOWN TO US. THE PUNJAB AND HA RYANA HIGH COURT IN COMMISSIONER OF INCOME TAX, FARIDABAD VS. M/S. L AKHANI MARKETING INCL., ITA NO. 97012008, DECIDED ON 02.04.2014, MAD E REFERENCE TO TWO EARLIER DECISIONS OF THE SAME COURT IN CIT VS. HERO CYCLES LIMITED, [2010] 323 ITR 518 AND CIT VS. WINSOME TEXTILE INDU STRIES LIMITED, [2009] 319 ITR 204 TO HOLD THAT SECTION 14A CANNOT BE INVOKED WHEN NO EXEMPT INCOME WAS EARNED. THE SECOND DECISION IS OF THE GUJARAT HIGH COURT IN COMMISSIONER OF INCOME TAX-I VS. CORRTECH ENERGY (P.) LTD. [2014] 223 TAXMANN L30 (GUJ.). THE THIRD DECISION I S OF THE ALLAHABAD HIGH COURT IN INCOME TAX APPEAL NO. 88 OF 2014, COM MISSIONER OF INCOME TAX (II) KANPUR, VS. M/S. SHIVAM MOTORS (P) LTD. DECIDED ON 05.05.2014. IN THE SAID DECISION IT HAS BEEN HELD: 'AS REGARDS THE SECOND QUESTION, SECTION J 4A OF TH E ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDE R THE CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, WHAT SECTION 14A PROVI DES IS THAT IF THERE IS ANY INCOME WHICH DOES NOT FORM PART OF THE INCOM E UNDER THE ACT, THE EXPENDITURE WHICH IS INCURRED FOR EARNING THE INCOM E IS NOT AN ALLOWABLE DEDUCTION. FOR THE YEAR IN QUESTION, THE FI NDING OF FACT IS THAT THE ITA NO. 5486/DEL/2012 AY 2009-10 M/S. RDS PROJECT LTD. VS. ACIT PAGE 4 OF 5 ASSESSEE HAD NOT EARNED ANY TAX FREE INCOME. HENCE, IN THE ABSENCE OF ANY TAX FREE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE. THE VIEW OF THE CIT(A), WHICH HAS BEEN AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SU BSTANTIAL QUESTION OF LAW. HENCE, THE DELETION OF THE DISALLOWANCE OF RS. 2,03, 752/- MADE BY THE ASSESSING OFFICER WAS IN ORDER' . 15. INCOME EXEMPT UNDER SECTION 10 IN A PARTICUL AR ASSESSMENT YEAR, MAY NOT HAVE BEEN EXEMPT EARLIER AND CAN BECOME TAX ABLE IN FUTURE YEARS. FURTHER, WHETHER INCOME EARNED IN A SUBSEQUE NT YEAR WOULD OR WOULD NOT BE TAXABLE, MAY DEPEND UPON THE NATURE OF TRANSACTION ENTERED INTO IN THE SUBSEQUENT ASSESSMENT YEAR. FOR EXAMPLE, LONG TERM CAPITAL GAIN ON SALE OF SHARES IS PRESENTLY NOT TAX ABLE WHERE SECURITY TRANSACTION TAX HAS BEEN PAID, BUT A PRIVATE SALE O F SHARES IN AN OFF MARKET TRANSACTION ATTRACTS CAPITAL GAINS TAX. IT I S AN UNDISPUTED POSITION THAT RESPONDENT ASSESSEE IS AN INVESTMENT COMPANY AND HAD INVESTED BY PURCHASING A SUBSTANTIAL NUMBER OF SHAR ES AND THEREBY SECURING RIGHT TO MANAGEMENT. POSSIBILITY OF SALE O F SHARES BY PRIVATE PLACEMENT ETC. CANNOT BE RULED OUT AND IS NOT AN IM PROBABILITY. DIVIDEND MAYOR MAY NOT BE DECLARED. DIVIDEND IS DECLARED BY THE COMPANY AND STRICTLY IN LEGAL SENSE, A SHAREHOLDER HAS NO CONTR OL AND CANNOT INSIST ON PAYMENT OF DIVIDEND. WHEN DECLARED, IT IS SUBJECTED TO DIVIDEND DISTRIBUTION TAX. 16. WHAT IS ALSO NOTICEABLE IS THAT THE ENTIRE O R WHOLE EXPENDITURE HAS BEEN DISALLOWED AS IF THERE WAS NO EXPENDITURE INCU RRED BY THE RESPONDENT-ASSESSEE FOR CONDUCTING BUSINESS. THE CI T(A) HAS POSITIVELY HELD THAT THE BUSINESS WAS SET UP AND HAD COMMENCED . THE SAID FINDING IS ACCEPTED. THE RESPONDENT-ASSESSEE, THERE FORE, HAD TO INCUR EXPENDITURE FOR THE BUSINESS IN THE FORM OF INVESTM ENT IN SHARES OF CEMENT COMPANIES AND TO FURTHER EXPAND AND CONSOLID ATE THEIR BUSINESS. EXPENDITURE HAD TO BE ALSO INCURRED TO PR OTECT THE INVESTMENT MADE. THE GENUINENESS OF THE SAID EXPENDITURE AND T HE FACT THAT IT WAS INCURRED FOR BUSINESS ACTIVITIES WAS NOT DOUBTED BY THE ASSESSING OFFICER AND HAS ALSO NOT BEEN DOUBTED BY THE CIT(A) . 17. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY M ERIT IN THE PRESENT APPEALS. THE SAME ARE DISMISSED IN LIMINE. ITA NO. 5486/DEL/2012 AY 2009-10 M/S. RDS PROJECT LTD. VS. ACIT PAGE 5 OF 5 4. FOLLOWING THE BINDING JUDGMENT OF THE JURISDI CTIONAL HIGH COURT WE DELETE THE DISALLOWANCE MADE U/S 14A AND ALLOW THI S CASE OF THE ASSESSEE. 5. IN THE RESULT APPEAL OF THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST OCTOBER, 2014. SD/- SD/- (H.S. SIDHU) ( J. SUDHAKAR REDDY) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 31 ST OCTOBER, 2014 *VEENA COPY OF THE ORDER FORWARDED TO: 1.APPELLANT; 2.RESPONDENT; 3.CIT; 4.CIT(A); 5.DR; 6.GUARD FILE BY ORDER ASST. REGISTRAR