M/s Raunaq International, New Delhi V. DCIT, New Delhi

ITA 947/DEL/2013

• Counselvise Citation: 94720114 RSA 2013
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 23-01-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 15-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MEENAKSHI VOHRA
• Assessee Lawyers: RITESH WAHAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: F NEW DELHI BEFORE SHRI U.B.S.BEDI, J.M. AND SHRI J. SUDHAKAR REDDY, A.M. I.T.A .NO. 947/DEL/2013 & I.T.A .NO. 948/DEL/2013 ASSESSMENT YEAR- 2008-09 AND 2009-10 M/S RAUNAQ INTERNATIONAL LTD. 512, SURYA KIRAN BLDG. 19, K.G.MARG NEW DELHI PAN: AAACR 5747 C (APPELLANT) VS DCIT, CC - II NEW DELHI RESPONDENT) APPELLANT BY SH. RITESH WAHAL, C.A. RESPONDENT BY SH. MEENAKSHI VOHRA, SR. DR ORDER PER J. SUDHAKAR REDDY, A.M. BOTH THESE APPEALS ARE PREFERRED BY THE ASSESSEE AND ARE DIRECTED AGAINST SEPARATE BUT IDENTICAL ORDERS OF THE LD.CIT(A)-XXXI, NEW DE LHI , DATED 19.12.2012 PERTAINING TO THE AYS 2008-09 AND 2009-10. AS THE ISSUES ARI SING IN THESE APPEALS ARE COMMON, FOR THE SAKE OF CONVENIENCE THEY ARE HEARD TOGETHER AND DIS POSED OFF BY WAY OF THIS COMMON ORDER. 2. THE SOLE GROUND THAT ARISES FOR OUR CONSIDERATION FOR THE ASSESSMENT YEAR 2008-09 IS GROUND NO.2 WHICH READS AS FOLLOWS. PAGE 2 OF 7 2. THAT THE LD.COMMISSIONER OF INCOME TAX (APPEAL S) HAS ERRED IN CONFIRMING DISALLOWANCE OF INTEREST OF RS.59,800/- U/S 14A R.W.RULE 8D OF THE I.T.RULES, 1 962. 3. THE LD.COUNSEL FOR THE ASSESSEE MR.M.K.MADAN, C.A. SUBMITS THAT THE A.O. CANNOT STRAIGHT AWAY PROCEED TO APPLY RULE 8D WITHOUT CON SIDERING THE CORRECTNESS OF THE CLAIM MADE BY THE ASSESSEE IN RESPECT OF EXPENDITURE INCU RRED IN RELATION TO EXEMPT INCOME. FOR THIS PROPOSITION HE RELIED ON THE DECISION OF THE H ONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO.LTD. VS. DCIT (2010 ) REPORTED IN 328 ITR 81 AND MAXOPP INVESTMENT LTD. VS. CIT (2012) REPORTED IN 347 ITR 272 (DELHI). HE ARGUED THAT THE ASSESSING OFFICER MUST RECORD THAT HE IS NOT S ATISFIED WITH THE CORRECTNESS OF THE CLAIM IN RESPECT OF SUCH EXPENDITURE AND THEN ONLY RESORT TO APPLICATION OF RULE 8D. 3.1. HE FURTHER SUBMITTED THAT IF THERE IS NO ACTUAL EX PENDITURE INCURRED FOR EARNING EXEMPT INCOME, THEN NO AMOUNT CAN BE DISALLOWED U/S 14A. FOR THIS PROPOSITION HE RELIED ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA) PAGES 289 TO 291 WHERE IT IS HELD AS FOLLOW S: COROLLARY TO THIS THAT IF NO EXPENDITURE IS INCURR ED IN RELATION TO THE EXEMPT INCOME, NO DISALLOWANCE CAN BE MADE U/S 14A OF THE ACT. 3.2. HE SUBMITTED THAT THE INVESTMENT IN QUESTION WAS M ADE FROM INTERNAL ACCRUALS. HE REFERRED TO THE SUBMISSIONS MADE BEFORE THE LD.COMM ISSIONER OF INCOME TAX (APPEALS) WHICH IS AT PAGES 6 AND 7 OF THE PAPER BOOK AND SUB MITTED THAT NO DISALLOWANCE CAN BE MADE PAGE 3 OF 7 WHEN THERE IS NO INTEREST EXPENDITURE INCURRED FOR MAKING THESE INVESTMENTS. HE RELIED ON THE FOLLOWING CASE LAWS. (I) RELIANCE UTILITIES & POWERS LTD. (313 ITR 340) (II) RELIANCE INDUSTRIES LTD. VS. ACIT (79 DTR (TRI B.) 315) 3.3 . ON THE QUANTUM OF DISALLOWANCE U/S 14A HE RELIED ON THE ASSESSEES ARGUMENTS AS RECORDED AT PARA 3.1.3 OF THE LD.COMMISSIONER OF I NCOME TAX (APPEALS)S ORDER AND SUBMITTED THAT THE INVESTMENTS HAVE COME DOWN TO RS .1.49 CRORES ON 31 ST MARCH, 2009 FROM RS.1.57 CRORES AS ON 31 ST MARCH, 2008, WHICH MEANS THE ASSESSEE HAS MADE DIV ESTMENT OF RS.7 LAKHS. HE FURTHER POINTED OUT THAT THERE IS A NET DECREASE OF LOAN FUNDS DURING THE YEAR TO THE TUNE OF RS.27 LAKHS AND THE FUNDS HAVE BEEN INCREASED FROM RS.9.14 CRORES AS ON 31.3.2008 TO RS.12.30 CRORES AS ON 31.3.2009, WHIC H DEMONSTRATES THAT THE INVESTMENTS HAVE NOT BEEN MADE FROM LOAN FUNDS. 3.4. FOR THE ASSESSMENT YEAR 2009-10, THERE WAS ONE MO RE GROUND RELATING TO S.43B. HE RELIED ON THE DECISION OF HONBLE CALCUTTA HIGH COU RT REPORTED IN 292 ITR 470 (CAL), WHEREIN IT WAS HELD THAT S.43B(F) IS UNCONSTITUTION AL. HE ALSO REFERRED TO THE ADMISSION OF SLP BY THE HONBLE SUPREME COURT AND PRAYED THAT T HE ISSUE BE SET ASIDE TO THE ASSESSING OFFICER WITH THE DIRECTION TO FOLLOW THE ORDER OF T HE HONBLE SUPREME COURT, AS AND WHEN IT COMES. 4. LD.D.R. SUBMITTED THAT THE DISALLOWANCE U/S 14A CA N BE MADE EVEN IF THERE IS NO EXEMPT INCOME AND FOR THIS PROPOSITION HE RELIED ON THE DECISION OF CHEMIVEST LTD., REPORTED IN 121 ITD 318 (S.B.) (DEL). HE RELIED O N THE ORDER OF THE ASSESSING OFFICER AS PAGE 4 OF 7 WELL AS THAT OF THE LD.COMMISSIONER OF INCOME TAX ( APPEALS) AND SUBMITTED THAT RULE 8D SQUARELY APPLIES TO THE FACTS OF THE CASE AND UNDER THOSE CIRCUMSTANCES THE ORDER OF THE FIRST APPELLATE AUTHORITY HAS TO BE UPHELD. 5. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDERATI ON OF THE FACTS AND CIRCUMSTANCES OF THE CASE, PERUSAL OF THE PAPERS ON RECORD AS WELL A S THE CASE LAWS CITED, WE HOLD AS FOLLOWS. 6. THE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA) REPORTED IN 347 ITR 272 (DELHI ) HAS CLEARLY LAID DOWN THAT NO DISALLOWANCE CAN BE MADE U/S 14A OF THE ACT, IF NO EXPENDITURE IS INCURRED IN RELATION TO THE EXEMPT INCOME. IN THE CASE ON HAND FOR THE ASSESSMENT YEAR 2008-09 THE ASSESSEE HAD TO TAL PROFITS OF RS.3.65 CRORES DURING THE YEAR AS AGAINST RS.1.57 CRORES INVESTMENTS MADE. THE LOAN FUNDS ARE RS.50.32 LAKHS AND REPRESENT A LOAN AGAINST HYPOTHECATION OF CRANES. THE SHAREHOLDERS FUNDS AS ON 31.3.2007 IS RS.7.34 CRORES AND AS ON 31.3.2008 IS RS.9.14 CRORE S. FROM THE ABOVE IT IS CLEAR THAT THE ASSESSEE HAS NOT USED LOAN FUNDS FOR MAKING INVEST MENTS. EVEN THE PROFITS DURING THE YEAR ARE IN EXCESS OF INVESTMENTS. EVEN IF IT IS A CASE OF MIXED FUNDS, THE HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES & POWE RS LTD. (313 ITR 340) HELD THAT, A PRESUMPTION WOULD ARISE THAT THE INVESTMENTS ARE MA DE OUT OF INTEREST FREE FUNDS. THUS, WE UPHOLD THE CONTENTIONS OF THE ASSESSEE ON THIS COUN T. REGARDING THE ARGUMENTS THAT THE ASSESSEE COMPANY HAS NOT EARNED ANY INCOME FROM THE IMPUGNED INVESTMENT MADE, WE FIND THAT THE ISSUE IS DECIDED AGAINST THE ASSESSEE BY T HE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE PAGE 5 OF 7 OF CHEMIVEST LTD. AS REGARDS THE ARGUMENTS THAT TH E ASSESSING OFFICER SHOULD FIRST RECORD HIS SATISFACTION, AS TO THE CORRECTNESS OF THE CLA IM OF THE ASSESSEE, BEFORE PROCEEDING TO APPLY S.14A R.W.RULE 8D, WE FIND THAT THE ASSESSING OFFIC ER HAS GIVEN A SHOW CAUSE NOTICE TO THE ASSESSEE AND THEREAFTER CONSIDERED THE EXPLANAT IONS AND CAME TO A SATISFACTION THAT THE CLAIM OF THE ASSESSEE IS NOT CORRECT. THUS THIS A RGUMENT OF THE ASSESSEE CANNOT BE SUSTAINED ON FACTS. 6.1. THOUGH THERE IS NO INTEREST EXPENDITURE THAT CAN BE SAID TO HAVE BEEN INCURRED BY THE ASSESSEE FOR THE PURPOSE OF MAKING INVESTMENTS, ADMINISTRATIVE AND OTHER EXPENDITURE IF ANY INCURRED HAS TO BE QUANTIFIED AND DISALLOWED IN ACCORDANCE WITH LAW. AS THE ASSESSEE HAS NOT GIVEN ANY CONVINCING EXPLANATION AS TO WHY IN ITS CASE FOR EARNING EXEMPT INCOME, THERE IS NO ADMINISTRATIVE OR OTHER EXPENSES AND A S IT HAS ALSO NOT COME OUT WITH ANY ALTERNATE CALCULATIONS, WE FIND NO REASON TO INTER FERE WITH THE CALCULATION OF THE REVENUE AUTHORITIES. THUS, WE UPHOLD THE FINDING OF THE FI RST APPELLATE AUTHORITY AND DISMISS THIS GROUND OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2008 -09. 7. FOR THE ASSESSMENT YEAR 2009-10, THOUGH THERE ARE ADDITIONAL FACTS, THE FACT REMAINS THAT THE ASSESSEE HAS NOT DISALLOWED ANY AMOUNT U/S 14A AND IN THE ABSENCE OF A REASON FOR NOT DOING SO AND IN THE ABSENCE OF AN ALTERNATIVE C OMPUTATION, FOR THE SAME REASONS GIVEN IN PARA 6.1 OF THIS ORDER, WE UPHOLD THE DISALLOWANCE AND DISMISS THIS GROUND OF THE ASSESSEE. PAGE 6 OF 7 8. GROUND NO.2 IS ON THE ISSUE OF S.43B(F). THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS REFERRED TO THE HONBLE SUPREME COURT DECISION IN THE SLP AND UPHELD THE ORDER OF THE ASSESSING OFFICER. THE ASSESSEE WANTS US TO SET ASIDE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO FOLLOW THE DECISION OF HONBLE SUPREME COURT. AS THE LD.AO HAS ALREADY DISALLOWED THE AMOUNT AND THE LD.COMMISSIONER OF INCOME TAX (APPEALS) HAS CONFIRMED THE SAME BY REFERRING TO TH E ORDER OF THE HONBLE SUPREME COURT, WE SEE NO PURPOSE FOR SETTING ASIDE THE MATTER TO THE FILE OF THE A.O. IT IS OPEN FOR THE ASSESSEE TO MOVE APPROPRIATE APPLICATIONS BEFORE THIS TRIBUNAL U/S 254(2), AS AND WHEN THE HONBLE SUPREME COURT ADJUDICATES THE MATTER. THUS , WE REJECT THIS GROUND OF THE ASSESSEE. 9. IN THE RESULT THE APPEALS OF THE ASSESSEE FOR BOT H THE AYS ARE DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH, 2014. SD/- SD/- (U.B.S. BEDI) (J. SUDHAKAR REDDY) JUDICIA MEMBER ACCOUNTANT L ME MBER DATED: 21 ST MARCH, 2014 * MANGA PAGE 7 OF 7 COPY FORWARDED TO: APPELLANT; RESPONDENT; CIT; CIT(APPEALS); DR ASSISTANT REGISTRAR ITAT, NEW DELHI