M/S RHC HOLDING PVT. LTD.,NEW DELHI V. ADDL. CIT, NEW DELHI

ITA 2234/DEL/2013

AI Insights

The case involves M/s. RHC Holding Pvt. Ltd, which appealed against the order of the Commissioner of Income Tax (Appeals)-XVII, New Delhi, concerning the disallowance made under Section 14A of the Income-tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962. The primary contention was whether the disallowance of expenditure under Section 14A could exceed the exempt income, which the assessee argued it should not. The Tribunal admitted the additional ground raised by the assessee and decided in favor of the assessee, aligning with the Supreme Court's decision in Maxopp Investment Ltd Vs. CIT.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 33972 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: misc
• Other Referred Cases: Maxopp Investment Ltd Vs. CIT
• Laws Referred To: Income-tax Act, 1961, Income Tax Rules, 1962
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN MALIK
• Assessee Lawyers: TARANDEEP SINGH
• Keywords: Opportunity of being heard; Additional evidence; Capital Gains; Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

"INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “F”: NEW DELHI BEFORE SHRI VIKAS AWASTHY, JUDICIAL MEMBER AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA No. 2234/Del/2013 (Assessment Year: 2008-09) M/s. RHC Holding Pvt. Ltd, Prius Platinum, Ground Floor, D-3, District Center, Saket, New Delhi-110017 Vs. Addl CIT, Range-15, New Delhi (Appellant) (Respondent) PAN: AAKCS7686P Assessee by : Shri Tarandeep Singh, FCA Revenue by: Ms. Suman Malik, CIT DR Date of Hearing 14/01/2025 Date of pronouncement 29/01/2025 O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in ITA No.2234/Del/2013 for AY 2008-09, arises out of the ld. Commissioner of Income Tax (Appeals)-XVII, New Delhi [hereinafter referred to as „ld. CIT(A)‟, in short] in Appeal No. 155/10-11 dated 12.02.2013 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 31.12.2010 by the Assessing Officer, ACIT, Range- 15, New Delhi (hereinafter referred to as „ld. AO‟). 2. Ground Nos. 4 to 4.5 raised by the assessee is challenging the disallowance made u/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. ITA No. 2234/Del/2013 M/s. RHC Holding Pvt. Ltd 3. The assessee has also raised additional ground of appeal stating that the disallowance made u/s 14A of the Act cannot exceed exempt income. 4. We have heard the rival submissions and perused the material available on record. At the outset, we find that the additional ground raised by the assessee merely represent one of the facets of the issue of disallowance made u/s 14A of the Act. Hence, the said additional ground is hereby admitted. 5. During the year under consideration, the assessee earned exempt income of Rs. 25,57,02,185/-. The assessee has made suo moto disallowance of expenditure u/s 14A of the Act to the tune of Rs. 70,07,29,476/-. The basis of such disallowance was duly furnished before the ld AO by the assessee. The ld AO recomputed the disallowance by applying all the three limbs of Rule 8D(2) of the Rules and made disallowance of Rs. 77,57,06,986/- as against suo moto disallowance of Rs. 70,07,29,476/-. The ld CIT(A) upheld the action of the ld AO. Before us, the assessee has raised an additional ground stating that the disallowance of expenditure cannot exceed exempt income. As stated earlier, additional ground is one of the facet of the regular grounds raised by the assessee and in any event, the ground raised by the assessee is legal in nature and it does not require verification of any facts. The issue in dispute is no longer res integra in view of the decision of the Hon'ble Supreme Court in the Maxopp Investment Ltd Vs. CIT reported in 402 ITR 640 (SC) wherein, it was held that disallowance of expenses made u/s 14A of the Act shall not exceed exempt income. Respectfully following the said decision, we direct the ld AO to restrict the disallowance of expenses u/s 14A to the extent of Rs. 25,57,02,185/- being the exempt income. Accordingly, Ground Nos. 4 to 4.5 and additional ground raised by the assessee are allowed. ITA No. 2234/Del/2013 M/s. RHC Holding Pvt. Ltd 6. Ground No. 1, 2, 2.1, 2.2, 3, 3.1 raised by the assessee are merely challenging the disallowance of set off of loss incurred by the assessee on sale of shares. 7. We have heard the rival submissions and perused the material available on record. The undisputed facts pertaining to this issue and the treatment given by the ld AO are as under:- “Assessee, formerly known as Solaris Finance Pvt. Ltd. (Incorporated on 19 April, 2007) is the amalgamated company wherein M/s. Ranbaxy Holding Company and M/s. Oscar Holdings Pvt.Ltd. got amalgamated w.e.f. 01-05-2007 (being the appointed date) pursuant to order of the Hon'ble High Court of Delhi dated 4th September 2008 Mr.Malvinder Mohan Singh and Mr. Shivinder Mohan Singh (brothers) exercise control over the assessee through their respective companies le M/s.Malav Holdings Pvt. Ltd. (MHPL) and M/s. Shivi Holdings Pvt. Ltd. (SHPL). In other words Mr.Malvinder Mohan Singh & Mr.Shivinder Mohan Singh (along with their wives) own 100% shares in MHPL & SHPL. In turn MHPL & SHPL own 49.99% & 49.98% shares in assessee. The assessee held 10.23 cr. shares of M/s. Ranbaxy Laboratories Ltd. (RLL) as on 1st May, 2007 a company which under the efficient leadership of Mr.Malvinder Mohan Singh had achieved a remarkable performance over past few quarters and had in the process tremendously enhanced its reach and leverage. In the time to come, a substantial increase in the share value was expected. A.2. In order of avoid any possible discontent amongst the two brothers in future and also in order to secure peace and harmony amongst all the members of the family, after discussions, the two brothers arrived at an understanding through a strictly confidential Memorandum of Understanding (MOU) on 26th August, 2007 being the 40 day birth ceremony of daughter (born on 17th July, 2007of Mr Malvinder Mohan Singh. The MOU referred to above, named Shri. Sunil Godhwani, a close family friend, as the executor of the family arrangement. A.3. In terms of the said understating Mr. Shivinder Mohan Singh agreed that 30 lac shares (approx 3% shares of RLL held by assessee) be transferred/sold to Mr Malvinder Mohan Singh/his company(ies) at the then prevailing market price. Further, considering that Mr.Malvinder Mohan Singh / his companies were not having readily available liquid cash a deferred payment for the consideration of 30 lac shares was acceded to by Mr. Shivinder Mohan Singh subject to a levy of ITA No. 2234/Del/2013 M/s. RHC Holding Pvt. Ltd interest 12.5% p.a. (prevailing market rate) from the date of transaction. It was agreed that the consideration would be settled within a reasonable time (but not later than 31st March, 2008). To ensure the performance of the terms agreed upon, pursuant to / under the family arrangement, a custodian was to be appointed in whose custody the delivery instruction slip of the agreed transaction were to vest in, till the loan amount was discharged by MHPL.. A.4. The assessee sold 30 lac shares of M/s.Ranbaxy Laboratories Ltd. to M/s. Malav Holdings Pvt Ltd on 27th August 2007 at the rate prevailing in the stock exchange as on the above date. The said transaction of share sale was also authorized by the Board of Directors vide Resolution dated 24th August, 2007 (copy furnished before the AO). Pursuant to the Board Resolution the assessee entered into an agreement (in accordance with and to honor the terms and conditions of the family arrangement) with the above named buyer company in regard to sale/purchase of shares (copy furnished before the AO). It is further stated that M/s.MKR Portfolio Pvt. Ltd. (now known as Real Growth Securities Pvt. Ltd. Category-1 Merchant Bankers) which is an independent concern unrelated to the assessee or the two brothers was made party to the agreement to ensure due compliance of the obligations of both the parties to the agreement. It was agreed that the sale consideration of Rs.111,25,50,000 towards sale of shares shall be deemed to be loan advanced by the seller to the purchaser with effect from 27 th August, 2007 and the purchaser shall repay the said loan with interest @ 12.5% p.a. as provided in the agreement, which was duly paid by the buyer company. A.5 On 27th August, 2007, the delivery instruction slip S.No.387562- (copy furnished before AO) given to M/s.MKR Portfolio Pvt. Ltd. The slip was to be kept by M/S.MKR Portfolio Pvt. Ltd. in its possession and was to be delivered to the buyer company only on full payment of loan / consideration. The full payment of loan was received by assessee on 5th March, 2008. The delivery slip was given by M/s. MKR Portfolio Pvt. Ltd. to the buyer company on the said date and accordingly shares were released from assessee's Demat Account to the account of the buyer company on the above date. A confirmation certificate for purchase of shares as above from the buyer company was also furnished before the AO.” 8. The ld AO for the first time on 16.12.2010 asked for the details of capital gain from the assessee. The said details were duly provided on 27th December 2010 late evening. On same day, a detailed questionnaire was issued by the ld AO raising various queries doubting the deferment of sale consideration from August 2007 to March 2008 and has also observed that the market price of ITA No. 2234/Del/2013 M/s. RHC Holding Pvt. Ltd Ranbaxy Share prevailing in March 2008 could have been considered by the assessee instead of August 2007 market price. Accordingly, a show cause was issued to re-compute the capital gains on sale of shares. The assessee company filed the available details by 30.12.2010. Since, the two brothers Malvinder Mohan Singh was out of country from 21.12.2010 to 05.01.2011 and Shivinder Mohan Singh was out of country on 23.12.2010 to 06.01.2011, the assessee was forced to file certain crucial documents in the form of Memorandum of Understanding (MOU) entered between brothers as an additional evidence before the ld CIT(A). The assessee specifically submitted before the ld CITA that authorised representative of the assessee was informed of an arrangement/ MOU already existing amongst the brothers which eventually resulted in the transaction of sale of shares per se only on the return of two brothers from abroad. Had the brothers been present in India, the said MOU could have been filed before the ld AO himself during the course of assessment proceedings. Hence, the assessee submitted before the ld CIT(A) that it was forced to file the said MOU as an additional evidence. The assessee also filed detailed written submissions challenging the action of the ld AO before the ld CIT(A), wherein, specifically this MOU between brothers was referred to. The ld CIT(A) sought a remand report from the ld AO. The ld AO submitted the remand report but there was no whisper about the MOU in his remand report. Even the ld CIT(A) did not whisper anything about MOU already existing between the brothers in his order while confirming the action of the ld AO. These facts are not in dispute and apparently staring on perusal of the order of the ld AO and ld CIT(A). Hence, we deem it fit and appropriate to restore this issue to the file of the ld AO for denovo adjudication in accordance with law after duly considering all the documents that are already on record of the ld AO and the ld CIT(A) and assessee also can file fresh evidence, in any, for which liberty is hereby given to ITA No. 2234/Del/2013 M/s. RHC Holding Pvt. Ltd the assessee. Needless to mention that that assessee be given reasonable opportunity of being heard. With these observations, ground Nos. 1, 2, 2.1, 3 and 3.1 are allowed for statistical purposes. 9. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 29/01/2025. -Sd/- -Sd/- (VIKAS AWASTHY) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 29/01/2025 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi "