DCIT, New Delhi V. M/s. Nalwa Sons Investments Ltd., New Delhi

ITA 6971/DEL/2014

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3098 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2007-2008
• Appeal Filed On: 24-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

PAGE | 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P.SAHU, ACCOUNTANT MEMBER ITA NO. 6971/DEL/2014 (ASSESSMENT YEA R: 2007-08) DCIT, CIRCLE-17(2), NEW DELHI. VS NALWA SONS INVESTMENTS LTD., 28, NAJAFGARH ROAD, MOTI NAGAR INDUSTRIAL AREA, NEW DELHI-110012. PAN-AAACJ2734R (APPELLANT) (RESPONDENT) APPELLANT BY SH. S.R.SENAPATI, SR.DR RESPONDENT BY SH. ASHWANI KUMAR, ADV. DATE OF HEARING 13.03.2018 DATE OF PRONOUNCEMENT 15.03.2018 ORDER PER BHAVNESH SAINI, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE HAS BEEN DIRECTED AGAINS T THE ORDER OF LD.CIT(A)-16, XVI, DELHI DATED 30.09.2014 FOR AY 20 07-08. 2. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PA RTIES AND PERUSED THE FINDINGS OF THE AUTHORITIES BELOW. 3. ON GROUND NO.1, REVENUE CHALLENGED THE DELETION OF RS.92,82,381/- U/S 14A OF THE INCOME TAX ACT, 1961 (IN SHORT ACT). THE ASSESSEE SUBMITTED BEFORE LD.CIT(A) THAT IT HAS DISALLOWED THE EXPENDI TURE OF RS.71,85,925/- U/S 14A OF THE ACT. HOWEVER, ONLY ON THE BASIS OF AUDI T OBJECTION, AO HAS MADE FURTHER ADDITION U/S 14A OF THE ACT. SECTION 14A P ROVIDES THAT NO DEDUCTION SHALL BE MADE IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UND ER THE ACT. THE WORKING OF THE PROVISION AND NOTES ON CLAUSE OF THE FINANCE BI LL SHOWS THAT WHAT WAS ITA NO. 6971/DEL/2014 PAGE | 2 PROPOSED NOT TO BE ALLOWED WHAT EXPENDITURE INCURRE D IN RELATION TO INCOME NOT INCLUDABLE IN THE TOTAL INCOME. NO DISALLOWANCE CA N BE MADE ON PRESUMPTIVE BASIS. RULE 8D IS APPLICABLE FROM AY 2008-09. THE ASSESSEE HAS MADE DISALLOWANCE SUO MOTU ON REASONABLE BASIS. THE ASSESSEE RELIED UPON THE DECISION OF DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS CIT 347 ITR 272 (DEL.) WHEREIN IT HAS BEEN HELD AS UNDER:- WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REG ARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPT INCOME, THE ASSESSING OFFICER WOULD HAVE TO INDICATE COGENT REA SONS FOR THE SAME. IT IS, THEREFORE, CLEAR THAT DETERMINATION OF THE AMOUNT O F EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 8D WOULD ONLY COME INTO PLAY WHEN THE ASSESSING OFFICER REJECTS THE CLAIM OF THE ASSESSEE IN THIS REGARD. 4. IT WAS, THEREFORE, SUBMITTED THAT RULE 8D OF THE ACT, IS ONLY PROSPECTIVE IN NATURE FROM AY 2008-09 AND THAT THE AO PROCEEDED TO MAKE DISALLOWANCES BY APPLYING THE METHOD OF CALCULATION PRESCRIBED IN RULE 8D ON BLANKET BASIS WITHOUT IN ANY MANNER AND WITHOUT POINTING OUT ANY SHORT-COMINGS IN DISALLOWANCES CALCULATED BY THE ASSESSEE COMPANY. 5. LD.CIT(A) CONSIDERING THE EXPLANATION OF THE ASS ESSEE IN THE LIGHT OF THE RELEVANT PROVISION OF LAW, DELETED THE ADDITION. H IS FINDINGS IN PARA 4.2 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDER:- 4.2. GROUND NO. 2 OF APPEAL IS DIRECTED AGAINST DI SALLOWANCE OF A SUM OF RS.92,82,381/- BY INVOKING THE PROVISIONS OF SECTIO N 14A OF THE INCOME TAX ACT, READ WITH RULE 8D OF THE INCOME TAX RULES, 196 2 ON ACCOUNT OF EXPENDITURE INCURRED IN RELATION TO EARNING OF TAX- FREE INCOME. THE ASSESSEE HAS INVESTMENT IN SHARES OF RS. 175,11,66,000/- INC OME FROM WHICH IN THE NATURE OF DIVIDEND WILL BE EXEMPT UNDER THE IT ACT. THEREFORE, THE ASSESSEE COMPANY HAD SUO-MOTO DISALLOWED RS.71,85,229/- ON A CCOUNT OF EXPENSES ITA NO. 6971/DEL/2014 PAGE | 3 ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME BEING PROPORTIONATE OF PERSONNEL AND ADMINISTRATIVE EXPENSES RELATED TO EA RNING OF EXEMPT INCOME. THE AO DISALLOWED RS. 1,64,67,610/- BEING E XPENDITURE INCURRED IN RELATION TO EXEMPT INCOME BY APPLYING RULE 8D OF IT RULES. SINCE, THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION IS AY 2007-08, THEREFORE, AO HAS ERRED IN MAKING THE DISALLOWANCE BY APPLYING RULE 8D. FURTHER, FROM THE BALANCE SHEET IT IS SEEN THAT NO NEW INVES TMENT WAS MADE DURING THE YEAR AND INTEREST BEARING BORROWED FUNDS HAVE D ECREASED FROM RS. 27.93 CRORES AS ON 31.03.2006 TO RS. NIL AS ON 31.0 3.2007. THERE WAS SUFFICIENT INTEREST FREE OWN FUND IN THE FORM OF SH ARE CAPITAL AND RESERVE AND SURPLUS TO THE TUNE OF RS. 255.20 CRORES AND CA SH AND BANK BALANCE OF RS. 2.04 CRORES AS ON 31.03.2007. AS SUFFICIENT IN TEREST FREE OWN FUND IS AVAILABLE, THEREFORE, AO HAS ERRED IN MAKING DISALL OWANCE OF INTEREST EXPENDITURE BEING ATTRIBUTABLE TO EXEMPT INCOME WIT HOUT GIVING COGENT REASON. THEREFORE, NO DISALLOWANCE OF INTEREST EXPE NDITURE IS CALLED FOR. IN VIEW OF THE INVESTMENTS IN SHARES ONLY THE ADMINIST RATIVE AND MANAGERIAL EXPENDITURES CALLS FOR DISALLOWANCE U/S 14A. SINCE, RULE 8D IS NOT APPLICABLE IN THE A Y 2007-08 AND APPELLANT HAS MAD E SUO-MOTO DISALLOWANCE OF RS.71.85 LACS ON PROPORTIONATE BASI S, THEREFORE, DISALLOWANCE OF ADMINISTRATIVE AND FINANCIAL EXPEND ITURES MADE BY THE AO BY APPLYING RULE 8D IS NOT SUSTAINABLE. IN VIEW OF THE ABOVE, THE ADDITION MADE BY THE AO IS DELETED. THE APPEAL IS ALLOWED IN THIS GROUND. 6. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE DO N OT FIND ANY MERIT IN THE GROUNDS OF THE APPEAL OF THE REVENUE. THE ASSESSEE SUO MOTU DISALLOWED RS.71,85,229/- ON ACCOUNT OF EXPENSES ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME BEING PROPORTIONATE OF PERSONNEL AND ADMINIS TRATIVE EXPENSES RELATED TO THE EARNING OF EXEMPT INCOME. THE AO, HOWEVER, DIS ALLOWED THE AMOUNT IN QUESTION BY APPLYING RULE 8D WHICH IS NOT APPLICABL E TO THIS AY UNDER APPEAL. LD.CIT(A) ON PERUSAL OF BALANCE SHEET FOUND THAT NO NEW INVESTMENT WAS MADE DURING THE YEAR AND INTEREST BEARING BORROWED FUNDS HAVE DECREASED FROM ITA NO. 6971/DEL/2014 PAGE | 4 RS.27.93 CRORES AS ON 31.03.2006 TO RS. NIL AS ON 3 1.03.2007. THERE WAS SUFFICIENT INTEREST FREE OWN FUND IN THE FORM OF SH ARE CAPITAL AND RESERVE AND SURPLUS TO THE TUNE OF RS.255.20 CRORES IN CASH AND BANK BALANCE OF RS.2.04 CRORES AS ON 31.03.2007 ARE AVAILABLE WITH THE ASSESSEE. SINCE SUFFICIENT FUNDS ARE AVAILABLE WITH THE ASSESSEE, T HEREFORE, LD. CIT(A) CORRECTLY HELD THAT DISALLOWANCE IS NOT PERMISSIBLE. FURTHER , THE ASSESSEE HAS SUO MOTU DISALLOWED RS.71.85 LACS ON PROPORTIONATE BASIS ON WHICH NO DEFICIENCY HAVE BEEN POINTED OUT BY THE AUTHORITIES BELOW. LD.CIT( A) ON PROPER APPLICATION OF FACTS AND MATERIAL ON RECORD CORRECTLY DELETED THE ADDITION. THIS GROUND OF DEPARTMENTAL APPEAL IS DISMISSED. 7. ON GROUND NO.2, REVENUE CHALLENGED THE ORDER OF LD.CIT(A) IN DELETING THE ADDITION ON ACCOUNT OF DISALLOWANCE OF PRIOR PE RIOD EXPENSES AMOUNTING TO RS.67,000/-. THE ASSESSEE CHALLENGED THE ADDITION OF RS.67,000/- ON ACCOUNT OF PRIOR PERIOD EXPENSES BEFORE LD.CIT(A). THE AS SESSEE COMPANY CLAIMED PRIOR PERIOD EXPENSES AMOUNTING TO RS.24,58,028/- AND PRIOR PERIOD INCOME OF RS.67,000/- AND ADJUSTMENT WAS MADE OF RS.23,91, 028/- WHICH HAVE BEEN DELETED BY LD.CIT(A) IN ORIGINAL APPELLATE ORDER. LD.CIT(A), THEREFORE, NOTED THAT SINCE THIS ADDITION IS ALREADY DELETED IN ORIGINAL ASSESSMENT ORDER BY LD.CIT(A), THEREFORE, THE SAID ADDITION IS UNWARRANTED. 8. AFTER CONSIDERING RIVAL SUBMISSIONS, WE DO NOT F IND ANY MERIT IN THIS GROUND OF THE APPEAL FILED BY THE REVENUE. SINCE I N THE ORIGINAL ASSESSMENT ORDER, THIS ISSUE HAS BEEN CONSIDERED AND LD.CIT(A) DELETED THE ADDITION, THEREFORE, IN RE-ASSESSMENT PROCEEDINGS, SAME ADDIT ION COULD BE MADE. THIS GROUND OF APPEAL FILED BY THE REVENUE IS DISMISSED. ITA NO. 6971/DEL/2014 PAGE | 5 9. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. PRONOUNCED IN THE OPEN COURT ON 15.03.2018. SD/- SD/- (L.P.SAHU) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE:- 15 TH MARCH, 2018 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI