DCIT, New Delhi V. M/s. Dune Leasing and Finance Pvt. Ltd., New Delhi

ITA 6585/DEL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3977 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 26-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Keywords: Earning of tax free income; Proportionate interest; Question of law
• Section: 143(3); 142(1); 14A; 10

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B, NEW DELHI BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER AND SHRI O.P. KANT, ACCOUNTANT MEMBER I.T.A. NO.6585/DEL/2016 A.Y. : 2013-14 DCIT, CIRCLE 7(2), NEW DELHI VS. M/S DUNE LEASING AND FINANCE PVT. LTD., 2 ND FLOOR, 22, COMMUNITY CENTRE, BASANT LOK, VASANT VIHAR, NEW DELHI 110 017 (PAN: AAACD2153J) (ASSESSEE) (RESPONDENT) REVENUE BY : MS. ASHIMA NEB, SR. DR ASSESSEE BY : SH. SANJAY JAIN, CA ORDER PER H.S. SIDHU : JM THE REVENUE HAS FILED THIS APPEAL AGAINST THE IMPUGN ED ORDER DATED 26.10.2016 OF THE LD. CIT(A)-3, NEW DELHI RELE VANT TO ASSESSMENT YEAR 2013-14. 2. THE GROUNDS RAISED IN THIS APPEAL READ AS UNDER :- 1. LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE DISALLOWANCE OF RS. 3,30,25,425/- MADE BY AO U/S. 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D OF THE RULES. 2 2. THE APPELLANT CRAVES LEAVE, MODIFY, ADD OR FOREGO ANY GROUND(S) OF APPEAL AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE F ILED ITS ORIGINAL E-RETURN OF INCOME AT LOSS OF RS. 1,99,65,4 42/- ON 30.9.2013. THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY UNDER CASS. NOTICE U/S. 143(2) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED AS THE ACT) WAS ISSUED ON 02.9.2014. AO FURTH ER ISSUED THE QUESTIONNAIRE U/S. 142(1) OF THE ACT ON 16.11.2015. I N RESPONSE THERETO, THE A.R. OF THE ASSESSEE ATTENDED THE PROCEEDIN GS AND FILED THE DETAILS AS ASKED BY THE AO. DURING THE YEAR UNDE R CONSIDERATION, THE ASSESSEE COMPANY WAS ENGAGED IN TH E BUSINESS OF LEASING AND FINANCE AS PER MOA. IN THIS YEAR AS SESSEE COMPANY HAS RAISED A LOAN AMOUNTING TO RS. 50,18,94,630/- FR OM M/S INDIA BULLS HOUSING FINANCE LTD. @16% OF RATE OF INTEREST. INTEREST EXPENDITURE AMOUNTING TO RS. 8,28,27,590/- WAS PAID B Y THE ASSESSEE COMPANY ON THIS LOAN. THE AMOUNT BORROWED BY THE ASSESSEE WAS UTILIZED BY IT AMOUNTING TO RS. 50,18,94 ,630/-. SINCE THE LOANS GIVEN BY THE ASSESSEE COMPANY WAS UTILIZED BY IT FOR GIVING INTEREST FREE/ LOW INTEREST YIELDING LOANS TO RELATED PARTIES, THE PROPORTIONATE INTEREST EXPENDITURE OF RS. 4,31,30 ,361/- ON THE SAME WAS DISALLOWED BY THE ASSESSEE COMPANY IN ITS COMPUTATION OF 3 INCOME. HOWEVER, NO DISALLOWANCE U/S. 14A WAS MADE BY THE ASSESSEE COMPANY ON THE INVESTMENTS MADE BY IT IN QUO TED SHARES HELD BY IT AS STOCK IN TRADE. THE PROPORTIONATE INTERES T EXPENSES ON INVESTMENTS HELD AS STOCK IN TRADE AMOUNTED TO RS. 1, 86,03,077/- (22.46% OF INTEREST AMOUNT). INTEREST EXPENSES INCU RRED BY THE ASSESSEE COMPANY ON INVESTMENTS HELD AS STOCK IN TR ADE IS DIRECTLY ATTRIBUTABLE TO EARNING OF EXEMPT INCOME AS PER SECTIO N 14A OF THE ACT, 1961 AND RULE 8D. BUT THE ASSESSEE COMPANY HAS CLAIMED THAT SINCE THE TAX FREE INCOME YIELDING INVESTMENTS OWNED BY IT ARE HELD AS STOCK IN TRADE AND NOT AS INVESTMENTS NO DISALLOW ANCE U/S. 14A IS WARRANTED. BUT AO DID NOT ACCEPT THIS CONTENTION AND AS KED THE ASSESSEE AS TO WHY NO DISALLOWANCE U/S. 14 OF THE A CT SHOULD BE MADE AND IN REPLY TO THE SAME THE AR OF THE ASSESSEE S UBMITTED THAT IT HAS NO INVESTMENT IN SHARES BUT THE QUOTED SHA RES OWNED BY THE ASSESSEE COMPANY IS HELD AS STOCK IN TRADE. THUS NO DISALLOWANCE U/S. 14A AND RULE 8D NOWHERE STATES TO COVER ONLY THOSE TAX FREE INCOME YIELDING SECURITIES WHICH ARE H ELD AS INVESTMENT BY THE ASSESSEE. AO DID NOT ACCEPT THIS CONTENTION AND REJECT THE SAME BY REFERRING THE JURISDICTIONAL HIGH COURT DECISION AND CBDT CIRCULAR NO. 5/2014 AND DISALLOWED RS. 3, 30,25,425/- BY ADDING BACK THE SAME TO THE TOTAL INCOME OF THE ASSESS EE U/S. 14A READ WITH RULE 8D OF THE I.T. RULES, 1962 BY ASSESSI NG THE INCOME OF 4 THE ASSESSEE AT RS. 1,20,49,920/- U/S. 143(3) OF THE A CT VIDE ORDER DATED 19.02.2016. AGAINST THE AFORESAID ASSESSMENT OR DER, ASSESSEE APPEALED BEFORE THE LD. CIT(A)-3, DELHI, WH O VIDE HIS IMPUGNED ORDER DATED 26.10.2016 HAS DELETED THE ADDITI ON IN DISPUTE AND DIRECTED THE AO TO MODIFY THE ASSESSMENT OR DER ACCORDINGLY. AGGRIEVED WITH THE ORDER OF THE LD. CIT( A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 4. LD. DR RELIED UPON THE ORDER OF THE AO AND REITE RATED THE CONTENTIONS RAISED IN THE GROUNDS OF APPEAL. 5. ON THE OTHER HAND, LD. COUNSEL OF THE ASSESSEE H AS RELIED UPON THE ORDER OF THE LD. CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS ESPECIALLY THE IMPUGNED ORDER DATED 26.10.2016 PASSED BY THE LD. CIT(A), WE FIND THAT THE ASSESEE HAS NOT EARNED ANY TAX EXEMPT INCO ME WHICH FORM PART OF THE TOTAL INCOME DURING THE YEAR UNDER CONSIDER ATION. WE FURTHER FIND THAT HONBLE DELHI HIGH COURT IN THE CASE OF HOLCIM INDIA PVT. LTD. ITA NO. 486/2014 & ITA NO. 299/2014 HAS HELD AS UNDER:- 14. ON THE ISSUE WHETHER THE RESPONDENT-ASSESSEE COULD HAVE EARNED DIVIDEND INCOME AND EVEN IF NO DIVIDE ND INCOME WAS EARNED, YET SECTION 14A CAN BE INVOKED A ND DISALLOWANCE OF EXPENDITURE CAN BE MADE, THERE ARE THREE DECISIONS OF THE DIFFERENT HIGH COURTS DIRECT LY ON THE ISSUE AND AGAINST THE APPELLANT-REVENUE. NO 5 CONTRARY DECISION OF A HIGH COURT HAS BEEN SHOWN TO US. THE PUNJAB AND HARYANA HIGH COURT IN COMMISSIONER O F INCOME TAX, FARIDABAD VS. M/S. LAKHANI MARKETING LN CL., ITA NO. 970/2008, DECIDED ON 02.04.2014, MADE REFERENCE TO TWO EARLIER DECISIONS OF THE SAME COUR T IN CIT VS. HERO CYCLES LIMITED, [2010} 323 ITR 518 AND CIT VS. WINSOME TEXTILE INDUSTRIES LIMITED, [2009] 319 ITR 204 TO HOLD THAT SECTION 14A CANNOT BE INVOKED WHEN NO EXEMPT INCOME WAS EARNED. THE SECOND DECISION IS OF THE GUJARAT HIGH COURT IN COMMISSION ER OF INCOME TAX-I VS. CORRTECH ENERGY (P.) LTD. [2014} 2 23 TAXMANN 130 (GUJ). THE THIRD DECISION IS OF THE ALLAHABAD HIGH COURT IN INCOME TAX APPEAL NO. 88 OF 2014, COMMISSIONER OF INCOME TAX (II) KANPUR, VS. M /S SHIVAM MOTORS (P) LTD. DECIDED ON 05.05.2014. IN TH E SAID DECISION IT HAS BEEN HELD: 'AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THE CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, WHAT SECTION 14A PROVIDES IS THAT IF THERE IS ANY INCOME WHICH DOES NOT FORM PART OF THE INCOME UNDER THE ACT, THE EXPENDITURE WHICH IS INCURRED FOR EARNING THE INCOME IS NOT AN ALLOWABLE DEDUCTION. FOR THE YEAR IN QUESTION, THE FINDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY TAX FEE INCOME. HENCE, IN THE ABSENCE OF ANY 6 TAX FREE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE. THE VIEW OF THE CIT(A), WHICH HAS BEEN AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. HENCE, THE DELETION OF THE DISALLOWANCE OF RS. 2,03,752/- MADE BY THE ASSESSING OFFICER WAS IN ORDER' . 15. INCOME EXEMPT UNDER SECTION 10 IN A PARTICULAR ASSESSMENT YEAR, MAY NOT HAVE BEEN EXEMPT EARLIER AND CAN BECOME TAXABLE IN FUTURE YEARS. FURTHER, WHETHER INCOME EARNED IN A SUBSEQUENT YEAR WOULD OR WOULD NOT BE TAXABLE, MAY DEPEND UPON THE NATURE OF TRANSACTION ENTERED INTO IN THE SUBSEQUENT ASSESSME NT YEAR. FOR EXAMPLE, LONG TERM CAPITAL GAIN ON SALE O F SHARES IS PRESENTLY NOT TAXABLE WHERE SECURITY TRANSACTION TAX HAS BEEN PAID, BUT A PRIVATE SALE O F SHARES IN AN OFF MARKET TRANSACTION ATTRACTS CAPITA L GAINS TAX. IT IS AN UNDISPUTED POSITION THAT RESPONDENT ASSESSEE IS AN INVESTMENT COMPANY AND HAD INVESTED BY PURCHASING A SUBSTANTIAL NUMBER OF SHARES AND THERE BY SECURING RIGHT TO MANAGEMENT. POSSIBILITY OF SALE O F SHARES BY PRIVATE PLACEMENT ETC. CANNOT BE RULED OU T AND IS NOT AN IMPROBABILITY. DIVIDEND MAYOR MAY NOT BE DECLARED. DIVIDEND IS DECLARED BY THE COMPANY AND STRICTLY IN LEGAL SENSE, A SHAREHOLDER HAS NO CONTR OL AND CANNOT INSIST ON PAYMENT OF DIVIDEND. WHEN DECLARED , IT IS SUBJECTED TO DIVIDEND DISTRIBUTION TAX. 16. WHAT IS ALSO NOTICEABLE IS THAT THE ENTIRE OR WHOLE EXPENDI TURE HAS BEEN DISALLOWED AS IF THERE WAS NO EXPENDITURE INCURRED BY THE RESPONDENT-ASSESSEE FOR CONDUCTING 7 BUSINESS. THE CIT(A) HAS POSITIVELY HELD THAT THE BUSINESS WAS SET UP AND HAD COMMENCED. THE SAID FINDING IS ACCEPTED. THE RESPONDENT-ASSESSEE, THERE FORE, HAD TO INCUR EXPENDITURE FOR THE BUSINESS IN THE FO RM' OF INVESTMENT IN SHARES OF CEMENT COMPANIES AND TO FURTHER EXPAND AND CONSOLIDATE THEIR BUSINESS. EXPENDITURE HAD TO BE ALSO INCURRED TO PROTECT THE INVESTMENT MADE. THE GENUINENESS OF THE SAID EXPENDITURE AND THE FACT THAT IT WAS INCURRED FOR BUSINESS ACTIVITIES WAS NOT DOUBTED BY THE ASSESSIN G OFFICER AND HAS ALSO NOT BEEN DOUBTED BY THE CIT(A) . 17. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY MERI T IN THE PRESENT APPEALS. THE SAME ARE DISMISSED IN LIMI NE. ' 6.1 WE FURTHER FIND THAT JURISDICTIONAL HIGH COURT HAD HELD THAT NO DISALLOWANCE U/S 14A CAN BE MADE IF THERE IS NO TAX EXEMPT INCOME. THE HON'BLE HIGH COURT REVERSED THE DECISION OF SPECIAL BENCH, NEW DELHI IN THE CASE OF CHEMINVEST LTD. VS. ITO REPORTED IN 317 AITR 86. IN THE CASE IN HAND, IT IS CLEAR THAT THERE IS NO INCOME WHICH IS EXEMPT FROM THE TAX DURING THE YEAR. BESIDES ABOVE, THE ASSESSEE HAS SUO MOTO MADE THE DISALLOWANCE OF RS. 4,31,26,426/- ON ACCOUNT OF INT EREST DEBITED IN THE BOOKS OF ACCOUNTS. THE COMPANY IS ENGAGED IN THE BU SINESS OF PURCHASE AND SALE OF SHARES AND SECURITIES AND THE DIVIDEND OF RS.10,10,061/- HAS BEEN RECEIVED ON THE SECURITIES WHICH WERE SHOWN IN THE STOCK IN TRADE AND THE DIVIDEND HAS NOT BEEN CLAIMED AS EXEMPT. KE EPING IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULL Y FOLLOWING THE PRECEDENT, AS AFORESAID, THE ADDITION MADE BY THE A SSESSING OFFICER U/S 8 14A OF THE ACT READ WITH RULE 8D(2)(II)&(III) OF TH E INCOME TAX RULES, 1962 WAS RIGHTLY DELETED BY THE LD. CIT(A), WHICH D OES NOT NEED ANY INTERFERENCE ON OUR PART, HENCE, WE UPHOLD THE ORDE R OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE AND REJECT THE GROUND RAISED B Y THE REVENUE. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS DISMISSED. ORDER PRO NOUNCED ON 11/01/2018. SD/- SD/- [O.P. KANT] [H.S. SIDHU] ACCOUNTANT MEMBER JUDICIAL MEMBER DATE 11/01/2018 SRBHATNAGAR COPY FORWARDED TO: - 1. ASSESSEE - 2. RESPONDENT - 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHE S 9