DCIT, New Delhi V. M/s. Jubilant Securities Pvt. Ltd., Noida

ITA 752/DEL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8274 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 02-03-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 10-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAJESH KUMAR KEDIA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH D NEW DELHI BEFORE : SHRI I.C. SUDHIR , JUDICIAL MEMBER & SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 752/DEL./2014 ASSTT. YEAR : 2010 - 11 D.C.I.T., CIRCLE 4(1), VS. M/S. JUBILANT SECURITIES PVT. LTD., NEW DELHI. PLOT NO. 1A, SECTOR 16A, INDL. AREA, NOIDA [PAN: AAACH3072J] (APPELLANT) (RESPONDENT) APPELLANT BY : SH. RAJESH KUMAR KEDIA, DR RESPONDENT BY : SH. K. M. GUPTA, ADVOCATE DATE OF HEARING : 02.03.2016 DATE OF PRONOUNCEMENT : 08 .04.2016 ORDER PER L.P. SAHU, ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) - VIII, NEW DELHI DATED 28.11.2013 FOR THE ASSESSMEN T YEAR 2010 - 11. THE EFFECTIVE GROUNDS RAISED BY THE REVENUE READ AS UNDER: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD CIT(A) ERRED IN ALLOWING RELIEF OF RS.48,03,577/ - OUT OF DISALLOWANCE MADE U/S. 14A AS PER PROVISIONS OF RULE 8D. 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF RS.22,29,292/ - OUT OF SERVICE CHARGES TO SISTER CONCERN WHICH HAS BEEN WORKED OUT ON THE BASIS OF MORE SCIENTIFIC METHOD OF REVENUE GENERA TED BY THE RIG AGAINST RIG MONTHS APPLIED BY THE ASSESSEE COMPANY. ITA NO. 752/DEL./2014 2 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF INVESTMENT, FINANCE AND BUSINESS SUPPORT SERVICES. THE ASSESSEE FILED ITS RETURN OF INCOME ON 14.10.2010 AT AN INCOME OF RS.2,78,08,362/ - . THE CASE WAS PROCESSED U/S. 143(1) AND LATER ON CASE WAS SELECTED FOR SCRUTINY AND NOTICE WAS ISSUED AND SERVED. DETAILED QUESTIONNAIRE S W ERE ALSO ISSUED AND SERVED. DURING THE COURSE OF SCRUTINY PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAS PAID SERVICE CHARGES TO HIS SISTER CONCERN NAMED M/S. JUBILANT ENPRO PVT. LTD. THE ASSESSING OFFICER ASKED FOR THE JUSTIFICATION OF PAYMENT AND BASIS OF ALLOCATION. IN RESPONSE TO THIS NOTICE, THE ASSESSEE SUBMITTED DETAILED REPLY WH ICH IS PLACED AT PAGE 29 TO 31 OF THE PAPER BOOK. THE ASSESSEE HAS ALLOCATED THE REVENUE/EXPENDITURE ON THE BASIS OF PER RIG MONTH. THE TOTAL NUMBER OF RIG MONTHS WERE COMPLETED 95 DURING THE ASSESSMENT YEAR, OUT OF WHICH 83 HAVE BEEN COMPLETED BY JUBILANT ENPRO PVT. LTD. (SISTER CONCERN) AND 12 RIG MONTHS WERE COMPLETED BY THE ASSESSEE COMPANY. THE ASSESSEE COMPANY APPORTIONED THE REVENUE/EXPENDITURE ON PER RIG MONTH BASIS . THE ASSESSING OFFICER DISAGREED WITH THE CALCULATION AS DONE BY THE ASSESSEE AND HE COMPUTED THE EXPENSES ON THE BASIS OF REVENUE GENERATION BY THE COMPANY. ON THE BASIS OF CALCULATION DONE BY THE AO, THE ASSESSEE COMPANY CLAIMED EXCESS EXPENDITURE OF RS.22,29,292/ - AND SHORT CLAIMED BY HIS SISTER CONCERN ITA NO. 752/DEL./2014 3 BY SIMILAR AMOUNT. THE AO, THERE FORE, DISALLOWED THE EXCESS EXPENDITURE AS PER CALCULATION MADE BY AO AS UNDER : PARTICULARS JUBILANT ENPRO PVT. LTD. JUBILANT SECURITIES LTD. TOTAL NUMBER OF RIG MONTHS 83 12 95 RIGS - CONSULTANCY INCOME 306608385 33014064 339622449 INCOME PER RIG MONTH 3694077 2751172 3574973 EXPENDITURE 66913583 9674253 76587836 EXPENSES PER RIG MONTH 806188 806188 806188 APPORTIONMENT OF EXPENDITURE AS PER RIG MONTHS 66913583 9674253 76587836 APPORTIONMENT OF EXPENSES IN THE RATIO OF REVENUE GENERATION 69142875 - 7444961 76587836 DIFFERENCE ( - ) 22,29,292 22,29,292 AGAINST THE ORDER OF THE AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO DELETED THE ADDITION STATING THAT THE DEPARTMENT WILL NOT GET ANY EXTRA REVENUE DUE TO ADDING ONE EXPENDITURE TO THE OTHER. AGAINST THIS ORDER OF LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 3. THE LD. DR RELIED ON THE ORDER OF THE AO AND ARGUED THAT THE LD. AO HAS MADE REASONED ORDER WHICH DOES NOT REQUIRE ANY INTERFERENCE. THE LD. AR ITA NO. 752/DEL./2014 4 RELIED ON THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT THE ISSUE IN DISPUTE IS COVERED BY THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF ASSESSEE ITSELF IN ITA NO. 490 & 491/2014 DATED 27.11.2014 FOR THE ASSE SSMENT YEAR 2009 - 10. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD AND WE FIND THAT THE ISSUE UNDER CONSIDERATION IS COVERED BY THE DECISION OF HON BLE DELHI HIGH COURT IN THE CASE OF ASSESSEE ITSELF (SUPRA) WHER EIN THE HON BLE COURT HAS HELD AS UNDER : 4. THE SAID FINDING HAS BEEN REVERSED BY THE TRIBUNAL IN THE IMPUGNED ORDER. THE TRIBUNAL, ACCEPTING THE PLEA OF THE ASSESSEE, HAS OBSERVED THAT THE SERVICES RENDERED BY M/S. JUBILANT ENPRO PVT. LTD, WERE IN THE N ATURE OF ASSISTANCE AND SUPPORT SERVICES LIKE ASSISTANCE IN RELATION TO OBTAINING WORK, SUBMISSIONS OF BIDS AND SUBSEQUENT NEGOTIATIONS, ADVISING CURRENT DEVELOPMENTS, ADVISING REGARDING VISAS AND LABOUR PERMITS, ADVICE ON IMPORTATION AND EXPORTATION OF MA TERIAL VESSELS EQUIPMENTS RIGS ETC. THE AFORESAID WORK AND OBLIGATION UNDERTAKEN BY M/S. JUBILANT ENPRO PVT. LTD. WAS DEPENDENT UPON THE NUMBER OF RIGS AND THIS WOULD DETERMINE COST APPORTIONMENT OF THE SUPPORT SERVICES WHICH WERE GIVEN AND PROVIDED TO THE RECIPIENTS. THE SERVICES WERE NOT DEPENDENT UPON THE SIZE OF THE RIGS OR THE TURNOVER. THE CONTENTION OF THE RESPONDENT ASSESSEE THAT THE APPORTIONMENT OF COST SHOULD NOT BE MADE ON THE BASIS OF THE TURNOVER, BUT, ON THE BASIS OF NUMBER RIGS WAS ACCEPTED. THE AFORESAID FINDINGS ARE FINDINGS OF FACT AND THERE IS NO REASON OR GROUND TO HOLD THAT THE SAID FINDINGS ARE PERVERSE. NOTICEABLY, M/S, JUBILANT ENPRO PVT, LTD. HAD PROVIDED SERVICES TO OTHER 'SISTER CONCERNS OF THE RESPONDENT ASSESSEE. THE AMOUNT AND QUANTUM PAID BY THE ASSESSEE AND OTHER GROUP COMPANIES IS NOT IN DISPUTE. ANY DISALLOWANCE IN THE HANDS OF THE RESPONDENT ASSESSEE WOULD NECESSARILY MEAN INCREASE OF EXPENDITURE INCURRED BY THE SISTER CONCERN, AS THERE IS NO DISPUTE ABOUT THE COST INCURRED BY M/S. JUBILANT ENPRO PVT, LTD. OTHERWISE ALSO, IT WOULD RESULT IN REDUCTION OR LOWER INCOME EARNED BY M/S. JUBILANT ENPRO PVT. LTD. THE ASSESSING OFFICER DID NOT INVOKE SECTION 40A(2) OF THE ACT, OR HOLD THAT THE PAYMENT MADE WERE ITA NO. 752/DEL./2014 5 DISPROPORTIONATE, TO T HE MARKET VALUE OF THE SENDEES RENDERED. ENGAGING SERVICES OF M/S. JUBILANT ENPRO PVT. LTD. HAD HELPED THE ASSESSEE AND OTHER GROUP COMPANIES TO REDUCE COSTS, AS FOR THE COMMON SERVICES THEY DID NOT ENGAGE EMPLOYEES OR CONSULTANTS SEPARATELY. THIS IS CLEAR FROM THE SUBMISSION MADE AND FINDINGS OF THE TRIBUNAL THAT THERE WAS COMMONALITY IN THE NATURE OF SERVICES AND THEREFORE, THE RESPONDENT ASSESSEE AND OTHER SISTER CONCERNS HAD ESTABLISHED AND TAKEN SERVICES FROM ONE COST CENTRE I.E. M/S. JUBILANT ENPRO PV T. LTD. THE RESPONDENT COMPANY AND OTHERS HAD AGREED TO PAY FOR THE SENDEES BY WAY OF REIMBURSEMENT OF EXPENSES. IN VIEW OF THE AFORESAID POSITION, WE DO NOT THINK, IN THE PRESENT APPEALS, THE FIRST ISSUES REQUIRES ADMISSION. THE LD. DR COULD NOT ADDUCE ANY MATERIAL ON RECORD TO TAKE A CONTRARY VIEW. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF JURISDICTIONAL HIGH COURT, WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CIT(A). ACCORDINGLY, GROUND NO. 2 OF THE REVENUE S APPEAL DESERVES TO FAIL. 5. THE BRIEF FACTS RELATING TO GROUND NO. 1 RAISED BY THE REVENUE ARE THAT D URING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL, THE ASSESSEE EARNED DIVIDEND INCOME AMOUNTING TO RS. 3,11,65,965/ - . SUCH DIVIDEND INCOME WAS CLAIMED AS EXEMPT U/ S 10(34) OF THE ACT. THE ASSESSEE HAD ALSO MADE INVESTMENT IN THE SHARES OF DIFFERENT COMPANIES WITH A VIEW TO EARN DIVIDEND INCOME. THE ASSESSEE HAD ALREADY OFFERED U/S 14A DISALLOWANCE OF RS. 55,60,586/ - IN THE RETURN OF INCOME. THE DETAILS OF EXPENSES I NCURRED AND INCOME EARNED BY ASSESSEE ARE SHOWN IN THE TABLE BELOW : PARTICULARS TOTAL INCOME TAXABLE INCOME EXEMPTED FN CO ME PROVISIONS WRITTEN BACK CONSULTANCY INCOME 33014064 33014064 ITA NO. 752/DEL./2014 6 INTEREST 1189084 1 11890841 DIVIDEND 31165965 31165965 . PROVISIONS FOR NPA AND DIMINUTION OF INVESTMENTS WRITTEN BACK 15405315 15405315 TOTAL AS PER CREDIT SIDE OF P & L 91476185 44904905 31165965 15405315 EXPENSES - TOTAL EXPENSES AGAINST TAXABLE INCOME AGAINST EXEMPTED INCOME EXPENSES NOT CONSIDERED AS ALLOWABLE DIRECT EXPENSES SERVICE CHARGES 9674253 9674253 DIRECT EXPENSES - DMAT EXPENSE , SIT 36376 8146 28230 INTEREST ON LOANS - DIRECTLY RELATABLE TO TOWARDS TAXABLE INCOME 47,08,000 47.08.000 INTEREST ON LOANS - INDIRECT OF COMMON 7314741 2343371 4971370 0 AMALGAMATION EXPENSES 485097 97019 388078 EXPENSES , LOSS ON SALE OF INVESTMENTS, PROVISION FOR DIMINUTION OF INVESTMENTS ETC. DISALLOWED 9692367 9692367 ADMIN EXPENSES 854971 273901 581070 9692367 TOTAL AS PER DEBIT SIDE OF P&L 32765805 17096544 5560586 10108675 RETURNED INCOME 27808362 THE AO DID NOT ACCEPT THE CLAIM OF THE ASSESSEE AND COMPUTED THE DISALLOWANCE OF EXPENSE UNDER RULE 8D R/W SECTION 14A AS FOLLOWS: ITA NO. 752/DEL./2014 7 (A) INTEREST DISALLOWANCE - INTEREST APPORTIONED RS 39,58,878/ - WORKED OUT AS FOLLOWS: INTEREST RS 70,57,104 / - AVERAGE INVESTMENTS 33,78,79,660/ - AVERAGE TOTAL ASSETS 60,23,04,981 / - (B) ADMN. & OTHER EXPENSE DISALLOWED AS RS 0.5% OF AVERAGE INVESTMENTS RS 33,78,79,660 / - I.E RS 16,89,398/ - . TOTAL DISALLOWANCE RS 56,48,276 / - AGAINST WHICH THE AO CONSIDER ED RS 5,81 , 070/ AS AMOUNT DISALLOWED BY APPELLANT AND MADE AN ADDITION OF RS 5 0 ,67,206/ - TO T HE RETURNED INCOME OF THE ASSESSEE. AGAINST THE ORDER OF THE LD. AO, THE ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) WHO GAVE RELIEF TO THE ASSESSEE OF RS.48 ,03,577/ - OBSERVING AS UNDER : THE AR OF THE APPELLANT HAD MADE METICULOUS CALCULATION ON DIVIDING THE COMMON ADMINISTRATIVE EXPENSES BETWEEN TAXABLE AND EXEMPT INCOME ON THE BASIS OF EXPENSES INCURRED. THE APPELLANT COMPANY HAD RECEIVED DIVIDEND INCOME O F RS. 3,11,65,965/ - WHEREAS HIS OTHER INCOME RECEIVED IS RS. 4,49,04,9057 - . THEREFORE, THERE IS DISPROPORTIONATE RATIO BETWEEN THE TWO INCOMES I.E. TAXABLE AND EXEMPT INCOME, HOWEVER, I CONSIDERED THESE TO BE IN EQUAL RATIO SO THAT COMMON ADMINISTRATIVE EX PENDITURE OF RS. 16,89,398 / - WHICH IS 0.5% OF AVERAGE INVESTMENT OF RS. 33,78,79,660 / - AS PER RULE 8D R.W. SECTION 14A IN SUB CLAUSE (B). I DIVIDE THIS 16,89,398 / - IN THE RATIO OF 50% IS TO 50% FOR TAXABLE INCOME VERSUS EXEMPT INCOME. THEREFORE, THE APPELL ANT WILL BE TAXED WITH 16,89,398 /2 = RS. 8,44,699 / - . THE APPELLANT HAD ALREADY CLAIMED EXPENSES FOR EARNING EXEMPT INCOME OF RS. 5,81,070 / - WHICH IS ACCEPTED BY THE AO. HENCE RS. 844699 ( - ) RS.581070= RS. 263629. THIS IS ADDED TO THE INCOME OF THE APPELLAN T UNDER SECTION 14 A R.W. RULE 8D. THE APPELLANT WILL GET A RELIEF OF RS. 48035777 - (RS. 50,67,206 ( - ) RS. 2636297 - ). THIS GROUND OF APPEAL IS PARTLY ALLOWED. ITA NO. 752/DEL./2014 8 6. THE LD. DR RELIED ON THE ORDER OF THE AO AND SUBMITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN GIVING RELIEF TO THE ASSESSEE WITHOUT ANY GOOD REASON. ON THE OTHER HAND, THE LD. AR OF THE ASSESSEE RELIED ON THE ARGUMENTS MADE BEFORE THE LD. CIT(A) AS INCORPORATED IN THE IMPUGNED ORDER. 7. HAVING CONSIDERED THE RIVAL SUBMISSIONS, WE FIND NO JUSTIFI CATION TO INTERFERE WITH THE FINDINGS REACHED BY THE LD. CIT(A), WHO AFTER APPLYING HIS MIND HAS TAKEN CORRECT RATIO OF EXPENDITURE TOWARDS EXEMPT AND TAXABLE INCOME OF THE ASSESSEE. THE LD. DR COULD NOT BE ABLE TO ADDUCE ANY SUCH MATERIAL WHICH COULD LEAD US TO DISTURB THE CONCLUSIONS ARRIVED AT BY THE LD. CIT(A) IN THE IMPUGNED ORDER. THE LD. CIT(A) WHILE ALLOWING THE RELIEF TO THE ASSESSEE HAS CONSIDERED THE DISPROPORTION OF DIVIDEND INCOME AND OTHER INCOME RECEIVED BY ASSESSEE. IN THE TOTALITY OF FACTS AND CIRCUMSTANCES, WE DO NOT FIND ANY GOOD REASON TO DISTURB THE IMPUGNED ORDER ON THIS FOUND. ACCORDINGLY, THE RESPECTIVE GROUND RAISED BY THE REVENUE DESERVES TO BE DISMISSED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 08.04.2016 . SD/ - SD/ - ( I.C. SUDHIR ) (L.P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 08.04.2016 *AKS/ -