Living Media India Ltd., New Delhi V. DCIT, New Delhi

ITA 5501/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 91037 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 03-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 08-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEL; GAURAV DUDEJA SR DR ADV DEL
• Keywords: Earning of tax free income; Bad and doubtful debts
• Section: 14A

Judgement Text

THE INCOME TAX APPELLATE TRIBUNAL IN (DELHI BENCH D NEW DELHI) BEFORE SHRI N.K.SAINI, ACCOUNTANT MEMBER AND SHRI A.T.VARKEY, JUDICIAL MEMBER ITA NO. 5386/DEL/2011 (ASSESSMENT YEAR: 2008-09) ACIT VS. LIVING MEDIA INDIA LTD. CIRCLE 4(1), ROOM NO. 407, 9K- BL OCK, CONNAUGHT PLACE C.R.BUILDING, I.P.ESTATE NEW DELHI NEW DELHI AAACL0087H PIN : 110001 (APPELLANT) (RESPONDEN T) ITA NO. 5501/ DEL/ 2011 ASSESSMENT YEAR : 2008-09 LIVING MEDIA INDIA LTD. VS. ACI T 9K- BLOCK, CONNAUGHT PLACE CIRCLE 4(1), ROOM NO. 407, NEW DELHI C.R.BUILDING, I.P.ESTATE AAACL0087H N EW DELHI (APPELLANT ) (RESPONDENT ) APPELLANT BY : SH. SALIL AGARWAL, ADV. SHAILESH GUPTA RESPONDENT BY : SH. GAURAV DUDEJA , SR. DR, ADV. 5386/ DEL/2011 & 5501/DEL/2011 2 DATE OF HEARING : 03.03.2015 DATE OF PRONOUNCEMENT : 15 .05.2015 ORDER PER N.K.SAINI, A. M. : THESE CROSS APPEALS BY THE DEPARTMENT AND THE ASSE SSEE ARE DIRECTED AGAINST THE ORDER DATED 20.10. 2011 OF CIT (A)- VII NEW DELHI. 2. FIRST WE WILL DEAL WITH THE APPEAL OF THE DEP ARTMENT IN ITA NO. 5386/DEL/2011. ONLY EFFECTIVE GROUND HAS BEEN RAISE D IN THIS APPEAL READ AS UNDER :- 1. ON THE FACTS AND IN THE CIRCUM STANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETIN G THE DISALLOWANCE OF THE CLAIM OF BAD DEBTS TO THE TUNE OF RS. 40,16,401/- MADE BY THE ASSESSEE. 3. FROM THE ABOVE GROUND, IT WOULD BE CLEAR THAT THE ONLY GRIEVANCE OF THE DEPARTMENT RELATES TO DELETION OF DISALLOWAN CE OF RS. 40,16,401/- MADE BY THE AO ON ACCOUNT OF CLAIM OF BAD DEBTS. 4. THE FACTS RELATED TO THIS ISSUE IN B RIEF ARE THAT THE A.O. DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAD CLAIMED BAD DEBT WRITTEN OFF AMOUNTING TO RS. 40,16 ,401/- IN THE P & L ACCOUNT. THE AO ASKED THE ASSESSEE TO JUSTIFY T HE CLAIM OF BAD 5386/ DEL/2011 & 5501/DEL/2011 3 DEBTS. THE AO OBSERVED THAT SOME OF THE BAD DEBTS WERE RELATED TO THE SISTER CONCERNS WHICH BY NO STRETCH OF IMAGI NATION COULD BE SAID TO BE BAD DEBTS. ACCORDING TO THE AO, THE ASSESSEE HAD NOT FURNISHED ANY CONVINCING EXPLANATION AND HAD NOT E STABLISHED THAT THE REQUISITE CONDITIONS OF SECTION 36(1) (VII) RE AD WITH SECTION 36 (2) OF THE IT ACT 1961 (HEREINAFTER REFERRED TO THE ACT ) HAVE BEEN SATISFIED, SO AS TO PONDER OVER THE ALLOWABILITY O F THE ASSESSEES CLAIM. THE AO HELD THAT THE CLAIM OF THE ASSESSEE I N RESPECT OF THESE AMOUNTS WAS PRE-MATURE AS THE ASSESSEE BY WRITING O FF OF THESE DEBTS IN ITS BOOKS OF ACCOUNTS COULD NOT SHOW THE G OOD DEBTS AS BAD. ACCORDINGLY HE DISALLOWED A SUM OF RS. 40,16,401/- AND ADDED BACK THE SAME TO THE TOTAL INCOME OF THE ASSESSEE RELIAN CE WAS PLACED ON THE FOLLOWING CASE LAWS :- TR AVANCORE TEA ESTATES CO. LTD. VS. CIT (1992) 198 IT R 528 (KERLA) CIT VS. COATS OF INDIA LIMITED (1998) 232 I TR 324. 5 . BEING AGGRIEVED THE ASSESSEE CARRIED THE MATT ER TO THE LD. C.I.T.(A) AND SUBMITTED AS UNDER : THE STATEMENT GIVEN BY LD. ASSESS ING OFFICER THAT NO EVIDENCE HAS BEEN PRODUCED SO AS TO EXPLAIN THE CON TENTION OF THE ASSESSEE THAT THESE DEBTS BECOME BAD IN THIS YEAR OR IN THE EARLIER YEAR IS WRONG STATEMENT. WE ARE ENCLOSING HEREWITH THE PARTY WISE DETAIL OF BAD DEBTS WRITTEN OFF ALONG WITH THE YEARS IN WHICH THE BAD DEBTS 5386/ DEL/2011 & 5501/DEL/2011 4 HAS BEEN ACCOUNTED AS INCOME IN THE BOOKS OF ACCO UNTS [ ANNEXURE B] AS PER SECTION 36(1) OF THE IT ACT 1961, THE DEDUCT IONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLO WED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPU TING THE INCOME REFERRED TO IN SECTION 28. (I) ..(II)(VII) SUBJECT TO THE PROVISIONS OF SUB- SECTION (2), THE AMOUNT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FO R THE PREVIOUS YEAR: FURTHER AS PER SUB SECTION (2) OF SECTION 36 OF THE INCOME TAX ACT, 1961 ANY DEDUCTION FOR A BAD DEBT OR PART THER EOF, THE FOLLOWING PROVISIONS SHALL APPLY (I) .. NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMP UTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHIC H THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR, OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONEY-LENDING WHICH IS CARRIED ON BY THE ASSESSEE;] (II) . (III) . . . . IN THIS REGARD WE WOULD LIKE TO POINT OUT THAT THES E BAD DEBTS HAVE BEEN ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCO UNT OF THE ASSESSEE COMPANY AND ALSO THESE AMOUNTS HAVE BEEN T AKEN IN TO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESS EE COMPANY IN EARLIER PREVIOUS YEARS. WE ARE RELYING ON THE JUDGMENT GIVEN BY SUPREME COU RT OF INDIA IN THE CASE OF TRF LTD VS. COMMISSIONER OF IN COME TAX, 230 CTR (SC) 14 WHERE IN THE COURT HAS HELD TH AT AFTER 1 ST APRIL 1989, IT IS NOT NECESSARY FOR THE ASSESSEE T O ESTABLISH THAT THE DEBT, IN FACT HAS BECOME IRRECOV ERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERA BLE IN THE ACCOUNTS OF THE ASSESSEE. WE ARE ALSO RELYING ON THE FOLLOWING JUDGMENT TO SU BSTANTIATE OF OUR CLAIM IN THIS REGARD CIT VS. VISTAR CONSTRUCTION PVT. LTD, [2010 TMI 201401 DELHI HIGH COURT ] CIT VS. MODI TELECOMMUNICATION LTD, [2010] 325 ITR 291 (DELHI HIGH COURT) 5386/ DEL/2011 & 5501/DEL/2011 5 CIT VS. BONANZA PORTFOLIO LTD, [2010] 320 ITR 178 ( DELHI HIGH COURT ) STAR DRUGS & RESEARCH LABS LTD. VS. ACIT [ITA NO. 8 48 / MAD / 2007 DATED 15.01.2010 6. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSI ONS OF THE ASSESSEE DELETED THE ADDITION BY OBSERVING IN PARA 5.1. OF T HE IMPUGNED ORDER AS UNDER : - I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS MADE ON BEHALF OF THE APPELLANT, THE FINDINGS OF THE ASSESSING OFF ICER IN THE ASSESSMENT ORDER AND THE FACTS AND CIRCUMSTANCES OF THE CASE. THE POSITION IN LAW IS WELL-SETTLED AS FAR AS THE PROVISIONS OF SECTION 36(1) (VII) READ WITH SECTION 36(2) OF THE ACT ARE CONCERNED. AFTER 1-4-1989, IT IS NOT NECESS ARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS B ECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRIT TEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE, SUBJ ECT TO THE PROVISIONS OF SECTION 36(2) THAT SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT O F SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIE R PREVIOUS YEAR. IF THE INCOME WHICH IS EARLIER RECOGNIZED IS NOT TO BE ALLOWED TO BE REVERSED IN THE SUBSEQUENT ASSESSMENT YEARS, IN ANY CASE IT IS PERMISSIBLE FOR THE ASSESSEE TO W RITE OFF SUCH AN INCOME IN THE CONCERNED ASSESSMENT YEARS WHEN IT WAS FOUND THAT THE AMOUNT WAS NOT RECOVERABLE. REFERENC E IN THIS CONNECTION CAN BE MADE TO THE JUDGMENTS OF THE SUPR EME COURT IN THE CASE OF VIJAYA BANK V. CIT [2010] 323 ITR 166/190 TAXMAN 257 AND T.R.F. LTD. V. CIT [2010] 32 3 ITR 397/190 TAXMAN 391. IN VIEW OF THE AFORESAID, THE DISALLOWANCE OF RS. 40,16,401/- ON ACCOUNT OF BAD D EBTS WRITTEN OFF IS DIRECTED TO BE DELETED. AS A RESULT, THE GROUND OF APPEAL NO. 4 RAISED BY THE APPELLANT IS ACCORDINGLY ALLOWED. 5386/ DEL/2011 & 5501/DEL/2011 6 7. NOW THE DEPARTMENT IS IN APPEAL. T HE LD. DR REITERATED THE OBSERVATIONS MADE BY THE AO AND STRONGLY SUPPORTED THE ASSESSMENT ORDER DATED 23.12.2010. IN HIS RIVAL SU BMISSIONS, THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THE ASSES SEE HAD WRITTEN OFF DEBTS IN ITS BOOKS OF ACCOUNTS AND IT IS NOT THE CA SE OF THE AO THAT THE DEBTS WRITTEN OFF WERE NOT RELATED TO THE BUSINESS OF THE ASSESSEE. ON A SIMILAR ISSUE THE HONBLE SUPREME COURT IN THE CA SE OF TRF LTD. V. CIT [2010] 323 ITR 397 HAS HELD AS UNDER :- AFTER 1 ST APRIL 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT HAS BECOME IRRE COVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRE COVERABLE IN THE ACCOUNTS OF THE ASSESSEE. 9. WE, THEREFORE, KEEPING IN VIEW THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IN THE AFORESAID REFERRED TO CASE, DO NOT SEE ANY VALID TO INTERFERE WITH THE FINDINGS OF THE LD. CIT ON TH IS ISSUE. ACCORDINGLY WE DO NOT SEE MERIT IN THIS APPEAL OF THE DEPARTMEN T. 5386/ DEL/2011 & 5501/DEL/2011 7 10. NOW, WE WILL DEAL WIT H THE APPEAL OF THE ASSESSEE IN ITA NO. 5501/DEL/2011. FOLLOWING GROUNDS HAVE BEEN RAI SED IN THIS APPEAL :- 1. THAT THE ORDER OF TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) IS BAD IN LAW ON THE FACTS AND CIRCUM STANCES OF THE CASE AND IS REQUIRED TO BE QUASHED; 2(A) THAT THE LD. COMMISSIONE R OF INCOME TAX (APPEALS) HAS GONE WRONG IN DISALLOWING EXPENSES FOR EARNING DIVIDEND INCOME TO THE EXTENT OF RS. 4,41,02,912/-; 2(B) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS GONE IN DISALLOWING EXPENSES FOR EARNING DIVIDE ND INCOME TO THE EXTENT OF RS. 4,41,02,912/- BY CONSIDERING T HOSE INVESTMENT ON WHICH NO DIVIDEND HAS BEEN RECEIVED B Y THE ASSESSEE COMPANY DURING THE YEAR; 2(C) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS GONE WRONG IN DISALLOWING EXPENSES FOR EARNING DIVI DEND INCOME TO THE EXTENT OF RS. 4,41,02,912/- BY CONSID ERING BANK CHARGES AS INTEREST; 2(D) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS GONE WRONG IN DISALLOWING EXPENSES FOR EARNING DIVIDENT INCOME TO THE EXTENT OF RS. 4,41,02,912/- BY CONSID ERING INTEREST PAID ON LOAN TAKEN SPECIFICALLY FOR BUSINE SS PURPOSE; 2(E) THAT THE LD. COMMISSIONE R OF INCOME TAX (APPEALS) HAS GONE WRONG IN DISALLOWING EXPENSES TO THE EXTEN T OF RS. 4,41,02,912/- FOR EARNING OF DIVIDEND INCOME OF RS. 2,72,25,894/-; 2(F) THAT THE LD. COMMISSI ONER OF INCOME TAX (APPEALS) HAS GONE WRONG IN NOT CONSIDERING THE SUBMISSION MA DE BY THE ASSESSEE THAT DURING LAST 18-20 YEAR THE ASSESS EE COMPANY HAS NOT MADE ANY INVESTMENT OUT OF BORROWED FUND BUT HAS UTILIZED ITS INTERNAL REVENUE GENERATION; 2(G) THAT THE LD. COMMISSIONER O F INCOME TAX (APPEALS) HAS GONE WRONG IN PASSING A NON-SPEAKING ORDER ON THE S UBMITTED ISSUES; 2. THAT THE APPELLATE RESERVE THE RIGHT TO ADD, AMEND, LATER, DELETE, ANY/ALL GROUNDS OF APPEAL EITHER BEFORE OR AT THE TIME OF THE HEARING OF THE APPEAL. 5386/ DEL/2011 & 5501/DEL/2011 8 11. FROM THE ABOVE GROUND IT IS G ATHERED THAT THE GRIEVANCE OF THE ASSESSEE RELATES TO THE SUSTENANCE OF THE ADDIT ION TO THE EXTENT OF RS. 4,41,02,912/- ON ACCOUNT OF EXPENSES FOR EARNI NG DIVIDEND. 12. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE A SSESSEE RECEIVED DIVIDEND INCOME OF RS. 2,72,25,894/-. HE A SKED THE ASSESSEE TO SHOW CAUSE AS TO WHY DISALLOWANCE U/S 1 4A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES 1962 SHOU LD NOT BE MADE. IN RESPONSE, THE ASSESSEE FURNISHED THE WRI TTEN SUBMISSION ALONG WITH THE DETAILED WORKING OF DISALLOWANCE U/S 14A OF THE ACT. THE AO OBSERVED THAT THE ASSESSEE HAD NOT MAINTAINE D SEPARATE BANK ACCOUNTS IN RESPECT OF INVESTMENT AND OTHER A CTIVITIES AND THAT THERE WAS NO FEATURE DISTINGUISHING THE FUNDS USED FOR INVESTING IN SHARES. HE DID NOT ACCEPT THIS CONTENTION OF THE A SSESSEE THAT THERE WAS COMMON POOL OF FUNDS AND IT COULD NOT BE ASCERT AINED WHETHER INVESTMENTS WERE MADE OUT OF INTERNAL ACCRUALS OR F ROM BORROWED FUNDS. THE A.O. WAS OF THE VIEW THAT HAD THE COMPA NY NOT MADE INVESTMENT, THE TOTAL BORROWINGS WOULD HAVE BEEN L OWER LEADING TO REDUCTION TO THE INTEREST COSTS. HE ALSO OBSERVED T HAT THERE WERE 5386/ DEL/2011 & 5501/DEL/2011 9 CERTAIN EXPENSES FOR EARNING EXEMPT INCOME AND WAS OF THE VIEW THAT THE ADMINISTRATIVE EXPENSES SHOULD HAVE BEEN ATTRIB UTABLE TOWARDS EARNING OF DIVIDEND. THE AO MADE A DISALLOWANCE OF RS. 4,41,02,912/- U/S 14A OF THE ACT READ WITH RULE 8 D OF THE INCOME- TAX RULES IN THE FOLLOWING MANNER :- S. NO. DISALLOWANCE AMOUNT(RS.) 1. THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME 0 2. IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA- AX B/C WHERE A= AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (1) INCURRED DURING THE PREVIOUS YEAR B= THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE LAST DAY AND THE LAST DAY OF THE PREVIOUS YEAR C= THE AVERAGE VALUE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE PREVIOUS YEAR. A= 8,80,48,978/- B= 77,73,84,314/- C= 1,65,85,27,372/- HENCE, DISALLOWANCE= 4,12,70,283/- 3. AN AMOUNT EQUAL TO ON HALF PERCENT OF % OF AV ERAGE 5386/ DEL/2011 & 5501/DEL/2011 10 THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR INVESTMENT OF RS. 77,73,84,314/-= 38,86,921/- TOTAL DISALLOWANCE AMOUNT DISALLOWED BY THE ASSESSEE FURTHER DISALLOWANCE TO BE MADE RS. 4,51,57,204/- RS. 10,54,292/- RS. 4,41,02,912/- 13. BEING AGGRIEVED THE ASSESSEE CARRIED THE MAT TER TO THE LD. CIT(A) AND SUBMITTED AS UNDER :- DURING THE ASSESSMENT YEAR 2008-09 THE ASS ESSEE HAS RECEIVED DIVIDEND OF RS. 2,72,25,894/- MAINLY F ROM ITS SUBSIDIARY COMPANIES. IN THESE COMPANIES INVESTMENT S HAVE BEEN MADE FOR BUSINESS PURPOSES AND NOT FOR EA RNING DIVIDEND; THE ASSESSEE COMPANY HAS NOT INCURRED ANY DIRECT EXPENDITURE FOR EARNING THE SAID DIVIDEND INCOME; T HE TOTALINVESTMENT MADE BY THE ASSESSEE COMPANY AS ON 31.03.2007 AND 31.03.2008 IS AS UNDER :- I INVESTMENT AS ON 31.03.2007 RS. 90, 93,44,814/- II INVESTMENT AS ON 31.03.2008 RS. 64, 54,23,814/- DURING THE CURRENT ASSESSMENT YEAR I.E. AY 2008-09 THE ASSESSEE COMPANY HAS SOLD INVESTMENT IN M/S THOMSON PRESS(INDIA) LIMITED AND OUT OF THE SALE PROCEEDS I T MADE FRESH INVESTMENT AS UNDER :- III INVESTMENT IN M/S ITAS MEDIA PVT. LTD. RS. 1,00,000/- IV.INVESTMENT IN M/S TODAY RETAIL NETWORKPVT.LTD. R S. 1,00,000/- DURING LAST 18-20 YEARS THE ASSESSEE COMPANY HAS NO T MADE ANY INVESTMENT OUT OF BORROWED FUNDS WHICH IS QUITE EVIDENT FROM THE YEAR WISE INVESTMENT CHART [COPY O F THE SAME IS ATTACHED HEREWITH AS ANNEXURE-A]; FROM THE YEAR WISE INVESTMENT CHART IT IS QUITE EVI DENT THAT NO INVESTMENT HAS BEEN MADE BY THE ASSESSEE COMPANY FROM BORROWED FUNDS AND ACCORDINGLY INTEREST AND FI NANCE 5386/ DEL/2011 & 5501/DEL/2011 11 CHARGES SHOULD NOT BE CONSIDERED FOR THE PURPOSE OF CALCULATION OF DISALLOWANCE U/S 14A READ WITH RULE 8D; IN THE CASE OF SIVA INDUSTRIES & HOLDING LTD. [ITA NO. 2148/MDS/2010 DATED 20.05.2011] CHENNAI TRIBUNAL HE LD THAT ONLY THOSE INVESTMENTS ON WHICH DIVIDEND IS RE CEIVED DURING THE YEAR ARE REQUIRED TO BE CONSIDERED FOR T HE PURPOSE OF DISALLOWANCE U/S 14A AND NOT ALL THE INV ESTMENTS ON WHICH NO DIVIDEND IS RECEIVED DURING THE YEAR. C HENNAI TRIBUNAL HAS GIVEN ITS DECISION AFTER CONSIDERING T HE CASES OF GODREJ & BOYCE MFG CO. LTD. [328 ITR 81 (BOM)] AND WALFORT SHARE AND STOCK BROKERS PVT. LTD. 233 CTR 4 2 (SC). 