Barmalt (India) Ltd., New Delhi V. DCIT, New Delhi

ITA 5551/DEL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 4707 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 22-09-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARUN KUMAR YADAV SENIOR
• Assessee Lawyers: P N SHASTRY
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH C : NEW DELHI) BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.5551/DEL./2015 (ASSESSMENT YEAR : 2011-12) M/S. BARMALT (INDIA) PVT.LTD., VS. DCIT, CIRCLE 2 (1), 503, ARADHANA APARTMENTS, NEW DELHI. SECTOR 13, R.K. PURAM, RING ROAD, NEW DELHI 110 066. (PAN : AAACB2825M) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.P. RASTOGI, ADVOCATE AND SHRI P.N. SHASTRY, CA REVENUE BY : SHRI ARUN KUMAR YADAV, SENIOR DR DATE OF HEARING : 30.08.2017 DATE OF ORDER : 31.08.2017 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : APPELLANT, M/S. BARMALT (INDIA) PVT. LTD. (HEREINA FTER REFERRED TO AS THE ASSESSEE COMPANY), BY FILING T HE PRESENT APPEAL SOUGHT TO SET ASIDE THE IMPUGNED ORDER DATED 29.05. 2015 PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS)-2, NEW DEL HI, FOR THE ASSESSMENT YEAR 2011-12 ON THE GROUNDS INTER ALIA T HAT :- 1. THAT WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD CIT (A ) ITA NO.5551/DEL./2015 2 WAS NOT JUSTIFIED IN UPHOLDING THAT THE LD AO HAD CORRECTLY NOTED HIS SATISFACTION FOR APPLYING SECTI ON 14A READ WITH RULE 8D AND THAT THE DISALLOWANCE MADE BY HIM AS PER RULE 8D AMOUNTING TO RS.4,11,355 IS CORR ECT. IT IS PRAYED THAT APPROPRIATE ORDERS BE PASSED TO D ELETE THE DISALLOWANCES IN THE INTEREST OF JUSTICE. 2. THAT WITHOUT CONSIDERING THE CORRECT FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD CIT (A) HAS WRONGLY CONCLUDED THAT THE APPELLANT COMPANY HAD INCURRED EXPENDITURE FOR EARNING OF EXEMPT INCOME A ND COMPLETELY OVERLOOKED THE RATIOS LAID DOWN BY VARIO US HON'BLE COURTS REGARDING THE APPLICABILITY OF THE PROVISIONS OF RULE 8D AND UPHELD THE ADDITION OF RS.4,11,354 TO THE TOTAL INCOME. THAT APPROPRIATE O RDER MAY. BE PASSED TO DIRECT THE LD AO TO DELETE THE AD DITIONS IN THE INTEREST OF JUSTICE. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICAT ION OF THE CONTROVERSY AT HAND ARE : DURING THE SCRUTINY PROCE EDINGS, ASSESSING OFFICER NOTICED THAT THE ASSESSEE COMPANY HAS CLAIMED EXEMPT INCOME ON ACCOUNT OF DIVIDEND TO THE TUNE OF RS.21,82,971/- UNDER SECTION 10(34) OF THE INCOME-T AX ACT, 1961 (FOR SHORT THE ACT). AO BY INVOKING THE PROVISIO NS CONTAINED U/S 14A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 (FOR SHORT THE RULES) WORKED OUT THE DISALLOWANCE TO THE TUNE OF RS.3,11,355/- (RS.4,11,355/- MINUS RS.1,00,000/-) B Y MAKING FOLLOWING OBSERVATIONS :- 3.3 THE REPLY OF THE ASSESSEE COMPANY HAS BEEN CONSIDERED AND NOT FOUND TENABLE. THE CONTENTION OF THE ASSESSEE COMPANY THAT IT HAS NOT INCURRED ANY EXPE NSES FOR EARNING EXEMPT INCOME AND TAKES SERVICES OF INVESTM ENT ADVISORS FOR WHICH THE INVESTMENT ADVISORS DO NOT C HARGE ANY FEE FROM ITS CLIENTS DOES NOT HOLD GOOD. FIRST OF ALL THE ITA NO.5551/DEL./2015 3 ASSESSEE COMPANY INVESTED MONEY OUT OF ITS ACCUMULA TED PROFIT, WHICH IF NOT HAVE BEEN INVESTED TO EARN THI S INCOME, WOULD HAVE BEEN UTILIZED IN THE BUSINESS. SECONDLY, THE INVESTMENT ADVISORS ALSO CHARGES FEE FOR THE SERVIC ES RENDERED BY THEM EITHER DIRECTLY OR IN THE FORM OF ENTRY OR EXIT LOAD. MOREOVER BROKERAGE CHARGES ARE ALSO CHARGES AS ENTR Y OR EXIT LOAD. ACCORDINGLY, THE DISALLOWANCE FILED BY THE AS SESSEE IS WORKED OUT AS PER THE PROVISIONS OF RULE 80 (2) AS UNDER :- ASSESSMENT YEAR 2011-12 PARTICULARS AMOUNT (RS) I ) INTEREST COST UNDER CLAUSE (II) OF RULE 8D(2) [AS PER WORKING BELOW] II) 0.5% OF AVERAGE VALUE OF - INVESTMENT * - (0.5% OF RS.8,22,70,927/-) TOT AL NIL 4,11,355 4,11,355 DISALLOWANCE OF INTEREST COST UNDER CLAUSE (II) PARTICULARS AMOUNT (RS) I ) TOTAL INTEREST COST (AS PER PROFIT & LOSS ACCOUNT) (A) DISALLOWANCE OF INTEREST COST UNDER CLAUSE (II) A X B 0 X 10,28,09,400 C 28, 73,99,310 NIL NIL NIL WORKING OF AVERAGE INVESTMENTS AND ASSETS (AS PER B ALANCE SHEET) AS PER RULE 8D OF THE INCOME TAX RULES 1962. S.NO. 31.03.2011 31.03.2010 AVERAGE VALUE (B) (C) INVESTMENTS ** ASSETS*** 3,62,70,907 3,79,26,81,537 12,82,70,946 3,35,33,72,871 8,22,70,927 3,57,30,27,204 3.4 HENCE, AN AMOUNT OF RS.3,11,355/- (4,11,355/- - 1,00,000/-) IS DISALLOWED U/S 14A OF THE I.T. ACT A ND ADDED TO THE TOTAL TAXABLE INCOME. ITA NO.5551/DEL./2015 4 3. ASSESSEE CARRIED THE MATTER BY WAY OF FILING AN APPEAL BEFORE THE LD. CIT (A) WHO HAS AFFIRMED THE ADDITION BY DI SMISSING THE APPEAL FILED BY THE ASSESSEE COMPANY. FEELING AGGR IEVED, THE ASSESSEE COMPANY HAS COME UP BEFORE THE TRIBUNAL BY WAY OF CHALLENGING THE IMPUGNED ORDER PASSED BY LD. CIT. 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. 5. LD. AR FOR THE ASSESSEE CONTENDED INTER ALIA THA T THE AO PROCEEDED TO INVOKE THE PROVISIONS CONTAINED U/S 14 A READ WITH RULE 8D WITHOUT RECORDING HIS DIS-SATISFACTION THAT DISALLOWANCE TO THE TUNE OF RS.1,00,000/- MADE BY THE ASSESSEE ITSE LF IS NOT CORRECT; THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME FROM I NVESTMENT OF SURPLUS FUNDS; THAT NO EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE COMPANY TO EARN EXEMPT INCOME FROM MUTUAL FUNDS; TH AT IN THE EARLIER AY 2010-11, IDENTICAL ISSUE HAS BEEN DECIDE D BY THE LD. CIT (A) IN FAVOUR OF THE ASSESSEE AND RELIED UPON THE C ASES OF HT MEDIA LIMITED VS. PR. CIT IN ITA NO.548/2015 DATED2 3.08.2017 AND GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT 394 ITR 449 (SC). ITA NO.5551/DEL./2015 5 6. LD. DR FOR THE REVENUE CHALLENGING THE IMPUGNED ORDER CONTENDED INTER ALIA THAT THE AO HAS WORKED OUT THE DISALLOWANCE UNDER RULE 8D AS PER ACCOUNTS RENDERED BY THE ASSES SEE HAVING BEEN DULY EXPLAINED AT THE PAGE 3 OF THE ASSESSMENT ORDER; THAT SECTION 114 OF THE EVIDENCE ACT, 1872 RAISES PRESUM PTION IN FAVOUR OF THE REVENUE THAT THERE WAS NON-SATISFACTION OF T HE AO AND RELIED UPON THE ORDER OF THE AO AND RELIED UPON THE DECIS IONS RENDERED BY HONBLE APEX COURT IN MAK DATA PVT. LTD. VS. CIT 2013- TIOL-58-SC-IT AND CIT VS. DAULAT RAM RAWATMULL (1973) 87 ITR 349 (SC) . 7. UNDISPUTEDLY, THE AO, WITHOUT POINTING OUT ANY D EFECT IN THE WORKING OUT OF DISALLOWANCE VOLUNTARILY MADE BY THE ASSESSEE TO THE TUNE OF RS.1,00,000/- AND WITHOUT RECORDING DIS -SATISFACTION, PROCEEDED TO INVOKE THE PROVISIONS CONTAINED U/S 14 A READ WITH RULE 8D WHICH IS NOT PERMISSIBLE. 8. HONBLE APEX COURT IN GODREJ & BOYCE MANUFACTURE COMPANY LTD. VS. DCIT 394 ITR 449 (SC) THRASHED THE ISSUE IN CONTROVERSY AS TO INVOKING OF THE PROVISIONS CONTAI NED UNDER RULE 8D OF THE RULES BY OBSERVING AS UNDER :- 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUAT ION A DIFFERENT VIEW COULD HAVE BEEN TAKEN FOR THE ASSESSMENT YEAR 2002-2003. SUB-SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES MERELY PRESCRIBE A FORMULA FOR DETE RMINATION OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATI ON WHERE THE ITA NO.5551/DEL./2015 6 ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM O F THE ASSESSEE. WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLICA TION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUD GMENT OF THE ASSESSING OFFICER, WHAT THE LAW POSTULATES IS THE R EQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING R EGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREAFTER TH AT THE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF THE RUL ES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAILING, WOUL D BECOME APPLICABLE. 9. HONBLE DELHI HIGH COURT IN HT MEDIA LIMITED (SUPRA) DECIDED THE ISSUE IN CONTROVERSY IN FAVOUR OF THE A SSESSEE BY RETURNING THE FOLLOWING FINDINGS :- 39. TURNING NOW TO THE ORDER OF THE ITAT IN PARA 3 3, IT RECORDED THE SUBMISSION OF THE AR THAT THE AO DID 1 )0T RECORD ANY SATISFACTION ABOUT THE ASSESSEE NOT PROP ERLY OFFERING EXPENDITURE INCURRED IN RELATION TO THE EX EMPT INCOME AT RS.3 LAKHS. THE ITAT REPRODUCED THE CONTE NTS OF PARA 3.3.1 OF THE ASSESSMENT ORDER, WHICH HAS BEEN EXTRACTED BY THIS COURT HEREINBEFORE, WHICH CONTAINS GENERAL OBSERVATIONS REGARDING EARNING OF EXEMPT INCOME. TH IS CANNOT BE ACCEPTED AS A RECORDING BY THE AO OF SATI SFACTION REGARDING THE CLAIM OF THE ASSESSEE AFTER EXAMINING ITS ACCOUNTS. AGAIN, IN PARA 34 OF ITS ORDER, THE ITAT SIMPLY REPRODUCED PARA 3.3.6 OF THE ASSESSMENT ORDER WHERE , AGAIN, NO REASONS HAVE BEEN PROVIDED BUT ONLY A CONCLUSION HAS BEEN REACHED THAT THE AO WAS 'SATISFIED THAT THE AS SESSEE HAD INCURRED EXPENSES TO MANAGE ITS INVESTMENTS WHI CH MAY YIELD EXEMPT INCOME, AND ASSESSEE GROSSLY FAILED TO CALCULATE SUCH EXPENSES IN A REASONABLE MANNER TO ASCERTAIN T HE TRUE AND CORRECT PICTURE OF ITS INCOME AND EXPENSES.' 40. CONSEQUENTLY ON THE ASPECT OF ADMINISTRATIVE E XPENSES BEING DISALLOWED, SINCE THERE WAS A FAILURE BY THE AO TO COMPLY WITH THE MANDATORY REQUIREMENT OF SECTION 14 A (2) OF THE ACT READ WITH RULE 8D (1) (A) OF THE RULES A ND RECORD HIS SATISFACTION AS REQUIRED THEREUNDER, THE QUESTI ON OF APPLYING RULE 8D (2) (III) OF THE RULES DID NOT ARI SE. THE QUESTION FRAMED IN ITA 549 OF 2015 IS ANSWERED ACCORDINGLY. 