DCIT, CIRCLE- 1(1), NEW DELHI V. AAA PORTFOLIOS PVT. LTD., NEW DELHI

ITA 5681/DEL/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3753 (ITAT-DELHI)
• Duration Of Justice: 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 05-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAMPOORANANAND
• Assessee Lawyers: R M MEHTA
• Keywords: Earning of tax free income
• Section: 143(3); 142(1); 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER I.T.A. NO. 5681 /DEL/201 7 A.Y. : 20 1 4 - 15 DCIT, CIRCLE 1(1), NEW DELHI VS. M/S AAA PORTFOLIOS PVT. LTD., 202, OKHLA INDUSTRIAL ESTATE, 1 ST FLOOR, PHASE-III, NEW DELHI 110 020 (PAN: AAACA1931B) (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) DEPARTMENT BY : SH. S AMPOORANANAND, SR. DR ASSESSEE BY : SH. R.M. MEHTA, CA ORDER ORDER ORDER ORDER PER PER PER PER H.S. SIDHU H.S. SIDHU H.S. SIDHU H.S. SIDHU : : : : J JJ JM MM M THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-32, NEW DELHI DATED 30.6.2017 PERTAINING TO ASSESSMENT YEAR 2014-15 ON THE FOLLOW ING GROUNDS:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED ON FACTS IN RESTRICTING THE DISAL LOWANCE TO RS. 5,74,805/- AS AGAINST RS. 41,18,387/- MADE B Y AO U/S. 14A OF THE INCOME TAX ACT, 1961 R.W.R. 8D OF I NCOME TAX RULES. 2 2. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIGHT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUNDS 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE HA S E-FILED ITS RETURN OF INCOME DATED 03.11.2014 DECLARING LOSS OF RS. 34,4 8,679/-. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY THROUGH CA SS AND NOTICE U/S. 143(2) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED AS THE ACT) DATED 11.9.2015 WAS ISSUED. DUE TO CHANGE OF INCUM BENT, A NOTICE U/S. 142(1) OF THE ACT ALONGWITH A QUESTIONNAIRE WAS ISS UED ON 13.7.2016. IN RESPONSE TO NOTICE, THE AR OF THE ASSESSEE COMPANY ATTENDED THE CASE AND FURNISHED THE DETAILS AS CALLED FOR. IN THIS CA SE THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF EQUITY INSTRU MENTS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE AO OBSER VED THAT THE ASSESSEE COMPANY HAD MADE INVESTMENT IN SHARES OF O THER COMPANIES, THE INCOME DERIVABLE FROM WHICH IS NOT INCLUDIBLE I N TAXABLE INCOME. THEREFORE, THE AO ASKED THE ASSESSEE REGARDING APPL ICABILITY OF SECTION 14A READ WITH RULE 8D OF THE I.T. RULES IN ITS CASE . IN RESPONSE TO THE QUERY OF THE AO, THE ASSESSEE STATED THAT IT HAD SU O MOTO DISALLOWED AN AMOUNT OF RS. 16,60,131/- U/S. 14A OF THE ACT. THE ASSESSEE FURTHER STATED THAT IT HAD TAKEN INTEREST EXPENSE AFTER NET TING OFF AGAINST INTEREST INCOME. THE AO DID NOT SATISFY WITH THE REPLY OF TH E ASSESSEE AND MADE THE ADDITION OF 41,18,387/- AND ASSESSED THE INCOME AT RS. 6,68,710/- U/S. 143(3) OF THE ACT VIDE ORDER DATED 22.9.2016. 3 3. AGAINST THE AFORESAID ASSESSMENT ORDER, THE ASSE SSEE APPEALED BEFORE THE LD. CIT(A)-32, NEW DELHI, WHO VIDE HIS IMPUGNED ORDER DATED 30.6.2017 HAS PARTLY ALLOWED THE APPEAL OF THE ASS ESSEE BY RESTRICTING THE ADDITION IN DISPUTE. 4. AGGRIEVED WITH THE IMPUGNED ORDER, THE REVENUE I S IN APPEAL BEFORE THE TRIBUNAL. 5. AT THE TIME OF HEARING, LD. DR RELIED UPON THE O RDER PASSED BY THE AO AND REITERATED THE CONTENTIONS RAISED BY THE RE VENUE IN THE GROUNDS OF APPEAL. 6. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE RELIED UPON THE ORDER OF THE LD. CIT(A) AND REITERATED THE CONTENTI ONS MADE BEFORE THE LD. CIT(A). HE FURTHER STATED THAT SINCE THE LD. C IT(A) HAS PASSED A WELL REASONED ORDER WHICH DOES NOT NEED ANY INTERFERENCE ON OUR PART. HENCE, THE APPEAL OF THE REVENUE MAY BE DISMISSED. 7. I HAVE HEARD BOTH THE PARTIES AND PERUSED THE RE LEVANT RECORDS AVAILABLE WITH US, ESPECIALLY THE ORDERS OF THE REV ENUE AUTHORITIES. I FIND THAT LD. CIT(A) HAS DISCUSSED THE ISSUE IN DISPUTE ELABORATELY AT PAGE NO. 3 TO 5 VIDE PARA NO. 6.1 TO 7. FOR THE SAKE O F CONVENIENCE, I AM REPRODUCING HEREWITH THE RELEVANT FINDINGS OF THE L D. CIT(A) AS UNDER:- 6.1 IN THE ASSESSMENT ORDER, THE AO HAS DISCUSSED IN DETAIL THE LEGAL BASIS OF THE PROVISIO N OF SECTION 14A AND THE METHOD PRESCRIBED IN RULE 4 8D FOR DETERMINATION OF THE AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME. HE HAS ALSO REFERRED TO CBDT CIRCULAR NO. 5/2014, DATED 11.2.2013, WHICH CLARIFIED THAT RULE 8D WITH SECTION 14A PROVIDED FO R DISALLOWANCE OF EXPENDITURE EVEN WHERE THE TAX PAYER HAS NOT EARNED ANY EXEMPT EARNED ANY EXEMPT INCOME IN THAT PARTICULAR YEAR. HE HAS DISTINGUISHED THE CASE OF THE APPELLANT FROM THAT OF THE CASES RELIED UPON BY IT. THE AO HAS STATED THAT IN THE CASES RELIED UPON BY THE APPELLANT, THE INTEREST INCOME SURPASSED THE INTEREST INCOME. FURTHER, IN THE CASE OF 'SITSONS (INDIA) PVT. LTD. VS. ACIT, THE ITAT HAS HELD THAT IN THE ABSENCE OF NEXUS BETWEEN THE INCOME EXPENDITURE AND INTEREST INCOME, NETTING OFF CANNOT BE ALLOWED. 6.3 . THE MAIN ARGUMENTS OF THE APPELLANT ARE THAT:- (I) DISALLOWANCE SHOULD BE MADE ONLY IF THERE IS A NEXUS WITH THE EXEMPT INCOME. (II) DISALLOWANCE CANNOT EXCEED THE EXEMPT INCOME EARNED. THE APPELLANT HAD EARNED RS. 22,34,936/- AS EXEMPT INCOME, WHEREAS 5 DISALLOWANCE OF RS. 57,78,518/- HAS BEEN MADE BY THE AO. (III) ONLY NET INTEREST EXPENDITURE SHOULD BE TAKEN FOR CALCULATION. THE APPELLANT HAD EARNED INTEREST INCOME OF RS. 33,31,912/- AND HAD INCURRED INTEREST EXPENDITURE OF RS. 52,58,440/-. (IV) IN THE P&L ACCOUNT, THE APPELLANT HAS CLAIMED ONLY RS. 963/- AS EXPENDITURE, AGAINST WHICH RS. 11,47,347/- HAS BEEN DISALLOWED. 6.4 THE AR OF THE APPELLANT RELIED ON SEVERAL JUDICIAL DECISIONS TO SUPPORT THE CLAIM THAT THE DISALLOWANCE MADE UNDER SECTION 14A IN THE APPELLANT'S CASE WAS EXCESSIVE. 6.5 I HAVE CAREFULLY CONSIDERED THE ARGUMENTS RAISED BY THE APPELLANT AND THE DECISIONS RELIED UPON BY HIM. IT IS SEEN THAT THE ASSESSING OFFICER HAS ANALYZED THE FACTS AND PROPERLY AND HAS EXPLAINED AS TO WHY THE CALCULATION OF DISALLOWANCE MADE BY THE APPELLANT WAS NOT CORRECT. IN THE ASSESSMENT ORDER HE HAS GIVEN DETAILED REASONING FOR MODIFYING AND RECALCULATING THE DISALLOWANCE. MY FINDING ON THE OBJECTIONS RAISED BY THE APPELLANT IS AS UNDER:- 6 (I) THE APPELLANT HAD NETTED THE INTEREST EXPENDITURE WITH THE INTEREST INCOME, WHICH WILL NOT GIVE THE CORRECT PICTURE, AS THERE IS NO NEXUS BETWEEN THE INTEREST INCOME EARNED AND INTEREST EXPENSE. HENCE, THE CALCULATION IS TO BE BASED BY TAKING GROSS INTEREST EXPENDITURE ONLY. THE AO HAS CALCULATED THE INTEREST EXPENDITURE DISALLOWANCE AS PER RULE 8D(2)(II) AT RS. 46,31,1711. THE SAME IS HELD TO BE CORRECT. (II) SO FAR AS THE DISALLOWANCE OF OTHER EXPENSES BY TAKING 0.5% OF AVERAGE INVESTMENT IS CONCERNED, THE AO HAS CALCULATED THE SAME AT RS. 11,47,347/-. ACCORDING TO THE APPELLANT, THE SAME SHOULD NOT EXCEED THE TOTAL EXPENDITURE AMOUNTING TO RS. 963/- DEBITED IN THE P&L ACCOUNT. I AGREE WITH THE CLAIM OF THE APPELLANT. THIS OTHER EXPENDITURE TO BE DISALLOWED IS TO BE RESTRICTED TO RS. 963/- ONLY. (III) THE TOTAL DISALLOWANCE ULS 14A IS TO BE CALCULATED AS THE SUM OF RS. 46,31,171/- AND RS. 963/-. HOWEVER, THE ARGUMENT OF THE APPELLANT THAT THE DISALLOWANCE CANNOT EXCEED THE AMOUNT OF EXEMPT INCOME EARNED IS SUPPORTED BY JUDICIAL DECISIONS. ACCORDINGLY, DISALLOWANCE ULS 14A IS TO BE RESTRICTED TO RS. 22,34,936/-. 7 (IV) AFTER EXCLUSION OF THE SUO MOTO DISALLOWANCE MADE BY THE APPELLANT AMOUNTING TO RS. 16,60,131/- BALANCE DISALLOWANCE OF RS. 5,74,805/- - IS REQUIRED TO BE MADE. THE ORDER OF THE AO IS TO BE MODIFIED ACCORDINGLY. THE APPELLANT GETS PART RELIEF. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. 8. AFTER PERUSING THE AFORESAID FINDING, I AM OF THE CONSIDERED VIEW THAT LD. CIT(A) HAS PASSED A WELL REASONED ORDER, W HICH DOES NOT NEED ANY INTERFERENCE ON MY PART, HENCE, I UPHOLD THE SA ME AND REJECT THE GROUNDS RAISED BY THE REVENUE. 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRONOUNCED ON 05/02/2018. SD/- [ [[ [H.S. SIDHU H.S. SIDHU H.S. SIDHU H.S. SIDHU] ]] ] JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER DATE 05/02/2018 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES