M/s. S.S. Corporate Securities Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 579/DEL/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6665 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Next Hearing Date: 01-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 03-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUNIL CHAN D SHARMA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SH. G.D. AGRAWAL V.P. AND SH. C.M. GARG, J.M ITA NO. 579 /DEL/2014 ASSTT. YEAR: 2009 - 10 APPELLANT BY : SH. BINOD K. BINDAL, CA, SH. SWEETY KOTHARI, ADVOCATE RESPONDENT BY : SH. SUNIL CHAN D SHARMA , CIT - AR DATE OF FINAL HEARING : 08.02.2016 DATE OF PRONOUNCEMENT : 29. 02.2016 ORDER PER C.M. GARG, JM THIS APPEAL BY THE ASSESSEE HAS BEEN FILED AGAINST THE ORDER OF THE COMMISSIONER OF THE INCOME TAX (APPEALS) XI, NEW DELHI ORDER DATED 13.12.2013 PASSED IN FIRST APPEAL NO. 390/11 - 12 (121/13 - 14) FOR AY 2009 - 10. S.S. CORPORATE SECURITIES LTD. 3 RD FLOOR, D - BLOCK, NDM - 2, NETAJI SUBHASH PLACE, PITAMPURA NEW DE LHI VS ADDL. CIT RANGE - 9 NEW DELHI APPELLANT RESPONDENT PAN NO. AABCS3726M 2 2. THE GROUNDS RAISED BY THE ASSESSEE READ AS UNDER: 1. THE CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS. 2,08,952/ - BY APPLYING RULE 8D R.W.S 14A WITHOUT F ULFILLING THE CONDITIONS LAID DOWN FOR APPLYING THE SAME AND WITHOUT POINTING OUT ANY SPECIFIC EXPENDITURE INCURRED TO EARN DIVIDENDS. THUS THE ADDITION SO MADE SHOULD BE DELETED. 2. THE CIT(A) ERRED IN LAW AND ON FACTS IN CONFIRMING THE ADDITION OF RS. 2,08,952/ - U/R 8D(2)(III) @ 0.5 % OF THE VALUE OF INVENTORY / STOCK INSTEAD OF INVESTMENTS IGNORING THE FACT THAT THE ASSESSEE DID NOT HAVE ANY OPENING OR CLOSING BALANCE OF INVESTMENTS ON THE BALANCE SHEET DATE AND ALSO IGNORING THAT THE SAID CLAUSE IS NO T APPLICABLE ON INVENTORY. THUS THE ADDITION SO MADE SHOULD BE DELETED. 3. THE CIT(A) ERRED IN LAW AND ON FACTS IN ENHANCING THE DISALLOWANCE U/S 14A BY RS. 7,00,204/ - FOR INTEREST PAID BY THE ASSESSEE BY APPLYING RULE 8D(2)(II) ON THE VALUE OF INVENTORY INSTEAD OF INVESTMENTS IG NORING THE FACTS AND SUBMISSION PLACED ON RECORD. THUS THE DISALLOWANCE SO MADE SHOULD BE DELETED. 4. T HE APPELLANT CRAVES THE LEAVE TO ADD, SUBSTITUTE, MODIFY, DELETE OR AMEND ALL OR ANY GROUND OF APPEAL EITHER BEFORE OR AT THE TI ME OF HEARING. 3 3. WE HAVE HEARD ARGUMENTS OF BOTH THE SIDES AND CAREFULLY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD BEFORE US. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE CITA HAS ERRED IN CONFIRMING THE ADDITION OF RS. 2,08,952/ - BY APPLYING RULE 8D (2)(III) OF THE INCOME TAX RULES 1962, (FOR SHORT THE RULES) READ WITH SECTION 14A OF THE INCOME TAX ACT 1961, (FOR SHORT THE ACT) @0.5% OF THE VALUE OF THE INVENTORY/STOCK INSTEAD OF INVESTMENTS IGNORING THE FACT THAT THE SAID CLAUSE IS NOT APPLI CABLE ON INVENTORY. THE LD. COUNSEL ALSO POINTED OUT THAT THE AO MADE SAID ADDITION WITHOUT FULFILLING THE CONDITIONS LAID DOWN FOR APPLYING THE SAME AND WITHOUT POINTING OUT ANY SPECIFIC EXPENDITURE INCURRED TO EARN DIVIDENDS. THE LD. COUNSEL VEHEMENTLY P OINTED OUT THAT THE CIT(A) ERRED IN LAW AND ON FACTS ENHANCING THE DISALLOWANCE UNDER SECTION 14A BY RS. 7,00,204/ - FOR INTEREST PAID BY THE ASSESSEE BY APPLYING RULE 8D (2)(II) OF THE RULES ON THE VALUE OF INVENTORY INSTEAD OF INVESTMENT IGNORING THE FACT THAT THE ASSESSEE DID NOT INCUR ANY INTEREST EXPENDITURE FOR INVESTMENT BECAUSE THE ASSESSEE HAS SUFFICIENT OWN INTEREST FREE FUNDS FOR MAKING SUCH INVESTMENTS. THE LD COUNSEL ALSO POINTED OUT THAT IN THE BEGINNING OF THE FINANCIAL PERIOD THE ASSESSEE WAS HOLDING INVESTMENT OF 5.23 CRORES WHEREAS 4 AT THE END OF THE FINANCIAL PERIOD REMAINING INVESTMENT WERE ONLY RS. 71 LAC WHICH SHOWS THAT THERE WAS NO FRESH OR NEW INVESTMENT DURING THE YEAR. THE LD. COUNSEL FURTHER DRAWN OUR ATTENTION TOWARDS REPLY SUBMITT ED TO THE ENHANCEMENT NOTICE OF THE CIT(A) REPRODUCED IN PARA 7.3 OF THE IMPUGNED ORDER AND SUBMITTED THAT OUT OF AVAILABLE INTEREST FREE CAPITAL WITH THE ASSESSEE AS AT 31.03.2009 AND 31.03.2008, BEING RS. 25.92 CRORE AND RS. 27.30 CRORE RESPECTIVELY, ONL Y RS. 80.92 LACS AS AT 31.03.2009 AND RS. 8.34 CRORE AS AT 31.03.2008 WAS UTILIZED FOR STOCK IN HAND, THUS NO INTEREST IS PAID TO MAINTAIN THE STOCK IN TRADE AND BALANCE SURPLUS AMOUNT IS USED FOR SECURITIES BROKING BUSINESS, THEREFORE INTEREST BEARING FUN DS WERE NOT USED FOR MAKING INVESTMENTS THEREFORE DISALLOWANCE IN THIS REGARD CAN NOT BE HELD AS SUSTAINABLE AND THE SAME SHOULD BE DELETED. 4. REPLYING TO THE ABOVE THE LD DEPARTMENTAL REPRESENTATIVE (DR) STRONGLY SUPPORTED ACTION OF THE AO AS WELL AS EN HANCEMENT ORDER OF THE CIT(A) AND SUBMITTED THAT THE ASSESSEE PAID INTEREST OF RS. 69,00,594/ - DURING THE FINANCIAL PERIOD WHICH CONTAINS COMPOSITE ELEMENTS ONE RELATING TO TAXABLE INCOME AND OTHER 5 RELATING TO EXEMPT INCOME AND PRECISELY IN SUCH SITUATION RULE 8D (2)(II) OF THE RULES SHOULD BE APPLIED FOR APPORTIONMENT OF INTEREST EXPENSES THEREFORE FIRST APPELLATE ORDER SHOULD BE SUSTAINED. 5. ON CAREFUL CONSIDERATION OF OUR RIVAL SUBMISSIONS OF BOTH THE SIDES AT THE VERY OUTSET FROM THE ASSESSMENT ORDER WE NOTE THAT THE AO NOTED THAT THE ASSESSEE RECEIVED INTEREST OF RS. 2,33,82,859/ - AND PAID INTEREST OF RS. 69,00,594/ - THEREFORE INTEREST EXPENSES CANNOT BE DIRECTLY ATTRIBUTED TO THE INVESTMENT BRINGING EXEMPT INCOME AND HE DID NOT MAKE ANY DISALLOWANCE IN THIS REGARD. HOWEVER, THE AO PROCEEDED TO MAKE DISALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES AT THE RATE OF 0.5% OF AVERAGE OF OPENING AND CLOSING INVESTMENTS WHICH CAME TO RS. 2,28,952/ - AND AFTER ALLOWING SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE OF RS. 20,000/ - HE MADE DISALLOWANCE OF RS. 2,08,952/ - UNDER THE SAID PROVISION. SO FAR AS, DISALLOWANCE MADE BY THE ASSESSEE IS CONCERNED THE AO RIGHTLY REJECTED ASSESSESS CLAIMED THAT IT HAS NOT INCURRED ANY EXPENDITURE TO EARN EXEMPT DIVIDEND INCOME AN D HE WAS QUITE JUSTIFIED IN MAKING DISALLOWANCE IN THIS REGARD AND THUS WE UPHOLD THE SAME. 6 6. THE NEXT ISSUE BEFORE US ABOUT THE SUSTAINABILITY OF THE ENHANCEMENT MADE BY THE CIT(A) WHEREIN FIRSTLY WE NOTE THAT THE CIT(A) HAS BROUGHT OUT ANY FACT TO CONT ROVERT OR DEMOLISH THIS FACT THAT THE ASSESSEE WAS HAVING ITS OWN FUNDS OF RS. 25.92 CRORE AS AT RS. 31.03.2009 AND RS. 27.30 CRORE AS AT 31.03.2008 AND TOTALLY VALUE OF INVESTMENT WHICH BROUGHT EXEMPT INCOME WERE ONLY OF RS. 8.34 CRORE AT THE BEGINNING O F THE FINANCIAL YEAR WHICH WERE REDUCED DUE TO HUGE SALE OF INVESTMENTS DURING THE PERIOD TO RS. 80.92 LACS AT THE END OF THE YEAR WHICH ALSO SHOWS THAT THERE WAS NO NEW OR FRESH INVESTMENT DURING THIS PERIOD. AT THE COST OF REPETITION WE MAY POINT OUT THA T THE AO HAS NOTED THAT THE ASSESSEE RECEIVED INTEREST OF RS. 2.33 CRORES AS AGAINST INTEREST PAYMENT OF RS. 69 LACS ONLY WHICH AGAIN SUPPORTS CONTENTIONS OF THE ASSESSEE THAT NO NEXUS ESTABLISHED BY THE CIT(A) WHILE MAKING IMPUGNED ENHANCEMENT ON ACCOUNT OF INTEREST PAYMENT. IN THIS SITUATION ENHANCEMENT FIRST APPELLANT ORDER CAN NOT BE HELD A SUSTAINABLE AND WE DISMISSED THE SAME. HOWEVER, AS WE HAVE ALREADY POINT ED OUT THAT THE DISALLOWANCE MADE BY THE AO IS QUITE JUSTIFIED AND CORRECT AND WE UPHOLD THE SAME. TO SUM UP, FIRST APPELLANT ORDER OF ENHANCEMENT IS SET ASIDE AND ORDER OF THE AO IS CONFIRMED. 7 7. IN THE RESULT , APPEAL OF THE ASSESSEE IS PARTLY ALLOWED ON GROUND NO. 3 AND PARTLY DISMISSED ON GROUND NO. 1 AND 2 IN THE MANNER AS INDICATED ABOVE. ORDER PRONOU NCED IN THE OPEN COURT ON 29 TH FEBRUARY 2016. S D / - S D / - (G. D. AGRAWAL) (C.M GARG) VICE PRESIDENT JUDICIAL MEMBER DATED : 29 TH FEBRUARY 2016 *RES. DESKTOP COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT (APPEALS) 5 . DR, ITAT