SUNNYVALE CAPITAL LTD., NEW DELHI V. ITO, WARD- 24(3), NEW DELHI

ITA 5967/DEL/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8486 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 17-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: NISHA SINGH
• Keywords: Depreciation; Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 64; 43; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER I.T.A. NO. 5967 /DEL/201 8 A.Y. : 20 1 5 - 1 6 M/S SUNNYVALE CAPITAL LTD., 101-C, SHIV HOUSE, HARI NAGAR, ASHRAM, NEW DELHI 110 014 (PAN: AATCS6578B) VS. ITO, WARD 24(3), ROOM NO. 24(3), ROOM NO. 225F, C.R. BUILDING, NEW DELHI 110 002 (APPELLANT) (RESPONDENT) ASSESSEE BY : MS. NISHA SINGH, CA DEPARTMENT BY : MS. RAKHI VIMAL, SR. DR. ORDER ASSESSEE HAS FILED THIS APPEAL AGAINST THE IMPUGNED ORDER DATED 10.08.2018 PASSED BY THE LD. CIT(A)-8, NEW DEL HI RELEVANT TO ASSESSMENT YEAR 2015-16 ON THE FOLLOWING GROUNDS:- 1. THAT THE AO HAS ERRED IN MAKING DISALLOWANCE OF INTEREST EXPENSES OF RS. 36,77,902/- AND ALSO ERRED IN MAKING THE DISALLOWANCE OF RS. 7,45,247/- U/S. 14A READ WITH RULE 8D AND LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 23,80,000/- TO THE EXTENT OF EXEMPT INCOME EARNED BY THE APPELLANT, IGNORING THE FACT THAT APPELLANT HAS NOT DEBITED / INCURRED ANY EXPENDITURE ON EXEMPT INCOME. 2. THAT THE ORDER OF THE AO AND THE LD. CIT(A) ARE BAD IN LAW AS WELL AS ON THE FACTS OF THE APPELLANTS CASE. 3. THAT THE APPELLANT CRAVES ITS RIGHT TO ADD, ANNUL, AMEND, ALTER, WITHDRAW AND / OR SUBSTITUTE ANY / OF ALL OF THE GROUNDS OF APPEAL BEFORE THE FINALIZATION OF THE APPEAL. 2 2. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE IS E NGAGED IN THE BUSINESS OF TRADING AND IMPORT OF IRON AND STEEL. T HE ASSESSEE HAS FILED ITS RETURN OF INCOME FOR AY 2015-16 ON 31.10.2 015, DECLARING INCOME OF RS. 66,473/-. THE CASE OF THE ASSESSEE WAS TAKEN UP FOR SCRUTINY AND ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT ACT) WAS COMPLETED VIDE ASSESSMENT ORDER DATED 21.12.2017, DETERMINING THE ASSESSED INCOME AT RS. 4 4,89,622/-, BY MAKING DISALLOWANCE OF RS. 44,23,149/- U/S. 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D. AGAINST THE ADDIT ION, ASSESSEE APPEALED BEFORE THE LD. CIT(A), WHO VIDE HIS IMPUGN ED ORDER DATED 10.8.2018 HAS PARTLY ALLOWED THE APPEAL OF THE ASSES SEE AND RESTRICTED THE ADDITION TO RS. 23,80,000/-. AGAINST TH E IMPUGNED ORDER OF THE LD. CIT(A), ASSESSEE HAS FILED THE APP EAL BEFORE THE TRIBUNAL. 3. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE A O HAS ERRED IN MAKING DISALLOWANCE OF INTEREST EXPENSES OF RS. 36 ,77,902/- AND ALSO ERRED IN MAKING THE DISALLOWANCE OF RS. 7,45,24 7/- U/S. 14A READ WITH RULE 8D AND LD. CIT(A) HAS ERRED IN CONFIR MING THE DISALLOWANCE OF RS. 23,80,000/- TO THE EXTENT OF EX EMPT INCOME EARNED BY THE ASSESSEE, IGNORING THE FACT THAT ASSE SSEE HAS NOT DEBITED / INCURRED ANY EXPENDITURE ON EXEMPT INCOME. SHE FILED THE COPY OF DECISION OF THE HONBLE SUPREME COURT O F INDIA IN THE CASE OF MAXOPPS INVESTMENT LTD. VS. CIT (2018) 91 TAXM ANN.COM 154 (SC); HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. INDIAN SUGAR EXIM CORPORATION LTD. (2012) 19 TAXMANN.COM 158 (DELHI) AND HONBLE DELHI HIGH COURT DECISION IN THE CASE OF PR. CIT VS. BHARTI OVERSEAS P LTD. (2015) 64 TAXMMANN.COM 340 (DE LHI) AND RELIED UPON THE SAME. BESIDES ABOVE, SHE FILED THE C OPY OF WRITTEN SUBMISSIONS, WHICH READ AS UNDER :- 3 THAT THE APPELLANT COMPANY IS A REGULAR INCOME TAX ASSESSEE AND FILED ITS RETURN OF INCOME ON 31.10.2015 CASE WAS SELECTED FOR SCRUTINY ASSESSMENT U/S 143(3) O F THE INCOME TAX ACT 1961 AND ASSESSMENT WAS COMPLETED ON 22.12.2017 AFTER MAKING DISALLOWANCE OF RS. 44,23,149/- U/S 14A OF THE INCOME TAX ACT, 1961. THAT DURING THE RELEVANT ASSESSMENT YEAR, ASSESSEE COMPANY HAD RECEIVED THE DIVIDEND OF RS. 23,80,000/ - AGAINST ITS OLD INVESTMENT IN SHARES OF NATIONAL STOC K EXCHANGE (AMOUNT OF INVESTMENT IS RS. 12,73,17,435/- AND DATE OF INVESTMENT IS 30TH APRIL, 2008) AND CLAIM ED THE ABOVE SAID DIVIDEND INCOME OF RS. 23,80,000/- AS EXEMPT INCOME. AGAINST EXEMPT INCOME OF RS. 23,80,000/- LEARNED ASSESSING OFFICER HAS MADE THE DISALLOWANCE OF RS. 44,23,149/-. DISALLOWANCE CALCULATED BY LEARNED ASSESSING OFFICER U/S 14A READ WITH RULE 80 IS AS UN DER: RULE PARTICULARS AMOUNT (RS.) 8D(I) EXPENSES DIRECTLY ATTRIBUTABLE TO EXEMPT INCOME. A*B/C 36,77,902 8D(II) A INTEREST EXPENSE RS. 55,83,414 B AVERAGE INVESTMENTS RS. 14,90,49,373 (153549372+144549373)/2 C AVERAGE ASSETS RS. 22,62,71,505 (216995351+235549659)/2 8D(III) 0.5% OF AVERAGE INVESTMENT (153549372+144549373)/2*0.5% 7,45,247 TOTAL DISALLOWANCE U/S. 14A 44,23,149 4 A. REGARDING DISALLOWANCE U/R 80 (IN AGAINST INTEREST EXPENSES YOUR HONOR, WHILE CALCULATING THE DISALLOWANCES PER RULE 8D(2)(II) LEARNED ASSESSING OFFICER HAS WRONGL Y TAKEN THE INTEREST EXPENSE OF RS. 55,83,414/- INTO CALCULATION, IGNORING THE FACT THAT INTEREST EXPENSE W AS DIRECTLY ATTRIBUTABLE TO TAXABLE REVENUE ACTIVITY OF APPELLANT. 1. THAT IN THE ASSESSMENT YEAR: 2014-15 APPELLANT COMPANY HAS TAKEN A LOAN OF RS. 25 CRORE FROM HSBC INVESDIRECT FINANCIAL SERVICES LTD. TO PURCHASE THE DWS MATURITY FUND ON 22.07.2013 OF RS. 25 CRORE, SALE AND PURCHASE OF SAME WAS REFLECTING AS REVENUE FROM OPERATION UNDER PROFIT & LOSS ACCOUNT OF THE APPELLANT COMPANY, KINDLY REFER PAGE 6 (PROFIT & LO SS STATEMENT FOR THE YEAR ENDED ON 31 ST MARCH, 2015) AND PAGE NO. 23 - DWS MUTUAL FUND STATEMENT) OF THE PAPER BOOK. 2. THIS WAS EXPLAINED AND SUBMITTED VIDE LETTER DATED 14.12.2017 FILED DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) STATING 'THAT INTEREST WAS PAID ON LOAN FROM HSBC AGAINST DWS MUTUAL FUND. THAT DWS MUTUAL FUND IS A PART OF BUSINESS ACTIVITY AND PART OF STOCK IN TRADE OF ASSESSEE COMPANY AND DIVIDEND /INTEREST / CAPITAL GAIN, ETC. EARNED (IF ANY) FROM THAT VENTURE /ACTIVITY BE TAXABLE.' COPY OF LETTER DATED 14.12.2017 IS ENCLOSED AT PAGE N O. 25 OF PAPER BOOK. 5 3. YOUR HONOR, THE LEARNED ASSESSING OFFICER INVOKE D THE SECTION 14A ALLEGING THAT DWS MUTUAL FUND IS NOT A PART OF BUSINESS ACTIVITY AND ITS SHOWN UNDER THE HE AD NON-CURRENT INVESTMENT (LAST THREE LINES OF PARA 3.(I I) ON PAGE 2 OF THE ASSESSMENT ORDER). THE ALLEGATION OF LEARNED ASSESSING OFFICER IS NOT CO RRECT AND CONTRARY TO THE FACTS OF THE CASE. IT IS VERIFIABL E AS UNDER: I) DWS MUTUAL FUND WAS A PART OF INVENTORY - UNITS 13,16,930 (NOTE :12 INVENTORY -NOTES FORMING INTEGRAL PART OF THE BALANCE SHEET AS AT MARCH 31, 2015 - PAGE 8 OF THE PAPER BOOK) ; II) COPY OF PROFIT & LOSS ACCOUNT (PAGE NO, 6 OF TH E PAPER BOOK) SHOWING THE SALE OF DWS MUTUAL FUND AS REVENUE FROM OPERATIONS AT RS. 7,08,39,992/-; III) TAX AUDIT REPORT OF AY. 2015-16, POINT NO. 35(A ) OF REPORT (PAGE 43 OF THE PAPER BOOK) SHOWING HOLDING DETAILS OF DWS UNDER THE HEAD INVENTORY/STOCK IN TRADE OPENING STOCK, PURCHASE & SALE DURING THE YEAR AND CLOSING BALANCE OF UNITS 13,16,930/- AS ON 31.03.2015. B. REGARDING DISALLOWANCE OF RS. 23,80,000/- UPTO EXEMPT INCOME. YOUR HONOR, FOR MAKING DISALLOWANCE U/S14A ASSESSEE MUST HAVE INCURRED THE EXPENDITURE IN RELATION TO EARNING INCOME WHICH IS EXEMPT UNDER INCOME TAX ACT. 6 APPELLANT HAS DEBITED FOLLOWING EXPENSES INTO P&L ALC, KINDLY REFER PAGE 6 - P&L ACCOUNT AND PAGE 9 - NOTE 17 OTHER ADMINISTRATIVE EXPENSES OF THE PAPER BOOK: PARTICULARS EXPENSES DEBITED EXPENSES REMARKS IN P&L ALLOWABLE AS PER INCOME TAX PROVO FINANCE COST 55,83,414 55,83,414 DIRECTLY RE LATED TO REVENUE ACTIVITY ADMINISTRATIVE 21,12,401 4,97,321 INCLUDING ST AMP EXPENSES DUTY EXPENSES OF RS. 4,03,770 PAID TO ROC AGAINST DEMERGER. DEPRECIATION AND 6,21,031 NIL ADDED BACK TO AMORITIZATION TAXABLE INCOME. (3,11,605+3,09,426) 1. YOUR HONOUR, WHEN DISALLOWANCE BE CALCULATED AGAINST INDIRECT EXPENSES, IT CANNOT EXCEED THE ACTUAL EXPENSES CLAIM ED FOR INCOME TAX PURPOSES. INDIRECT EXPENSES CLAIMED BY THE APPELLANT EXCLUDING THE EXPENSES OF FINANCE COST AND DEMERGER EXPENSES WAS O NLY RS. 93,551/- WHICH ARE AS UNDER: AUDIT FEES 33,708 BANK CHARQES 12,159 7 MISC. EXPENSES 5,755 ROC FILING FEES 32,400 TRAVELLINQ EXPENSES 9,529 TOTAL 93,551 2. YOUR HONOUR, THE SAME VIEW WAS UPHELD IN FOLLOWI NG JUDQMENTS : I) THE HIGH COURT OF DELHI AT NEW DELHI (ITA 953/20 15) PRADEEP KHANNA VERSUS ACIT CIRCLE 30(1) DELHI DATED 11.08.2016 HOLDING - IF INDEED THE TAX EXEMPTED INCOM E WAS EARNED WITHOUT THE INTERFERENCE OF ANY EMPLOYEE BUT RA THER THROUGH THE SOLICITATION AND ADVERTISEMENT OF THE BANK THE QUES TION OF ATTRIBUTING ANY EXPENDITURE CANNOT ARISE AT ALL. II) THE DELHI HIGH COURT IN THE CASE OF MAXOPP INVES TMENT LTD. VS. CIT [TS-668-HC-2011 (DEL)] OBSERVED, 'WHILE WE AGREE THAT THE EXPRESSION 'EXPENDITURE INCURRED' REFERS TO ACTUAL EX PENDITURE AND NOT TO SOME IMAGINED EXPENDITURE, WE WOULD LIKE TO MA KE IT CLEAR THAT THE 'ACTUAL' EXPENDITURE THAT IS IN CONTEMPLATION ULS 14A (1) OF THE ACT IS THE ACTUAL EXPENDITURE IN RELATION TO OR IN CONNECTION WITH OR PERTAINING TO EXEMPT INCOME. THE COROLLARY TO THI S IS THAT IF NO EXPENDITURE IS INCURRED IN RELATION TO THE EXEMPT INCOM E, NO DISALLOWANCE CAN BE MADE U/S 14A OF THE SAID ACT.' YOUR HONOR, THE DISALLOWANCE U/S 14A R.W.R. 80 IS N IL. THE DISALLOWANCE IS CALCULATED AS UNDER: RULE PARTICULARS AMOUNT (RS.) 8D (I) EXPENSE DIRECTLY ATTRIBUTABLE TO EXEMPT INCOME NIL 8 8D(II) EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT NIL 8D (III) 0.5% OF AVERAGE INVESTMENT NIL (153549373+144549373)/2*0.5% = 7,45,247, IT WILL BE TAKEN AS NIL BECAUSE NO EXPENDITURE HAS BE EN INCURRED TO EARN EXEMPTED DIVIDEND INCOME. TOTAL DISALLOWANCE U/S 14A NIL IN VIEW OF ABOVE, YOUR HONOUR IS REQUESTED TO KINDLY DELETE THE ADDITION OF RS. 23,80,000/- U/S 14A R.W.R. 8D. 4. ON THE OTHER HAND, LD. DR RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW AND STATED THAT THEY HAVE PASSED THE WE LL REASONED ORDER, WHICH DOES NOT NEED ANY INTERFERENCE . 5. I HAVE GONE THROUGH THE ORDERS PASSED BY THE REV ENUE AUTHORITIES AS WELL AS THE DOCUMENTARY EVIDENCES FILE D BY THE ASSESSEE IN THE SHAPE OF PAPER BOOKS ALONGWITH WRITTE N SUBMISSIONS FILED BY THE LD. COUNSEL FOR THE ASSESS EE. I AM OF THE CONSIDERED VIEW THAT AO HAS TO ESTABLISH THAT THE ASSES SEE HAS INCURRED EXPENDITURE TO EARN THE EXEMPT INCOME ONLY, W HEN THE EXPLANATION OF THE ASSESSEE IS NOT SATISFACTORY THEN TH E AO CAN APPLY SECTION 14A OF THE ACT AND RULE 8D(I) OF THE RULES. IN THE PRESENT CASE, AO HAS NOT RECORDED THE SATISFACTION WHICH IS MANDATORY AND DISALLOWANCE IN DISPUTE HAS BEEN MADE W HICH HAS WRONGLY BEEN PARTLY SUSTAINED BY THE LD. CIT(A). AF TER EXAMINING 9 THE WRITTEN SUBMISSIONS ALONGWITH DOCUMENTARY EVIDENC ES FILED BY THE LD. COUNSEL FOR THE ASSESSEE, I AM OF THE VIEW THAT ASSESSEE HAS NOT INCURRED ANY EXPENDITURE RELATING TO THE EXEMPT I NCOME, THEREFORE, NO DISALLOWANCE CAN BE MADE U/S. 14A OF TH E ACT. KEEPING IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, I HEREBY DELETE THE ADDITION IN DISPUTE BY ACCEPTING THE APPEA L FILED BY THE ASSESSEE. MY AFORESAID VIEW IS FORTIFIED BY THE DE CISION OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF MAXOPP IN VESTMENT LTD. VS. CIT (TS-688-HC-2011(DEL.), WHEREIN IT HAS BEEN HELD THAT IF NO EXPENDITURE IS INCURRED IN RELATION TO THE EXEMPT INCOME , NO DISALLOWANCE CAN BE MADE U/S. 14A OF THE SAID ACT. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. ORDER PRONOUNCED ON 10/10/2019. SD/- [H.S. SIDHU] JUDICIAL MEMBER DATE:10/10/2019 SRBHATNAGAR COPY FORWARDED TO: - 1. APPELLANT - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT ASSISTANT REGISTRAR, ITAT, DELHI BENCHES