10. FOLLOWING THE DECISION RENDERED BY HONBLE APEX COURT IN JUDGMENT CITED AS GODREJ & BOYCE MANUFACTURE COMPANY LTD. ITA NO.5551/DEL./2015 7 (SUPRA) AND HONBLE DELHI HIGH COURT IN HT MEDIA LIMITED (SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THE FIN DINGS RETURNED BY AO THAT THE CONTENTION OF THE ASSESSEE COMPANY THAT IT HAS NOT INCURRED ANY EXPENSES FOR EARNING EXEMPT INCOME AN D TAKE SERVICES OF INVESTMENT ADVISER IS NOT ACCEPTABLE DO NOT HOLD GOOD BECAUSE WHEN THE ASSESSEE HAS COME UP WITH CATEGORI C PLEA THAT IT HAS NOT INCURRED ANY EXPENSES TO EARN THE EXEMPT IN COME FROM MUTUAL FUNDS AND THAT THE ASSESSEE HAS ITSELF MADE DISALLOWANCE TO THE TUNE OF RS.1,00,000/- WHICH HAS BEEN ACCEPTED B Y THE AO WITHOUT POINTING OUT ANY DEFECT, PROVISIONS CONTAIN ED U/S 14A READ WITH RULE 8D CANNOT BE INVOKED. BECAUSE SUB-SECTIO N (2) & (3) OF SECTION 14A WITH RULE 8D OF THE RULES HAS ONLY PRES CRIBED A FORMULA FOR DETERMINATION OF AN EXPENDITURE TO EARN THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, WHICH CAN ONLY BE INVOKED IF THE AO IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. 11. AO HAS INVOKED PROVISIONS CONTAINED U/S 14A REA D WITH RULE 8D IN MECHANICAL MANNER WITHOUT POINTING OUT T HAT SUCH AND SUCH EXPENSES HAVE BEEN INCURRED BY THE ASSESSEE. FURTHERMORE, IN THE SIMILAR SET OF FACTS, LD. CIT (A) IN ASSESSEES OWN CASE FOR AY 2010-11, AVAILABLE AT PAGES 21 TO 25 OF THE PAPER B OOK, HAS DELETED THE ADDITION OF RS.6,53,354/- MADE BY THE AO, BY AC CEPTING THE ITA NO.5551/DEL./2015 8 DISALLOWANCE OF RS.1,00,000/- MADE BY THE ASSESSEE ITSELF, BY FOLLOWING THE LAW LAID DOWN BY HONBLE DELHI HIGH COURT IN MAXOPP INVESTMENT LTD. VS. CIT 203 TAXMAN 364 (DE L.) . 12. SO, THE AO HAS MADE DISALLOWANCE WITHOUT RECORDING HIS DISSATISFACTION ON ANY COGENT GROUND AND WITHOUT DI SPUTING THE COMPUTATION OF DISALLOWANCE MADE BY THE ASSESSEE IT SELF RATHER SUBJECTIVELY WRITTEN THAT, THE CONTENTION OF THE ASSESSEE COMPANY THAT IT HAS NOT INCURRED ANY EXPENSES FOR EARNING E XEMPT INCOME AND TAKE SERVICES OF INVESTMENT ADVISER WITHOUT ANY FEE, ARE NOT ACCEPTABLE, AND PROCEEDED TO WORK OUT DISALLOWANCE U/S 14A READ WITH RULE 8D WHICH IS NOT SUSTAINABLE IN THE EYES OF LAW. IN T HE GIVEN CIRCUMSTANCES, THE CASE LAWS RELIED UPON BY T HE LD. DR IS NOT APPLICABLE TO THE FACTS AND CIRCUMSTANCES OF THE CA SE. IN VIEW OF WHAT HAS BEEN DISCUSSED ABOVE, THE ADDITION MADE BY THE AO AND AFFIRMED BY THE LD. CIT (A) IS NOT SUSTAINABLE, CON SEQUENTLY, THE INSTANT APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 31 ST DAY OF AUGUST, 2017. SD/- SD/- (B.P. JAIN) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 31 ST DAY OF AUGUST, 2017 TS ITA NO.5551/DEL./2015 9 COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-2, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.