ACIT, New Delhi V. M/s. PepsiCo India Holdings Pvt. Ltd., New Delhi

ITA 6598/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2905 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2007-2008
• Appeal Filed On: 05-12-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AFIQ AHMAD SENIOR
• Keywords: Earning of tax free income
• Section: 14A; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH F : NEW DELHI) BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.6598/DEL./2014 (ASSESSMENT YEAR : 2007-08) ACIT, CENTRAL CIRCLE 7, VS. M/S. PEPSICO INDIA HOLD INGS PVT.LTD., NEW DELHI. NO.54, LOWER GROUND FLOOR, WORLD TRADE CENTRE, BARAKHAMBA ROAD, NEW DELHI. (PAN : AAACP1272G) (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE REVENUE BY : SHRI AFIQ AHMAD, SENIOR DR DATE OF HEARING : 19.03.2018 DATE OF ORDER : 21.03.2018 O R D E R PER KULDIP SINGH, JUDICIAL MEMBER : THE APPELLANT, ASSISTANT COMMISSIONER OF INCOME-TA X, CENTRAL CIRCLE 7, NEW DELHI (HEREINAFTER REFERRED T O AS THE REVENUE) BY FILING THE PRESENT APPEAL, SOUGHT TO S ET ASIDE THE IMPUGNED ORDER DATED 22.07.2014 PASSED BY LD. CIT(A PPEALS)- XVII, NEW DELHI QUA THE ASSESSMENT YEAR 2007-08 ON THE GROUNDS INTER ALIA THAT :- ITA NO.6598/DEL/2014 2 1. THE ORDER OF LD. CIT (A) IS NOT CORRECT IN LAW AND FACTS. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT (A) HAS ERRED IN DELETING THE ADDITION AMOUNTING RS.5,66,61,311/- OUT OF RS.6,84,09,311/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961. 2. BRIEFLY STATED THE FACTS NECESSARY FOR ADJUDICA TION OF THE CONTROVERSY AT HAND ARE : THE ASSESSEE IS INTO THE BUSINESS OF MANUFACTURING AND TRADING OF SALTY SNACKS, AERATED AND NON-AERATED BEVERAGE PRODUCTS AND EXPORT OF SUCH PRODUCTS. ASS ESSING OFFICER NOTICED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOM E OF RS.42,701/- DURING THE YEAR UNDER ASSESSMENT ON INV ESTMENT OF RS.2,34,95,11,000/- IN SHARES AND SECURITIES WHICH DOES NOT FORM PART OF THE TOTAL INCOME. AO, AFTER REJECTING THE CONTENTION OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED IN RESPEC T OF THE EXEMPT INCOME, INVOKED THE PROVISIONS OF SECTION 14 OF THE INCOME-TAX ACT, 1961 (FOR SHORT THE ACT) AND RULE 8D OF INCO ME-TAX RULES, 1962 AND COMPUTED THE DISALLOWANCE AS UNDER :- A. DIRECT EXPENDITURE NIL B. INTEREST NOT ATTRIBUTABLE TO ANY SPECIFIC INCOME OR RECEIPT (453244000*2349600000/ 18794872112 RS.5,66,61,311/- C. 0.5% OF AVERAGE INVESTMENT (2349600000*0.5%) RS.1,17,48,000/- TOTAL EXPENSES DISALLOWABLE U/S 14A RS.6,84,09,311/- ITA NO.6598/DEL/2014 3 ACCORDINGLY, THE AO MADE DISALLOWANCE OF RS.6,84,09 ,311/-. 3. ASSESSEES CARRIED THE MATTER BY WAY OF FILING AP PEAL BEFORE THE LD. CIT (A) WHO HAS DELETED THE ADDITION OF RS. 5,66,61,311/- OUT OF RS.6,84,09,311/- MADE BY THE AO BY PARTLY AL LOWING THE APPEAL. FEELING AGGRIEVED, THE REVENUE HAS COME UP BEFORE THE TRIBUNAL BY WAY OF FILING THE PRESENT APPEAL. 4. ASSESSEE HAS NOT PREFERRED TO PUT IN APPEARANCE DESPITE ISSUANCE OF THE NOTICE FOR HEARING ON 13.12.2017 AN D 19.03.2018 AND CONSEQUENTLY, WE PROCEEDED TO DECIDE THE PRESEN T APPEAL WITH THE ASSISTANCE OF THE LD. DR AS WELL AS ON THE BASI S OF DOCUMENTS AVAILABLE ON THE FILE. 5. WE HAVE HEARD THE LD. DEPARTMENTAL REPRESENTATIV E FOR THE REVENUE TO THE APPEAL, GONE THROUGH THE DOCUMENTS R ELIED UPON AND ORDERS PASSED BY THE REVENUE AUTHORITIES BELOW IN T HE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THE CASE. 6. PERUSAL OF THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) GOES TO PROVE THAT THE LD. CIT (A) HAS FOLLOWED ASS ESSEES OWN CASE FOR AY 2006-07 BY RETURNING FOLLOWING FINDINGS :- 11.1. IN THIS REGARD, THE FINDINGS GIVEN BY THE LD . CIT(A) IN THE APPELLANT'S OWN CASE IN A.Y. 2006-07 ARE AS FOLLOWS: '9.1. THE AO HAD MADE THE DISALLOWANCE U/S 14A AS THE APPELLANT HAD SUBSTANTIAL INVESTMENTS OF RS.2,37,84,11,000/- IN SHARES AS ON 31.03.2006. ITA NO.6598/DEL/2014 4 THE AO ALSO RECORDED HIS SATISFACTION THAT THE APPELLANT'S CLAIM THAT THEY ARE NOT INCURRED ANY EXPENDITURE TO EARN ANY INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE APPELLANT IS NOT CORRECT. SINCE THE APPELLANT HAD SUBSTANTIAL INVESTMENTS, PART OF THE ADMINISTRATIVE EXPENSES NEEDS TO BE ALLOTTED TOWARDS THE EXPENSES WHICH RESULTS IN EARNING EXEMPTED INCOME IN FUTURE. THE ENTIRE INVESTMENTS ARE IN APPELLANT'S BOTTLERS OF AERATED & NON-AERATED BEVERAGES AND IN APPELLANT'S SUBSIDIARY COMPANIES. THE INTENTION OF THE APPELLANT IN MAKING THESE HUGE INVESTMENTS IS TO EARN DIVIDEND INCOME OR LONG TERM CAPITAL GAINS WHICH ARE BOTH EXEMPT U/S 10 THEREFORE, THE APPELLANT'S STAND THAT THEY HAD NOT INCURRED ANY EXPENSES DURING THE RELEVANT ASSESSMENT YEAR TO EARN THIS FUTURE INCOME IS NOT ACCEPTABLE CONSIDERING THE HUGE VOLUME OF APPELLANT'S INVESTMENTS. THUS, I AM OF THE VIEW THAT THE AO HAD CORRECTLY INVOKED THE PROVISIONS OF SECTION 14A OF THE I.T. ACT, 1961. THE HON'BLE DELHI HIGH COURT IN MAXOPP INVESTMENTS REPORTED IN 347 ITR 272 HAD HELD THAT 14A CAN BE INVOKED EVEN DURING PRE-RULE 8D PERIOD THE RELEVANT PORTION OF THE ABOVE ORDER IS AS FOLLOWS: 'SO, EVEN FOR THE PRE-RULE 8D PERIOD, WHENEVER THE ISSUE OF SECTION 14A ARISES BEFORE AN AO, HE HAS, FIRST OF ALL, TO ASCERTAIN THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. EVEN WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, THE AO WILL HAVE TO VERIFY THE CORRECTNESS OF SUCH CLAIM. IN CASE, THE AO IS SATISFIED WITH THE CLAIM OF THE ASSESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, THE AO IS TO ACCEPT THE CLAIM OF THE ASSESSEE IN SO FAR AS THE QUANTUM OF DISALLOWANCE ITA NO.6598/DEL/2014 5 UNDER SECTION 14A IS CONCERNED IN SUCH EVENTUALITY, THE AO CANNOT EMBARK UPON A DETERMINATION OF THE AMOUNT OF EXPENDITURE FOR THE PURPOSES OF SECTION 14A(1). IN CASE, THE AO IS NOT, ON THE BASIS OF THE OBJECTIVE CRITERIA AND AFTER GIVING THE ASSESSEE A REASONABLE OPPORTUNITY, SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, HE SHALL HAVE TO REJECT THE CLAIM AND STATE THE REASONS FOR DOING SO. HAVING DONE SO, THE AO WILL HAVE TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. HE IS REQUIRED TO DO SO ON THE BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT.' 9.2. DURING THE APPELLATE PROCEEDINGS, THE APPELLANT'S AR HAD STATED THAT NO INTEREST EXPENSES WERE INCURRED FOR MAKING THE INVESTMENTS OF RS.2,37,84,11,000/- AS THE APPELLANT HAD THE SUFFICIENT INTEREST FREE FUNDS COMPARED TO LOAN FUNDS. AS PER THE DETAILS SUBMITTED BY THE APPELLANT, THE SHARE CAPITAL WAS RS.2,98,89,82,000/- AS ON 31.03.1995 WHEN THE FIRST INVESTMENT IN THEIR BOTTLERS AND THEIR SUBSIDIARIES WERE MADE. AS ON 31.03.2006 THE APPELLANT'S SHARE CAPITAL AND RESERVES STANDS AT RS.20,77,87,79,000/- AS AGAINST THE INVESTMENT OF RS.2,37,84,11,000/-. EVEN THE VERIFICATION OF INTEREST PAYMENTS INDICATES THAT ONLY INTEREST ON OVERDRAFT FROM BANK CAN BE STATED AS NOT DIRECTLY ATTRIBUTABLE TO ANY EXEMPT INCOME. HOWEVER, ACCORDING TO THE APPELLANT, OVERDRAFT IS ONLY 2.27% OF THEIR TOTAL FUNDS. THEREFORE, THE APPELLANT'S SUBMISSION IS THAT THE DISALLOWANCE OF RS.4,86,05,050/- UNDER RULE 8D(2)(II) MADE BY THE AO IS NOT SUSTAINABLE. BASED ON THE ABOVE FACTS, I AM OF THE VIEW THAT DISALLOWANCE OF RS.4,86,05,050/- MADE BY THE AO UNDER RULE 8D(2)(II) IS NOT SUSTAINABLE. ITA NO.6598/DEL/2014 6 9.3. HOWEVER, WITH REGARD TO DISALLOWANCE OF RS.1,18,04,860/- UNDER RULE 8D(2)(II) READ WITH SECTION 14A OF THE I T ACT, 1961, I AM OF THE VIEW THAT THE SAME REQUIRES TO BE SUSTAINED IN ABSENCE OF ANY OTHER REASONABLE AND ACCEPTABLE METHOD OF APPORTIONMENT. THE APPELLANT HAD HUGE INVESTMENTS OF RS.2,37,84,11,000/- IN THEIR OWN BOTTLERS AND IN THEIR SUBSIDIARIES. THESE INVESTMENTS SHOW SUBSTANTIAL CHANGE FROM YEAR TO YEAR THOUGH THE DIVIDEND INCOME EARNED IS ONLY MINIMAL. THEREFORE, THE PURCHASE AND SALE OF THESE INVESTMENTS INVOLVED MANAGERIAL DECISIONS AS THE APPELLANT IS A JUDICIAL PERSON AND PART OF THE SALARY EXPENSES TO THESE EXECUTIVES ARE ATTRIBUTABLE TO THE EXEMPT INCOME WHICH THE APPELLANT IS LIKELY TO EARN IN FUTURE. THEREFORE, THE DISALLOWANCE OF RS.L,18,04,860/- MADE BY THE AO UNDER RULE 8D(2)(III) IS SUSTAINED. AS A RESULT, THE APPELLANT GETS A RELIEF OF RS.4,86,05,050/- AND GROUND NO. 5 IS PARTLY ALLOWED' 11.2. RESPECTFULLY FOLLOWING THE ORDER OF THE LD. CIT(A) FOR A. Y. 2006-07, THE ADDITION OF RS.5,66,61,311/- MADE UNDER RULE 8D(2)(II) IS DELET ED AND RS.1,17,48,000/- MADE UNDER RULE 8D(2)(II) IS SUSTAINED. THEREFORE THIS GROUND IS RULED PARTLY I N FAVOUR OF THE APPELLANT. 7. WHEN THE LD. CIT (A) HAS GRANTED THE RELIEF TO T HE ASSESSEE BY FOLLOWING AY 2006-07 BY DELETING THE ADDITION OF RS.5,66,61,311/- MADE UNDER RULE 8D(2)(II) OF THE R ULES, NO ISSUE REMAINS TO BE ANSWERED BY THE BENCH PARTICULARLY WH EN THE AO HAS NOT BROUGHT ON RECORD ANY MATERIAL TO PROVE IF THE ASSESSEE HAS INCURRED INTEREST EXPENSES FOR MAKING INVESTMENT OF RS.2,37,84,11,000/- AS THE ASSESSEE HAD SUFFICIENT INTEREST FREE ITA NO.6598/DEL/2014 7 FUNDS COMPARED TO THE LOAN FUNDS IN ITS KITTY. THI S ASPECT HAS BEEN DISCUSSED BY THE LD. CIT (A) THOROUGHLY. HOWEVER, TO VERIFY THE FACTS RELATING TO AY 2006-07, THE APPEAL IS DISPOSE D OF WITH DIRECTION TO THE AO TO VERIFY THE FACTUM DISCUSSED BY THE DL. CIT (A) QUA AY 2006-07, REPRODUCED IN PARA 11.1 (9.1) A ND IF THESE FACTS AS TO AY 2006-07 RELIED ON BY THE CIT (A), PR OVED TO BE CORRECT ONE, THERE IS NO SCOPE TO INTERFERE INTO TH E FINDINGS RETURNED BY THE LD. CIT (A) OTHERWISE AO TO PROCEED UNDER LA W. CONSEQUENTLY, THE APPEAL FILED BY THE REVENUE IS AL LOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 21 ST DAY OF MARCH, 2018. SD/- SD/- (R.K. PANDA) (KULDIP SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 21 ST DAY OF MARCH, 2018 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT (A)-XVII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.