T & T Motors Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 6490/DEL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86512 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: H
• Next Hearing Date: 05-01-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 31-12-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: J P CHANDRAKAR
• Assessee Lawyers: V K AGGARWAL
• Keywords: Earning of tax free income
• Section: 14A; 37(1); 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : H : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI A.T. VARKEY, JM ITA NO.6490/DEL/2012 ASSESSMENT YEAR : 2009-10 T & T MOTORS LTD., 212, OKHLA INDUSTRIAL ESTATE-III, NEW DELHI. PAN: AAACT5980F VS. ADDL. CIT, RANGE-16, NEW DELHI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI V.K. AGGARWAL, AR DEPARTMENT BY : S HRI J.P. CHANDRAKAR, SR.DR ORDER PER R.S. SYAL, AM: THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDE R PASSED BY THE CIT(A) ON 05.10.2012 IN RELATION TO THE ASSE SSMENT YEAR 2009-10. 2. THE FIRST GROUND IS GENERAL WHICH DOES NOT REQ UIRE ANY SEPARATE ADJUDICATION. 3. GROUND NOS.2-4 ARE AGAINST THE CONFIRMATION OF DISALLOWANCE OF `9,46,228/- U/S 14A OF THE ACT. BRIEFLY STATED, THE FACTS OF THESE ITA NO.6490/DEL/2012 2 GROUNDS ARE THAT THE ASSESSEE RECEIVED A SUM OF `2, 02,531/- AS DIVIDEND INCOME FROM SHARES AND MUTUAL FUNDS, WHICH WAS CLAIMED AND ALLOWED AS EXEMPT U/S 10 OF THE ACT. N O EXPENDITURE WAS DISALLOWED AGAINST THIS AMOUNT. ON BEING CALLE D UPON TO EXPLAIN AS TO WHY NO DISALLOWANCE WAS MADE U/S 14A READ WITH RULE 8D, THE ASSESSEE SUBMITTED ITS EXPLANATION WHI CH HAS BEEN REPRODUCED IN THE ASSESSMENT ORDER. REJECTING SUCH SUBMISSION ADVANCED ON BEHALF OF THE ASSESSEE, THE AO HELD THA T THE PROVISIONS OF SECTION 14A WERE ATTRACTED. HE COMPU TED DISALLOWANCE AS PER RULE 8D AMOUNTING TO `9,46,228/ -. THIS AMOUNT WAS EVENTUALLY ADDED TO THE TOTAL INCOME OF THE ASSESSEE. THE LD.CIT(A) UPHELD THE ASSESSMENT ORDER ON THIS S CORE. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT T HE AO DID NOT ACCEPT THE ASSESSEES EXPLANATION THAT NO EXPENDITU RE WAS INCURRED IN RESPECT OF EXEMPT INCOME. THE DEFICIEN CY, IF ANY, LEFT BY THE AO IN RECORDING PROPER SATISFACTION, WAS MAD E GOOD BY THE LD. CIT(A). IT IS SETTLED LEGAL POSITION THAT THE FIRST APPELLATE AUTHORITY HOLDS THE SAME POWERS IN THE DISPOSAL OF APPEAL WHICH ITA NO.6490/DEL/2012 3 THE AO POSSESSES. HE CAN DO WHAT THE AO COULD HAVE DONE. THE HON'BLE SUPREME COURT IN CIT VS. KANPUR COAL SYNDICATE (1964) 53 ITR 225 (SC) DEALT WITH THE SCOPE OF THE POWERS OF THE FIRST APPELLATE AUTHORITY VIS-A-VIS THAT OF THE ASSESSING OFFICER. IT HELD THAT : THE SCOPE OF HIS [CIT(A)] POWER IS CO-TERMI NUS WITH THAT OF ITO. HE CAN DO WHAT THE ITO CAN DO AND ALSO DIRECT HIM TO DO WHAT HE HAS FAILED TO DO.' THE SAME VIEW HAS BEEN REITER ATED IN JUTE CORP. OF INDIA LIMITED VS. CIT (1991) 187 ITR 688 ( SC) BY AFFIRMING THE EARLIER JUDGMENT IN KANPUR COAL SYNDICATE (SUPR A) HOLDING THAT : THE POWER OF THE AAC IS CO-TERMINUS WITH TH AT OF THE ITO,..... EVEN OTHERWISE AN APPELLATE AUTHORITY WHI LE HEARING APPEAL AGAINST THE ORDER OF A SUB-ORDINATE AUTHORIT Y HAS ALL THE POWERS WHICH THE ORIGINAL AUTHORITY MAY HAVE IN DEC IDING THE QUESTION BEFORE IT SUBJECT TO THE RESTRICTIONS OR L IMITATION, IF ANY, PRESCRIBED BY THE STATUTORY PROVISIONS. IN THE ABSE NCE OF ANY STATUTORY PROVISION THE APPELLATE AUTHORITY IS VEST ED WITH ALL THE PLENARY POWERS WHICH THE SUB-ORDINATE AUTHORITY MAY HAVE IN THE MATTER. IN VIEW OF THIS LEGAL POSITION EMANATING F ROM THE ABOVE DISCUSSED JUDGMENTS OF THE HON'BLE SUMMIT COURT, IT IS PATENT THAT THE ARGUMENT ABOUT THE NON-RECORDING OF SATISFACTIO N ABOUT THE ITA NO.6490/DEL/2012 4 INCURRING OF EXPENSES IN RELATION TO EXEMPT INCOME DOES NOT HOLD WATER. 5. NOW COMING TO THE MERITS OF THE ADDITION, IT IS OBSERVED THAT THE FIRST AMOUNT OF DISALLOWANCE IS `8,22,725/- BEI NG THE INTEREST TOWARDS INVESTMENT IN SHARES AND MUTUAL FUNDS YIELD ING EXEMPT INCOME. IN THIS REGARD, IT IS OBSERVED FROM THE AS SESSEES BALANCE SHEET THAT TOTAL INVESTMENTS MADE BY IT STAND AT `2 .33 CRORE. SOME OF SUCH INVESTMENTS YIELDED EXEMPT INCOME. WH EN WE TURN TO THE AMOUNT OF SHAREHOLDERS FUNDS, IT CAN BE SEE N THAT THE SAME STANDS AT `18.61 CRORE. THE HONBLE BOMBAY HI GH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 31 3 ITR 340 (BOM) HAS HELD THAT IF THERE ARE INTEREST FREE FUNDS AVAI LABLE WITH THE ASSESSEE SUFFICIENT TO MEET ITS INVESTMENT AND, AT THE SAME TIME, LOAN HAS BEEN RAISED, IT CAN BE PRESUMED THAT THE I NVESTMENTS WERE FROM INTEREST FREE FUNDS AND, RESULTANTLY, NO DISALLOWANCE OF INTEREST CAN BE MADE. THIRD MEMBER IN VISEN INDUSTRIES LTD. VS. ADDL. CIT (2012) 136 ITD 309 (MUM) (TM) HAS ALSO TAKEN SIMILAR VIEW. THE HONBLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK LTD. (2014) 366 ITR 505 (BOM), HAS HELD THAT WHERE ASSESSEES CAPITAL, ITA NO.6490/DEL/2012 5 PROFIT RESERVES, ETC., WERE HIGHER THAN THE INVESTM ENT IN TAX FREE SECURITIES, IT WOULD HAVE TO BE PRESUMED THAT THE I NVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND, CONSEQUENTLY, NO D ISALLOWANCE COULD BE MADE U/S 14A OF THE ACT. IN VIEW OF THE F ACT THAT THE ASSESSEES SHARE CAPITAL WITH RESERVES AND SURPLUSE S IS FAR IN EXCESS OF THE AMOUNT INVESTED IN SECURITIES FETCHIN G EXEMPT INCOME, THERE CAN BE NO QUESTION OF DISALLOWANCE OF INTEREST AMOUNTING TO `8,22,725/-. THE DISALLOWANCE TO THIS EXTENT IS DELETED. 6. AS REGARDS THE REMAINING PART OF DISALLOWANC E AT `1,23,503/-, WE FIND THAT THE SAME IS IN ACCORDANCE WITH LAW AS PER RULE 8D(2)(III), BEING AN AMOUNT EQUAL TO % OF THE AVER AGE OF THE VALUE OF INVESTMENT. SINCE THE ASSESSMENT YEAR UND ER CONSIDERATION IS 2009-10, THE MANDATE CONTAINED IN RULE 8D APPLIES AS PER THE JUDGMENT OF THE HONBLE JURISDIC TIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. VS. CIT (2012) 347 ITR 272 (DEL) . WE, THEREFORE, SUSTAIN THE DISALLOWANCE U/S 14A AT `1,23,503/-. THESE GROUNDS ARE PARTLY ALLOWED. ITA NO.6490/DEL/2012 6 7. GROUND NO.5 IS AGAINST CONFIRMATION OF DISALLOWA NCE OF `42,000/- ON ACCOUNT OF PRIOR PERIOD EXPENSES. THE ASSESSEE HAD SHOWN PRIOR PERIOD EXPENSES IN ITS TAX AUDIT REPO RT AT `5,45,791/-. HOWEVER, IN THE COMPUTATION OF INCOME , ONLY A SUM OF `5,03,791/- WAS ADDED BACK. ON BEING CALLED UPO N TO EXPLAIN AS TO WHY THE REMAINING AMOUNT OF `42,000/- WAS NOT ADDED, THE ASSESSEE STATED THAT THIS REPRESENTED THE EFFLUENT TREATMENT PLANT APPORTIONED SHARE DEMANDED BY COMMISSIONER OF INDUS TRIES, GOVERNMENT OF NCT OF DELHI AS PER COPY OF ORDER DAT ED 19.6.08. AS THE EXPENSES WERE CRYSTALISED DURING THE YEAR UN DER CONSIDERATION, THE ASSESSEE CLAIMED THAT DEDUCTION WAS PERMISSIBLE. UNCONVINCED, THE AO MADE DISALLOWANCE OF `42,000/-, WHICH CAME TO BE UPHELD IN THE FIRST APP EAL. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERU SING THE RELEVANT MATERIAL ON RECORD, IT IS OBSERVED THAT TH E COMMISSIONER OF INDUSTRIES, GOVERNMENT OF NCT OF DELHI, VIDE NOT ICE OF DEMAND DATED 19.6.08, RAISED A DEMAND OF `42,000/- TOWARDS APPORTIONED COST OF COMMON EFFLUENT TREATMENT PLANT. FROM A CO PY OF THIS NOTICE, WHICH HAS BEEN PLACED ON RECORD, IT CAN BE SEEN THAT THE ASSESSEE WAS DIRECTED TO PAY `42,000/- TOWARDS DEMA ND ITA NO.6490/DEL/2012 7 PERTAINING TO FINANCIAL YEAR 2006-07 AND 2007-08. THE OTHERWISE DEDUCTIBILITY OF SUCH EXPENSES HAS NOT BEEN DISPUTE D BY THE AO. SINCE THIS AMOUNT BECAME PAYABLE BY VIRTUE OF NOTIC E OF DEMAND ISSUED BY THE GOVERNMENT ON 19.6.08, THE SAME, IN O UR CONSIDERED OPINION, IS RIGHTLY ALLOWABLE AS DEDUCTI ON. OVERTURNING THE IMPUGNED ORDER ON THIS SCORE, WE ORDER FOR THE DELETION OF ADDITION. 9. THE LAST GROUND IS AGAINST THE CONFIRMATION OF D ISALLOWANCE OF `10,500/- OUT OF LEGAL EXPENSES. THE ASSESSEE C LAIMED DEDUCTION OF `15,000/- BEING LEGAL FEES PAID IN THE CASE STATE VS. ABDUL HAMEED. THIS WAS SUPPORTED BY A BILL OF THE ADVOCATE FROM WHICH IT WAS SEEN THAT THE ASSESSEES DRIVER, NAMEL Y, ABDUL HAMEED, WAS TAKEN INTO CUSTODY PURSUANT TO AN ACCID ENT AND THE AMOUNT WAS PAID AS ADVOCATE FEE FOR SEEKING HIS BAI L. A FURTHER SUM OF `3,000/- WAS CLAIMED AS DEDUCTION AS CERTIFI CATION CHARGES OF THE NET WORTH OF DIRECTORS. THE AO DISALLOWED ` 18,000/-. THE LD.CIT(A) RESTRICTED THE DISALLOWANCE TO A SUM OF ` 10,500/-, COMPRISING `7,500/- OUT OF LEGAL FEES PAID TO ADVOC ATE AND `3,000/- PAID AS CERTIFICATION CHARGES. ITA NO.6490/DEL/2012 8 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ADVOC ATES FEES OF `7,500/- FOR SEEKING BAIL IN RESPECT OF THE OFFENCE COMMITTED BY THE ASSESSEES DRIVER IS NOT ALLOWABLE IN TERMS OF EXPLANATION TO SECTION 37(1) WHICH PROHIBITS DEDUCTION OF ANY EXPE NDITURE INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHI CH IS PROHIBITED BY LAW. AS THE ADVOCATES FEE RELATED TO CRIMINAL LIABILITY OF THE DRIVER, THE SAME, IN OUR CONSIDERE D OPINION, DOES NOT CALL FOR DEDUCTION. IN SO FAR AS OTHER COMPONE NT OF THE DISALLOWANCE, NAMELY, `3,000/- IS CONCERNED, WE FIN D THAT THIS IS IN RESPECT OF CERTIFICATION CHARGES OF THE NET WORTH O F DIRECTORS, WHICH CERTIFICATES WERE USED FOR OBTAINING LOANS BY THE COMPANY FROM BANKS. THIS EXPENDITURE, IN OUR CONSIDERED OPI NION, IS DEDUCTIBLE AS PER LAW. THIS GROUND IS, THEREFORE, P ARTLY ALLOWED. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 07.01.201 5. SD/- SD/- [ A.T. VARKEY ] [ R.S. SYAL ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 07 TH JANUARY, 2015. ITA NO.6490/DEL/2012 9 DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.