DCIT, Circle- 21(1), New Delhi V. Religare Enterprises Ltd., New Delhi

ITA 7678/DEL/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 5784 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2012-2013
• Appeal Filed On: 21-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AGAINST DATED PASSED
• Keywords: Business income; Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 37(1)

Judgement Text

1 ITA NO. 7678/DEL/2017 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI N. K. BILLAIYA, ACCOUNTANT MEMBER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER I.T.A. NO. 7678/DEL/20 17 (A.Y 2012-13) (THROUGH VIDEO CON FERENCING) DCIT CIRCLE-21(1) ROOM NO. 391, 3 RD FLOOR, C. R. BUILDING, I. P. ESTATE, NEW DELHI (APPELLANT) VS RELIGARE ENTERPRISES LTD. D-3, P-3B, DISTRICT CENTRE, SAKET, NEW DELHI AAACV5888N (RESPONDENT) ORDER PER SUCHITRA KAMBLE, JM THIS APPEAL IS FILED BY THE REVENUE AGAINST ORDER DATED 21/09/2017 PASSED BY CIT(A)-38, DELHI FOR ASSESSMENT YEAR 20 12-13. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE U/S 14A R.W.R . 8D FROM RS. 14,61,04,401/- TO RS. 81,79,623/- BY ACCEPTING THE ASSESSEES REVISED COMPUTATION OF INCOME BASED ON AFTERTHOUGHT, WHEREA S THE AO HAD MADE THE APPELLANT BY SMT. SUSHMA SINGH, CIT(DR) RESPONDENT BY SH. ROHIT JAIN, ADV & MS. SOMYA JAIN, ADV DATE OF HEARING 19.01.2021 DATE OF PRONOUNCEMENT 05.02.2021 2 ITA NO. 7678/DEL/2017 ADDITION U/S 14A ON THE BASIS OF DISALLOWANCE U/S 1 4A R.W.R 8D AS ARRIVED BY THE TAX AUDITOR OF THE ASSESSEE AS REFLECTED IN TAX AUDIT REPORT SUBMITTED BY THE ASSESSEE ALONG WITH ITS RETURN OF INCOME. 2. ON FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) HAS ERRED IN ALLOWING THE EXPENDITURE OF RS. 31,57,85,891/- U /S 37 OF I.T. ACT IGNORING THAT THE ASSESSEE HAD ITSELF DISALLOWED ALL THE EXP ENSES WHICH ARE NOT RELATED TO ITS EXISTING BUSINESS FOR THE A.Y. 2013-14. 3. RELIGARE ENTERPRISES LTD. FILED ITS RETURN OF IN COME FOR THE ASSESSMENT YEAR 2012-13 ON NOVEMBER 29, 2012 DECLARING A TOTAL TAXABLE LOSS OF RS. 36,381,599/- AND CREDIT OF TAX DEDUCTED AT SOURCE O F RS. 128,710,100/-. THE ASSESSING OFFICER PASSED AN ASSESSMENT ORDER DATED MARCH 28, 2016 UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961. AS PER T HE SAID ORDER, THE ASSESSING OFFICER HAS ASSESSED THE TOTAL TAXABLE INCOME OF TH E ASSESSEE AT RS 359,215,830 AFTER MAKING THE FOLLOWING ADDITIONS/ D ISALLOWANCES: 4. BEING AGGRIEVED BY THE ASSESSMENT ORDER, THE ASS ESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT (A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 5. THE LD. DR SUBMITTED THAT AS REGARDS GROUND NO. 1 RELATING TO ADDITION U/S 14A READ WITH RULE 8D, THE ASSESSEE IN THE REVI SED RETURN OF INCOME HAS EXCLUDED 0.5% OF AVERAGE VALUE OF INVESTMENTS AMOUN TING TO RS.134,546,381/-. THE ASSESSING OFFICER RIGHTLY OBSERVED THAT THE ASS ESSEE COMPANY INVESTED IN EQUITY AND PREFERENCE SHARES AS WELL AS IN TRADE IN VESTMENTS AND MUTUAL FUNDS. ONE INCOME FROM TRADE INVESTMENTS AND MUTUA L FUNDS HAS BEEN OFFERED AS BUSINESS INCOME AND TAXED UNDER THE HEAD PGBP. BESIDES INTEREST SR. NO. NATURE OF DISALLOWANCE AMOUNT (RS.) 1 DISALLOWANCE U/S 14A READ WITH RULE 8D 3,750,000/ - 2 DISALLOWANCES OF EXPENSES U/S 37 315,785,891/ - 3 ITA NO. 7678/DEL/2017 EXPENSES, THE ASSESSEE COMPANY IS INCURRING VARIOUS EXPENSES WHICH ALSO HAVE A BEARING ON THE INVESTMENTS MADE BY THE ASSESSEE C OMPANY. THEREFORE, ASSESSING OFFICER RIGHTLY REJECTED THE CLAIM OF REV ISING THE COMPUTATION OF 14A DISALLOWANCE READ WITH RULE 8D IS THEREFORE, REJECT ED. THE ASSESSEE HAS NOT REVISED ITS INCOME TAX RETURN. THE CLAIM WAS FILE D DURING THE COURSE OF ASSESSMENT PROCEEDINGS. THE TAX AUDITOR WORKED OUT THE DISALLOWANCE AT RS. 14,61,04,401/- AND THE SAME WAS NOT CONTROVERTED BY THE ASSESSEE COMPANY. THUS, THE ASSESSING OFFICER MADE AN ADDITION OF RS. 37,50,000/- (14,61,04,401/- 14,23,54,401/-) UNDER RULE 8D REA D WITH SECTION 14A OF THE ACT. 6. THE LD. AR SUBMITTED THAT THE CIT(A) HAS TAKEN P ROPER COGNIZANCE OF THE INVESTMENT AND THEREAFTER PARTLY DISALLOWED THE DED UCTION CLAIMED U/S 14A. THUS, THE ORDER OF THE CIT(A) SHOULD BE SUSTAINED O N THIS POINT. THE LD. AR ALSO MADE FURTHER SUBMISSIONS THAT THE DISALLOWING SHOULD NOT EXCEED EXEMPT INCOME. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT SECTION 14A D ISALLOWANCE WAS RIGHTLY CLAIMED BY THE ASSESSEE AND THE CIT(A) HAS PROPERLY MADE A PARTIAL ALLOWANCE OF THE SAID CLAIM. AS PER SECTION 14A READ WITH RULE 8D(2), THOSE INVESTMENTS WHICH HAVE ACTUALLY YIELDED EXEMPT INCOME DURING TH E RELEVANT YEAR, SHALL ALONE BE TAKEN INTO CONSIDERATION AND THUS WAS RIGH TLY EXCLUDED WHILE DETERMINING AVERAGE VALUE OF INVESTMENTS UNDER RUL E 8D(2). THE CIT(A) OBSERVED THAT THE ASSESSEE CLAIMED DEDUCTION OF RS . 3,71,603/- ON INTEREST PAID FOR TAKING IT EQUIPMENT ON FINANCE LEASE FOR P ERIOD OF 36 MONTHS. THE CIT(A) HELD THAT IN VIEW OF DECISIONS OF HONBLE DE LHI HIGH COURT IN CASE OF ACB INDIA LTD. VS. ACIT (ITA NO. 615/2014) AND CIT (A) VS. HOLCIM INDIA 272 ITR 282, CLAIM OF DEDUCTION UNDER RULE 8D(2) (II) OF RS. 78,08,020/- WAS UPHELD. HOWEVER, THE CIT(A) FURTHER OBSERVED THAT CLAIM OF DEDUCTION OF RS. 3,71,603/- U/S 37(1) ON INTEREST PAID TO HP FINANCI AL SERVICES (INDIA) PVT. LTD. 4 ITA NO. 7678/DEL/2017 FOR TAKING IT EQUIPMENT ON FINANCIAL LEASE FOR PERI OD OF 36 MONTHS BEING SPECIFIC PURPOSE BORROWINGS AS TREATED UNDER RULE 14A READ WITH RULE 8D(2)(II). THUS, CIT(A) MADE TOTAL DISALLOWANCE U/ S 14A READ WITH RULE 8D AT RS. 78,08,020+ RS. 3,71,603/-= 81, 79,623/-. THESE WERE THE CONTENTIONS BEFORE CIT(A). THE CIT(A) HAS VERIFIED ALL THE OBS ERVATIONS. THUS, GROUND NO. 1 OF REVENUES APPEAL IS DISMISSED. 8. AS REGARDS GROUND NO. 2, THE LD. DR SUBMITTED TH AT IN RESPECT OF THE EXPENSES IN CONNECTION WITH NEW LINE OF BUSINESS, T HE ASSESSEE DEBITED THE SAID EXPENSES TO THE PROFIT AND LOSS ACCOUNT. THE ASSESS ING OFFICER OBSERVED THAT ON ONE HAND THE BUSINESS OF SUPPORT SYSTEM TO SUBSI DIARIES/GROUP COMPANIES WAS DISCONTINUED BY THE ASSESSEE COMPANY AND ON THE OTHER HAND THERE IS SHARP INCREASE IN VARIOUS EXPENDITURE SUCH AS RENT, ELECTRICITY, WATER, REPAIR AND MAINTENANCE ETC. THE LD. DR FURTHER SUBMITTED T HAT THE ASSESSING OFFICER AFTER GOING THROUGH THE DETAILS FURNISHED BY THE AS SESSEE COMPANY HAS RIGHTLY HELD THAT NEW PREMISES TAKEN ON RENT/ LEASE, BUT TH E PURPOSE AND JUSTIFICATION FOR THE INCREASE IN EXPENSES WAS NOT GIVEN BY THE A SSESSEE. THE LD. DR SUBMITTED THAT THE ASSESSING OFFICER HAS RIGHTLY MA DE AN ADDITION OF RS. 31,57,85,891/- U/S 37. THUS, THE LD. DR SUBMITTED THAT THE CIT(A) HAS NOT TAKEN COGNIZANCE OF ALL THESE MATERIAL FACTS AND TH E ADDITION SHOULD BE CONFIRMED. 9. AS REGARDS GROUND NO. 2, THE LD. AR SUBMITTED TH AT FROM THE BOOKS OF ACCOUNTS AND THE BALANCE-SHEET IT WAS CLEARLY MENTI ONED THAT FROM OCTOBER 2011, THE ASSESSEE HAS SOUGHT THE TRANSACTION RELAT ED TO BORROWING TO THE SUBSIDIARY COMPANIES AND, THEREFORE, THE EXPENDITUR E WAS RIGHTLY CLAIMED U/S 37(1) OF THE ACT. THE LD. AR RELIED UPON THE ORDER OF THE CIT(A). 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS PERTINENT TO NOTE THAT THE ASSESSEE COMPANY IS A NBFC AND BEING THE HOLDING COMPANY OF RELIGARE GROUP, WAS PROVIDIN G SUPPORT FUNCTIONS I.E. 5 ITA NO. 7678/DEL/2017 CENTRAL LEADERSHIP, FINANCE AND ACCOUNTS, HUMAN RES OURCES, BACK OFFICE OPERATIONS, TREASURY, CORPORATE AND SECRETARIAL AFF AIRS TO ITS SUBSIDIARY COMPANIES UPTO 30 TH SEPTEMBER, 2011. THE SAID SERVICES WERE CEASED TO RENDER BY THE ASSESSEE COMPANY W.E.F. 30.09.2011 BECAUSE T HE ASSESSEE COMPANY SOUGHT BANKING LICENSE IN OCTOBER, 2011 AND THE PRE -CONDITION FOR APPLYING FOR BANKING LICENSE IS THAT THE APPLICANT SHOULD BE A N ON-OPERATING COMPANY. THE FACT REMAINS UNDISPUTED THAT OUT OF TOTAL LEASE REN TAL EXPENSE OF RS. 52,79,02,826/- WHICH WAS INCURRED DURING THE PRESEN T ASSESSMENT YEAR WAS RECOVERED BY THE ASSESSEE COMPANY FROM THE SUBSIDIA RY COMPANY AMOUNTING TO RS. 47,59,99,859/- AND BALANCE AMOUNT WAS INCURRED BY THE ASSESSEE TOWARDS RENDERING SUPPORT SERVICE TO SUBSIDIARIES COMPANIES . FURTHER, THE ASSESSEE COMPANY ALSO INCURRED RENTAL EXPENSES OF RS. 18,26, 575 TOWARDS PROVIDING LEASED ACCOMMODATION TO ITS EMPLOYEES AND THE COPIE S OF AGREEMENTS ENTERED BETWEEN THE LANDLORD AND THE ASSESSEE COMPANY WAS E XAMINED BY THE CIT(A) WHICH WAS TOTALLY OVERLOOKED BY THE ASSESSING OFFIC ER. AS REGARDS ELECTRICITY AND WATER EXPENSES ALONG WITH REPAIR AND MAINTENANC E EXPENDITURE, THE SAME WERE ALSO DEMONSTRATED BY THE ASSESSEE COMPANY WITH THE DETAILS BEFORE THE CIT(A) AND THE ASSESSING OFFICER THAT THESE ARE ALL OWABLE EXPENSES UNDER SECTION 37(1) OF THE ACT. THE CIT(A) HAS GIVEN A DE TAILED FINDING. THUS, THERE IS NO INTERFERENCE OF THE FINDING OF THE CIT(A). HENC E, GROUND NO. 2 IS DISMISSED. 8. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 05 TH DAY OF FEBRUARY, 2021 SD/- SD/- (N. K. BILLAIYA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 05/02/2021 R. NAHEED * COPY FORWARDED TO: 6 ITA NO. 7678/DEL/2017 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI