Cosmos Industries Ltd., Ghaziabad V. ITO, New Delhi

ITA 6346/DEL/2015

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 0735 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 01-12-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AASTHA LAKSHMI
• Assessee Lawyers: ANKIT GARG CAS
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: A, NEW DELHI BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SMT. BEENA A PILLAI, JUDICIAL MEMBER I TA NO. 6345 /DEL/ 20 1 5 AY: 2011 - 12 & I TA NO. 6346 /DEL/ 2015 AY: 2012 - 13 COSMOS INDUSTRIES LTD. C/O GARG R KUMAR & ASSOCIATES CHARTERED ACCOUNTANTS 7 - ADVOCATE CHAMBER RAJ NAGAR DT. CENTRE ABOVE DOMINOS PIZZA GHAZIABAD PAN: AAACC6682R VS . INCOME TAX OFFICER WARD 3 (4) NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. RAKESH GARG & SH. ANKIT GARG, CAS . DEPARTMENT BY : SMT. AASTHA LAKSHMI, SR.D.R. DATE OF HEARING : 07 /03/2019 DATE OF PRONOUNCEMENT : 28 /03/2019 ORDER PER BEENA A PILLAI, JUDICIAL MEMBER PRESENT APPEALS HA VE BEEN FILED BY ASSESSEE AGAINST ORDER DATED 31/08/15 PASSED BY LD.CIT(A) - 2, NEW DELHI FOR ASSESSMENT YEAR 2011 - 12 AND 2012 - 13 ON FOLLOWING GROUNDS OF APPEAL: ITA 6345 & 6346/DEL/15 AY - 2011 - 12/2012 - 13 COSMOS INDUSTRIES LTD . 2 ITA NO. 6345/ D EL/2015 1. THAT UNDER THE FACTS AND CIRCUMSTANCES, THE LEARNED CIT(A) ERRED IN LAW AS WELL AS ON MERITS OF CASE IN SUSTAINING ADDITION MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D OF RS. 2434230/ - WHEN THE ASSESSEE HAS NO EXEMPT INCOME. WHERE NEITHER ANY EXPENDITURE IS INCURRED NOR EARNED AN EXEMPT INCOME, DISALLOWA NCE UNDER SECTION 14A IS NOT TENABLE. 2. FURTHER THAT THE LEARNED CIT (A) HAS ERRED IN LAW AS WELL AS ON MERITS OF CASE IN TRYING TO ESTABLISH THAT ASSESSEE DOES NOT HAVE INTEREST FREE FUNDS TO COVER THE AMOUNT OF INVESTMENT. INVESTMENT WAS TO THE TUNE OF RS . 7.35 CRORES AS AGAINST CAPITAL PLUS RESERVES OF RS. 11.88 CRORES AS ON 31.03.2012. WHERE INTEREST FREE FUNDS ARE AVAILABLE TO THE ASSESSEE AND ALSO RAISED LOANS, IT CAN BE PRESUMED THAT INVESTMENT WERE MADE FROM AVAILABLE INTEREST FREE FUNDS. IF IS ESTAB LISHED BY VARIOUS HIGH COURTS THAT INVESTMENT COULD BE MADE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF INTEREST FREE FUNDS ARE SUFFICIENT TO MEET THE INVESTMENTS. 3. THE LEARNED CIT (A) WAS NOT JUSTIFIED EVEN NOT DISCUSSING AND IGNORING THE JUDGMENTS OF HON'BLE HIGH COURTS OF ALLAHABAD, BOMBAY, GUJ A RAT, PUNJAB & HARYANA WHICH WERE CITED BY ASSESSEE IN ITS WRITTEN SUBMISSION. IN THESE LEADING CASES ADDITIONS MADE ON TH E SAME ISSUE WAS DELETED AND IT WAS HELD THAT IN THE ABSENCE OF ANY TAX FREE INCOME, CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE AND WHERE ASSESSEE'S OWN FUNDS AND NON INTEREST BEARING FUNDS EXCEEDS THE TAX FREE SECURITIES. 4. THE APPE LLANT CLAIMS TO ADD AMEND OR WITHDRAW ANY OF THE GROUND OF APPEAL ON OR BEFORE THE DATE OF HEARING. ITA NO. 6346/DEL/2015 1. THAT UNDER THE FACTS AND CIRCUMSTANCES, THE LEARNED CIT(A) ERRED IN LAW AS WELL AS ON MERITS OF CASE IN SUSTAINING ADDITION MADE U NDER SECTION 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D OF RS. 4911451 / - WHEN THE ASSESSEE HAS NO EXEMPT INCOME. WHERE ITA 6345 & 6346/DEL/15 AY - 2011 - 12/2012 - 13 COSMOS INDUSTRIES LTD . 3 NEITHER ANY EXPENDITURE IS INCURRED NOR EARNED AN EXEMPT INCOME, DISALLOWANCE UNDER SECTION 14A IS NOT TENABLE. 2. FURTHER THAT TH E LEARNED CIT (A) HAS ERRED IN LAW AS WELL AS ON MERITS OF CASE IN TRYING TO ESTABLISH THAT ASSESSEE DOES NOT HAVE INTEREST FREE FUNDS TO COVER THE AMOUNT OF INVESTMENT. INVESTMENT WAS TO THE TUNE OF RS. 7.35 CRORES AS AGAINST CAPITAL PLUS RESERVES OF RS. 11.88 CRORES AS ON 31.03.2012. WHERE INTEREST FREE FUNDS ARE AVAILABLE TO THE ASSESSEE AND ALSO RAISED LOANS, IT CAN BE PRESUMED THAT INVESTMENT WERE MADE FROM AVAILABLE INTEREST FREE FUNDS. IF IS ESTABLISHED BY VARIOUS HIGH COURTS THAT INVESTMENT COULD BE MADE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF INTEREST FREE FUNDS ARE SUFFICIENT TO MEET THE INVESTMENTS. 3. THE LEARNED CIT (A) WAS NOT JUSTIFIED EVEN NOT DISCUSSING AND IGNORING THE JUDGMENTS OF HON'BLE HIGH COURTS OF ALLAHA BAD, BOMBAY, GUJ A RAT, PUNJAB & HARYANA WHICH WERE CITED BY ASSESSEE IN ITS WRITTEN SUBMISSION. IN THESE LEADING CASES ADDITIONS MADE ON THE SAME ISSUE WAS DELETED AND IT WAS HELD THAT IN THE ABSENCE OF ANY TAX FREE INCOME, CORRESPONDING EXPENDITURE COULD N OT BE WORKED OUT FOR DISALLOWANCE AND WHERE ASSESSEE'S OWN FUNDS AND NON INTEREST BEARING FUNDS EXCEEDS THE TAX FREE SECURITIES. 4. THE APPELLANT CLAIMS TO ADD AMEND OR WITHDRAW ANY OF THE GROUND OF APPEAL ON OR BEFORE THE DATE OF HEARING. 2. IT HAS BEEN SUBMITTED BY PARTIES BEFORE US THAT , SOLITARY ISSUE INVOLVED IN BOTH THESE APPEALS ARE IN RESPECT OF DISALLOWANCE COMPUTED BY ASSESSEE UNDER SECTION 14 A READ WITH R ULE 8D (2) (II) OF I NCOME T AX R ULES. 2.1. WE ARE THEREFORE INCLINED TO DISPOSE OF THES E APPEALS BY WAY OF COMMON ORDER. FOR SAKE OF CONVENIENCE , FACTS FOR ASSESSMENT YEAR 201 1 - 12 ARE BEING CONSIDERED. ITA 6345 & 6346/DEL/15 AY - 2011 - 12/2012 - 13 COSMOS INDUSTRIES LTD . 4 3. ASSESSMENT YEAR 201 1 - 12 BRIEF FACTS OF THE CASE ARE AS UNDER: D URING YEAR UNDER CONSIDERATION ASSESSEE HAD SHOWN INVESTMENT OF RS. 6, 50,15,930/ - AS ON 31/03/11 AND RS. 25,33,430/ - AS ON 01/04/10. LD.AO CALLED UPON ASSESSEE TO EXPLAIN APPLICABILITY OF PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961 (THE ACT). LD. A .O. WHILE COMPLETING ASSESSMENT MADE DISALLOWANCE OF RS. 22,65,357/ - UNDER R ULE 8D (2) (II) AND RS.1,68,873/ - UNDER R ULE 8D (2) (III) OF I NCOME T AX R ULES. 4. AGGRIEVED BY ORDER OF LD. AO, ASSESSEE PREFERRED APPEAL BEFORE LD.CIT(A) WHO DISMISSED APPEALS FILED BY ASSESSEE THEREBY UPHOLDING DISALLOWANCE MADE BY LD. AO. 5. AGGRIEVED BY ORDER OF LD.CIT(A) ASSESSEE IS IN APPEAL BEFORE US NOW. 6. ADMITTEDLY , LD. AR SUBMITTED THAT THERE IS NO DIVIDEND INCOME EARNED BY ASSESSEE DURING YEARS UNDER CONSIDERATION. HE PLACED RELIANCE UPON COMPUTATION AT PAGE 2 OF SMALL PAPER BOOK , WHEREIN ASSESSEE DECLARED AGRICULTURAL INCOME AMOUNTING TO RS.2,244/ - . FURTHER AT PAGE 3 PROFIT AND LOSS ACCOUNT FOR YEAR ENDING 31/03/11 REVEALS THAT ASSESSEE EARNED INTEREST INCOME , AGR ICULTURE INCOME , PROFIT ON SALE OF ASSETS AND OTHER INCOME INCLUDING BALANCE WRITTEN OFF UNDER S CHEDULED 13. 6.1. IT HAS BEEN THUS SUBMITTED BY LD. AR THAT ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME DURING THE YEAR WHICH IS EXEMPT FROM PAYMENT OF TAX FOR ATTRIBUT ING ANY EXPENDITURE UNDER R ULE 8D OF I NCOME T AX R ULES, 1963. ITA 6345 & 6346/DEL/15 AY - 2011 - 12/2012 - 13 COSMOS INDUSTRIES LTD . 5 6.2 . LD. SR. DR ON THE CONTRARY PLACED RELIANCE UPON ORDERS OF AUTHORITIES BELOW. 7. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SIDES IN LIGHT OF RECORDS PLACED BEFORE US. 8 . ON READING OF PARA 3.2.3 OF ORDER PASSED BY LD.CIT(A) ADMITTEDLY, THERE IS NO EXEMPT INCOME EARNED BY ASSESSEE DURING YEAR. LD.CIT(A) PROCEEDED TO UPHOLD DISALLOWANCE ON FOOTING THAT IT IS NOT NECESSARY THAT EXEMPT INCOME SHOULD BE EARNED DURING THAT VERY YEAR UNDER CONSIDERATION. 8.1. IN OUR CONS IDERED OPINION THIS VIEW OF LD. CIT (A) HAS BEEN OVERTURNED BY DECISION OF HONBLE HIGH COURT IN CASE OF CHEM INVESTMENT LTD. VS CIT REPORTED IN (2015) 61 TAXMAN.COM 118 . 8.2 . WE REFER TO FOLLOWING OBSERVATIO NS BY HONBLE DELHI HIGH COURT : 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREINBEFORE THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EXPRESSION 'DOES NOT FORM PART OF THE TOTAL INCOME' IN SECTION 14A OF THE ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 8.3. THUS IN OUR CONSIDERED OPINION INTERPRETATION OF SECTION 14 A BY LD. CIT(A) CANNOT BE UPHELD. RESPECTFULLY FOLLOWING DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CHEM INVESTMENT LTD. VS CIT , WE ALLOW GROUNDS RAISED BY ASSESSEE . ACCORDINGLY GROUNDS RAISED BY ASSESSEE FOR A.Y. 2011 - 12 STANDS ALLOWED. ITA 6345 & 6346/DEL/15 AY - 2011 - 12/2012 - 13 COSMOS INDUSTRIES LTD . 6 8.4 . FOR A.Y. 2012 - 13, THE FACTS ARE IDENTICAL AND ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME. WE THEREFORE FOLLOWING THE DECISION OF HONBLE DELHI HIGH COURT IN CASE OF CHEMINVEST LTD. VS. CIT(SUPRA) REJECT VIEW OF LD.CIT(A). ACCORDINGLY GROUNDS RAISED BY ASSESSEE FOR A.Y. 201 2 - 13 STANDS ALLOWED. 9. IN THE RESULT APPEAL S FILED BY ASSESSEE STANDS ALLOWED FOR BOTH THE A.YRS 2011 - 12 AND 2 012 - 13. ORDER PRONOUNCED IN OPEN COURT ON 28 / 03/2019. SD/ - SD/ - (N.S. SAINI) (BEENA A PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER DT. 28 TH MARCH, 2019 GMV COPY FORWARDED TO: - APPELLANT RESPONDENT CIT CIT(A) DR, ITAT - TRUE COPY - BY ORDER, ASSISTANT REGISTRAR ITAT DELHI BENCHES ITA 6345 & 6346/DEL/15 AY - 2011 - 12/2012 - 13 COSMOS INDUSTRIES LTD . 7 DATE DRAFT DICTATED ON 22/03/19 DRAFT PLACED BEFORE AUTHOR 25/03/19 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. APPROVED DRAFT COMES TO THE SR.PS/PS KEPT FOR PRONOUNCEMENT ON & ORDER UPLOADED ON : 28/03 /19 FILE SENT TO THE BENCH CLERK DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.