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

ITA 5711/DEL/2010

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 7063 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 20-10-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 16-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : B : NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER ITA NOS.5694 & 5711/DEL/2010 ASSESSMENT YEARS : 2005-06 & 2007-08 DCIT, CIRCLE 11(1), NEW DELHI. VS. M/S EVERPLUS SECURITIES & FINANCE LTD., 28, NAJAFGARH ROAD, NEW DELHI. PAN : AAACE2672H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K. SAMPATH, ADVOCATE REVENUE BY : SHRI ROHIT GARG, SR. DR ORDER PER I.P. BANSAL, JUDICIAL MEMBER THESE APPEALS ARE FILED BY THE REVENUE. THEY ARE DI RECTED AGAINST THE ORDER PASSED BY THE CIT (A) DATED 5 TH OCTOBER, 2010 FOR ASSESSMENT YEARS 2005-06 AND 2007-08. GROUNDS OF APPEAL READ AS UNDER:- ASSESSMENT YEAR 2005-06 1. THE ORDER OF LEARNED CIT (A) IS WRONG, PERVERSE , ILLEGAL AND AGAINST THE PROVISIONS OF LAW, LIABLE TO BE SET ASIDE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT (A) HAS ERRED IN RESTRICTING THE ADDITION OF RS.53, 15,272/- ON ACCOUNT OF PROPORTIONATE DISALLOWANCE U/S 14A OF THE AC T. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. ITA NOS.5694 & 5711/DEL/2010 2 ASSESSMENT YEAR 2007-08 1. THE ORDER OF LEARNED CIT (A) IS WRONG, PERVERSE , ILLEGAL AND AGAINST THE PROVISIONS OF LAW, LIABLE TO BE SET ASIDE. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT (A) HAS ERRED IN DELETING THE ADDITION OF RS.12,29 ,750/- MADE BY THE A.O. ON ACCOUNT OF INVOKING OF 14A OF THE ACT. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AME ND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF HEARING. ASSESSMENT YEAR 2005-06 2. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN TAX FREE INCO ME IN THE SHAPE OF DIVIDEND AMOUNTING TO ` 38,49,235/-. THE A SSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY INTEREST EXPENDITURE IN CURRED TO EARN DIVIDEND INCOME SHOULD NOT BE DISALLOWED UNDER THE PR OVISIONS OF SECTION 14A OF THE ACT. IT WAS ALSO NOTICED BY THE ASSE SSING OFFICER THAT FOR ASSESSMENT YEAR 2001-02, AN ADDITION OF ` 3,93,69,5 66/- MADE ON ACCOUNT OF INTEREST PAID BY THE ASSESSEE WHICH WAS CONFIR MED BY ITAT VIDE ORDER DATED 14 TH MARCH, 2006AND IN VIEW OF THE PAST HISTORY AND INTEREST EXPENDITURE HAVING BEEN INCURRED FOR EARNIN G DIVIDEND, THE ASSESSING OFFICER DISALLOWED THE INTEREST DEBITED TO PROF IT & LOSS ACCOUNT AMOUNTING TO ` 1,03,07,918/-. THE ADDITION WAS AGITATED IN AN APPEAL FILED BEFORE THE CIT (A). IT WAS PLEADED THAT SECTION 14A HAS NO APPLICATION. THE ASSESSEE HAS EARNED INTEREST INCOME OF `73,72,000/- WHICH WAS OFFERED TO TAX AND WITHOUT PREJUDICE TO TH E SUBMISSION THAT NO DISALLOWANCE SHOULD BE MADE U/S 14A, IT WAS SUBMITTED THAT IF INTEREST EXPENDITURE IS TO BE DISALLOWED, THE SAME SHOUL D BE MADE PROPORTIONATE TO EARNING OF DIVIDEND INCOME AND THE INTEREST EXPENDITURE RELATABLE TO EARNING OF TAXABLE INTEREST . IT WAS SUBMITTED THAT AS THE ARGUMENT WAS ALSO SUBMITTED TO ASSESSING OFFICE R WHO HAS OVERRULED THIS ARGUMENT AND HAS DISALLOWED THE ENTIRE EXPENDITURE. ITA NOS.5694 & 5711/DEL/2010 3 3. BEFORE THE CIT (A), IT WAS PLEADED THAT NO PART O F THE EXPENDITURE CAN BE RELATED TO EARNING OF DIVIDEND INCOME. IT WA S SUBMITTED THAT THE ASSESSEE HAS ALSO EARNED INCOME FROM SALE OF SHARES AND INVE STMENT IN THE SHARES WHICH HAVE BEEN HELD AND UPON WHICH PRO FIT HAS BEEN EARNED WHICH IS TAXABLE, THE RELIEF SHOULD BE GRANTED . IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS EARNED INTEREST OF ` 73.72 LAC AND, THEREFORE, THE ENTIRE BORROWED FUND CANNOT BE ATTRI BUTED TO THE INVESTMENT IN SHARES ON WHICH THE ASSESSEE HAS EARNED DIVID END INCOME AND, THUS, IT WAS SUBMITTED THAT PROPORTIONATE RELIEF SHOULD BE GRANTED TO THE ASSESSEE. LEARNED CIT (A) AFTER CONSIDER ING ALL THESE SUBMISSIONS HAS REFERRED TO THE DECISION OF HONBLE BOMBA Y HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING COMPANY PVT. LTD. VS. DCIT 328 ITR 81 (BOM) AND HAS COME TO THE CONCLUSION THAT THE ASSESSING OFFICER IS UNDER AN OBLIGATION TO ADOPT REASONA BLE BASIS FOR EFFECTING THE APPORTIONMENT AND DISALLOWANCE HAS TO B E MADE. FROM THE ACCOUNTS, HE FOUND THAT THE ASSESSEE HAS EARNED INTER EST INCOME OF ` 73.72 LAC. HE REJECTED THE CLAIM OF THE ASSESSEE REGARDING EARNING OF PROFIT ON SALE OF SHARES AS THE ASSESSEE COULD NOT SUBSTAN TIATE THAT CONTENTION. HE ALSO FOUND THAT THE ASSESSEE COULD NOT SU BSTANTIATE HAVING MADE ANY INTEREST EXPENDITURE WITH REGARD TO INTEREST EARNED ON INCOME-TAX REFUND, MISCELLANEOUS INCOME OF ` 8.54 LAC AND INCOME FROM INVESTMENT IN MUTUAL FUND OF ` 3.62 LAC. IN TH E ABSENCE OF ANY EXPENDITURE BEING INCURRED ON THESE ITEMS, LEARNED CI T (A) HAS ARRIVED AT A FORMULA TO MAKE THE DISALLOWANCE IN RESPECT OF I NTEREST EXPENSES AS HE FOUND THAT RELIEF ON ACCOUNT OF EARNING OF INT EREST INCOME OF ` 73.72 LAC HAS TO BE GIVEN TO THE ASSESSEE IN PROPORTIONA TE MANNER. HE AGGREGATED THE DIVIDEND INCOME AND INTEREST INCOME T HE TOTAL OF WHICH COMES TO ` 1,52,22,037/- (` 78,49,235/- DIVIDEND INC OME + ` 73,72,802/- INTEREST INCOME) AND DIVIDED IT WITH THE DIVIDEND INCOME AND MULTIPLIED BY INTEREST EXPENSES AS UNDER:- 78,49,235 / 1,52,22,037*1,03,07,918=53,15,272/- ITA NOS.5694 & 5711/DEL/2010 4 4. IN THIS MANNER, THE DISALLOWANCE OF ` 53,15,272/- HAS BEEN UPHELD IN PLACE OF DISALLOWANCE MADE BY THE ASSESSING OF FICER ON ACCOUNT OF INTEREST OF ` 1,03,07,908/-. FURTHER, LE ARNED CIT (A) HAS ALSO DISALLOWED 25% OF THE EXPENSES IN THE NATURE OF LEGAL AND PROFESSIONAL CHARGES, TRAVELING AND CONVEYANCE AND OFFICE EXPENSES WHICH WAS AGGREGATING TO ` 19,227/- AND THUS, ADDITIONAL DISALL OWANCE OF ` 4,807/- WAS MADE. 5. THE DEPARTMENT IN ITS APPEAL IS AGGRIEVED WITH THE PART DELETION OF THE ADDITION. ASSESSMENT YEAR 2007-08 6. THE ASSESSEE HAD EARNED EXEMPTED DIVIDEND INCOME OF ` 2,06,14,529/- ON WHICH IT HAD DISALLOWED INTEREST EXP ENSES CLAIMED BY IT AMOUNTING TO ` 86,51,746/-. HOWEVER, THE ASSESSING OFFICER CALCULATED THE DISALLOWANCE UNDER RULE 8D AND WORKED OUT THE TOTAL DISALLOWANCE AT ` 98,69,206/- AND BY REDUCING THE IN TEREST EXPENSES DISALLOWED BY THE ASSESSEE ITSELF, AN ADDITION OF ` 12,29 ,746/- WAS MADE. LEARNED CIT (A) HAS HELD THAT THE ASSESSEE ITSELF HAS DISALLOWED INTEREST AND BANK CHARGES OF ` 86,51,746/-, THEREFORE , FURTHER ATTRIBUTION OF INTEREST AND BANK CHARGES WAS NOT REQUI RED TO BE DONE. HOWEVER, HE OBSERVED THAT THE DISALLOWANCE HAS ALSO TO BE MADE U/S 14A ON ACCOUNT OF EXPENSES IN THE NATURE OF LEGAL AND PROFESSIONAL FEE; REMUNERATION TO EMPLOYEES; TRAVELING AND CONVEYANCE; OFFICE EXPENSES WHICH ARE AGGREGATING TO ` 13,78,709/- AND H E CALCULATED 25% DISALLOWANCE ON THIS ACCOUNT AND DISALLOWANCE HAS B EEN WORKED OUT AT ` 3,44,677/- AND, TO THAT EXTENT, HE UPHELD THE DISALLOWANCE. THE DEPARTMENT IS AGGRIEVED BY THE DELETION OF PART ADDITION AND, HENCE, HAS RAISED THE AFOREMENTIONED GROUNDS OF APPEAL . ITA NOS.5694 & 5711/DEL/2010 5 7. AFTER NARRATING THE FACTS, IT WAS SUBMITTED BY THE LEARNED DR THAT FOR ASSESSMENT YEAR 2005-06 THE ASSESSING OFFICER HAD MADE DISALLOWANCE OF INTEREST FOLLOWING THE EARLIER YEARS A ND LEARNED CIT (A) HAS WRONGLY DELETED THE SAME. IN RESPECT OF ASSESSMENT YE AR 2007- 08, IT WAS SUBMITTED BY THE LEARNED DR THAT CALCULATI ON OF THE ASSESSING OFFICER OF THE DISALLOWANCE TO BE MADE UNDER R ULE 8D SHOULD BE UPHELD AND LEARNED CIT (A) HAS WRONGLY GRANTED TH E PART RELIEF TO THE ASSESSEE. 8. ON THE OTHER HAND, THE LEARNED AR RELIED UPON TH E ORDER OF THE CIT (A) AND SUBMITTED THAT THE ASSESSING OFFICER HAD WRO NGLY MADE THE DISALLOWANCE AND LEARNED CIT (A) WAS RIGHT IN DELETIN G THE PART DISALLOWANCE. 9. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. FOR ASSESSMENT YEAR 2005- 06 THE DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST RELATING TO EARNING OF EXEMPTED INCOME. A FINDING OF FACT HAS BEEN RECORDED BY LEARNED CIT (A) THAT THE INTEREST EARNED BY THE ASSESSEE WAS ALSO OUT OF DEPLOYMENT OF BORROWED FUNDS, THEREFOR E, PROPORTIONATE RELIEF WAS REQUIRED TO BE GIVEN. IN T HE ABSENCE OF ANY CONTRARY MATERIAL, WE FIND NO INFIRMITY IN THE ORDE R OF THE CIT (A) VIDE WHICH THE REQUISITE RELIEF HAS BEEN GIVEN BY HIM ON A CCOUNT OF INTEREST EXPENDITURE HAVING ALSO BEEN INCURRED FOR EARNING TA XABLE INTEREST, THEREFORE, WE DECLINE TO INTERFERE. THE APPEAL OF THE REVENUE FOR ASSESSMENT YEAR 2005-06 IS DISMISSED. 10. NOW, COMING TO ASSESSMENT YEAR 2007-08, THE ASSESSEE IT SELF HAD DISALLOWED THE INTEREST EXPENSES AND BANK CHARGES. THEREFORE, NO FURTHER DISALLOWANCE WAS NEEDED TO BE MADE IN RESPECT OF INTEREST, BANK CHARGES, ETC. BY CONSIDERING THE FACTS OF THE CA SE, LEARNED CIT ITA NOS.5694 & 5711/DEL/2010 6 (A) HAS ALREADY AGGREGATED THE OTHER EXPENSES AND HAS M ADE THE REASONABLE DISALLOWANCE OUT OF THOSE EXPENDITURES BY RE FERRING TO SECTION 14A. RULE 8D IS NOT APPLICABLE FOR THE YEAR UNDER CONSIDERATION. THEREFORE, WE FIND NO INFIRMITY IN T HE ORDER OF THE CIT (A) VIDE WHICH THE PART DELETION HAS BEEN MADE. WE DECLINE TO INTERFERE. THIS APPEAL FILED BY THE REVENUE IS ALSO D ISMISSED. 11. IN THE RESULT, BOTH THE APPEALS FILED BY THE REVE NUE ARE DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 28.10.20 11. SD/- SD/- [SHAMIM YAHYA] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, 28.10.2011. DK COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT TRUE COPY BY ORDER, DEPUTY REGISTRAR, ITAT, DELHI BENCHES