DCIT, New Delhi V. M/s. Jumbo Techno Services Pvt. Ltd., New Delhi

ITA 6545/DEL/2013

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3516 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 25-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 06-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: AAKASH SINGHAL
• Keywords: Business expenditure; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES D : DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER ITA.NO.6545/DEL./2013 ASSESSMENT YEAR 2009-2010 THE DCIT, CIRCLE-4(1) C.R. BUILDING, NEW DELHI. VS. M/S. JUMBO TECHNO SERVICES PVT. LTD., 12 TH FLOOR, VIDEOCON TOWER, BLOCK E-1, JHANDWALAN EXTENSION, NEW DELHI. PAN AABCJ8752C (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI AMIT JAIN, CIT - D.R. FOR ASSESSEE : SHRI AAKASH SINGHAL, C.A. DATE OF HEARING : 08.02.2018 DATE OF PRONOUNCEMENT : 16.02.2018 ORDER PER BHAVNESH SAINI, J.M. THIS APPEAL BY REVENUE HAS BEEN DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-VIII, NEW DELHI, DATED 10 TH SEPTEMBER, 2013, FOR THE A.Y. 2009-2010. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. 2 ITA.NO.6545/DEL./2013 M/S. JUMBO TECHNO SERVICES PVT. LTD., NEW DELHI. 3. ON GROUND NO.1, REVENUE CHALLENGED THE DELETION OF ADDITION OF RS.2,47,27,007 BEING DISALLOWANCE OF LE GAL AND PROFESSIONAL CHARGES. 4. THE BRIEF FACTS ON GROUND NO.1 ARE THAT THE ASS ESSEE SUBMITTED THE DETAILS OF LEGAL AND PROFESSIONAL CHA RGES PAID TO VARIOUS PERSONS FOR THE PURPOSE OF BUSINESS OF ASSE SSEE TO SAFEGUARD THE BUSINESS INTERESTS OF THE COMPANY. IT WAS SUBMITTED THAT THESE EXPENSES ARE ESSENTIAL FOR THE BUSINESS INTERESTS OF THE ASSESSEE. THE A.O. HOWEVER, NOTED THAT ASSESSEE HAS NOT GIVEN DETAILS REGARDING PURPOSE FOR WHICH L EGAL AND PROFESSIONAL EXPENSES WERE INCURRED. FURTHER, BY NO STRETCH OF IMAGINATION, CAN SUCH EXPENSES BE JUSTIFIED IN VIEW OF MINIMAL BUSINESS ACTIVITY UNDERTAKEN BY THE ASSESSEE. SINCE , THE ASSESSEE HAS A SMALL TURNOVER, THEREFORE, EXPENSES WERE DISALLOWED. 5. THE ASSESSEE CHALLENGED THE ADDITION BEFORE LD. CIT(A) AND IT WAS SUBMITTED THAT THESE EXPENSES WER E INCURRED SPECIALLY IN RESPECT OF THE SERVICES AVAILED FROM L EGAL EXPERTS, 3 ITA.NO.6545/DEL./2013 M/S. JUMBO TECHNO SERVICES PVT. LTD., NEW DELHI. TECHNICAL EXPERTS AND THE CORPORATE ADVISORS EXCLUS IVELY IN RESPECT OF ASSESSEES TELECOM BUSINESS, A BUSINESS ACTIVITY AUTHORISED BY MEMORANDUM OF ASSOCIATION. TDS WERE D EDUCTED BEFORE MAKING THE PAYMENTS IN RESPECT OF THESE EXPE NDITURE AND SAME WERE DEPOSITED WITH THE GOVERNMENT OF INDIA. T HE ASSESSEE SUBMITTED COPY OF THE TDS RETURN EVIDENCIN G DEPOSITS OF TDS. COMPLETE DETAILS OF LEGAL AND PROFESSIONAL EXPENSES INCURRED WERE SUBMITTED WHICH IS ALSO REPRODUCED AT PAGE-4 OF THE APPELLATE ORDER. THESE EXPENSES WERE INCURRED T O SAFEGUARD THE ASSESSEES BUSINESS INTERESTS IN TELECOM SECTOR WHICH UNDERWENT ONE OF THE BIGGEST INVESTIGATION OF THE C OUNTRY. THE ASSESSEE HAD MADE SUBSTANTIAL INVESTMENT IN DATACOM SOLUTION PVT. LTD., A COMPANY WHICH APPLIED FOR AND GOT SUCC ESSFULLY ALLOTTED THE UAS LICENSE. THE ASSESSEE AND THE INVE STEE COMPANIES UNDERWENT DETAILED INVESTIGATION AND SCRU TINY BY VARIOUS INVESTIGATIVE AGENCIES INCLUDING CBI AND HA VE COME OUT CLEAN FROM SUCH INVESTIGATIONS. THE CBI HAS INFORME D THE HONBLE SUPREME COURT THAT THERE IS NO CONSPIRACY B ETWEEN DATACOM SOLUTION PVT. LTD., AND SHRI A. RAJA, THE T HEN MINISTER 4 ITA.NO.6545/DEL./2013 M/S. JUMBO TECHNO SERVICES PVT. LTD., NEW DELHI. OF COMMERCE AND I.T. HAS SURFACED AND COME ON RECOR D SHOWING ANY UNDUE FAVOUR. AFTER SUCCESSFUL DEFENCE IN SAID INVESTIGATION, THE ASSESSEES INVESTEE PARTICIPATED IN AUCTION OF 2G SPECTRUM UNDER THE DIRECTION OF THE HONBLE SUPR EME COURT. THE ASSESSEES INVESTEE HAS SUCCESSFULLY ACQUIRED L ICENSES FOR 06 CIRCLES IN THE AFORESAID AUCTION PROCESS. IT EVI DENCES THAT THE ASSESSEE IS VERY OPTIMISTIC ON THE FUTURE OF TELECO M BUSINESS IN INDIA DESPITE ALL THE NEGATIVITY CREATED IN THE SEC TOR IN THE LAST FEW YEARS AND CONTINUES TO HAVE A LONG TERM OUTLOOK ON THE SECTOR. THE ASSESSEES INVESTEE IS NOW IN THE PROCE SS OF ROLLING OUT TELECOM SERVICES IN THE 06 CIRCLES FOR WHICH IT HAS LICENSES AND IT IS QUITE EVIDENT THAT THE ASSESSEE AND THE I NVESTEE ARE NOT SPECULATIVE PARTIES IN TELECOM SECTOR. THE LEGAL AN D PROFESSIONAL CHARGES WERE INCURRED PRIMARILY FOR THE PURPOSE OF PREPARATION AND ANALYSIS OF BUSINESS MODELS CONSIDERING LONG GE STATION PERIODS OF TELECOM PROJECTS, ANALYSIS OF VARIOUS RU LES AND REGULATIONS PERTAINING TO TELECOM SECTOR TO ENHANCE ITS BUSINESS INTERESTS, ADVISES ON TAXATION ISSUES, ADVISES ON L EGAL AND REGULATORY ISSUES, COMPLIANCES ETC. FROM RELEVANT E XPERTS, 5 ITA.NO.6545/DEL./2013 M/S. JUMBO TECHNO SERVICES PVT. LTD., NEW DELHI. TECHNICAL ADVISES IN RESPECT OF TELECOM BUSINESS AN D ANALYSIS OF BUSINESS MARKET CONDITIONS IN TELECOM SECTOR. IT WA S SUBMITTED THAT SINCE LAST FEW YEARS, ASSESSEE HAS BEEN INVEST ING HUGE AMOUNTS IN INDIAN TELECOM SECTOR. TILL DATE THE ASS ESSEE HAS NOT EARNED ANY INCOME AND THE ASSESSEE IS WELL AWARE SI NCE BEGINNING THAT TELECOM BEING A CAPITAL INTENSIVE SE CTOR WITH LONG GESTATION PERIOD, RETURNS ON INVESTMENTS WILL BE RE ALISED ONLY IN LONG TERM. DETAILS OF YEAR-WISE LOSSES INCURRED, TH E ASSESSEE FILED RETURN TO SHOW THAT LOSSES HAVE BEEN INCURRED INITIALLY. IT IS, THEREFORE, NO REASON TO DENY DEDUCTION OF EXPEN DITURE. THE ASSESSEE INCURRED THESE EXPENDITURE TO THE PARTIES OF THE REPUTE WHICH ARE LEGITIMATE BUSINESS EXPENSES AND THEREFOR E, ON MERE PRESUMPTION, ADDITION IS UNJUSTIFIED. THE LD. CIT(A ) CONSIDERING THE ISSUE IN DETAIL, WAS OF THE VIEW THAT DISALLOWA NCE IS WHOLLY UNJUSTIFIED AND ACCORDINGLY, DELETED THE ADDITION. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT MATTER REQUIRES RECONSIDERATION AT THE LE VEL OF THE LD. CIT(A). THE LD. D.R. RELIED UPON THE ORDER OF THE A .O. ON THE 6 ITA.NO.6545/DEL./2013 M/S. JUMBO TECHNO SERVICES PVT. LTD., NEW DELHI. OTHER HAND, LEARNED COUNSEL FOR THE ASSESSEE REITER ATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. THE ASSESSEE EXPLAINED BEFORE A.O. THAT LEGAL AND PROFESSIONAL E XPENSES WERE INCURRED FOR SAFEGUARDING THE BUSINESS INTERESTS OF THE ASSESSEE-COMPANY. THE DETAILS WERE PROVIDED. HOWEVE R, THE A.O. WAS OF THE VIEW THAT THE DETAILS REGARDING PUR POSE FOR WHICH EXPENSES WERE INCURRED HAS NOT BEEN FILED AND THAT THERE WERE MINIMAL BUSINESS ACTIVITY UNDERTAKEN BY THE ASSESSE E. MERELY BECAUSE THERE WAS A MINIMUM BUSINESS IS NO GROUND T O DISALLOW BUSINESS EXPENDITURE AS ASSESSEE EXPLAINED THAT NATURE OF BUSINESS IS SUCH THAT RETURN OF INVESTMEN T WILL BE REALISED ONLY ON LONG TERM. THE ASSESSEE EXPLAINED THAT IT IS IN TELECOM BUSINESS AND SERVICES WERE AVAILED FROM LEG AL EXPERTS, TECHNICAL EXPERTS AND CORPORATE ADVISERS. THE DETAI LS OF THE SAME ARE NOTED IN THE IMPUGNED ORDER ON WHICH TDS W ERE DEDUCTED AND PAID TO THE GOVERNMENT ACCOUNT. THE AS SESSEE EXPLAINED THAT SINCE TELECOM BUSINESS WAS UNDER INV ESTIGATION BY CBI AND OTHER AGENCIES, THEREFORE, IN ORDER TO D EFEND THE INTERESTS OF THE ASSESSEE-COMPANY, THESE EXPENSES W ERE 7 ITA.NO.6545/DEL./2013 M/S. JUMBO TECHNO SERVICES PVT. LTD., NEW DELHI. INCURRED. THE ASSESSEE ALSO EXPLAINED THAT THESE EX PENSES ARE ALSO CONNECTED WITH THE ANALYSIS OF THE TELECOM BUS INESS AS WELL AS ON TAXATION ISSUE ETC., THOUGH THE DETAILS ARE N OTED IN THE IMPUGNED ORDER, HOWEVER, LD. CIT(A) HAS NOT APPRECI ATED THAT A.O. HAS SPECIFICALLY NOTED IN THE ASSESSMENT ORDER THAT ASSESSEE HAS NOT GIVEN ANY DETAILS REGARDING THE PU RPOSE FOR WHICH THE LEGAL AND PROFESSIONAL EXPENDITURE WERE I NCURRED. THE LD. CIT(A) ALSO DID NOT DISCUSS SUCH DETAILS OF THE EXPENDITURE AND PURPOSE OF EXPENDITURE IN THE IMPUGNED ORDER. I N OUR VIEW, UNDER SUCH CIRCUMSTANCES, IT WOULD HAVE BEEN BETTER FOR THE LD. CIT(A) TO CALL FOR THE REMAND REPORT FROM THE A.O. BEFORE DECIDING THE ISSUE ON MERITS, CONSIDERING THE OBJEC TION OF THE A.O. WE ARE, THEREFORE, OF THE VIEW THAT THE MATTER REQUIRES RECONSIDERATION AT THE LEVEL OF THE LD. CIT(A). WE, ACCORDINGLY, SET ASIDE THE IMPUGNED ORDER AND RESTORE THIS ISSUE TO THE FILE OF LD. CIT(A) WITH A DIRECTION TO REFER TO ALL THE DET AILS ON THIS ISSUE TO THE A.O. AND CALL FOR THE REMAND REPORT FROM THE A.O. ON THE SAME. THE LD. CIT(A) IS DIRECTED TO DECIDE THIS GRO UND THEREAFTER BY GIVING REASONABLE, SUFFICIENT OPPORTUNITY OF BEI NG HEARD TO 8 ITA.NO.6545/DEL./2013 M/S. JUMBO TECHNO SERVICES PVT. LTD., NEW DELHI. THE ASSESSEE. IN THE RESULT, GROUND NO.1 OF APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. 7. ON GROUND NO.2, REVENUE CHALLENGED THE DELETION OF ADDITION OF RS.8,31,847 UNDER SECTION 14A OF THE I. T. ACT. THE A.O. DISALLOWED THIS AMOUNT UNDER THE ASSUMPTION TH AT ANY INCOME EARNED BY THE ASSESSEE FROM ITS INVESTMENTS IN CERTAIN UNLISTED SECURITIES, WHENEVER THEY ARISE, SHALL NOT FORM PART OF TOTAL INCOME. THE LD. CIT(A) NOTED THAT FOR THE PUR POSE OF COMPUTING DISALLOWANCE UNDER SECTION 14A THERE HAS TO BE A PROXIMATE RELATIONSHIP BETWEEN EXPENSES DISALLOWABL E UNDER SECTION 14A AND THE EXEMPT INCOME EARNED BY THE ASS ESSEE. IN THE ABSENCE OF SUCH NEXUS, THERE CAN BE NO DISALLOW ANCE OF ANY SPECIFIC EXPENSES UNDER SECTION 14A OF THE I.T. ACT . THE LD. CIT(A) ALSO NOTED THAT ASSESSEE IN THIS CASE HAS NO T EARNED ANY INCOME WHICH IS NOT INCLUDABLE IN THE TOTAL INCOME. SINCE NO EXPENSES HAVE BEEN INCURRED IN RELATION TO TAX FREE INCOME, THEREFORE, NO DISALLOWANCE IS PERMISSIBLE. THE LD. CIT(A), ACCORDINGLY, DELETED THE ADDITION. 9 ITA.NO.6545/DEL./2013 M/S. JUMBO TECHNO SERVICES PVT. LTD., NEW DELHI. 8. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE MATT ER. LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSE E HAS NOT EARNED ANY EXEMPT INCOME AND THAT NO EXPENSES HAVE BEEN INCURRED TO EARN ANY EXEMPT INCOME. THE HONBLE DEL HI HIGH COURT IN THE CASE OF CHEM INVEST LTD., 378 ITR 33 H ELD THAT WHEN NO EXEMPT INCOME WAS RECEIVED OR RECEIVABLE, N O DISALLOWANCE UNDER SECTION 14A IS PERMISSIBLE. THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF METALMAN AUTO LIMITED 336 ITR 434 HELD THAT NO EXPENSES INCURRED FOR EARNING EXEMPT INCOME, 14A DO NOT APPLY. IN VIEW OF THIS, W E DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN DEL ETING THE ADDITION. GROUND NO.2 OF APPEAL OF REVENUE IS DISMI SSED. 9. ON GROUND NO.3, THE REVENUE CHALLENGED THE DELE TION OF ADDITION OF RS.20,39,125 BEING PRIOR PERIOD EXPE NSES. ON PERUSAL OF THE COMPUTATION OF INCOME AND P & L A/C, IT WAS NOTICED THAT ASSESSEE HAS CLAIMED RS.20,39,125 AS P RIOR PERIOD EXPENSES. THE A.O. WAS OF THE VIEW THAT IT IS NOT A LLOWABLE 10 ITA.NO.6545/DEL./2013 M/S. JUMBO TECHNO SERVICES PVT. LTD., NEW DELHI. DURING CURRENT ASSESSMENT YEAR AND ACCORDINGLY, DIS ALLOWED THE SAME. THE ASSESSEE SUBMITTED THAT THE SAID EXPENSES WERE IN THE NATURE OF LEGAL AND PROFESSIONAL FEES. THE SAID EXPENSES HAD NEITHER BECOME PAYABLE DURING F.Y. 2007-2008 NOR PA ID DURING F.Y. 2007-2008. THOUGH THE ASSESSEE CLASSIFIED THE SAID AMOUNT AS PERTAINING TO PRIOR PERIOD EXPENSES BUT T HESE WERE ESSENTIALLY BOOKED IN THE BOOKS OF ACCOUNT AS WELL AS PAID DURING ASSESSMENT YEAR UNDER APPEAL. MERELY BECAUSE ENTRY IS MADE IN THE ACCOUNT WOULD NOT DISENTITLE THE ASSESS EE FROM MAKING CLAIM IN ACCORDANCE WITH LAW. THE PERUSAL OF THE EXPENSES REVEAL THAT THESE WERE NOT CLAIMED IN EARL IER YEAR BUT BECOME PAYABLE THIS YEAR. THEREFORE, ALLOWABLE. THE LD. CIT(A), ACCORDINGLY, DELETED THE ADDITION AND ALLOWED THE A PPEAL OF THE ASSESSEE. 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE AR E OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE MATT ER. THE A.O. MERELY GOING THROUGH THE P & L A/C FOUND THAT IT IS CLAIMED AS PRIOR PERIOD EXPENSES BY ASSESSEE, THEREFORE, DISAL LOWED THE 11 ITA.NO.6545/DEL./2013 M/S. JUMBO TECHNO SERVICES PVT. LTD., NEW DELHI. SAME. THE A.O. DID NOT SEE DETAILS OF THESE EXPENSE S AND DID NOT VERIFY THE SAME FROM THE RECORD. THE ASSESSEE CLAIM ED BEFORE LD. CIT(A) THAT THESE EXPENSES DID NOT PERTAIN TO PRECE DING A.Y. 2008-2009. THE ASSESSEE CLAIMED THAT THESE EXPENSES WERE PAYABLE IN THE ASSESSMENT YEAR UNDER APPEAL AND ALS O BEEN PAID. LD. CIT(A) VERIFIED FACTS FROM RECORD, THEREF ORE, MERELY BECAUSE THESE EXPENSES WERE CLAIMED AS PRIOR PERIOD EXPENSES IN P & L A/C, THE LD. CIT(A) WAS JUSTIFIED IN DELET ING THE ADDITION. NO INTERFERENCE IS CALLED FOR IN THE MATTER. GROUND NO.3 OF THE APPEAL OF THE REVENUE IS DISMISSED. 11. IN THE RESULT, APPEAL OF THE DEPARTMENT IS ALL OWED PARTLY FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (O.P.KANT) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DELHI, DATED 16 TH FEBRUARY, 2018 VBP/- 12 ITA.NO.6545/DEL./2013 M/S. JUMBO TECHNO SERVICES PVT. LTD., NEW DELHI. COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT(A) CONCERNED 4. CIT CONCERNED 5. D.R. ITAT D BENCH, DELHI 6. GUARD FILE. // BY ORDER // ASSESSMENT. REGISTRAR : ITAT DELHI BENCHES : DELHI.