ITO, New Delhi V. M/s. Everplus Securities & Finance Ltd., New Delhi

ITA 5636/DEL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 74182 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 26-02-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 07-11-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NIDHI SRIVASTAVA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DELHI) BEFORE SHRI G. D. AGRAWAL, HONBLE VICE PRESIDENT AND SHRI U. B. S. BEDI, JUDICIAL MEMBER I.T.A. NO. 5636 /DEL/2012 (ASSESSMENT YEAR 2009-10) ITO, WARD 11(2), VS. M/S. EVERPLUS SECURITIES & FI NANCE LTD., NEW DELHI. 28, NAJAFGARH ROAD, NEW DELHI-110 015 PAN/GIR NO.:AAACE2672H (APPELLANTS) (RESPONDENTS) ASSESSEE BY : SMT. NIDHI SRIVASTAVA, SR. DR DEPARTMENT BY: NONE ORDER PER U B S BEDI, JUDICIAL MEMBER: THIS APPEAL OF THE DEPARTMENT IS DIRECTED AGAINST THE ORDER PASSED BY LD. CIT(A) XIII, NEW DELHI DATED 02 ND AUG., 2012 RELEVANT TO ASSESSMENT YEAR 2009-10 WHEREIN FOLLOWING TWO EFFECTIVE GROUND S HAVE BEEN RAISED: 1. THE LD. CIT(A) HAS ERRED ON FACTS AND CIRCUMSTA NCES OF THE CASE AND IN LAW IN RESTRICTING THE EXPENDITURE TO R S.7,62,748/- INSTEAD OF RS.21,57,847/- CALCULATED U/S 14A READ WITH RULE 8D OF THE I. T. ACT, 1961. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND CIRCUMSTAN CES OF THE CASE AND IN LAW IN GIVING RELIEF OF RS.13,95,099/- TO THE ASSESSEE BY IGNORING SECTION 14A READ WITH RULE 8D OF THE I. T. ACT, 1961. 2. THE FACTS OF THE CASE INDICATE THAT THE ASSESSEE COMPANY IS NBFC COMPANY ENGAGED IN THE BUSINESS OF INVESTMENT AND F INANCE. DURING THE YEAR, THE ASSESSEE HAS DECLARED GROSS RECEIPTS AT R S.1.82 CRORE, WHICH INCLUDED MAINLY DIVIDEND INCOME (RS.1.58 CRORE) AND INTEREST INCOME I.T.A. NO. 5636/DEL/2012 2 (RS.0.22 CRORE). IN THE ASSESSMENT ORDER THE A.O. HAS DISALLOWED RS.1,45,28,857/- AS EXPENSES RELATING TO EARNING EX EMPT INCOME AS AGAINST RS.1,30,33,659/- DISALLOWED BY THE A.O. IN THE COMP UTATION OF INCOME. THE A.O. OBSERVED THAT THE ASSESSEE COMPANY HAS SHOWN T AX FREE DIVIDEND INCOME OF S.1,58,55,909/- IN ITS RETURN OF INCOME A ND HAS ALSO CLAIMED INTEREST EXPENSES OF RS.1,65,01,590/- FOR THE PREVI OUS YEAR. IN VIEW OF THE PROVISIONS OF SECTION 14A OF THE I T ACT, THE DISAL LOWANCE OF EXPENSES IS REQUIRED TO BE MADE WHICH ARE ATTRIBUTABLE TO THE E ARNING OF EXEMPTED INCOME AS PER THE METHOD PRESCRIBED UNDER RULE 8D. THE ASSESSEE HAS SUO- MOTTO DISALLOWED THESE EXPENSES AS PER THE TAX AUDI T REPORT. THE AMOUNT OF DISALLOWANCE MADE BY THE ASSESSEE IS RS.1,30,33, 659/-. DETAILED CHART SHOWING THE AMOUNT CALCULATED IS ALSO FILED BY THE ASSESSEE. HOWEVER, IN THE CHART SUBMITTED BY THE ASSESSEE WITH REGARD TO DISALLOWANCE OF EXPENDITURE U/S 14A IS NOT STRICTLY IN ACCORDANCE W ITH THE PRESCRIBED RULE 8D, THE ASSESSEE HAS RESTRICTED THE 0.5% OF AVERAGE INVESTMENTS (AS PER THIRD STEP) TO RS.6,62,649/- ON THE BASIS OF PROPORTIONAT E INCOME THAT