DCIT, New Delhi V. M/s. DARCL Logistics Ltd., New Delhi

ITA 979/DEL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 3303 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 8 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 25-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Question of law
• Section: 14A; 10

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH B, NEW DELHI BEFORE : SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 979/DEL./2016 ASSESSMENT YEAR: 2012-13 DCIT, CIRCLE 7(1), NEW DELHI. (APPELLANT) VS. DARCL LOGISTICS LTD., M-2, HIMLAND HOUSE, KARAMPURA COMMERCIAL COMPLEX, NEW DELHI. PAN AAACD 2086J. (RESPONDENT) APPELLANT BY SH. ANIL KUMAR SHARMA, SR. DR RESPONDENT BY SH. K.M. GUPTA, ADVOCATE ORDER PER L.P. SAHU, A.M.: THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A)-3, DELHI DATED 17.12.2015 FOR THE ASSESSMENT YEAR 2012 -13 ON THE FOLLOWING GROUND: 1. LD. CIT(A) ERRED IN LAW AND ON FACTS OF THE CAS E IN RESTRICTING THE DISALLOWANCE OF RS.46,08,647/- MADE BY THE AO U/S. 14A OF THE I.T. ACT, 1961 READ WITH RULE 8D(II) OF THE I.T. RULES, 1962 TO RS. 46,636/-. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E DURING THE YEAR UNDER CONSIDERATION EARNED EXEMPT INCOME OF RS.46,636/-. THE ASSESSEE MADE INVESTMENT OF RS.6 CRORES DURING THE YEAR AND NO DI SALLOWANCE OF INTEREST WAS MADE BY THE ASSESSEE NOR DID HE MAKE ANY DISALLOWAN CE OF ANY ADMINISTRATIVE DATE OF HEARING 14.11.2017 DATE OF PRONOUNCEMENT 15 .11.2017 ITA NO. 979/DEL./2016 2 EXPENDITURE U/S. 14A FOR EARNING EXEMPT INCOME. THE ASSESSING OFFICER, AFTER CONSIDERING VARIOUS DECISIONS AND PROVISIONS OF SEC TION 14A READ WITH RULE 8D, MADE DISALLOWANCE OF RS.46,08,647/- , I.E., RS.42,6 5,819/- U/R 8D(II) AND RS.3,42,828/- U/R 8D(III). THE COMPUTATION OF DISAL LOWANCE U/S. 14A IS MADE BY THE AO AT PAGE 6 OF THE ASSESSMENT ORDER. IN APPEAL , THE LD. CIT(A), AFTER CONSIDERING ELABORATE SUBMISSIONS OF THE ASSESSEE A ND VARIOUS CASE LAWS, WORKED OUT THE DISALLOWABLE INTEREST TO RS.46,000/- AND RESTRICTED THE DISALLOWANCE U/S. 14A TO RS. RS.46,636/- , I.E., TO THE EXTENT OF EXE MPT INCOME EARNED BY THE ASSESSEE, OBSERVING AS UNDER : 3.2 HAVING GONE THROUGH THE SUBMISSIONS MADE BY TH E APPELLANT, THE ORDER OF ASSESSMENT MADE BY THE ASSESSING OFFICER AND THE MA TERIAL EVIDENCES PLACED ON THE RECORD, IT EMERGES FROM THE FACTS THAT THE APPELLAN T HAS MADE THE INVESTMENT OF RS.6 CRORES DURING THE YEAR AND NO DISALLOWANCE OF INTER EST HAS BEEN MADE BY THE ASSESSEE. DURING THE APPELLATE PROCEEDINGS, THE APPELLANT WAS DIRECTED BY THIS OFFICE TO FILE THE COMPLETE DETAILS OF THE INVESTMENTS MADE AND THE PO SITION OF FUNDS AVAILABLE WITH THE APPELLANT. IT IS EVIDENT FROM THE SUBMISSIONS FILED THAT THE APPELLANT HAS MADE THE INVESTMENT OF RS.6 CRORES ON 30-03-2012. THE INVEST MENT HAS BEEN MADE FROM THE CURRENT ACCOUNT OF THE ASSESSEE MAINTAINED WITH STA TE BANK OF INDIA. THE AMOUNT OF RS.10 CRORES HAS BEEN TRANSFERRED TO THE CURRENT AC COUNT FROM THE CASH CREDIT ACCOUNT OF THE APPELLANT COMPANY MAINTAINED WITH STATE BANK OF INDIA, HISSAR BRANCH, HARYANA. THE CASH CREDIT ACCOUNT SHOWS THE DEBIT BALANCE OF RS.1 8,64,15,325/- ON THE DAY OF INVESTMENT, IN VIEW OF THE AFORESAID FACTS, IT IS C LEAR THAT THE APPELLANT HAS MADE THE INVESTMENT OF RS. 6 CRORES FROM THE BORROWED FUNDS. THE INTEREST OF 2 DAYS @ 14% P.A. AMOUNTS TO RS.46,000/-. HOWEVER, WITH REGARD TO THE DISALLOWANCE ON ACCOUNT OF ADMINISTRATIVE EXPENSES EQUAL TO 0.5% OF AVERAGE INVESTMENTS, IT IS OBSERVED THAT EARNING OF EXEMPT INCOME IS NOT A PASSIVE ACTIVITY. IN THE PRESENT AGE OF MAKING OF I NVESTMENT, MAINTAINING OR CONTINUING WITH INVESTMENT AND TIME OF EXIT FROM THE INVESTMEN T ARE WELL INFORMED AND WELL COORDINATED MANAGEMENT DECISION INVOLVING NOT ONLY INPUTS FROM VARIOUS SOURCES BUT ALSO ACUMEN OF SENIOR MANAGEMENT FUNCTIONARIES. THE REFORE, THE COST IS INBUILT EVEN IN SO CALLED PASSIVE INVESTMENT. THERE IS INCIDENTAL EXPE NDITURE OF COLLECTION, TELEPHONE AND ITA NO. 979/DEL./2016 3 FOLLOW UP ETC. THEREFORE, EXPENSES RELATED TO EARNI NG OF THE EXEMPT INCOME ARE EMBEDDED IN THE EXPENSES DEBITED TO PROFIT AND LOSS ACCOUNT. IN VIEW OF THIS, THE DISALLOWANCE U/S 14A OF THE ACT R.W. RULE 8D(III) O N ACCOUNT OF THE ADMINISTRATIVE EXPENSES IS CORRECTLY WORKED OUT TO RS. 3,42,828/-. 3.3 THE APPELLANT HAS EARNED THE TOTAL DIVIDEND INC OME OF RS.46,636/- DURING THE YEAR UNDER CONSIDERATION. THE HON'BLE DELHI HIGH COURT I N THE CASE OF HOLCIM INDIA PVT. LTD. ITA NO. 486/2014 & ITA NO. 299/2014 HELD: '14. ON THE ISSUE WHETHER THE RESPONDENT-ASSESSEE C OULD HAVE EARNED DIVIDEND INCOME AND EVEN IF NO DIVIDEND INCOME WAS EARNED, YET SECTION 14A CAN BE INVOKED AND DISALLOWANCE OF EXPENDITURE CAN BE MADE, THERE ARE THREE DECISIONS OF THE DIFFERENT HIGH COURTS DIRECTLY ON THE ISSUE AND AGAINST THE APPELLANT-REVENUE. NO CON TRARY DECISION OF A HIGH COURT HAS BEEN SHOWN TO US. THE PUNJAB AND HARYANA HIGH COURT IN CO MMISSIONER OF INCOME TAX, FARIDABAD VS. M/S. LAKHANI MARKETING INCL., ITA NO. 970/2008, DECIDED ON 02.04.2014, MADE REFERENCE TO TWO EARLIER DECISIONS OF THE SAME COURT IN CIT VS. HERO CYCLES LIMITED, [2010] 323 ITR 518 AND CIT VS. WINSOME TEXTILE INDU STRIES LIMITED, [2009] 319 ITR 204 TO HOLD THAT SECTION 14A CANNOT BE INVOKED WHEN NO EXEM PT INCOME WAS EARNED. THE SECOND DECISION IS OF THE GUJARAT HIGH COURT IN COMMISSION ER OF INCOME TAX-I VS. CORRTECH ENERGY (P.) LTD. [2014] 223 TAXMANN 130 (GUJ). THE THIRD D ECISION IS OF THE ALLAHABAD HIGH COURT IN INCOME TAX APPEAL NO. 88 OF 2014, COMMISSIONER O F INCOME TAX (LI) KANPUR, VS. M/S. SHIVAM MOTORS (P) LTD. DECIDED ON 05.05.2014. IN TH E SAID DECISION IT HAS BEEN HELD: 'AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THE CH APTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE A SSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, WHAT SECTION 14A PROVIDES IS THAT IF THERE IS ANY INCOME WHICH D OES NOT FORM PART OF THE INCOME UNDER THE ACT, THE EXPENDITURE WHICH IS INCURRED FO R EARNING THE INCOME IS NOT