ITO, New Delhi V. M/s MGS India Pvt. Ltd., New Delhi

ITA 5843/DEL/2010

• Counselvise Citation: 584320114 RSA 2010
• Duration Of Justice: 1 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 05-06-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 22-12-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S NEGI SENIOR
• Assessee Lawyers: SANJEEV GUPTA
• Keywords: Earning of tax free income; Proportionate interest
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E : NEW DELHI) SHRI R.P. TOLANI, JUDICIAL MEMBER AND BEFORE SHRI B.C. MEENA, ACCOUNTANT MEMBER ITA NO.5843/DEL./2011 (ASSESSMENT YEAR : 2004-05) ITO, WARD 6 (1), VS. M/S. MGS INDIA PVT. LTD., NEW DELHI. B 66, DEFENCE COLONY, NEW DELHI. (PAN : AAACE2734L) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI SANJEEV GUPTA, CA REVENUE BY : SHRI R.S. NEGI, SENIOR DR ORDER PER B.C. MEENA, ACCOUNTANT MEMBER : THIS APPEAL FILED BY THE ASSESSEE EMANATES FROM TH E ORDER OF THE CIT (APPEALS)-IX, NEW DELHI DATED 14.09.2010 FOR THE AS SESSMENT YEAR 2004-05. 2. THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGE D IN THE BUSINESS OF TRADING OF SHARES AND REAL ESTATE. RETURN OF INCOM E WAS FILED FOR THE ASSESSMENT YEAR 2004-05 ON 29.12.2006 DECLARING INC OME OF RS.8,19,384/- WHICH IS SET OFF AGAINST THE CARRY FORWARD LOSS WHI CH RESULTED INTO NIL INCOME FOR THE YEAR. THE ASSESSING OFFICER MADE THREE AD DITIONS, I.E., DISALLOWANCE U/S 14A OF RS.20,77,295/-, DISALLOWANCE OF INTEREST TREATED AS NON-BUSINESS PURPOSES OF RS.3,86,713/- AND ADDITION U/S 94(7) OF RS.24,000/- THE ASSESSEE ITA NO.5873/DEL./2011 2 WENT IN APPEAL AND THE CIT (A) GRANTED THE RELIEF I N RESPECT OF THE DISALLOWANCES MADE U/S 14A AND DISALLOWANCE OF INTE REST TREATED FOR NON- BUSINESS PURPOSE. ON THESE ISSUES, THE REVENUE IS IN APPEAL BEFORE US. 3. THE GROUNDS OF APPEAL READ AS UNDER :- 1. THE ORDER OF THE LEARNED CIT(APPEALS) IS ERRONE OUS & CONTRARY TO FACTS & LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.3,86,713/- MADE BY THE AO BY DISALLOWING INTERES T HAVING BEEN PAID FOR NON-BUSINESS PURPOSE. 2.1 THE LD. CIT(A) IGNORED THAT FACT THAT ASSESSEE COULD NOT SUBSTANTIATE ITS CLAIM OF HAVING PAID THE INTEREST EXCLUSIVELY FOR BUSINESS PURPOSE. 3. ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT (APPEALS) HAS ERRED IN RESTRIC TING THE ADDITION OF RS.20,77,295/- MADE U/S 14A TO RS.33592 /- BEING THE EXPENSES INCURRED FOR EARNING THE EXEMPT INCOME. 3.1 THE LD. CIT(A) IGNORED THE FACT THAT THE DISAL LOWANCE U/S14A HAS BEEN CORRECTLY WORKED OUT BY THE A.O. IN ACCORDANCE WITH THE PROVISION OF RULE 8D OF I.T. RULES. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR AMEN D ANY/ALL OF THE GROUNDS OF APPEAL BEFORE OR DURING THE COURS E OF THE HEARING OF THE APPEAL. 4. GROUND NOS.1 & 4 ARE GENERAL IN NATURE AND DO NO T REQUIRE ANY ADJUDICATION. 5. IN THE GROUND NO.2, THE ISSUE RAISED IS AGAINST THE DELETION OF ADDITION OF RS.3,86,713/- WHICH WAS DISALLOWED BY TREATING THE INTEREST PAID FOR NON- ITA NO.5873/DEL./2011 3 BUSINESS PURPOSES. THE CIT (A) GRANTED THE RELIEF ON THIS ISSUE BY HOLDING AS UNDER :- 5.0 I HAVE CAREFULLY GONE THROUGH THE SUBMISSIONS MADE BY THE LD. AR AND ALSO FINDINGS RECORDED BY THE A.O. A S PER THE ASSESSMENT ORDER. MY ATTENTION WAS ALSO INVITED BY THE LD. AR TO MY PREDECESSORS ORDER DATED 21-6-2007 FOR THE A .Y. 2003-04 (A.NO.14/06-07) IN THE APPELLANTS OWN CASE. I HAS BEEN SUBMITTED BY THE LD. AR THAT THE FACT AND CIRCUMSTA NCES OF THE TWO ASSESSMENT YEARS I.E. A.Y. 2003-04 AND ASSESSME NT YEAR UNDER CONSIDERATION I.E. 2004-05 ARE IDENTICAL. IT IS SEEN THAT MY LD. PREDECESSOR FOLLOWING THE BELOW MENTIONED CASE LAWS HAD HELD THAT NO DISALLOWANCE OUT OF INTEREST PAID BY T HE ASSESSEE ON THE BORROWED FUNDS CAN BE MADE :- (I) CIT VS. PREM HEAVY ENGINEERING WORKS (P) LTD. : 285 ITR 554 (ALL.) (II) GUJARAT NARMADA VALLEY FERTILIZERS CO. LTD. VS. DCI T : 108 TAXMAN ITAT (AHD.) 5.1 SINCE THE FACTS AND CIRCUMSTANCES OF THE TWO AS SESSMENT YEARS ARE IDENTICAL, I FIND NO REASON TO DEVIATE FR OM THE ORDER OF MY LD. PREDECESSOR AND HENCE, THE ADDITION OF RS.3, 86,713/- MADE ON ACCOUNT OF INTEREST DISALLOWED IS DELETED. THE GROUND NO.2 IS, THEREFORE, ALLOWED TO THE ASSESSEE. 6. WE HAVE HEARD BOTH THE SIDES ON THIS ISSUE. AFT ER HEARING BOTH THE SIDES, WE FIND THAT THE REVENUE HAS FAILED TO ESTAB LISH ANY DIRECT NEXUS BETWEEN THE BORROWED FUNDS AND THE UTILIZATION OF T HE FUND FOR NON-BUSINESS PURPOSES. THE REVENUE HAS ALSO FAILED TO CONTRADIC T THE ASSESSEES CLAIM THAT INTEREST FREE FUNDS TO THE TUNE OF RS.5,17,92,985/- WERE AVAILABLE TO THE ASSESSEE DURING THE RELEVANT PERIOD. KEEPING THESE FACTS IN VIEW, WE FIND NO FAULT IN THE ORDER OF THE CIT (A) AND WE SUSTAIN TH E SAME. ITA NO.5873/DEL./2011 4 7. IN THE GROUND NO.3, THE ISSUE IS REGARDING RESTR ICTING THE DISALLOWANCE MADE U/S 14A. WE HAVE HEARD BOTH THE SIDES ON THE ISSUE. THE ASSESSMENT YEAR INVOLVED IS 2004-05, THEREFORE, THE PROVISIONS OF RULE 8D ARE NOT APPLICABLE. THE ASSESSING OFFICER MADE A DISALLOWA NCE BY CALCULATING THE PROPORTIONATE INTEREST BY TAKING THE INTEREST BEARI NG FUNDS VIS--VIS THE INTEREST FREE FUNDS. THE CIT (A) HAS GRANTED THE PART RELIE F, HOWEVER SUSTAINED THE ADDITION OF RS.33,592/- TAKING 0.5% OF AVERAGE VALU E OF INVESTMENT. IN OUR CONSIDERED VIEW, THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUNDS, THEREFORE, PROPORTIONATE COST CANNOT BE ATTRIBUTABL E TO THE FUNDS INVESTED IN SHARES. HOWEVER, WE ARE IN AGREEMENT WITH THE CIT (A) THAT THERE HAS TO BE SOME EXPENDITURE WHICH IS NECESSARY TO EARN THE TAX FREE INCOME. THEREFORE, WE SUSTAIN THE ORDER OF CIT (A) AND DISMISS THIS GR OUND OF REVENUES APPEAL. 8. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 8 TH DAY OF JUNE, 2012. SD/- SD/- (R.P TOLANI) (B.C. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED THE 8 TH DAY OF JUNE, 2012 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-IX, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.