BEARS EXEMPTED INCOME TO THE TOTAL INCOME. DISALLOWANCE AS PER THE THIRD STEP OF RULE 8D BEING 0.5% OF THE AVERAGE INVESTMENTS COMES TO RS.21,57,847/- AND THE RULE DOES NOT PROVIDE ANY RESTRICTION UP TO THE AMOUNT OF TOTAL EXPENDITURE BASES IN PROPORTION OF EXEMPTED INCOME TO THE TOTAL INCOME. THE MUMBAI BENCH OF ITAT IN THE CASE OF SANCHAYITA MERCANTILE PVT. LTD. 25 SOT 57 (MUM.) HAS HELD THAT THERE IS NOTHING IN THE PROVISION OF SECTION 14A OF THE I. T. ACT, TO THE EFFECT THAT THE EXPEND ITURE DISALLOWED SHOULD NOT EXCEED THE INCOME, WHICH IS NOT CHARGEABLE TO TAX. IN VIEW OF THE ABOVE, THE AMOUNT DISALLOWABLE U/S 14A READ WITH RULE 8D IS BE ING CALCULATED AS UNDER: I.T.A. NO. 5636/DEL/2012 3 TOTAL EXPENDITURE DISALLOWABLE U/S 14A READ WITH R ULE 8D OF THE I T RULES, THUS, COMES TO RS.1,45,28,857/- WHICH IS DIS ALLOWED U/S 14A READ WITH RULE 8D OF THE I T ACT. SINCE, THE ASSES SEE HAS ALREADY ADDED BACK A SUM OF RS.1,30,33,659/- U/S 14A. FURT HER DISALLOWANCE U/S 14A COMES TO RS.14,95,198/-. 3. LD. CIT(A) HAS NOTED THE SUBMISSIONS OF THE ASSE SSEE IN PARA 6.2 OF HIS ORDER AND CONCLUDED TO GIVE PARTIAL RELIEF OF R S.13,95,099/- AS PER PARA 6.3 OF HIS ORDER. 4. AGGRIEVED BY THIS ORDER OF LD. CIT(A), DEPARTMEN T HAS COME UP IN APPEAL AND WHILE RELYING UPON THE ORDER OF THE A.O. , IT WAS PLEADED FOR SETTING ASIDE THE ORDER OF LD. CIT(A) AND RESTORING THAT OF THE A.O. 5. DESPITE SENDING NOTICE OF HEARING SUFFICIENTLY I N ADVANCE, NOBODY APPEARED ON BEHALF OF THE ASSESSEE SO, WE PROCEED T O DECIDE THIS APPEAL EX- PARTE QUA THE ASSESSEE AFTER CONSIDERING THE ARGUME NTS OF THE LD. D.R. AND MATERIAL ON RECORD. 6. WE HAVE HEARD LD. D.R. AND CONSIDERED THE MATERI AL ON RECORD AND FIND THAT LD. CIT(A) HAS ELABORATELY DISCUSSED THE ISSUE IN PARA 6.3 OF HIS ORDER, WHICH READS AS UNDER: I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT AND OBSERVATION OF THE A.O. IT IS SEEN THAT DURING THE YEAR THE APPEL LANT HAS EARNED DIVIDEND INCOME OF RS.1,58,55,909/-. FOR EARNING T HIS EXEMPT INCOME THE APPELLANT HAS INCURRED EXPENDITURE OF RS.1,65,0 1,590/- AS INTEREST AND ADMINISTRATIVE EXPENDITURE OF RS.7,62,748/- AND D-MAT EXPENSES OF RS.1123/-. IN THE COMPUTATION OF INCOME THE APPE LLANT DISALLOWED INTEREST EXPENDITURE OF RS.1,23,69,887/-, ADMINISTR ATIVE EXPENSE OF RS.6,62,649/- AND DEMAT EXPENSES OF RS.1123/-. HOWE VER, IN THE ASSESSMENT ORDER THE ASSESSING OFFICER HAS WORKED O UT DISALLOWANCE OF INTEREST AND ADMINISTRATIVE EXPENSES AS UNDER AS PER RULE 8D:- I.T.A. NO. 5636/DEL/2012 4 INTEREST EXPENDITURE RS. 1,23,69,887/- ADMINISTRATIVE EXPENSES .5% OF AVERAGE INVESTMENTS RS.21,57,847/- IT IS SEEN THAT INTEREST DISALLOWANCE MADE BY THE A SSESSING OFFICER TALLIES WITH THE INTEREST DISALLOWANCE MADE BY THE APPELLANT IN THE COMPUTATION OF INCOME, THEREFORE, THERE IS NO DISPU TE ON THIS ISSUE. HOWEVER, THE APPELLANT CONTENDED THAT TOTAL ADMINIS TRATIVE EXPENDITURE INCURRED BY THE APPELLANT WAS RS.7,62,7 48/- WHICH IS DEBITED TO PROFIT AND LOSS ACCOUNT. THE ASSESSING O FFICER CANNOT DISALLOWED THE ADMINISTRATIVE EXPENDITURE MORE THAN WHAT IS CLAIMED IN THE P&L ACCOUNT. THE NOTIONAL DISALLOWANCE UNDER CLAUSE -(II) OF SUBSECTION (2) OF RULE 8D CANNOT BE MADE. THE HON'B LE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT , ITA NO. 687 OF 2009 VIDE ORDER DATED 18.11.2011 HAS LAID DOWN LEGA L DICTUM FOR THE PURPOSE OF MAKING DISALLOWANCE U/S 14A. THE PROPOSI TION LAID DOWN ARE AS UNDER:- '(I). THE EXPRESSION 'EXPENDITURE INCURRED' IN S. 1 4A REFERS TO ACTUAL EXPENDITURE AND NOT TO SOME IMAGINED EXPENDITURE. I F NO EXPENDITURE IS INCURRED IN RELATION TO THE EXEMPT INCOME, NO DI SALLOWANCE CAN BE MADE U/S 14A. (II). RULE 8D COMES INTO PLAY ONLY WHEN THE ASSESSI NG OFFICER RECORDS A FINDING THAT HE IS NOT SATISFIED WITH THE ASSESSE E'S METHOD. (III). THE ASSESSING OFFICER CANNOT PROCEED TO DETE RMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME W ITHOUT RECORDING A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECT NESS OF THE CLAIM OF THE ASSESSEE. THIS IS A CONDITION PRECEDENT. WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR N O EXPENDITURE IN RELATION TO EXEMPT INCOME, THE ASSESSING OFFICER WI LL HAVE TO INDICATE COGENT REASONS FOR THE SAME'. IN VIEW OF THE ABOVE JUDGMENT, NO NOTIONAL EXPENDIT URE CAN BE ESTIMATED FOR EARNING EXEMPT INCOME AND DISALLOWANC E HAS TO BE RESTRICTED TO THE ACTUAL EXPENDITURE INCURRED FOR E ARNING EXEMPT INCOME. THE APPELLANT HAS INCURRED ACTUAL EXPENDITU RE ON ADMINISTRATIVE EXPENSES OF RS.7,62,748/-, THEREFORE , THE DISALLOWANCE HAS TO BE RESTRICTED TO THIS EXTENT ONLY AND NOTION AL DISALLOWANCE OF S. 21,57,847/-CANNOT BE ESTIMATED. AS SUCH THE DISALLO WANCE ON ACCOUNT I.T.A. NO. 5636/DEL/2012 5 OF ADMINISTRATIVE EXPENSES IS RESTRICTED TO RS.7,62 ,748/-. AS A RESULT THE APPELLANT GETS A RELIEF OF RS.13,95,099/-. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 7. ON PERUSAL OF THE ABOVE NOTED FINDINGS AND CONCL USION AS DRAWN BY LD. CIT(A), WE FIND THAT JUST AND APPROPRIATE VIEW HAS BEEN TAKEN BY LD. CIT(A) AFTER CONSIDERING EACH AND EVERY ASPECT OF T HE MATTER IN DETAIL. DEPARTMENT HAS NOT COME OUT WITH ANY CONTRARY MATER IAL OR EVIDENCE TO CONVINCE US TO TAKE A DIFFERENT VIEW THAN TAKEN BY LD. CIT(A). THEREFORE WHILE CONCURRING WITH THE FINDING AND CONCLUSION AS DRAWN BY LD. CIT(A) IN RESPECT TO THE ISSUES IN APPEAL, WE UPHOLD HIS ORDE R AND DISMISS THE APPEAL OF THE REVENUE BEING DEVOID OF ANY MERIT. 8. AS A RESULT, APPEAL OF THE REVENUE GETS DISMISSE D BEING DEVOID OF MERIT. 9. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH FEB., 2014. SD./- SD./- (G. D. AGRAWAL) (U.B.S.BEDI) VICE PRESIDENT JUDICIAL MEMBER DATE: 27 TH FEB., 2014. SP. COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A)-XXV, NEW DELHI AR, ITAT, 5. CIT(ITAT), NEW DELHI NEW DELHI