Chemivest Ltd, V. ITO Ward 3 (3),

ITA 87/DEL/2008

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1281 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 11 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-12-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 10-01-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEEPAK SEHGAL
• Assessee Lawyers: AJAY VOH RA GAURAV JAIN
• Keywords: Earning of tax free income; Proportionate interest
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI `B BENCH : NEW DELHI) BEFORE SHRI U.B.S. BEDI, JUDICIAL MEMBER AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO.87/DEL./2008 (ASSESSMENT YEAR : 2004-05) M/S CHEMINVEST LTD., VS. ITO, WARD 3(3), MAX HOUSE, 1 DR. JHA MARG, NEW DELHI. OKHLA, PHASE-III, NEW DELHI 110 020. (PAN/GIR NO.N.A.) AND ITA NO.4788/DEL./2007 (ASSESSMENT YEAR : 2004-05) ACIT, CIRCLE 3(1), VS. M/S CHEMINVEST LTD., NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA/GAURAV JAIN, AR REVENUE BY : SHRI DEEPAK SEHGAL, SR.DR ORDER PER U.B.S. BEDI, JM THESE CROSS APPEALS, ONE BY THE ASSESSEE AND OTHER BY THE DEPARTMENT IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A)- VI, NEW DEL HI DATED 27.09.2007, RELEVANT TO ASSESSMENT YEAR 2004-05 FOR BOTH THESE APPEALS. TH E ISSUE RELATES TO THE DISALLOWANCE U/S 14A OF THE I.T. ACT, 1961 AND IN THE APPEAL OF THE ASSESSEE, FOLLOWING ADDITIONAL GROUND WAS RAISED AS UNDER WHICH STOOD REMITTED ON 10.12. 2009: THAT ON FACTS AND CIRCUMSTANCES OF THE CASE, THE APPELLANT SHOULD HAVE BEEN HELD ENTITLED TO SET OFF OF CARRIED FORWARD BUSINESS LOS SES AGAINST THE ASSESSED INCOME FOR THE YEAR UNDER CONSIDERATION. I.T.A. NOS.87/DEL./08 & 4788/DEL./07 (A.Y. : 2004-05) 2 2. FACTS INDICATE THAT THE APPEAL WAS FILED AGAINST ORDER DATED 28.12.2006 PASSED U/S 143(3) OF THE I.T. ACT, 1961. THERE WAS ONLY ONE I SSUE IN THIS CASE I.E. AGAINST DISALLOWANCE OF INTEREST AMOUNTING TO RS.97,87,517/ - BY INVOKING THE PROVISIONS OF SECTION 14A OF THE I.T. ACT. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD INVESTED RS.17,36,89,230/- IN PURCHASE OF SHARES EA RMARKED AS OTHER THAN TRADE LONG TERM INVESTMENT. THE ASSESSEE BORROWED FUNDS OF RS .8,51,65,000/- AND PAID INTEREST OF RS.1,21,02,367/- THEREON. THE ASSESSING OFFICER, F URTHER OBSERVED THAT OUT OF SUCH UNSECURED LOAN, A SUM OF RS.6,88,70,000/- WAS INVES TED IN SHARES WHICH WAS SHOWN AS INVESTMENT FOR THE PURPOSE OF LONG TERM CAPITAL GAI N. THUS, ON PRO RATA BASIS, THE ASSESSING OFFICER ASCERTAINED THE INTEREST AMOUNTIN G TO RS.97,87,570/- OUT OF TOTAL INTEREST OF RS.1,21,03,367/- BEING ATTRIBUTABLE TO THE EARNING OF EXEMPT INCOME AND DISALLOWED THE SAME U/S 14A OF THE I.T. ACT, 1961. IN SUPPORT OF THE CONTENTION, THE ASSESSING OFFICER RELIED ON THE FOLLOWING CASE LAWS : (A) K.V. TRADING CO. LTD. (FORMERLY KNOWN AS KANGRA VALLEY INVESTMENT & FINANCE CO. LTD.) VS. DCIT IN I.T.A. NO.924(KOL.)2003 FOR ASSESSMENT YEAR 1998-99. (B) TWENTY FIRST SECURITIES LTD. VS. DCIT, ITA NO.1 126(KOL.) OF 2003, ITAT, KOLKATA C BENCH. 3. ASSESSEE TOOK UP THE MATTER IN APPEAL. THE ARGU MENTS MADE BY THE LD.AR OF THE ASSESSEE WERE SUMMARIZED BY CIT(A) AS UNDER: (I) THAT THE APPELLANT DID NOT RECEIVE ANY DIVIDEND DURING THE YEAR. HENCE, THERE WAS NO EXEMPT INCOME AND THE APPORTIONMENT OF INTEREST AMOUNTING TO RS.97,87,570/- TOWARDS EXEMPT INCOME WAS NOT JUS TIFIED. (II) THAT THE INVESTMENT IN SHARES OUT OF BORROWED FUNDS WAS NOT MADE FOR THE PURPOSES OF EARNING OF DIVIDEND INCOME BUT THE APPE LLANT PRIMARY MOTIVE WAS TO EARN THE APPRECIATION BY WAY OF CAPITAL GAIN . (III) THAT THE APPELLANT HAD EARNED DIVIDEND INCOME IN ASSESSMENT YEAR 2002- 03 WHICH WAS CLAIMED AS EXEMPT. ACCORDINGLY, THE A SSESSING OFFICER DISALLOWED THE INTEREST AND OTHER ADMINISTRATIVE EX PENSES BY APPLYING THE PROVISION OF SECTION 14A AGAINST WHICH THE APPEAL I S PENDING BEFORE THE ITAT. IN THE LIGHT OF THESE FACTS, LEARNED AR ARGU ED THAT THE DISALLOWANCE U/S 14A IN THIS YEAR IS NOT JUSTIFIED AND THE SAME IS LIABLE TO BE DELETED. I.T.A. NOS.87/DEL./08 & 4788/DEL./07 (A.Y. : 2004-05) 3 (IV) THAT THE APPELLANT HAD EARNED INTEREST INCOME TO THE EXTENT OF RS.100.78 LAKHS AGAINST THE LOAN AND ADVANCES WHILE THE INTER EST WAS PAID TO THE EXTENT OF RS.121.03 LAKHS. THUS, THE NET INTEREST EXPENDITURE WAS DEBITED TO THE EXPENDITURE OF RSD.20.25 LAKHS. ACCORDINGLY , THE LEARNED AR EMPHASIZED THAT IF AT ALL THE PROPORTIONATE INTERES T IS FOUND TO BE DISALLOWABLE, THE PROPORTIONATE INTEREST TO BE DISA LLOWED AGAINST THE NET INTEREST OF RS.20.25 LAKHS DEBITED TO THE P&L ACCOU NT. 4. CIT(A) CONSIDERING THE PLEA OF THE ASSESSEE HAS CONCLUDED TO HOLD TO DECIDE THE ISSUE AS PER PARA.4 OF HIS ORDER: IN THE LIGHT OF FINDING GIVEN BY KOLKATA, ITAT IN DEVENDRA PRASAD JAJODIA QUOTED ABOVE AND SUPPORTED BY DIFFERENT ORDERS OF I TATS, AS CITED ABOVE, I HOLD THAT THE ASSESSING OFFICER WAS JUSTIFIED TO DISALLO W THE PROPORTIONATE INTEREST PERTAINING TO INVESTMENT FOR EARNING OF DIVIDEND (E XEMPT INCOME), THOUGH EXEMPT INCOME WAS NOT EARNED DURING THE YEAR. HOWEVER, I AGREE WITH THE ALTERNATIVE ARGUMENT OF LEARNED AR THAT THE NET INTEREST AMOUNT DEBITED TO P&L ACCOUNT IS REQUIRED TO BE APPORTIONED AND NOT THE GROSS INTERE ST EXPENDITURE. THUS, THE ASSESSING OFFICER IS DIRECTED TO WORK OUT THE DISAL LOWABLE INTEREST ON PRO RATA BASIS AGAINST THE NET INTEREST INCOME DEBITED TO TH E P&L A/C. WITH THESE OBSERVATIONS, GROUND NO.2 IS GENERAL IN NATURE, WHI CH REQUIRE NO SPECIFIC COMMENTS. 5. AT THE VERY OUTSET, LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN RELATION TO INVOCATION OF SECTION 14A OF THE I.T. ACT, 1961, TH E MATTER REQUIRES TO GO BACK TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING IT IN THE LIG HT OF MAXOPP INVESTMENT LTD. VS. CIT, NEW DELHI (203 TAXMANN 364). THEREFORE, ORDERS OF AUTHORITIES BELOW SHOULD BE SET ASIDE AND THE MATTER BE RESTORED BACK ON THE FILE O F THE ASSESSING OFFICER WITH THE DIRECTION TO FOLLOW THE DECISION OF MAXOPP INVESTME NT LTD., CITED SUPRA TO DECIDE THE ISSUE AFRESH. 6. LD.DR COULD NOT CONTROVERT THIS FACTUAL ASPECT O F THE MATTER AND RATHER SUBMITTED THAT THE MATTER CAN BE RESTORED BACK ON THE FILE OF THE ASSESSING OFFICER FOR RE- CONSIDERATION OF THE ISSUE AFRESH. 7. AFTER HAVING HEARD BOTH THE SIDES AND CONSIDERIN G THE MATERIAL ON RECORD, WE FIND THAT ISSUE IN RELATION TO DISALLOWANCE UNDER SECTIO N 14A OF THE I.T. ACT, 1961, THE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD.(SUPRA) HAS OBSERVED AS UNDER: I.T.A. NOS.87/DEL./08 & 4788/DEL./07 (A.Y. : 2004-05) 4 SECTION 14A OF THE INCOME TAX ACT, 1961, READ WIT H RULE 8D OF THE INCOME TAX RULES, 1962 EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME WHETHER IN TERMS OF SECTION 14A(2) CONDITION PRECEDENT FOR ASSESSING OFFICER TO DETERMINE AMOUNT OF EXPENDITU RE INCURRED IN RELATION TO EXEMPT INCOME IS THAT HE MUST RECORD HIS DISSATISFA CTION WITH CORRECTNESS OF CLAIM OF EXPENDITURE MADE BY ASSESSEE OR WITH CORRE CTNESS OF CLAIM MADE BY ASSESSEE NO EXPENDITURE HAS BEEN INCURRED. HELD, YES WHETHER THEREFORE, DETERMINATION OF AMOUNT OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 8D WOULD ONLY COME INTO PLAY WHEN ASSESSING O FFICER REJECTS CLAIM OF ASSESSEE IN THIS REGARD HELD, YES WHETHER RULE 8D, WHICH WAS INTRODUCED BY VIRTUE OF NOTIFICATION NO. 45/2008, DATED 24.3.200 8, IS PROSPECTIVE IN OPERATION AND CANNOT BE REGARDED AS BEING RETROSPECTIVE HEL D, YES WHETHER THOUGH SUB-SECTIONS(2) AND (3) OF SECTION 14A WERE INTRODU CED WITH PROSPECTIVE EFFECT FORM ASSESSMENT YEAR 2007-08 ONWARDS, THEY WOULD BE WORKABLE ONLY WITH EFFECT FROM DATE OF INTRODUCTION OF RULE 8D WHICH GAVE CON TENT TO EXPRESSION SUCH METHOD AS MAY BE PRESCRIBED APPEARING IN SECTION 14A(2) HELD, YES WHETHER, HOWEVER, FACT THAT SUB-SECTIONS (2) AND ( 3) OF SECTION 14A AND RULE 8D WOULD OPERATE PROSPECTIVELY (AND, NOT RETROSPEC TIVELY) DOES NOT MEAN THAT PRIOR TO THAT PERIOD ASSESSING OFFICER IS NOT TO S ATISFY HIMSELF WITH CORRECTNESS OF CLAIM OF ASSESSEE WITH REGARD TO SUCH EXPENDITUR E HELD, YES WHETHER EVEN FOR PER-RULE 8D PERIOD, WHENEVER ISSUE OF SECTION 14A ARISES BEFORE AN ASSESSING OFFICER, HE HAS, FIRST OF ALL, TO ASCERTA IN CORRECTNESS OF CLAIM OF ASSESSEE IN RESPECT OF EXPENDITURE INCURRED IN RELA TION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER ACT AND IF HE IS SA TISFIED ON AN OBJECTIVE ANALYSIS AND FOR COGENT REASON THAT AMOUNT OF SUCH EXPENDITURE AS CLAIMED BY ASSESSEE IS NOT CORRECT, HE REQUIRED TO DETERMINE A MOUNT OF SUCH EXPENDITURE ON BASIS OF A REASONABLE AND ACCEPTABLE METHOD OF APPO RTIONMENT - HELD, YES (PARTLY IN FAVOR OF REVENUE). 8. THEREFORE, FOLLOWING THE SAID DECISION, WE SET A SIDE THE ORDER OF THE AUTHORITIES BELOW AND RESTORE THE MATTER BACK ON THE FILE OF TH E ASSESSING OFFICER FOR RECONSIDERATION OF THE ISSUE AFRESH AFTER GIVING DUE OPPORTUNITY TO THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. 9. AS A RESULT, BOTH THE APPEALS GET ALLOWED FOR S TATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON 04.01.2013. SD/- SD/- (T.S. KAPOOR) (U.B.S. BEDI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: JAN. 04, 2013. *SKB* I.T.A. NOS.87/DEL./08 & 4788/DEL./07 (A.Y. : 2004-05) 5 COPY FORWARDED TO:- 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT (CONCERNED) 4. THE CIT(A)-VI, NEW DELHI. 5. THE DR, ITAT, LOKNAYAK BHAWAN, KHAN MARKET, NEW DELHI. AR/ITAT