M/s Mahanagar Telephone Nigam Ltd., New Delhi V. DCIT, New Delhi

MA 637/DEL/2019

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3653 (ITAT-DELHI)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 13-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 13-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Assessee Lawyers: VED JAIN ADV MS UMANG LUTHRA
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 254(2)

Judgement Text

1 M.A NO. 637/DEL/2019 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: FRIDAY NEW DELHI BEFORE SH. R. K. PANDA, ACCOUNTANT MEMB ER AND MS SUCHITRA KAMBLE, JUDI CIAL MEMBER M.A NO. 6 37/DEL/2019 IN ( I.T.A. NO. 2368/DEL/2 016 A.Y 2011-12) MAHANAGAR TELEPHONE NIGAM LTD., 5 TH FLOOR, 9, CGO COMPLEX, LODHI ROAD, NEW DELHI AAACM 0828 R (APPLICANT) VS DCIT, LARGE TAXPAYER UNIT, CIRCLE 1, NBCC PLAZA, PUSHP VIHAR NEW DELHI. (RESPONDENT) APPLICANT BY SHRI VED JAIN, ADV. MS. UMANG LUTHRA, ADV. RESPONDENT BY MS. ASHIMA NEB, SR. D.R ORDER PER SUCHITRA KAMBLE, JM THIS MISCELLANEOUS APPLICATION IS FILED BY THE ASSE SSEE IN RESPECT OF ORDER DATED 12.06.2019 UNDER SECTION 254(2) OF THE INCOME TAX ACT, 1961. 2. THE LD. AR SUBMITTED THAT IN APPEAL FILED BY THE REVENUE GROUND NO.1 WAS REGARDING DELETION OF ADDITION OF RS.7,18,53,00 0/- OUT OF TOTAL ADDITION OF RS.9,69,57,875/- MADE BY THE ASSESSING OFFICER U/S 14A AND IN ASSESSEES DATE OF HEARING 18.10.2019 DATE OF PRONOUNCEMENT 13.11.2019 2 M.A NO. 637/DEL/2019 APPEAL GROUND NO.2 WAS REGARDING DISALLOWANCE OF RS .2,51,04,875/- SUSTAINED BY THE CIT(A) UNDER SECTION 14A OF THE ACT. THE LD. AR FURTHER SUBMITTED THAT THE REVENUES GROUND NO.1 HAS BEEN DISCUSSED IN PAR A 5 TO PARA 7. THIS GROUND WAS DISMISSED IN VIEW OF THE FINDINGS RECORDED THAT ASSESSEES OWN FUNDS WERE MORE THAN THE FUNDS INVESTED FROM WHERE EXEMPT INCO ME HAS BEEN RECEIVED. THE LD. AR SUBMITTED THAT GROUND NO. 2 OF ASSESSEE S APPEAL WAS DISCUSSED IN PARA 8 TO PARA 10 OF THE ORDER THEREBY STATING THAT DISALLOWANCE IN RESPECT OF THE EXPENSES @0.5% TO BE APPLIED ONLY TO THOSE INVE STMENTS WHICH ACTUALLY HAVE RESULTED IN EXEMPT DIVIDEND INCOME RATHER THAN 0.5% OF THE AVERAGE OF TOTAL INVESTMENT. THEREAFTER, ON THE NEXT PAGE OF T HE ORDER EVEN THE COMPUTATION OF DISALLOWANCE @0.5% ON RS.17,48,00,00 0/- I.E. RS.8,74,000/- WAS WORKED OUT ON THE BASIS OF JUDGMENT OF THE JURI SDICTIONAL HIGH COURT IN CASE OF ACB INDIA LTD. VS. ACIT (ITA NO.615/2014 DA TED 24.03.2015). HOWEVER, PARA NO.10 OF THE ORDER GROUND NO.1 OF THE ASSESSEE S APPEAL WAS DISMISSED DESPITE THE FACT THAT THE DISALLOWANCE IS RESTRICTE D TO 0.5% OF THE INVESTMENT WHICH ACTUALLY RESULTED IN EXEMPT DIVIDEND INCOME A ND ACCORDINGLY, THIS GROUND OF THE ASSESSEE HAS TO BE PARTLY ALLOWED. TH E LD. AR RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF CI T VS. SAURASHTRA KUTCH EXCHANGE LTD. (2008) 305 ITR 227 (SC) DATED 15.09.2 008. 3. THE LD. DR VEHEMENTLY OPPOSED THIS MISC. APPLICA TION BY STATING THAT THIS AMOUNTS TO REVIEW OF THE ORDER. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL T HE RELEVANT MATERIAL AVAILABLE ON RECORD. FROM THE PERUSAL OF PARA 7 OF THE ORDER DATED 12.06.2019, THE ASSESSEES SUBMISSIONS APPEARS TO BE PROPER AS THE CIT(A) HAS RESTRICTED THE DISALLOWANCE TO 0.5% OF AVERAGE INVESTMENT BUT IN PARA 7 ON PAGE 6 INADVERTENTLY IT HAS BEEN MENTIONED AS 5%. THEREFOR E, WE ARE MODIFYING PARA 7 AS UNDER: 3 M.A NO. 637/DEL/2019 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE CIT(A) HELD AS UNDER: 6.1. FROM THE SCHEDULE OF INVESTMENTS, IT IS NOTIC ED THAT THE TOTAL INVESTMENTS OF RS. 4946.58 MILLION INR INCLUDE AN I NVESTMENT OF RS. 2500/- MILLION INR IN BONDS BESIDES AN INVESTMENT O F RS.1446.58 MILLION INR IN SUBSIDIARIES AND AN INVESTMENT OF RS . 1000/- MILLION INR IN THE PREFERENCE SHARES OF ITI LIMITED. THE ABOVE FIGURES ARE THE FIGURES OF CLOSING BALANCE OF THE INVESTMENTS. THE OPENING BALANCES OF THESE INVESTMENTS ARE SAME EXCEPT THE INVESTMENTS IN SUBS IDIARY COMPANIES WHICH WERE RS. 1245.77 MILLION INR. AS REGARDS LIC MUTUAL FUND, THE OPENING INVESTMENT WAS RS. 349.6 MILLION INR WHICH REDUCED TO NIL AT THE END OF THE YEAR. THE TOTAL INVESTMENTS (CLOSING BALANCE) OF RS. 4946.58 MILLION INR CONSTITUTE 3.5% OF THE CLOSING BALANCE OF SHARE CAPITAL, RESERVES & SURPLUS AND LOANS TOTALING RS. 1,41,021.56 MILLION INR. IN VIEW OF THIS FACTUAL POSITION AND ALSO CONS IDERING THE FACT THAT THE ASSESSEE HAS INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES & SURPLUS OF RS. 66,464.81 MILLION INR (BE ING THE CLOSING BALANCE), THERE IS NO REASON WHY THE APPELLANTS CL AIM THAT THE INTEREST BEARING FUNDS HAVE NOT BEEN USED FOR MAKING INVESTM ENT SHOULD NOT BE ACCEPTED. THEREFORE, THE DISALLOWANCE OF INTEREST U NDER RULE 14 A R.W. RULE 8D (2)(II) OF RS. 71.853 MILLION INR IS DELETE D. HOWEVER, AS REGARDS THE DISALLOWANCE UNDER RULE 8D(2)(III), BEING 0.5% OF THE AVERAGE INVESTMENTS (INCOME FROM WHICH IS EXEMPT), THE UNDE RSIGNED DOES NOT AGREE WITH THE ORDER OF MY PREDECESSOR THAT NO ADMI NISTRATIVE EXPENSES WERE INCURRED IN CONNECTION WITH SUCH INVESTMENTS. IN A LARGE ORGANISATION LIKE APPELLANT, THE INVESTMENTS NEEDS TO BE REGULARLY MONITORED AND MAN HOURS OF STAFF ARE USED APART FRO M OTHER ADMINISTRATIVE EXPENSES. THEREFORE, THE APPELLANTS CLAIM THAT NO SUCH EXPENDITURE WAS INCURRED IS NOT CORRECT. ONCE IT IS HELD THAT THE CLAIM OF 4 M.A NO. 637/DEL/2019 THE APPELLANT IS NOT CORRECT, THE ONLY WAY TO ESTIM ATE THE SAME, IS UNDER RULE 8D (2)(III) BEING 0.5% OF THE AVERAGE INVESTME NTS INCOME FROM WHICH, IS EXEMPT. THE AO HAS WORKED OUT, THIS DISAL LOWANCE AT RS. 2,51,04,875/-. THE VALUE OF AVERAGE INVESTMENTS HAS BEEN TAKEN AS THE AVERAGE OF TOTAL INVESTMENTS MENTIONED IN SCHEDULE F OF THE BALANCE SHEET. HOWEVER, AS DISCUSSED ALL THE INVESTMENTS MA DE, MENTIONED IN SCHEDULE F DO NOT YIELD EXEMPT INCOME. THEREFORE, T HE DISALLOWANCE U/S 14A R.W. RULE 8D(2)(III) IS RESTRICTED TO ONLY 0.5% OF AVERAGE INVESTMENT INCOME FROM WHICH, IS EXEMPT IRRESPECTIVE OF WHERE THE SAID EXEMPT INCOME HAS BEEN RECEIVED DURING THE A.Y. 11-12 OR N OT. CONSEQUENTLY, GROUND NO. 2 OF THE APPEAL IS PARTLY ALLOWED. THUS, THE CIT(A) PROPERLY HELD THAT DISALLOWANCE U/ S 14A R.W.R. 8D(2)(III) IS RESTRICTED TO ONLY 0.5% OF AVERAGE INVESTMENT INCOM E FROM WHICH IS EXEMPT IRRESPECTIVE OF THE SAME EXEMPT INCOME WAS RECEIVED DURING THE ASSESSMENT YEAR 2011-12, THERE IS NO NEED TO INTERFERE WITH TH E FINDING OF THE CIT(A). GROUND NO.1 OF THE REVENUES APPEAL IS DISMISSED. AS RELATES TO PARA 10 OF THE ORDER DATED 12.06.2019 , THE SAME IS MODIFIED AS UNDER: 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED ALL THE MATERIALS AVAILABLE ON RECORD. AS WE HAVE DECIDED THIS ISSUE IN THE EARLIER PARA WHILE DECIDING REVENUES APPEAL. GROUND NO.1 OF ASSESSEE S APPEAL IS PARTLY ALLOWED. THUS, THE MISC. APPLICATION FILED BY THE ASSESSEE I S ALLOWED. 5 M.A NO. 637/DEL/2019 6. IN RESULT, MISC. APPLICATION IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF NOVEMBER, 2019 . SD/- SD/- (R. K. PANDA) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEM BER DATED: 13/11/2019 PRITI YADAV, SR. PS * COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI