Bhartiya Samrudhi Investment and Consulting Services Ltd., New Delhi V. CIT(A)-2, New Delhi

ITA 6033/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3146 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 06-11-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY VERMA
• Keywords: Earning of tax free income
• Section: 142(1); 14A; 10

Judgement Text

1 ITA NO. 6033/DEL/2015 IN THE INCOME TAX APPELLA TE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT ME MBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A .NO. 6033/DEL/2 015 (A.Y 2011-12) BHARTIYA SAMRUDHI INVESTMENT AND CONSULTING SERVICES LTD. F-5, GROUND FLOOR, KAILASH COLONY GREAT KAILASH ENCLAVE-PART-1 NEW DELHI AAACB5336R (APPELLANT) VS CIT(A) - 2 ROOM NO. 102, HALL NO.1 AAYAKAR BHAWAN, LAXMI NAGAR DISTT, CENTRE, NEW DELHI (RESPONDENT) APPELLANT BY SH. ARVIND KUMAR, ADV RESPONDENT BY SH. SANJAY VERMA, CIT,DR & SH. AMIT JAIN, SR. DR ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE ASSESSEE AGAINST ORDER DATED 22/07/2015 PASSED BY CIT(A)-2, NEW DELHI FOR ASSESSMENT YEAR 2 011-12. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE COMMISSIONER OF INCOME TAX APPEALS HAS ERRED IN LAW IN NOT DIRECTING THE A SSESSING OFFICER, NOT TO APPLY SECTION 14A READ WITH RULE 8D OF THE INCOME T AX RULES, AS THE COMPANY HAD FULL ACCOUNTING IN RESPECT OF ITS VARIOUS DIVIS IONS AND PROJECTS, THOUGH PRESENTED, BUT WAS IGNORED. DATE OF HEARING 30.11.2017 DATE OF PRONOUNCEMENT 28.02.2018 2 ITA NO. 6033/DEL/2015 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW IN NOT INTERFERING W ITH THE ORDER OF THE ASSESSING OFFICER ON THE APPLICATION OF SECTION 14A AS ALL THE INVESTMENTS WERE MADE BY THE ASSESSEE IN ITS SUBSIDIARY COMPANIES, F OR EXECUTION OF OPERATIONS, AND SUCH INVESTMENTS ARE NOT RECKONED F OR DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. (REFER CASE LAW: EIH ASSOCIATED HOTELS VS. DCIT) ITAT CHENNAI, I.T.A. NO. 1503/MADRAS/20012: D ATED: 17-07-2013.) 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE COMMISSIONER OF INCOME TAX APPEALS HAS ERRED IN STATING THAT THE FINANCIAL EXPENSES OF RS. 4.74 CRORES ARE RELATED TO THE INVESTMENTS, WHILE THE AS SESSING OFFICER, HAS CLEARLY FOUND THAT NONE OF THE INTEREST PAYMENT IS ATTRIBUT ABLE TO THE INVESTMENTS. 4. ON FACTS OF THE CASE, THE COMMISSIONER OF INCOM E TAX (APPEAL) OUGHT TO HAVE RECOGNIZED THE SUO MOTO DISALLOWANCE MADE BY T HE APPELLANT ASSESSEE AND DIRECTED THE ASSESSING OFFICER, TO DELETE THE A DDITIONAL DISALLOWANCE OF RS. 1,97,03,392 AS THE SAME IS BASED ON WRONG CALCULATI ONS. ADDITIONAL GROUNDS OF APPEAL 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) OUGHT TO HAVE RESTRICTED THE DISALLOWANCE OF EXPEND ITURE U/S 14A TO THE EXTENT OF DIVIDEND INCOME OF RS. 1,02,49,538/-, WHICH HAS BEEN CLAIMED EXEMPT BY THE APPELLANT U/S 10 OF THE INCOME TAX ACT, 1961. 2. THAT WITHOUT PREJUDICE TO THE ABOVE GROUND OF AP PEAL, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A ) OUGHT TO HAVE HELD THAT FOR THE PURPOSES OF DISALLOWANCE TO BE CALCULATED U NDER SECTION 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D OF INCOME TA X RULES, 1962 ONLY THOSE INVESTMENTS ARE TO BE TAKEN INTO CONSIDERATIO N WHICH HAD YIELDED EXEMPT INCOME AND NOT THOSE INVESTMENTS, WHICH DID NOT YIELD ANY EXEMPT INCOME, DURING THE PERIOD RELEVANT TO THE ASSESSMEN T YEAR. FOR BHARTIYA SAMRUDHI INVESTMENT AND CONSULTING SER VICES LTD. 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF INVESTMENT COMPANY FOR HOLDING SHARES AND CONSULTANCY SERVICES IN MICRO FINANCE AND RURAL LIVELIHOOD PROMOTION SERVICES. THE RETURN OF INCOME DECLARING AN INCOME OF RS.1,10,96,790/- UNDER NORMAL PROVISIONS OF THE INCOME TAX ACT, 1961 AND BOOK PROFIT OF RS.65,62,400/- UNDER MAT PROVISIONS OF THE INCOME TAX ACT, 3 ITA NO. 6033/DEL/2015 1961 WAS FILED ON 28/09/2011. THE CASE WAS SELECTE D FOR SCRUTINY. NOTICE U/S 143(2) OF THE ACT WAS ISSUED ON 24/09/2012 AND SERV ED ON THE ASSESSEE. SUBSEQUENTLY, NOTICE U/S 142(1) OF THE ACT ALONG WI TH QUESTIONNAIRE WAS ISSUED ON 17/07/2013. IN COMPLIANCE THERETO, THE REPRESEN TATIVES OF THE ASSESSEE ATTENDED THE ASSESSMENT PROCEEDINGS FROM TIME TO TI ME AND FILED NECESSARY DETAILS AS CALLED FOR ASSESSING OFFICER WHICH WERE EXAMINED AND PLACED ON RECORD BY THE ASSESSING OFFICER. THE ASSESSEE SUBM ITTED BEFORE THE ASSESSING OFFICER THAT THE DIVIDEND INCOME OF RS. 1,02,49,538 /- RECEIVED BY ASSESSEE FROM M/S. BHARTIYA SAMRUDDHI FINANCE LTD. DURING THE YEA R AND THE SAME WAS INCLUDED BY THE ASSESSEE AS TAXABLE BUSINESS INCOM E. THEREFORE, THERE WAS NO QUESTION OF DISALLOWANCE U/S 14A, SINCE THE DIVIDEN D WAS NOT SHOWN AS EXEMPT INCOME. THE ASSESSING OFFICER OBSERVED THAT, AS PER THE ASSESSEES OWN SUBMISSIONS, THIS WAS ONLY PART OF ITS INVESTMENT I N SHARES AND FROM PERUSAL OF THE FINAL ACCOUNTS OF THE ASSESSEE REVEALED THAT DU RING THE RELEVANT ASSESSMENT YEAR, ITS INVESTMENT IN SHARES INCREASED FROM RS.21 .86 CRORES TO RS.42.38 CRORES AND THE SOURCE OF THIS INVESTMENT WAS MAINLY THE LOANS, IT AVAILED DURING THE YEAR TO THE TUNE OF RS. 20 CRORES APART FROM SH ARES (WORTH RS.23.73 CRORES) OF M/S. BHARTIYA SAMRUDDHI FINANCE LTD., ON WHICH T HE ASSESSEE EARNED DIVIDEND DURING THE YEAR, THE ASSESSEE WAS HAVING L ARGE SHAREHOLDING/INVESTMENTS IN SHARES OF OTHER COMPANI ES AS WELL RUNNING INTO CRORES OF RUPEES. THE ASSESSMENT WAS COMPLETED ON 1 4.03.2014 AND THE ASSESSING OFFICER HELD THAT THE TOTAL DISALLOWANCE WORKED OUT AS PER THE PROVISIONS OF RULE 8D(2) OF THE INCOME TAX RULES AM OUNTING TO RS.4,30,39,547/- TREATED AS EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME. SINCE THE ASSESSEE COMPANY SUO MOTO DISALLOWED AN A MOUNT OF RS.2,33,36,155/-, THE AMOUNT OF RS.1,97,03,392/- WA S DISALLOWED BY THE ASSESSING OFFICER. 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER THE ASSE SSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE APPEAL O F THE ASSESSEE. 4 ITA NO. 6033/DEL/2015 5. THE LD. AR SUBMITTED THAT THE ADDITIONAL GROUND FILED BY THE ASSESSEE BE TAKEN INTO ACCOUNT AS THE SAME ARE IN RESPECT OF LE GAL GROUND. THE LD. AR ALSO RELIED UPON THE HON'BLE HIGH COURT DECISION IN CASE OF CIT VS. SAM GLOBAL SECURITIES LTD. 2013 38 TAXMAN.COM 129. THE LD. AR FURTHER SUBMITTED THAT THE DISALLOWANCE CANNOT BE MORE THAN EXEMPT INCOME. THE COMPUTATION OF THE INCOME WAS BEFORE THE ASSESSING OFFICER AS WELL AS CIT(A) AND THE SAME SHOULD HAVE BEEN TAKEN INTO CONSIDERATION BY THE AUTHORIT IES. THE LD. AR RELIED UPON THE DECISIONS IN CASE OF JOINT INVESTMENT PVT. LTD. VS. CIT 2015 59 TAXMAN.COM 295 (DELHI HIGH COURT, ACB INDIA LTD. VS . ACIT 2015 62 TAXMAN.COM 71) (DELHI HIGH COURT) & SPECIAL BENCH D ECISION IN CASE OF ACIT VS. BIREET INVESTMENT PVT. LTD. 2017 82 TAXMAN.COM 415. 6. THE LD. DR SUBMITTED THAT THE ASSESSEE FAILED TO CLAIM EXEMPTION UNDER SECTION 10(35) OF THE ACT. THE LD. DR FURTHER SUBMI TTED THAT ASSESSED INCOME CANNOT BE BELOW THE RETURNED INCOME. THE LD. DR FUR THER SUBMITTED THAT THE DECISION OF THE SAM GLOBAL SECURITIES WILL NOT BE A PPLICABLE IN THE ASSESSEES CASE, BUT THE DR COULD NOT DIFFERENTIATE THE FACTUA L ASPECT OF THE PRESENT CASE AND THE DECISION OF THE HONBLE HIGH COURT. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. THE CIT(A) HELD AS UNDER:- 3.2.2 THEREFORE, SECTION 14A MANDATES THAT DISALLO WANCE UNDER THE SECTION IS TO BE MADE ON ACCOUNT OF EXPENSES INCURR ED FOR EARNING OF EXEMPT INCOME UNDER THE ACT, NOT NECESSARILY EXEMPT INCOME EARNED DURING THE YEAR. IT CANNOT BE DENIED THAT EVEN THOU GH NO DIVIDEND INCOME WAS EARNED DURING THE YEAR ON INVESTMENTS OTHER THA N THOSE IN M/S. BHARTIYA SAMRUDDHI FINANCE LTD., THESE INVESTMENTS MUST HAVE BEEN MADE AFTER EXPENDING THE TIME, EFFORT AND EXPERTISE OF THE MANAGEMENT/EXPERTS REGARDING WHEN AND WHERE TO INVE ST, HOW LONG TO CONTINUE WITH THE INVESTMENTS AND WHICH INVESTMENTS TO EXIT FROM, BESIDES OTHER ADMINISTRATIVE EXPENSES. BEFORE THE ASSESSING OFFICER AS WELL AS 5 ITA NO. 6033/DEL/2015 DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE M E, THE APPELLANT HAS NOT BEEN ABLE TO ESTABLISH THAT NO EXPENDITURE WAS INCURRED BY IT ON MAKING THESE INVESTMENTS, MORE SO IN THE LIGHT OF T HE HUGE FINANCIAL EXPENSES OF RS. 4.74 CRORES INCURRED BY IT DURING T HE YEAR. IN VIEW OF THE FORGOING DISCUSSION, I UPHOLD THE ACTION OF THE ASS ESSING OFFICER IN MAKING THE DISALLOWANCE UNDER RULE 8D. GROUND NO. 1 OF THE APPEAL IS DISMISSED. IT IS A SETTLED LAW THAT THE DISALLOWANCE CANNOT BE MORE THAN EXEMPT INCOME. THE HONBLE HIGH COURT DECISION IN CASE OF CIT VS. SAM GLOBAL SECURITIES LTD. (2013) 38 TAXMAN.COM 129 HELD THAT THE DISALLOWANCE CANNOT BE MORE THAN EXEMPT INCOME. THE COMPUTATION OF THE INCOME WAS BEFORE THE ASSESSING OFFICER AS WELL AS CIT(A) AND THE SAME SH OULD HAVE BEEN TAKEN INTO CONSIDERATION BY THE REVENUE AUTHORITY AND APPELLAT E AUTHORITY. THE DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT RELIED BY THE LD. AR THAT OF JOINT INVESTMENT PVT. LTD. AND ACB INDIA LTD. AND SPECIA L BENCH DECISION IN CASE OF BIREET INVESTMENT PVT. LTD. ARE SQUARELY COVERING THE CASE OF THE ASSESSEE. IN PRESENT ASSESSEES CASE, THE ASSESSEE HAS DEMONSTRA TED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENSES TO EARN A DIVIDEND INCOME IN THIS PARTICULAR ASSESSMENT YEAR AND THE ASSESSING OFFICER DID NOT F IND ANY AMBIGUITY REGARDING ANY EXPENDITURE DIRECTLY OR INDIRECTLY AT TRIBUTABLE TO THE INVESTMENT MADE BY THE ASSESSEE. THUS, THE ASSESSING OFFICER A S WELL AS THE CIT(A) BOTH HAVE IGNORED THIS FACT. HENCE, THE ADDITIONAL GROUN D RAISED BY THE ASSESSEE IS ALLOWED. THE LD. DR RELIED ON VARIOUS DECISIONS AND SUBMITTED THAT THE ASSESSED INCOME CANNOT BE BELOW THE RETURN INCOME E SPECIALLY WHEN ASSESSEE HAS COMPUTED DISALLOWANCE SUO MOTO AND PAID TAX IN SELF ASSESSMENT. THE LD. AR COULD NOT CONTROVERT THE AOVE CONTENTIONS OF THE LD. DR. WE THEREFORE, DIRECT THE ASSESSING OFFICER TO TAKE CONGNIZANCE OF THE SAME AND ACCORDINGLY COMPUTE THE INCOME OF THE ASSESSEE. THEREFORE, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 6 ITA NO. 6033/DEL/2015 8. IN RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY, 2018 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 28/02/2018 R. NAHEED * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE 1. DRAFT DICTATED ON 30/11/2017 PS 2. DRAFT PLACED BEFORE AUTHOR 01/12/2017 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .2018 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 7 ITA NO. 6033/DEL/2015 5. APPROVED DRAFT COMES TO THE SR.PS/PS 28.02.2018 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 2 8 .02.2018 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.