14. THE LD. CIT(A) AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE OBSERVED THAT THE ISSUE INVOLVED IN THE AP PEAL WAS DECIDED BY DELHI SPECIAL BENCH OF THE ITAT IN THE CASE OF C HEMINVEST LTD. VS. ITO (2009) 121 ITD 318 (DELHI) (SB). HE ALSO RE FERRED TO THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F CIT, MUMBAI VS. M/S. WALFORT SHARE & STOCK BROKERS PVT LTD. (20 10) 41 DTR(SC) 233 AND HONBLE BOMBAY HIGH COURT IN THE CASE OF GO DREJ & BOYCE MANUFACTURING CO. LTD. MUMBAI VS. DCIT(2010) 328IT R81(BOM). THEREAFTER THE LD. CIT(A) OBSERVED THAT FROM THE CO NJOINT READING OF THE ABOVE JUDGMENTS THE FOLLOWING PROPOSITIONS EMER GED: (A) WHEN THE DIVIDEND IS NOT TAXABLE AT ALL, THE E XPENDITURE ON RENT, TAXES, SALARIES, INTEREST, ETC. PERTAINING TO THAT WOULD ALSO NOT BE ALLOWABLE BECAUSE THERE IS NO TAXABLE INCOME OF THE ASSESSEE AGAINST WHICH SUCH EXPENDITURE CAN BE ALLOWED; 5386/ DEL/2011 & 5501/DEL/2011 12 (B) THE DISALLOWANCE UNDER SECTION14A COULD BE MADE IN A YEAR IN WHICH NO EXEMPT INCOME HAD BEEN EARNED OR RECEIVED BY THE ASSESSEE; (C) THE ALLOWANCE OF EXPENDITURE IN RELATION TO DIV IDEND INCOME WOULD NOT BE ADMISSIBLE IN COMPUTING THE INCOME OF AN ASS ESSEE UNDER THE ACT IN BOTH THE SITUATIONS, WHETHER THE SHARES ARE HELD AS INVESTMENT OR HELD ON TRADING ACCOUNT AS STOCK-IN-TRADEAND (D) THE PROVISIONS OF RULE 8D OF THE INCOME TAX RUL ES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM 24 MARCH 2008 SHALL APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09. 15. THE LD. CIT(A) FURTHER OBSERVED THAT THE AS SESSMENT YEAR IN THE PRESENT CASE IS 2008-09, THEREFORE, THE AO WAS JUSTIFIED IN APPLYING RULE 8D OF THE INCOME-TAX RULES 1962 TO QU ANTIFY THE DISALLOWANCE U/S 14A OF THE ACT AND THE CASE OF SIV A INDUSTRIES & HOLDING LTD. VS. ACIT(2011) 46 SOT112 RELIED BY TH E ASSESSEE WAS DISTINGUISHABLE BECAUSE IN THE SAID CASE THE ASSESS MENT YEAR INVOLVED WAS 2006-07. THE LD. CIT(A) BY RELYING THE DECISION OF THE DELHI SPECIAL BENCH OF THE ITAT IN THE CASE OF CHEM INVEST LTD. VS. ITO (SUPRA) HELD THAT THE DISALLOWANCE U/S 14A COUL D BE MADE IN A YEAR IN WHICH NO EXEMPT INCOME HAD BEEN EARNED OR R ECEIVED BY THE 5386/ DEL/2011 & 5501/DEL/2011 13 ASSESSEE. ACCORDINGLY, THE DISALLOWANCE MADE BY TH E AO WAS CONFIRMED. 16. NOW THE ASSESSEE IS IN APPEAL. THE LD. COUNS EL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE AO WRONGLY WOR KED OUT THE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D O F THE IT RULES. IT WAS, FURTHER, SUBMITTED THAT THE ASSESSEE CORRECTLY WORKED OUT THE FIGURE OF DISALLOWANCE IN ACCORDANCE WITH THE RULE 8D AT RS. 8,70,491/-, A REFERENCE WAS MADE TO PAGE NO. 111 OF THE ASSESSEES PAPER. IT WAS FURTHER, SUBMITTED THAT THE ASSESSE E HAD NOT INCURRED / DEBITED THE DIRECT EXPENDITURE TO PROFIT & LOSS AC COUNT, FOR EARNING EXEMPT INCOME. IT WAS POINTED OUT THE ASSESSEE HAD ALREADY ADDED BACK A SUM OF RS. 10,54,292/- IN RESPECT OF EXPENDI TURE RELATING / ATTRIBUTABLE TO EXEMPT INCOME, IN THE COMPUTATION OF TAXABLE INCOME WHICH HAS ALSO BEEN CONFIRMED BY THE AUDITOR IN CLA USE 17 (K) OF TAX AUDIT REPORT. IT WAS SUBMITTED THAT ONLY THOSE INV ESTMENT WHICH EARNED THE INCOME COULD HAVE BEEN CONSIDERED BY THE AO WHILE MAKING THE DISALLOWANCE, HOWEVER, THE AO DID NOT A PPRECIATE THE FACTS IN RIGHT PROSPECTIVE. IT WAS POINTED OUT THAT FOR THE YEAR UNDER CONSIDERATION THE INVESTMENT OF RS. 2,00,000/- ONLY WAS MADE AND NO 5386/ DEL/2011 & 5501/DEL/2011 14 BORROWING WAS TAKEN. IT WAS FURTHER STATED THAT FRO M THE INVESTMENT CHART IT WAS QUITE EVIDENT THAT NO INVESTMENT HAD BEEN MADE BY THE ASSESSEE FROM BORROWED FUNDS AND ACCORDINGLY INTERE ST AND FINANCIAL CHARGES SHOULD NOT HAVE BEEN CONSIDERED FOR THE PUR POSE OF CALCULATION OF DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D. IT WAS FURTHER, SUBMITTED THAT THE LD. CIT(A) HAD ALSO NOT CONSIDERED THE FACTS IN RIGHT PROSPECTIVE AND WRONGLY APPLIED THE DECISION OF THE ITAT. IT WAS SUBMITTED THAT THOSE INVESTMENT ON W HICH NO DIVIDEND INCOME WAS RECEIVED BY THE ASSESSEE IN CURRENT YEA R SHOULD HAVE BEEN EXCLUDED FROM THE INVESTMENT WHILE CALCULATI NG THE DISALLOWANCE U/S 14A OF THE ACT. THE RELIANCE WAS PLACED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. HOLCIM INDIA P. LTD. REPORTED AT [(2014) 90CCH0081 (DELHI)], COPY OF THE SAID ORDER IS PLACED AT PAGE NO. 71 TO 77 OF THE ASSESSEES COMPILATION. THE RELIANCE WAS ALSO PLAC ED ON THE FOLLOWING CASE LAWS :- 1. DCIT VS. JINDAL PHOTO LTD. IN ITA NO. 4539/DE L/2010.(ITAT DELHI) 2. CIT VS. JINDAL PHTO LTD. IN ITA NO. 87/2012 ( DELHI, HC) 3. DCIT VS. JINDAL PHOTO LTD. IN ITA NO. 814/DEL /2011 (ITAT DELHI) 4. DCIT VS. M/S ORIENT CRAFT LTD. 148TTJ 213 (IT AT DELHI) 5. ACIT VS. M/S SIL INVESTMENT LTD. 148TTJ213 (ITA T DELHI) 6. ITO VS. M/S ARIHANT ADVERTISING P. LTD. ITA NO. 2750/DEL/2011 (ITAT DELHI). 7. SAM P. BARUCHA IN ITA NO. 3889/DEL/2011. (ITAT MUMBAI) 5386/ DEL/2011 & 5501/DEL/2011 15 8. SIVA INDUSTRIES HOLDINGS LTD. VS. ACIT 145 TTJ 497 (ITAT CHENNAI) 9. M/S MERCANTILE CAPITAL & FINANCE SERVICES P. LT D. ITA NO. 2571 / DEL/ 2011 (ITAT DELHI) 10. M/S DCIT VS. REI AGRO LTD. 144 ITD 141 (ITAT K OLKATA) 11. CIT VS. CONSOLIDATED PHOTO & FINVEST LTD. 358I TR310 (HC DELHI) 12. CIT VS. REI AGRO LTD. ITA NO. 161 OF 2013 (HC C ALCUTTA) 13. CIT VS. HOLCIM INDIA P. LTD. IN ITA NO. 486 OF 2014 (HC DELHI) 14. DELITE ENTERPRISES IN ITA NO. 110 OF 2009. 15. CIT VS. WINSOME TEXTILES LTD. 319 ITR 204 (PU NJAB & HARYANA HIGH COURT) 16. CIT VS. CORRTECH ENERGY (P) LTD. 233 TAXMAN 13 0. (GUJARAT HIGH COURT) 17. CIT VS. M/S SHIVAM MOTORS (P) LTD. ITA NO. 88 O F 2014 (ALLAHABAD HIGH COURT) 18. CIT VS. M/A LAKHANI MARKETING INCL. LTD. ITA N O. 970 OF 2008 (P & H HIGH COURT) 19. M/S JM FINANCIAL LIMITED VS. ACIT ITA NO. 4521 /MUM/2012 (ITAT MUMBAI) 20. M/S EIH ASSOCIATED HOTELS VS. DCIT IN ITA NO. 1503/MDS/2012 (ITAT CHENNAI) 21. CIT VS. ORIENTAL STRUCTURAL ENGINEERS LTD. IN ITA NO. 605/2012 (DELHI HIGH COURT) 22. M/S GDA FINVEST & TRADE P. LTD. IN ITA NO.3353 /DEL/2013 (HONBLE ITAT) 23. CIT VS. GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. (2014) 42 TAXMANN.COM 270. 24. CIT VS. UTI BANK LTD. (2013) 32 TAXMANN. COM 3 70. (GUJARAT HIGH COURT) 25. ACIT VS. CHAMPION COMMERCIAL CO. LTD. ITA NO . 644/KOL/2012 (ITAT KOLKATA) 26. M/S DCIT VS. REI AGRO LTD. IN 160 TTJ 107. (ITAT KOLKATA) 17. IN HIS RIVAL SUBMISSIONS, THE LD. DR SUP PORTED THE ORDERS OF THE AUTHORITIES BELOW AND REITERATED THE OBSERVATIO NS IN THE 5386/ DEL/2011 & 5501/DEL/2011 16 ASSESSMENT ORDER MADE BY THE AO AND IN THE IMPUGNED ORDER BY THE LD. CIT(A). 18. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH T HE PARTIES AND CAREFUL GONE THROUGH THE MATERIAL AVAILABLE ON THE RECORD IN THE PRESENT CASE, IT APPEARS THAT THE AO HAD INCLUDED ALL THE INVESTMENT WHILE WORKING OUT THE AVERAGE INVESTMENT FOR THE P URPOSES OF CALCULATING THE DISALLOWANCE U/S 14A OF THE ACT REA D WITH RULE 8D OF THE ITA RULES. HE ALSO INCLUDED THOSE INVESTMENT ON WHICH NO DIVIDEND INCOME WAS RECEIVED BY THE ASSESSEE DURING THE YEAR CONSIDERATION. THE LD. CIT(A) ALSO REJECTED THE EXP LANATION OF THE ASSESSEE, WITHOUT POINTING OUT ANY DEFECT IN THE AMOUNT OF DISALLOWANCE WORKED OUT BY THE ASSESSEE (COPY OF W HICH IS PLACED AT PAGE NO. 111 OF THE PAPER BOOK). IN THE PRESENT CAS E IT SEEMS THAT NEITHER THE AO NOR THE LD. CIT(A) CONSIDERED THE FA CTS OF THE PRESENT CASE IN RIGHT PROSPECTIVE. WE, THEREFORE, DEEM IT A PPROPRIATE TO REMAND THIS ISSUE BACK TO THE FILE OF THE AO TO BE DECIDED AFRESH IN ACCORDANCE WITH LAW AFTER PROVIDING DUE TO A REASON ABLE OPPORTUNITY BEING HEARD TO THE ASSESSEE. HE IS ALSO DIRECTED T O CONSIDER THE VARIOUS CASE LAWS RELIED BY THE LD. COUNSEL FOR THE ASSESSEE WHILE DECIDING THE ISSUE AFRESH. 5386/ DEL/2011 & 5501/DEL/2011 17 19. IN THE RESULT, THE APPEAL OF THE DEPARTMENT I S DISMISSED AND THAT OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES . (ORDER PRONOUNCED IN OPEN COURT ON 15 TH MAY, 2015.) SD/- SD/- (A.T.VARKEY) (N.K.SAINI) JUDICIAL MEMBER ACC OUNTANT MEMBER DATED 15 TH MAY, 2015 B.RUKHAIYAR COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. CIT (ITAT), NEW DELHI. AR, ITAT N. DELHI 5386/ DEL/2011 & 5501/DEL/2011 18 SL. NO. DESCRIPTION DATE 1. DATE OF DICTATION BY THE AUTHOR 11.05.2015 2. DRAFT PLACED BEFORE THE DICTATING MEMBER 13.05.2015 3. DRAFT PLACED BEFORE THE SECOND MEMBER 4. DRAFT APPROVED BY THE SECOND MEMBER 5. DATE OF APPROVED ORDER COMES TO THE SR. PS 6. DATE OF PRONOUNCEMENT OF ORDER 15.05.2015 7. DATE OF FILE SENT TO THE BENCH CLERK 15.05.2015 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER