DCIT, CIRCLE- 6(2), NEW DELHI V. CONTINENTAL DEVICE INDIA PVT. LTD., NEW DELHI

ITA 71/DEL/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5006 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 03-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAGDISH SINGH
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B NEW DLEHI BEFORE SHRI K. NARASIMHA CHARY, JUDICIAL MEMBER AND SHRI B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO.71/DEL/2018 ASSESSMENT YEAR: 2014-15 DCIT, CIRCLE 6(2), VS. CONTINENTAL DEVICE INDIA PV T. LTD., NEW DELHI. C-120, NARAINA INDUSTRIAL AREA, NEW DELHI. PAN :AAACC1835E (APPELLANT) (RESPONDENT) APPELLANT BY : SH. JAGDISH SINGH, SR. DR RESPONDENT BY : SH. PRADEEP DINODIA, CA SH. R.K. KAPOOR, C.A DATE OF HEARING: 13.10.2020 DATE OF ORDER : 14.10.2020 ORDER PER K. NARASIMHA CHARY, J.M. CHALLENGING THE ORDER DATED 19/09/2017 PASSED IN AP PEAL NO. 10496/16-17-CIT(A)-2 BY LEARNED COMMISSIONER OF INC OME TAX (APPEALS)- 2, NEW DELHI (LD. CIT(A)), IN THE CASE OF M/S. CO NTINENTAL DEVICE INDIA PVT. LTD. (THE ASSESSEE), REVENUE FILED THIS APPE AL FOR ASSESSMENT YEAR 2014-15. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE MANUFACTURING AND TRADING OF ELECTRONIC DEVI CES. IT HAD FILED ITS RETURN OF INCOME ON 27.11.2014 AT A LOSS OF RS.53,7 2,350/-. THE 2 ASSESSMENT ORDER U/S. 143(3) OF THE INCOME-TAX ACT (FOR SHORT THE ACT) WAS COMPLETE BY ORDER DATED 19.12.2016 AT RS.2,00,4 1,657/- BY MAKING DISALLOWANCES OF RS.2,50,00,440/- U/S. 14A OF THE A CT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 (THE RULES) AND RS.4,1 3,567/- U/S. 36(1)(III) OF THE ACT. 3. WHEN THE ASSESSEE PREFERRED APPEAL, LD. CIT(A) P ARTLY ALLOWED THE APPEAL GRANTING RELIEF TO THE ASSESSEE IN RESPECT O F ADDITION MADE U/S. 14A READ WITH RULE 8D. AGGRIEVED BY SUCH AN ORDER, THE REVENUE PREFERRED THIS APPEAL STATING THAT THE LD. CIT(A) IGNORED THE FACT THAT THE ASSESSEE HAD INCURRED HUGE INTEREST EXPENSES IN RELATION TO INVE STMENTS IN THE INSTRUMENTS INCOME WHICH IS EXEMPT. 4. THE LD. DR SUBMITTED THAT WHEN THE ASSESSEE FAIL ED TO PRODUCE DOCUMENTARY EVIDENCE TO SHOW THAT THE INVESTMENTS W ERE MADE FROM OUT OF OWN FUNDS AVAILABLE WITH THE ASSESSEE AND FOR SU CH INVESTMENTS, NO BORROWED AMOUNT WAS SPENT, THE ASSESSING OFFICER IS JUSTIFIED IN INVOKING THE PROVISIONS OF RULE 8D(2)(II) OF THE RULES. SO A LSO, WHEN THERE IS AN INVESTMENT, THOUGH A PART OF IT ACCRUED DIVIDEND, T HE OTHER INVESTMENT DOES NOT LOSE ITS CHARACTER AS INVESTMENT AND ANY I NTEREST-BEARING AMOUNT SPENT FOR SUCH INVESTMENTS SHALL BE CONSIDERED FOR THE PURPOSE OF RULE 8D(2)(II) BESIDES SUCH OTHER INVESTMENTS ALSO TAKIN G INTO CONSIDERATION U/R. 8D(2)(III) OF THE RULES. 5. LEARNED AR SUBMITTED THAT LD. CIT(A) FOLLOWED TH E BINDING PRECEDENT OF SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENT (P) LTD. (2017) 165 ITD 27(DELHI TRIBUNA L-SPECIAL BENCH) TO THE EFFECT THAT ONLY THOSE INVESTMENTS ARE TO BE CONSID ERED FOR COMPUTING 3 AVERAGE VALUE OF INVESTMENT WHICH YIELDED EXEMPT IN COME DURING THE YEAR AND THE INVESTMENTS WHICH DID NOT YIELD ANY EXEMPT INCOME DURING THE YEAR SHALL NOT BE CONSIDERED FOR THE PURPOSES OF DI SALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES BESIDES CONSIDERING THE FAC T THAT THE ASSESSEE MET THE INVESTMENTS OUT OF ITS OWN FUNDS AND THEREFORE, THERE IS NO SCOPE OF DISALLOWANCE OF INTEREST COMPONENT U/R. 8D(2)(II) O F THE RULES. HE BROUGHT TO OUR NOTICE THAT AS PER AUDITED BALANCE SHEET AS ON 31.03.2014, THE SHARE CAPITAL OF ASSESSEE WAS RS.103.40 CRORES WHER EAS INVESTMENTS WERE ONLY RS.86.208 CRORES WHILE THE BORROWING STOOD AT RS.24.69 CRORES. IN THESE CIRCUMSTANCES, THE LD. AR SUBMITTED THAT THER E IS NO GROUND TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A) ON TH IS ASPECT. 6. WE HAVE GONE THROUGH THE MATERIAL ON RECORD IN T HE LIGHT OF SUBMISSIONS MADE ON EITHER SIDE. THE ASSESSMENT ORD ER ITSELF REVEALS THAT IN SO FAR AS THE DIRECT EXPENSES U/R. 8D(2)(I) ARE CONCERNED, THE ASSESSING OFFICER ACCEPTED THAT NO DIRECT EXPENSE WAS INCURRE D BY THE ASSESSEE FOR EARNING THE EXEMPT INCOME. THERE IS NO DENIAL OF TH E FACT FROM THE REVENUE THAT AS ON 31.03.2014, THE SHARE CAPITAL OF THE ASSESSEE WAS RS.103.40 CRORES WHICH IS MORE THAN ENOUGH TO COVER THE INVESTMENTS OF RS.86.208 CRORES AND THEREFORE, THE PRESUMPTION IS THAT THE ASSESSEE INVESTED THE AMOUNTS FROM OUT OF THEIR OWN FUNDS AN D THEREFORE, THE QUESTION OF DISALLOWING THE INTEREST COMPONENT U/R. 8D(2)(II) DOES NOT ARISE. IN SO FAR AS CONSIDERATION OF INVESTMENT WHI CH DID NOT YIELD ANY DIVIDEND INCOME FOR THE PURPOSE OF CALCULATING THE DISALLOWANCE U/R. 8D(2)(III), IT IS THE SETTLED PRINCIPLE OF LAW THAT ONLY SUCH INVESTMENTS WHICH YIELDED EXEMPT INCOME DURING THE YEAR HAVE TO BE CO NSIDERED FOR COMPUTING THE AVERAGE VALUE OF INVESTMENT, AND THE INVESTMENTS WHICH 4 DID NOT YIELD ANY EXEMPT INCOME SHALL NOT BE CONSID ERED. ADMITTEDLY, THE ASSESSEE DISALLOWED A SUM OF RS.2,75,113/- BY FOLLO WING THIS CALCULATION. LD. CIT(A) RIGHTLY FOLLOWED THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENT (P) LTD. (SU PRA), WHICH IS BINDING PRECEDENT ON THIS ASPECT. 7. FOR THESE REASONS, WE DO NOT FIND ANY LEGAL INFI RMITY IN THE FINDINGS OF THE LD. CIT(A) AND THEREFORE, NO INTERFERENCE IS WARRANTED WITH THE SAME. WE, ACCORDINGLY, DECLINE TO INTERFERE WITH TH E IMPUGNED ORDER. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14/10/2020. SD/- SD/- (B.R.R. KUMAR) (K. NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 14 /10/2020 AKS