DCIT, New Delhi V. M/s. Decent Financials Services (P) Ltd., New Delhi

ITA 594/DEL/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7140 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 04-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHISH CHADHA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER I.T.A. NO.594/DEL/2016 ASSESSMENT YEAR: 2012-13 DCIT, CIRCLE-7(1), NEW DELHI. VS. M/S. DECENT FINANCIALS SERVICES (P) LTD., A-86, DDA SHED, OKHLA INDUSTRIAL AREA, PHASE-I, NEW DELHI. TAN/PAN: AAACL 0518K (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI VED JAIN, ADV. & SHRI ASHISH CHADHA, C.A. RESPONDENT BY: SHRI AMIT JAIN, SR.D.R. DATE OF HEARING: 11 04 2018 DATE OF PRONOUNCEMENT: 05 07 2018 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE IMPUGNED ORDER DATED 18.11.2015, PASSED BY LD. CIT (APPEALS)-XIII, DELHI FOR THE QUANTUM OF ASSESS MENT PASSED U/S.143(3) FOR THE ASSESSMENT YEAR 2012-13. IN THE GROUNDS OF APPEAL, THE REVENUE HAS RAISED FOLLOWING GROUNDS:- 1. LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE I N DELETING THE DISALLOWANCE OF RS.3,32,32,461/- MADE BY THE ASSESS ING OFFICER U/S.14A OF THE IT ACT, 1961 READ WITH RULE 8D(II) O F THE IT RULES,1962. 2. LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE I N RESTRICTING THE DISALLOWANCE OF RS.1,62,209/- AGAINST THE DISALLOWA NCE OF I.T.A. NO.594/DEL/2016 2 RS.48,29,200/- MADE BY THE ASSESSING OFFICER U/S.14 A OF THE IT ACT, 1961 READ WITH RULE 8D(II) OF THE IT RULES, 1962. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE-COMPA NY WAS ENGAGED IN THE BUSINESS OF DEALING OF SHARES AND SE CURITIES. DURING THE RELEVANT PREVIOUS YEAR, ASSESSEE HAS EAR NED SUM OF RS.1.57 CRORE AS DIVIDEND WHICH WAS FROM THE STO CK HELD AS INVESTMENT. IN RESPONSE TO THE SHOW CAUSE NOTICE, B EFORE THE ASSESSING OFFICER, ASSESSEE SUBMITTED THAT THE INVE STMENT IN SHARES HAVE BEEN MADE OUT OF SURPLUS FUND AVAILABLE WITH THE ASSESSEE AND FROM THE SALE PROCEEDS OF THE SHARES H ELD AS INVESTMENTS. FURTHER NO SIGNIFICANT EXPENDITURE HAS BEEN INCURRED TO EARN DIVIDEND INCOME. HOWEVER, WHILE CO MPUTING THE TAXABLE INCOME, ASSESSEE ITSELF HAS DISALLOWED SUM OF RS.1,19,592/- WHICH INCLUDED PROPORTIONATE EXPENSES OF SALARY OF STAFF AND OTHER EXPENSES, BECAUSE IT WAS STATED THAT DIVIDEND HAS BEEN DIRECTLY CREDITED IN THE ACCOUNT OF THE ASSESSEE AND NO OTHER ACTIVITIES HAS BEEN DONE. IN SO FAR AS INTEREST IS CONCERNED WHICH WERE RELATING TO UNSECU RED LOAN ATTRIBUTABLE TO INVESTMENT, THE ASSESSEE POINTED OU T THAT IT HAS CAPITALIZED THE INTEREST WITH THE INVESTMENTS, WHICH WAS TO THE TUNE OF RS.12.24 CRORE AND HAS CHARGED TO P& L ACCOUNT ONLY RS.6.03 CRORES AND THEREFORE, FORMULA OF RULE 8D CANNOT BE APPLIED. THE ASSESSEES DETAILED EXPLANATION HAS BEEN INCORPORATED FROM PAGES 1 TO 5 IN THE ASSESSMENT OR DER. HOWEVER, THE LEARNED ASSESSING OFFICER HELD THAT AS SESSEE HAS MADE HUGE INVESTMENT OF RS.114.06 CRORE WHICH REQUI RES A CONSEQUENCE DECISION FOR DEPLOYMENT OF FUNDS AND TH ERE IS A I.T.A. NO.594/DEL/2016 3 COST INBUILT EVEN FOR THE SO CALLED IN PASSIVE INV ESTMENT AND ALSO, THERE ARE AN INCIDENTAL EXPENDITURES OF COLLE CTION, TELEPHONE, FOLLOW UP, ETC. AFTER APPLYING THE RATIO OF SPECIAL BENCH IN THE CASE OF DAGA CAPITAL, HE CALCULATED TH E DISALLOWANCE OF RS.3,81,81,554/- UNDER RULE 8D AND AFTER DEDUCTING THE AMOUNT DISALLOWED BY THE ASSESSEE, HE MADE FINAL DISALLOWANCE OF RS.3,80,61,962/-. 3. BEFORE THE LD. CIT (A), AGAIN DETAILED SUBMISSIO NS WERE MADE AND VARIOUS DECISIONS WERE RELIED UPON WHICH H AS BEEN DEALT AND INCORPORATED IN THE IMPUGNED ORDER FROM P AGES 4 TO 17. LD. CIT(A) AFTER TAKING INTO CONSIDERATION THE ENTIRE SUBMISSIONS AND MATERIAL PLACED ON RECORD NOTED THA T ASSESSEE HAD PAID TOTAL INTEREST OF RS.18.27 CRORE OUT OF WHICH INTEREST OF RS.12.24 CRORE HAVE BEEN CAPITALIZED TO THE INVESTMENT PORTFOLIO. THE ASSESSING OFFICER HAS WOR KED OUT THE DISALLOWANCE OF INTEREST OF RS.3,32,32,761/- WI THOUT GIVING ANY FINDING ON THIS ASPECT. ACCORDINGLY, HE DELETED THE DISALLOWANCE OF INTEREST REGARDING ADMINISTRATIVE E XPENSES OF RS.48,29,200/- MADE UNDER RULE 8D(III). HE NOTED TH AT THE DETAILS SUBMITTED BY THE ASSESSEE DURING THE COURSE OF ASSESSMENT AS WELL AS APPELLATE PROCEEDINGS INDICAT ED THAT TOTAL EXPENDITURE OF RS.3,34,118/- HAS BEEN INCURRE D, AND THEREFORE, SUCH A HUGE SUM CANNOT BE DISALLOWED. AF TER CONSIDERING THE VARIOUS NATURE OF EXPENDITURE DEBIT ED, HE RESTRICTED THE DISALLOWANCE OF RS.1,62,209/- AFTER OBSERVING AND HOLDING AS UNDER:- I.T.A. NO.594/DEL/2016 4 4. ACCORDINGLY, I AM OF THE CONSIDERED VIEW THAT A PPELLANT HAS INCURRED VARIOUS INDIRECT EXPENSES FOR EARNING THE EXEMPT INCOME AND SUCH EXPENSES HAVE BEEN DEBITED IN THE P ROFIT AND LOSS ACCOUNT. THERE MAY NOT BE A DIRECT HEAD RELATI NG TO INVESTMENT EXPENDITURE BUT ALL INDIRECT EXPENSES DE BITED TO PROFIT AND LOSS ACCOUNT INDIRECTLY RELATES TO INVESTMENT A CTIVITIES ALSO. THE ASSESSING OFFICER MAY NOT HAVE GIVEN ANY FINDIN G IN THIS REGARD BUT THE POWERS OF THE CIT(APPEAL) ARE CO-TER MINUS WITH THAT OF THE ASSESSING OFFICER, THEREFORE, I AM SATISFIED THAT THE APPELLANT HAS INCURRED VARIOUS INDIRECT EXPENSES ON ADMINISTRATION WHICH ARE INDIRECTLY RELATED TO INVE STMENT ACTIVITIES AND EARNING OF THE EXEMPT INCOME. THE APPELLANT HAS INCURRED ADMINISTRATIVE EXPENDITURE OF RS. 3,34,118. THIS EX PENDITURE CONTAINS THE AMOUNT OF RS. 9,700 WHICH HAS BEEN EXP ENDED ON THE TRAVELLING FOR THE PURPOSE OF PURCHASE AND THE SALE OF SECURITIES. THE REMAINING EXPENDITURE OF RS. 3,24,4 18/- IS APPORTIONED EQUALLY FOR THE TRADING AND INVESTMENT ACTIVITIES. THE DISALLOWANCE OF RS. 48,29,200 MADE BY THE ASSESSING OFFICER IS THEREFORE, RESTRICTED TO RS. 1,62,209/- UNDER RULE 8D(III) READ WITH SECTION 14A OF THE ACT. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON PERUSAL OF THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDER AS WELL AS MATERIAL REFERRED TO BEFORE US AT THE TIME OF HEARI NG, WE FIND THAT BEFORE THE ASSESSING OFFICER THE ASSESSEE HAS GIVEN A VERY DETAILED EXPLANATION NOT ONLY WITH REGARD TO THE NA TURE OF INTEREST EXPENDITURE DEBITED BUT ALSO THE DETAILS O F ADMINISTRATIVE EXPENSES INCURRED BY THE ASSESSEE AN D THE MANNER IN WHICH THE EXEMPT INCOME HAS BEEN RECEIVED BY THE ASSESSEE AFTER PLACING THE ENTIRE NATURE OF ACCOUNT S. THE I.T.A. NO.594/DEL/2016 5 ASSESSING OFFICER WITHOUT EVEN EXAMINING THE SAID A CCOUNTS HAS PROCEEDED TO SIMPLY APPLY THE FORMULA LAID DOWN IN RULE 8D WITHOUT RECORDING HIS SATISFACTION WHICH IS TH E MANDATORY REQUIREMENT IN TERMS OF SECTION 14A(2) READ WITH RU LE 8D(1). LD. CIT(A) HAS TAKEN NOTE OF ENTIRE NATURE OF EXPEN DITURE DEBITED, THE AMOUNT OF INTEREST CAPITALIZED BY THE ASSESSEE AND THE NATURE OF ADMINISTRATIVE EXPENDITURE DEBITE D AND THEN HAS GIVEN A CATEGORICAL FINDING THAT OUT OF TH E ADMINISTRATIVE EXPENDITURE OF RS.3,34,118/- ONLY RS.1,62,209/- CAN AT BEST BE TREATED AS EXPENDITURE ATTRIBUTABLE FOR EARNING OF THE EXEMPT INCOME. MORE OVER THE ASSESSEES CONTENTION THAT IT HAD HUGE SURPLUS FUND S FOR MAKING THE INVESTMENT HAS NOT BEEN REBUTTED AT ANY STAGE. ACCORDINGLY, THE SAID FINDING OF THE LD. CIT (A) IS INCONSONANCE WITH THE CONDITIONS LAID DOWN IN RULE 14A (2) AND T HEREFORE, ATTRIBUTION OF THE EXPENDITURE BY HIM IS NOT ONLY C ORRECT ON FACTS BUT ALSO IN LAW, THEREFORE, WE DO NOT FIND AN Y INFIRMITY IN SUCH ORDER OF THE LD. CIT (A). HENCE THE SAME IS HE REBY AFFIRMED. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH JULY, 2018. SD/- SD/- [PRASHANT MAHARISHI] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 5 TH JULY, 2018 PKK: I.T.A. NO.594/DEL/2016 6 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR DATE 1. DATE OF DICTATION 02.07.2018 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 03.07.2018 3. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P.S./PS 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P.S./PS 7. DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 8. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 9. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER 11. DATE OF DISPATCH OF THE ORDER