DCIT, New Delhi V. M/s. PNB Gilts Ltd., New Delhi

ITA 810/DEL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3483 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2010-2011
• Appeal Filed On: 11-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SANA BAJAJ
• Keywords: Business income; Earning of tax free income
• Section: 142(1); 14A; 115JB

Judgement Text

1 ITA NO. 810/DEL/2015 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI R. K. PANDA, ACCOUNTANT MEM BER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER ITA NO. 810/DEL/2015 ( A.Y 2010-11) DCIT CIRCLE-19(2) NEW DELHI (APPELLANT) VS PNB GILTS LTD. 5, PARLIAMENT STREET NEW DELHI AAACP7809B (RESPONDENT) APPELLANT BY SH. ATIQ AHMAD SR. DR RESPONDENT BY MS. SANA BAJAJ, CA ORDER PER SUCHITRA KAMBLE THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORD ER DATED 05/11/2014 PASSED BY CIT (A)-XVII, NEW DELHI FOR ASSESSMENT YE AR 2010-11. 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD.CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE OF RS.53,49,0 00/- MADE BY A.O TO RS.12,50,000/- U/S 14A. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.22,87,000/- MA DE BY A.O ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENSES U/S 36(1)(III) OF THE IT ACT. 3. ASSESSEE IS A NON BANKING FINANCIAL CORPORATION (NBFC). ASSESSEE FILED DATE OF HEARING 04.01.2018 DATE OF PRONOUNCEMENT 22.02.2018 2 ITA NO. 810/DEL/2015 ITS RETURN OF INCOME DECLARING INCOME OF RS.59,33,8 1,810/- UNDER NORMAL PROVISION OF LAW AND RS.58,78,76,494/- UNDER SECTIO N 115JB OF THE INCOME TAX ACT, 1961. THE RETURN WAS PROCESSED U/S 143(1) OF THE ACT. CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY, NOTICE U/S 1 43(2) & 142(1) WAS ISSUED. THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE ATTEN DED THE HEARING AND SUBMITTED THE DOCUMENTS. DURING THE ASSESSMENT PROC EEDINGS, VARIOUS CLAIMS WERE MADE BY THE ASSESSEE WHICH WAS CONSIDERED BY T HE ASSESSING OFFICER. THE ASSESSEE WAS REQUIRED TO SHOW CAUSE VIDE LETTER DAT ED 30.11.2012 TO FURNISH ITS EXPLANATION REGARDING DISALLOWANCE TO BE MADE U NDER SECTION 14A ON ACCOUNT OF EXPENSES ATTRIBUTABLE TO EXEMPT INCOME A ND TO EXPLAIN CLAIM UNDER SECTION 36(1)(III) OF THE ACT. THE ASSESSING OFFICE R OBSERVED THAT THE ASSESSEE COMPANY ITSELF COMPUTED THE DISALLOWANCE ON ACCOUNT OF EXPENSES ATTRIBUTABLE TO EXEMPT INCOME UNDER SECTION 14A READ WITH RULE 8 D AT RS.12,50,000/- I.E. @ % OF THE AVERAGE VALUE OF INVESTMENTS BUT DID NO T COMPUTE ANY DISALLOWANCE OF INTEREST THOUGH TOTAL INTEREST PAYM ENT DEBITED IN THE PROFIT AND LOSS ACCOUNT AT RS.3456.51 LAC. THEREFORE, THE ASSE SSING OFFICER DISALLOWED RS. 53,49,000/- AS EXPENDITURE ATTRIBUTABLE TO EXEMPT I NCOME. AS RELATES TO CLAIM UNDER SECTION 36(1)(III) OF THE ACT, THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY USED SUBSTANTIAL AMOUNT OF FUNDS A S INVESTMENTS I.E. A PURPOSE OTHER THAN ITS BUSINESS. THEREFORE, THE AMO UNT OF FUNDS AS INTEREST PAID ON ACCOUNT OF FUNDS UTILIZED AS INVESTMENTS WA S CONSIDERED AS EXPENSE NOT ELIGIBLE TO BE ALLOWED U/S 36(1)(III) OF THE AC T. THUS, THE ASSESSING OFFICER DISALLOWED RS.22,87,000/- AS EXCESSIVE INTEREST PA YMENT TO THE TUNE OF RS. 22.87 LAC BY THE COMPANY ON ACCOUNT OF FUNDS NOT UT ILIZED FOR THE PURPOSE OF EARNING TAXABLE BUSINESS INCOME. 4. BEING AGGRIEVED BY THE SAID ORDER, THE ASSESSEE FILED APPEAL BEFORE THE CIT(A). THE CIT(A) PARTLY ALLOWED THE APPEAL OF TH E ASSESSEE. 5. THE LD. DR SUBMITTED THAT THE CIT(A) ERRED IN RE STRICTING THE DISALLOWANCE OF RS.53,49,000/- MADE BY ASSESSING OF FICER TO RS.12,50,000/- 3 ITA NO. 810/DEL/2015 U/S 14A AND ALSO IN DELETING THE ADDITION OF RS.22, 87,000/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF IN TEREST EXPENSES U/S 36(1) (III) OF THE ACT. THE DR RELIED UPON THE ASSESSMENT ORDER. 6. THE LD. AR SUBMITTED THAT THE CIT(A) AFTER CATEG ORICAL FINDING HAS PARTLY ALLOWED THE CLAIM OF THE ASSESSEE. 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL AVAILABLE ON RECORD. AS RELATES TO GROUND NO. 1, THE CIT(A) HELD AS UNDER:- 6.12. THE APPELLANT HAS STATED THAT ALL THE SCRIPT S ARE HELD BY IT AS STOCK IN TRADE. THIS FACT HAS BEEN FOUND TO BE CORRECT. TH E APPELLANT IS AN NBFC AND DEALING IN SECURITIES IS ITS MAIN BUSINESS. THEREFO RE THE SCRIPTS ARE HELD AS STOCK IN TRADE. HOWEVER, THE APPELLANT HAS DIVIDEND INCOME. THE HON'BLE ITAT KOLKATA BENCH IN THE CASE OF DCIT, CIRCLE 6, KOLKA TA VS. GULSHAN INVESTMENT CO. LTD. HAS HELD THAT SECTION 14A WILL APPLY IN CASES WHERE SHARES ARE H ELD AS STOCK IN TRADE OR INVESTMENT THE DISALLOWANCE TO BE MADE U/S 14A READ WITH RULE 8B WILL BE RESTRICTED TO DIRECT EXPENSES INCURRED.' I SHALL NOW DISCUSS THE CALCULATION AS PER RULE 8D. 6.13. ONCE THERE IS NO EXPENDITURE DIRECTED RELATE D TO EARNING OF EXEMPT INCOME, THEREFORE 8D(I) IS NIL. 6.14. SINCE ALL SCRIPTS ARE BEING HELD AS STOCK IN TRADE AND NOT AS INVESTMENTS THEREFORE 8D(II) IS NIL. SINCE THE APPE LLANT HAS SOME EXEMPT INCOME THEREFORE ONLY 8D(III) WOULD BE APPLICABLE. THE APPELLANT HAS ITSELF CALCULATED RS.12.5 LAKHS AS DISALLOWANCE U/S 14A. 6.15. SINCE THE APPELLANT HAS NOT GIVEN ANY DETAILS OF DIRECT EXPENSES INCURRED FOR EARNING EXEMPT INCOME, THE ONLY OPTION IS TO TAKE THE OPTION OF 0.5% OF AVERAGE VALUE OF INVESTMENTS. THEREFORE THE MADE UNDER RULE 8D(2)(III) 4 ITA NO. 810/DEL/2015 IS SUSTAINED. THE GROUND OF APPEAL IS RULED PARTLY IN FAVOUR OF THE APPELLANT. AS REGARDS THE GROUND NO. 2, THE CIT(A) HELD AS UND ER: 7. GROUND NO. 3 IS IN RESPECT OF DISALLOWANCE OF INTER EST EXPENSES U/S 36(I)(III). 7.1. AS PER SECTION 36(L)(III): 36. OTHER DEDUCTIONS.(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28- (II) THE AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPIT AL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION ' PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN R ESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALIZED IN THE BOOKS OF ACC OUNT OR NOT) ; FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUC H ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION : EXPLANATION. - RECURRING SUBSCRIPTIONS PAID PERIODI CALLY BY SHAREHOLDERS, OR SUBSCRIBERS IN MUTUAL BENEFIT SOCIETIES WHICH FU LFIL SUCH CONDITIONS AS MAY BE PRESCRIBED, SHALL BE DEEMED TO BE CAPITAL BO RROWED WITHIN THE MEANING OF THIS CLAUSE L(IIIA) THE PRO RATA AMOUNT OF DISCOUNT ON A ZERO C OUPON BOND HAVING: REGARD TO THE PERIOD OF LIFE OF SUCH BOND CALCULATE D M THE MANNER AS MAY BE PRESCRIBED.' 7.2. THE SECTION IS CLEAR THAT THE INTEREST PAID IN RES PECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS OR PROFESSIONAL IS TO B E ALLOWED AS A DEDUCTION. 5 ITA NO. 810/DEL/2015 THE EXCEPTION IN THE PROVISO IS GIVEN. THERE IS NO CONCEPT OF DISALLOWANCE ON ACCOUNT OF INTEREST ON FUNDS UTILIZED IN BUYING SEC URITIES FOR EARNING EXEMPT INCOME. ONLY IF INTEREST IS PAID FOR ON FUNDS FOR N ONE BUSINESS PURPOSES, CAN IT BE DISALLOWED, THE ADDITION OF RS.22,87,000/- IS DE LETED. THE GROUND OF APPEAL IS RULED IN FAVOUR OF THE APPELLANT. THE ASSESSEE HAS PROVED THAT ALL THE SCRIPTS WERE HELD AS STOCK IN TRADE AND THERE WAS NO INVESTMENT, THEREFORE, RULE 8D WIL L NOT BE APPLICABLE IN THE PRESENT CASE. FROM THE RECORDS, IT ALSO REVEALS TH AT THE SAME IS JUST AND PROPER AS RELATED TO DISALLOWANCE OF INTEREST EXPEN SES U/S 36(1) (III) INTEREST ON FUNDS UTILIZED IN BUYING SECURITIES FOR EARNING EXE MPT INCOME IS NOT THERE IN THE INCOME TAX ACT ONLY INTEREST IS PAID FOR A FUND S FOR NON BUSINESS PURPOSES CAN BE DISALLOWED. THUS, THE CIT(A) HAS GIVEN A DET AILED FINDING AND THERE IS NO NEED TO INTERFERE WITH THE SAME. THEREFORE, THE APP EAL FILED BY THE REVENUE IS DISMISSED. 8. IN RESULT, THE APPEAL OF THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE OPEN COURT ON 22ND FEBRUAR Y, 2018 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 22/02/2018 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI 6 ITA NO. 810/DEL/2015 DATE 1. DRAFT DICTATED ON 05/01/2018 PS 2. DRAFT PLACED BEFORE AUTHOR 05/01/2018 PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER .201 8 JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 23.02.2018 PS/PS 6. KEPT FOR PRONOUNCEMENT ON PS 7. FILE SENT TO THE BENCH CLERK 2 3 .0 2 .2018 PS 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.