AN ALLOWABLE DEDUCTION. FOR THE YEAR IN QUESTION, THE F INDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY TAX FREE INCOME. HENCE, IN THE A BSENCE OF ANY TAX FREE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OU T FOR DISALLOWANCE. THE VIEW OF THE CIT(A), WHICH HAS BEEN AFFIRMED BY THE TRIBUNA L, HENCE DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. HENCE, THE DELETIO N OF THE DISALLOWANCE OF RS.2,03,752/- MADE BY THE ASSESSING OFFICER WAS IN ORDER'. 15. INCOME EXEMPT UNDER SECTION 10 IN A PARTICULAR ASSESSMENT YEAR, MAY NOT HAVE BEEN EXEMPT EARLIER AND CAN BECOME TAXABLE IN FUTURE YEAR S. FURTHER, WHETHER INCOME EARNED IN A SUBSEQUENT YEAR WOULD OR WOULD NOT BE TAXABLE, MAY DEPEND UPON THE NATURE OF TRANSACTION ENTERED INTO IN THE SUBSEQUENT ASSESSME NT YEAR. FOR EXAMPLE, LONG TERM CAPITAL GAIN ON SALE OF SHARES IS PRESENTLY NOT TAXABLE WHER E SECURITY TRANSACTION TAX HAS BEEN PAID, ITA NO. 979/DEL./2016 4 BUT A PRIVATE SALE OF SHARES IN AN OFF MARKET TRANSA CTION ATTRACTS CAPITAL GAINS TAX. IT IS AN UNDISPUTED POSITION THAT RESPONDENT ASSESSEE IS AN INVESTMENT COMPANY AND HAD INVESTED BY PURCHASING A SUBSTANTIAL NUMBER OF SHARES AND TH EREBY SECURING RIGHT TO MANAGEMENT. POSSIBILITY OF SALE OF SHARES BY PRIVATE PLACEMENT E TC. CANNOT BE RULED OUT AND IS NOT AN IMPROBABILITY. DIVIDEND MAY OR MAY NOT BE DECLARED. DI VIDEND IS DECLARED BY THE COMPANY AND STRICTLY IN LEGAL SENSE, A SHAREHOLDER HAS NO C ONTROL AND CANNOT INSIST ON PAYMENT OF DIVIDEND. WHEN DECLARED, IT IS SUBJECTED TO DIVIDEN D DISTRIBUTION TAX. 16. WHAT IS ALSO NOTICEABLE IS THAT THE ENTIRE OR WH OLE EXPENDITURE HAS BEEN DISALLOWED AS IF THERE WAS NO EXPENDITURE INCURRED BY THE RESPONDENT -ASSESSEE FOR CONDUCTING BUSINESS. THE CIT(A) HAS POSITIVELY HELD THAT THE BUSINESS WAS SET UP AND HAD COMMENCED. THE SAID FINDING IS ACCEPTED. THE RESPONDENT-ASSESSEE, THERE FORE, HAD TO INCUR EXPENDITURE FOR THE BUSINESS IN THE FORM OF INVESTMENT IN SHARES OF CEME NT COMPANIES AND TO FURTHER EXPAND AND CONSOLIDATE THEIR BUSINESS. EXPENDITURE HAD TO B E ALSO INCURRED TO PROTECT THE INVESTMENT MADE. THE GENUINENESS OF THE SAID EXPEND ITURE AND THE FACT THAT IT WAS INCURRED FOR BUSINESS ACTIVITIES WAS NOT DOUBTED BY THE ASSESS ING OFFICER AND HAS ALSO NOT BEEN DOUBTED BY THE CIT(A). 17. IN THESE CIRCUMSTANCES, WE DO NOT FIND ANY MERI T IN THE PRESENT APPEALS. THE SAME ORE DISMISSED IN LIMINE.' THE VARIOUS HIGH COURTS HAVE UNIFORMLY HELD THAT NO DISALLOWANCE U/S 14A CAN BE MADE IF THERE IS NO EXEMPT INCOME AND IN THAT CONTEXT OV ERRULED THE DECISION OF SPECIAL BENCH, NEW DELHI IN THE CASE OF CHEMINVEST LTD. VS. ITO RE PORTED IN 317 ITR 86. IN THE CASE IN HAND, IT IS CLEAR FROM THE SUBMISSIONS FILED DURING THE APPELLATE PROCEEDINGS THAT THERE IS DIVIDEND INCOME OF RS.46,636/-WHICH IS EXEMPT FROM THE TAX DURING THE YEAR. IN VIEW OF THE AFORESAID DISCUSSION, THE ADDITION TO THE EXTEN T OF RS.46,636/- IS SUSTAINED U/S 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 AND THE ASSESSING OFFICER IS DIRECTED TO MODIFY THE ORDER OF ASSESSMENT ACCORDINGLY. 3. WE HAVE HEARD THE SUBMISSIONS OF BOTH THE PARTIE S AND HAVE GONE THROUGH THE ENTIRE MATERIAL ON RECORD. THE LD. DR SUBMITTED THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE ADDITIONS MADE BY THE AO U/S. 14A READ WITH RULE 8D OF THE IT ACT. IT WAS SUBMITTED THAT THE ASSESSING OFF ICER HAS DETERMINED THE DISALLOWABLE EXPENDITURE AFTER KEEPING IN VIEW THE FORMULA CONTAINED IN THE ITA NO. 979/DEL./2016 5 STATUTORY PROVISIONS OF RULE 8D AND ALSO TAKING INT O CONSIDERATION THE FACT THAT NO INCOME CAN BE EARNED WITHOUT EXPENDITURE. THE LD. C IT(A) IS STATED TO HAVE NOT CONSIDERED THESE VITAL ASPECTS IN RIGHT PERSPECTIVE . 4. ON THE OTHER HAND, THE LD. AR REITERATED THE SUB MISSIONS MADE BEFORE THE LD. CIT(A) AND SUBMITTED THAT THE DISALLOWANCE ONLY TO THE EXTENT OF EXEMPT INCOME HAS BEEN APPROVED IN VARIOUS DECISIONS OF HONBLE H IGH COURT, AS ALSO RELIED ON BY THE LD. CIT(A) IN THE IMPUGNED ORDER. IT WAS SUBMIT TED THAT IN THE CASE OF ASSESSEE ITSELF, THE ITAT DELHI BENCH HAS RESTRICTED THE SIM ILAR DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME VIDE ORDER DATED 08.11.2017 IN REVENU ES APPEAL NO. 5651/DEL./2015 AND CO OF ASSESSEE NO. 445/DEL./2015 . 5. HAVING CONSIDERED THE RIVAL SUBMISSIONS IN THE L IGHT OF ASSESSMENT ORDER AND THE FINDINGS REACHED BY THE LD. CIT(A), WE FIND NO JUSTIFICATION TO INTERFERE WITH THE REASONED ORDER MADE BY THE FIRST APPELLATE AUTHORITY. THE LD. CIT(A) HAS OBSERVED IN THE IMPUGNED ORDER THAT THE ASSESSEE HA S MADE THE INVESTMENT OF RS.6 CRORES ON 30.03.2012 FROM THE CURRENT ACCOUNT OF THE ASSESSEE MAINTAINED WITH STATE BANK OF INDIA. THE AMOUNT OF RS.10 CRORE S HAS BEEN TRANSFERRED TO THE CURRENT ACCOUNT FROM THE CASH CREDIT ACCOUNT OF THE ASSESSEE COMPANY MAINTAINED WITH STATE BANK OF INDIA, HISSAR BRANCH AND THE CAS H CREDIT ACCOUNT SHOWED THE DEBIT BALANCE OF RS.18,64,15,325/- ON THE DATE OF I NVESTMENT. HE ACCORDINGLY ITA NO. 979/DEL./2016 6 RIGHTLY OBSERVED THAT INVESTMENT OF RS.6 CRORES WAS MADE OUT OF THE BORROWED FUNDS. THEREFORE, THE LD. CIT(A) WAS JUSTIFIED TO W ORK OUT TWO DAYS INTEREST @ 14% AMOUNTING TO RS.46,000/- FOR DISALLOWANCE. THE LD. CIT(A) FURTHER RELIED ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF HOLCIM INDIA PVT. LTD. (SUPRA) FOR THE PROPOSITION THAT DISALLOWANCE OF ADMINISTRATIVE EXPENDITURE FOR EARNING THE EXEMPT INCOME CAN AT THE MOST BE MA DE TO THE EXTENT OF EXEMPT INCOME EARNED. SIMILAR VIEW HAS ALSO BEEN TAKEN BY CO-ORDINATE BENCH IN THE CASE OF ASSESSEE ITSELF FOR A.Y. 2011-12 (SUPRA). NO CON TRARY MATERIAL IS BROUGHT ON RECORD ON BEHALF OF THE REVENUE TO DISCARD THE DECI SION REACHED BY THE LD. CIT(A). WE, THEREFORE, FIND NO MERIT IN THE APPEAL OF THE R EVENUE AND THE SAME DESERVES TO BE DISMISSED. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 15.11.2017. SD/- SD/- (BHAVNESH SAINI) (L.P. SA HU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 15.11.2017 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI