Metro Institute of Medical Sciences Pvt Ltd., Noida v. Addl. CIT, New Delhi

ITA 113/DEL/2012 | 2008-2009
Pronouncement Date: 31-07-2013 | Result: Dismissed

Appeal Details

RSA Number 11320114 RSA 2012
Assessee PAN AAACU4178N
Bench Delhi
Appeal Number ITA 113/DEL/2012
Duration Of Justice 1 year(s) 6 month(s) 22 day(s)
Appellant Metro Institute of Medical Sciences Pvt Ltd., Noida
Respondent Addl. CIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2013
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted E
Tribunal Order Date 31-07-2013
Date Of Final Hearing 11-07-2013
Next Hearing Date 11-07-2013
Assessment Year 2008-2009
Appeal Filed On 09-01-2012
Judgment Text
ITA NOS. 113 & 400/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E NEW DELHI BEFORE SHRI I.C. SUDHIR JUDICIAL MEMBER AND SHRI SHAMIM YAHYA ACCOUNTANT MEMBER I.T.A. NO. 113/DEL/2012 A.Y. : 2008-2009 M/S METRO INSTITUTE OF MEDICAL SCIENCES PVT. LTD. X-1 SECTOR-12 NOIDA UP-201301 (PAN: AAACU 4178N) VS. DY. COMMISSIONER OF INCOME TAX RANGE-6 NEW DELHI AND I.T.A. NO. 400/DEL/2012 A.Y. 2008-2009 JCIT(OSD) CIRCLE 6(1) VS. M/S METRO INSTITUTES OF M EDICAL NEW DELHI SCIENCES PVT. LTD. ROOM NO. 413 C.R. BUILDING (FORMERLY KNOWN AS U. G. HOSPITALS I.P. ESTATE NEW DELHI PVT. LTD. X-1 SECTOR-12 NOIDA-201301 UTTAR PRADESH (APPELLANT) (APPELLANT) (APPELLANT) (APPELLANT) (RESPONDENT) (RESPONDENT) (RESPONDENT) (RESPONDENT) ASSESSEE BY : SH. SANJEEV KWATRA CA DEPARTMENT BY : SH. SAMEER SHARMA SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM PER SHAMIM YAHYA : AM THESE CROSS APPEALS BY THE REVENUE AND ASSESSEE EMA NATE OUT OF ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPE ALS)-IX NEW DELHI DATED 25.10.2011 AND PERTAIN TO ASSESSMENT YEA R 2008-09. ITA NOS. 113 & 400/DEL/2012 2 ASSESSEES APPEAL ASSESSEES APPEAL ASSESSEES APPEAL ASSESSEES APPEAL 2. THE ISSUE RAISED IN THIS APPEAL IS THAT LD. COM MISSIONER OF INCOME TAX (A) WAS NOT JUSTIFIED IN UPHOLDING THE DI SALLOWANCE OF 20 000/- U/S. 14A OF THE I.T. ACT ON ACCOUNT OF ALL EGED PROPORTIONATE EXPENSES FOR EARNING EXEMPT INCOME. 3. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT HE SH ALL NOT BE PRESSING FOR THE APPEAL. HENCE THIS APPEAL IS DIS MISSED AS NOT PRESSED. REVENUES APPEAL REVENUES APPEAL REVENUES APPEAL REVENUES APPEAL 4. THE GROUNDS RAISED READ AS UNDER:- (1) THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) IS ERRONEOUS AND CONTRARY TO THE FACTS AND LAW. (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN DELETING THE DISALLOWANCE OF INTEREST PAID ON LOAN AMOUNTING TO R S. 45 38 908/-. (3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE THE LD. COMMISSIONER OF INCOME TAX (A) HAS ERRED IN RESTRICT ING THE DISALLOWANCE UNDER SECTION 14A TO RS. 20000/- DESP ITE THE FACT THAT DISALLOWANCE WAS MADE IN ACCORDANCE WITH R ULE 8D OF THE I.T. RULES 1962 APPLICABLE FOR THE YEAR UNDER CONSIDERATION. (4) THE APPELLANT CRAVES LEAVE TO ADD ALTER OR AME ND ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. ITA NOS. 113 & 400/DEL/2012 3 5. APROPOS ISSUE OF DELETION OF DISALLOWANCE OF I NTEREST PAID. APROPOS ISSUE OF DELETION OF DISALLOWANCE OF INTE REST PAID. APROPOS ISSUE OF DELETION OF DISALLOWANCE OF INTE REST PAID. APROPOS ISSUE OF DELETION OF DISALLOWANCE OF INTE REST PAID. IN THIS CASE AS PER THE ASSESSMENT ORDER THE ASSES SING OFFICER MADE AN ADDITION OF RS. 45 38 908/- AS PROPORTIONATE DISALLOWANCE OF INTEREST. IT IS OBSERVED THAT THE ASSESSEE HAD CLAI MED INTEREST EXPENSES OF RS. 5.73 CRORES AS PER THE PROFIT AND L OSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION. THE TOTAL LOANS AND ADVAN CES WERE SHOWN AT RS. 32.11 CRORES IN THE BALANCE SHEET AS ON 31.3.20 08 THE DETAILS OF WHICH WERE FURNISHED TO THE ASSESSING OFFICER. OUT OF THE ABOVE THE ASSESSING OFFICER FOUND THE FOLLOWING ADVANCES TO BE EITHER CAPITAL IN NATURE OR OTHERWISE GIVEN TO THE GROUP ENTITIES:- PARTICULARS PARTICULARS PARTICULARS PARTICULARS AMOUNT (IN RS.) AMOUNT (IN RS.) AMOUNT (IN RS.) AMOUNT (IN RS.) ADVANCE FOR LAND - AGRA 2 48 57 710/- ADVANCE FOR LAND G. NOIDA 1 38 48 488/- RLKC TRUST 8 52 35 563/- SUNHILL WELFARE TRUST 1 77 89 673/- SUNHILL PHARMA (P) LTD. 85 33 196/- TOTAL TOTAL TOTAL TOTAL = = = = 16 62 06 019/ 16 62 06 019/ 16 62 06 019/ 16 62 06 019/- -- - OUT OF THE INTEREST EXPENDITURE CLAIMED AT RS. 5 73 79 034/- THE ASSESSING OFFICER ALLOCATED AN AMOUNT TOTALING TO R S. 1 27 77 002/- TO SUCH LOANS AGGREGATING TO RS. 16 62 06 019/- AS UN DER:- PARTICULARS PARTICULARS PARTICULARS PARTICULARS AMOUNT (IN RS.) AMOUNT (IN RS.) AMOUNT (IN RS.) AMOUNT (IN RS.) LAND - AGRA 19 98 227/- LAND G. NOIDA 7 65 842/- RLKC TRUST 67 32 219/- SUNHILL WELFARE TRUST 13 00 890/- ITA NOS. 113 & 400/DEL/2012 4 SUNHILL HOSPITAL 13 10 014/- SUNHILL PHARMA 6 69 807/- TOTAL TOTAL TOTAL TOTAL = = = = 1 27 77 099 1 27 77 099 1 27 77 099 1 27 77 099/ // /- -- - THE ASSESSING OFFICER THEN MADE A PROPORTIONATE D ISALLOWANCE OF INTEREST OF RS. 45 38 908/- ON THE SAID ADVANCES AG GREGATING TO RS. 16 62 06 019/- IN THE RATIO OF OWN FUNDS AND BORRO WED FUNDS I.E 35.25% : 64.48%. 6. BEFORE THE LD. COMMISSIONER OF INCOME TAX (A) ASSES SEE MADE ELABORATE SUBMISSIONS. CONSIDERING THE SAME LD. CO MMISSIONER OF INCOME TAX (A) HELD AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT THE FINDINGS OF THE ASSESSING OFFICER AND THE FACTS ON RECORD. IT IS SEEN FROM THE ABOVE THAT THE BASIS OF ADDITION ADOPTED BY THE ASSESSING OFFICER AS WELL AS THE ARGUMENTS O F THE LD. AUTHORISED REPRESENTATIVE ARE THE SAME AS WERE IN TH E APPEAL NO. 137/09-10 FOR THE A.Y. 2007-08 BEFORE M E IN THE APPELLANTS OWN CASE. AS PER MY ORDER IN THE SAID A PPEAL THIS ISSUE WAS DECIDED IN FAVOUR OF THE APPELLANT O N THE BASIS OF DETAILED REASONS GIVEN THEREIN AFTER PLACI NG RELIANCE ON VARIOUS JUDGEMENTS. FOLLOWING MY OWN ORDER IN THE APPELLANTS CASE FOR THE AFORESAID ASSESSMENT YEAR I N APPEAL NO. 137/09-10 THIS ISSUE IS DECIDED IN FAVO UR OF THE APPELLANT. ACCORDINGLY THE ADDITION ON ACCOUNT OF INTEREST IS DIRECTED TO BE DELETED. THE GROUND NO. 2 IS THUS ALLOWED TO THE APPELLANT. 7. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. ITA NOS. 113 & 400/DEL/2012 5 8. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE R ECORDS. LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBU NAL IN THE CASE OF THE SAME ASSESSEE FOR A.Y. 2007-08. LD. DEPARTMENTAL RE PRESENTATIVE COULD NOT CONTRADICT THIS SUBMISSION OF THE ASSESSE E. 9. UPON CAREFUL CONSIDERATION WE FIND THAT THE LD. COMMISSIONER OF INCOME TAX (A) IN HIS APPELLATE ORDER HAS FOUND TH AT FACTS OF THE CASE WERE SIMILAR TO THE PRECEDING YEAR IN WHICH HE HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THAT DECISION OF THE LD . COMMISSIONER OF INCOME TAX (A) WAS UPHELD BY THE TRIBUNAL IN I.T.A. NO. 3938/DEL/2011 AND 3939/DEL/2011 VIDE ORDER DATED 29.8.2012. IN THIS CASE THE TRIBUNAL HAS HELD AS UNDER:- 8. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDER ATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERU SAL OF THE PAPERS ON RECORD AND THE ORDERS OF THE AUTHORIT IES BELOW WE HOLD AS FOLLOWS:- 9. THE LOANS IN QUESTION ON WHICH INTEREST HAS BEE N PAID BY THE ASSESSEE AND PART OF WHICH IS SOUGHT TO BE DISA LLOWED BY THE ASSESSING OFFICER IS GIVEN BELOW:- NATURE OF LOAN AMOUNT-RS. AMOUNT-RS. 1)WORKING CAPITAL LOANS: - PNB A/C 7 10 58 400/- - CENTURION & 14 37 51 079/- LORD KRISHNA BANK 3 12 19 849/- 24 60 29 328/- - GE CAPITAL 2) TERM LOANS: - PNB A/C 36 19 56 99 172/- - PNB A/C 20 2 45 44 501/- - PNB A/C 717 4 05 25 092/- - OTHERS 3 00 00 001/- 29 07 68 766/- TOTAL : TOTAL : TOTAL : TOTAL : 53 67 98 094/ 53 67 98 094/ 53 67 98 094/ 53 67 98 094/- -- - ITA NOS. 113 & 400/DEL/2012 6 10. IT IS COMMON KNOWLEDGE THAT LOANS GRANTED BY BA NKS FOR SPECIFIC PURPOSES SUCH AS WORKING CAPITAL OR TERM LOAN ARE TO BE UTILIZED FOR AN AGREED SPECIFIED PURPOSE AND THAT THE UTILIZATION IS MONITORED BY THE BANK AND THAT THE QUANTUM OF WORKING CAPITAL ADVANCE LIMIT DEPENDS ON THE LEVEL OF STOCKS AND SUNDRY DEBTORS OF THE ORGANIZAT ION TAKING THE LOANS AND THAT TERM LOANS ARE DISBURSED ONLY ON ACQUIRING OF SPECIFIED ASSETS. THE WORKING CAPITAL LIMITS VARY IN DIRECT PROPORTION TO THE NET CURRENT ASSETS. SIMILARLY TERM LOANS GRANTED ARE TIE D UP FOR SPECIFIC PURPOSES AND THE BANKER INSISTS ON BILLS E TC. TO MONITOR UTILIZATION. THE PRESUMPTION IN SUCH CASES S HOULD BE THAT THE BANKER HAVE MONITORED THE DISBURSEMENTS A ND THAT THE LOANS GRANTED BY THE BANKER HAVE BEEN UTIL IZED ONLY FOR THE PURPOSE FOR WHICH THEY HAVE BEEN GRANT ED. THIS PRESUMPTION IS A REBUTTABLE PRESUMPTION AND THE A.O. SHOULD HAVE SOME EVIDENCE OR MATERIAL ON RECORD TO HOLD OTHERWISE. THERE IS NO SUCH EVIDENCE IN THIS CASE . 11. THE EARLIER BENCHES OF THE TRIBUNAL HAVE FOLLOW ED THE DECISION OF THE HONBLE P&H HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES. THE PROPOSITION LAID DOWN IN THIS JUDGEMENT ARE AT VARIANCE WITH THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF S.A.BUILDERS LT D. VS CIT (S.C.)(2007) 288 ITR 1 HAS HELD AS FOLLOWS:- 22. IN OUR OPINION THE HIGH COURT IN THE IMPUGNED JUDGMENT AS WELL AS THE TRIBUNAL AND THE INCOME-TAX AUTHORITIES HAVE APPROACHED THE MATTER FROM AN ITA NOS. 113 & 400/DEL/2012 7 ERRONEOUS ANGLE. IN THE PRESENT CASE THE ASSESSEE BORROWED THE FUND FROM THE BANK AND LENT SOME OF IT TO ITS SISTER CONCERN (A SUBSIDIARY) AS INTEREST FR EE LOAN. THE TEST IN OUR OPINION IN SUCH A CASE IS R EALLY WHETHER THIS WAS DONE AS A MEASURE OF COMMERCIAL EXPEDIENCY. 23. IN OUR OPINION THE DECISIONS RELATING TO SECTI ON 37 OF THE ACT WILL ALSO BE APPLICABLE TO SECTION 36(1) (III) BECAUSE IN SECTION 37 ALSO THE EXPRESSION USED IS FOR THE PURPOSE OF BUSINESS. IT HAS BEEN CONSISTENTLY HELD IN THE DECISIONS RELATING TO SECTION 37 THAT THE EXPRESSION FOR THE PURPOSE OF BUSINESS INCLUDES EXPENDITURE VOLUNTARILY INCURRED FOR COMMERCIAL EXPEDIENCY AND IT IS IMMATERIAL IF A THIRD PARTY AL SO BENEFITS THEREBY. 25. IN OUR OPINION THE HIGH COURT AS WELL AS THE TRIBUNAL AND OTHER INCOME-TAX AUTHORITIES SHOULD HA VE APPROACHED THE QUESTION OF ALLOWABILITY OF INTEREST ON THE BORROWED FUNDS FROM THE ABOVE ANGLE. IN OTHER WORDS THE HIGH COURT AND OTHER AUTHORITIES SHOULD HAVE ENQUIRED AS TO WHETHER THE INTEREST FREE LOAN WAS GIVEN TO THE SISTER COMPANY (WHICH IS A SUBSIDIA RY OF THE ASSESSEE) AS A MEASURE OF COMMERCIAL EXPEDIENCY AND IF IT WAS IT SHOULD HAVE BEEN ALLO WED. 26. THE EXPRESSION COMMERCIAL EXPEDIENCY IS AN EXPRESSION OF WIDE IMPORT AND INCLUDES SUCH EXPENDITURE AS A PRUDENT BUSINESSMAN INCURS FOR THE PURPOSE OF BUSINESS. THE EXPENDITURE MAY NOT HAVE BEEN INCURRED UNDER ANY LEGAL OBLIGATION BUT YET I T IS ALLOWABLE AS A BUSINESS EXPENDITURE IF IT WAS INCUR RED ON GROUNDS OF COMMERCIAL EXPEDIENCY. 31. THE HIGH COURT AND THE OTHER AUTHORITIES SHOULD HAVE EXAMINED THE PURPOSE FOR WHICH THE ASSESSEE ADVANCED THE MONEY TO ITS SISTER CONCERN AND WHAT THE SISTER CONCERN DID WITH THIS MONEY IN ORDER TO ITA NOS. 113 & 400/DEL/2012 8 DECIDE WHETHER IT WAS FOR COMMERCIAL EXPEDIENCY BU T THAT HAS NOT BEEN DONE. 32. IT IS TRUE THAT THE BORROWED AMOUNT IN QUESTION WAS NOT UTILIZED BY THE ASSESSEE IN ITS OWN BUSINES S BUT HAD BEEN ADVANCED AS INTEREST FREE LOAN TO ITS SISTER CONCERN. HOWEVER IN OUR OPINION THAT FACT IS NOT REALLY RELEVANT. WHAT IS RELEVANT IS WHETHER THE ASSESSEE ADVANCED SUCH AMOUNT TO ITS SISTER CONCERN AS A MEASURE OF COMMERCIAL EXPEDIENCY. 35. WE AGREE WITH THE VIEW TAKEN BY THE DELHI HIGH COURT IN CIT V. DALMIA CEMENT (B.) LTD. [2002] 254 IT R 377 THAT ONCE IT IS ESTABLISHED THAT THERE WAS NEX US BETWEEN THE EXPENDITURE AND THE PURPOSE OF THE BUSINESS (WHICH NEED NOT NECESSARILY BE THE BUSINES S OF THE ASSESSEE ITSELF) THE REVENUE CANNOT JUSTIFI ABLY CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESS MAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND AS SUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITUR E HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. NO BUSINESSMAN CAN BE COMPELLED TO MAXIMIZE HIS PROFIT. THE INCOME-TAX AUTHORITIES MUST PUT THEMSELVES IN TH E SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESSMAN WOULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUDENT BUSINESSMAN. AS ALREADY STATED ABOVE WE HAVE TO SEE THE TRANSFER OF THE BORROWED FUNDS TO A SISTER CONCERN FROM THE POINT OF VIEW OF COMMERCIAL EXPEDIENCY AND NOT FROM THE POINT OF VIEW WHETHER THE AMOUNT WAS ADVANCED FOR EARNING PROFITS. IN THE CASE OF MUNJAL SALES CORPORATION VS. CIT 298 ITR 298 THE HONBLE SUPREME COURT HAS OBSERVED AS FOLLOWS. 17. ONE ASPECT NEEDS TO BE MENTIONED DURING THE ASSESSMENT YEAR 1995-96 APART FROM THE LOAN TO ITS ITA NOS. 113 & 400/DEL/2012 9 SISTER CONCERN AMOUNTING TO RS.5 LAKHS. ACCORDING TO THE TRIBUNAL THERE WAS NOTHING ON RECORD TO SHOW T HAT THE LOANS WERE GIVEN TO THE SISTER CONCERN BY THE ASSESSEE FIRM OUT OF ITS OWN FUNDS AND THEREFORE IT WAS NOT ENTITLED TO CLAIM DEDUCTION UNDER SECTION 36(1)(III). THIS FINDING IS ERRONEOUS. THE OPENIN G BALANCE AS ON APRIL 1 1994 WAS RS.1.91 CRORES WHEREAS THE LOAN GIVEN TO THE SISTER CONCERN WAS A SMALL AMOUNT OF RS.5 LAKHS. IN OUR VIEW THE PROFITS EARNED BY THE ASSESSEE DURING THE RELEVANT YEAR WER E SUFFICIENT TO COVER THE IMPUGNED LOAN OF RS.5 LAKHS 12. THUS APPLYING THE PROPOSITIONS LAID DOWN BY THE HONBLE SUPREME COURT WE HAVE TO UPHOLD THE ORDER OF THE FI RST APPELLATE AUTHORITY. IT IS NOT THE CASE OF THE AS SESSING OFFICER THAT THE BORROWINGS IN QUESTION ARE NOT FOR BUSINESS PURPOSES. THE A.O. HAS NO MATERIAL TO DISBELIEVE TH E CLAIM OF THE ASSESSEE. HENCE THE ASSESSEE SHOULD SUCCEED . 13. EVEN OTHERWISE THE INTEREST FREE FUNDS AVAILABL E WITH THE ASSESSEE ARE RS.44.28 CRORES. THE ASSESSEE HAS EAR NED PROFIT OF RS.5.93 CRORES DURING THE ASSESSMENT YEAR 2007- 08. IF DEPRECIATION OF RS.2.88 CRORES IS ADDED TH E CASH ACCRUALS DURING THE YEAR WOULD BE RS.8.81 CRORES. THE INTEREST FREE ADVANCES ARE TO THE TUNE OF RS.14.89 CRORES. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS . RELIANCE UTILITY AND POWER LTD. 178 TAXMAN 135 BOMBAY HELD THAT IN SUCH SITUATIONS THE PRESUMPTION WOULD BE THAT INTEREST FREE FUNDS WERE USED FOR THE PURPOSE OF GI VING INTEREST FREE ADVANCES. THE A.O. HAS NOT DISLODGED THIS PRESUMPTION. ITA NOS. 113 & 400/DEL/2012 10 HENCE ON THIS GROUND ALSO THE ISSUE IS TO BE DECID ED IN FAVOUR OF THE ASSESSEE. 14. THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ALSO CALLED FOR THE REMAND REPORT FROM THE ASSESSING OFFI CER ON THE DETAILS FILED BEFORE HIM AND HENCE THE ARGUMENT THAT THE ASSESSING OFFICER HAS NOT BEEN GIVEN AN OPPORTU NITY IS AGAINST THE FACTS OF THE CASE. ADMISSION OF ADDITIO NAL EVIDENCE HAS NOT BEEN CHALLENGED BY REVENUE. 15. FOR ALL THESE REASONS WE UPHOLD THE ORDER OF TH E COMMISSIONER OF INCOME TAX (APPEALS) AND DISMISS THI S APPEAL OF THE REVENUE. 10. WE FIND THAT BOTH THE COUNSEL FAIRLY AGREED T HAT THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO ONE DEALT WITH BY THE TRIBUNAL AS ABOVE. ACCORDINGLY RESPECTFULLY FOLLOWING THE PRECEDENT A S ABOVE WE UPHOLD THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A) AN D DECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE. 11. APROPOS DISALLOWANCE U/S. 14A APROPOS DISALLOWANCE U/S. 14A APROPOS DISALLOWANCE U/S. 14A APROPOS DISALLOWANCE U/S. 14A 12. IN THIS CASE ASSESSING OFFICER MADE THE ADDITI ON OF RS. 4 06 439/- BY INVOKING THE PROVISIONS OF SECTION 14A AND COMPUT ED THE DISALLOWANCE UNDER RULE 8D OF THE I.T. RULES 1962. 13. BEFORE THE LD. COMMISSIONER OF INCOME TAX (A) ASSE SSEE MADE THE SUBMISSIONS AS UNDER:- IT IS SUBMITTED THAT OPENING INVESTMENT OF RS. 53 10 000/- AND CLOSING INVESTMENT OF RS. 82 00 000/- WERE TO WARDS THE CLOSE ENDED MUTUAL FUNDS AND THERE IS NO DIVIDEN D ITA NOS. 113 & 400/DEL/2012 11 PAYOUT UNDER THIS SCHEME. THE MUTUAL FUNDS ARE REDEE MED AT THE CLOSING NAV UPON COMPLETION OF THE SCHEME PER IOD OR ALTERNATIVELY THE SAID MUTUAL FUNDS CAN BE SOLD IN THE OPEN MARKET. THE RESULTANT GAIN OR LOSS IS TREATED AS CAP ITAL GAIN/LOSS WHICH IS AGAIN NOT EXEMPT FROM TAX. IN THE CASE OF THE APPELLANT THIS INVESTMENT OF RS. 82 00 000/- W AS SUBSEQUENTLY DISPOSED OFF IN A.Y. 2009-10 AND THE A PPELLANT WAS SUFFERED SHORT TERM CAPITAL LOSSES. THE CONTENTI ON OF THE APPELLANT IN RESPECT OF OPENING INVESTMENT OF R S. 53 10 000/- PERTAINING TO AN INVESTMENT NOT TO EARN THE EXEMPT INCOME WAS ACCEPTED BY YOUR GOOD SELF IN THE APPEAL PREFERRED BY THE APPELLANT IN ITS OWN CASE F OR A.Y. 2008-09 IN THE APPEAL NO. 137/09-10 VIDE ORDER DATE D 25.5.2011. THE APPELLANT DID NOT HAVE ANY INCOME WHICH IS EXEMPT FORM TAX DURING THE YEAR UNDER APPEAL. THE PROVISIONS OF SECTION 14A ONLY APPLY TO EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCL UDIBLE IN TOTAL INCOME. IN THE CASE OF THE APPELLANT APART FR OM OPENING AND CLOSING INVESTMENT OF RS. 41 600/- AND RS. 20 000/- RESPECTIVELY IN EQUITY SHARES THERE IS N O OTHER INVESTMENT WHICH MAY YIELD INCOME IN THE NATURE OF EX EMPT INCOME. RULE 8D CLEARLY STATES THAT WHILE COMPUTING THE DISALLOWANCE UNDER SECTION 14A THE VALUE OF INVEST MENT HAS TO BE TAKEN INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME. ITA NOS. 113 & 400/DEL/2012 12 THERE IS NO MATERIAL ON RECORD TO SHOW THAT INTERES T BEARING BORROWINGS WERE USED FOR INVESTMENTS IN MUTUA L FUNDS AGGREGATING TO RS. 82 LACS AS ON 31.3.08. THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AND HEN CE NO INFERENCE COULD BE DRAWN THAT THESE INVESTMENTS WERE MADE OUT OF BORROWED FUNDS. ONLY THE ACTUAL EXPENDITURE INCURRED BY THE ASSESS EE IN EARNING THE DIVIDEND INCOME SHOULD BE DEDUCTED F ROM THE DIVIDEND INCOME AND NOT THE NOTIONAL EXPENDITURE. 14. IT WAS FURTHER SUBMITTED THAT IN ANY CASE THE DI SALLOWANCE CANNOT EXCEED THE AMOUNT OF INVESTMENT ITSELF WHICH IN THE CASE OF ASSESSEE WAS RS. 20 000/- TO EARN THE EXEMPT INCOME. IT WAS F URTHER SUBMITTED THAT DISALLOWANCE ON THIS ISSUE WAS RESTRICTED TO R S. 41 600/- EQUIVALENT TO THE AMOUNT OF INVESTMENT IN EQUITY SHAR ES IN THE APPEAL OF THE ASSESSEE FOR A.Y. 2007-08. IN THIS VIEW OF THE MATTER IT WAS ARGUED THAT DISALLOWANCE FOR THE YEAR UNDER APPEAL I.E. A.Y. 2008-09 MAY BE REDUCED TO RS. 20 000/-. LD. COMMISSIONER OF IN COME TAX (A) HELD AS UNDER:- I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT THE FINDINGS OF THE ASSESSING OFFICER AND THE FACT S ON RECORD. IT IS SEEN FROM THE ABOVE THAT THE BASIS OF ADDITION ADOPTED BY THE ASSESSING OFFICER AS WELL AS THE ARGUMENTS OF THE LD. AUTHORISED REPRESENTATIVE ARE THE SAME AS WERE IN THE APPEAL NO. 137/09-10 FOR ITA NOS. 113 & 400/DEL/2012 13 THE A.Y. 2007-08 BEFORE ME IN THE APPELLANTS OWN CASE. AS PER MY ORDER IN THE SAID APPEAL THIS ISSU E WAS PARTLY DECIDED IN FAVOUR OF THE APPELLANT ON TH E BASIS OF DETAILED REASONS GIVEN THEREIN. FOLLOWING MY OWN ORDER IN THE APPELLANTS CASE FOR THE AFORESAID ASSESSMENT YEAR IN APPEAL NO. 137/09-10 THIS ISSUE IS DECIDED PARTLY IN FAVOUR OF THE APPELLANT BY RESTRI CTING THE ADDITION U/S. 14A TO RS. 20 000/- WHICH IS THE TOTAL VALUE OF THE INVESTMENT THE INCOME FROM WHICH IS EXEMPT FROM TAX. ACCORDINGLY THE ADDITION MADE IS RESTRICTED TO RS. 20 000/- AND THE GROUND NO. 3 IS PARTLY ALLOWED TO THE APPELLANT. 15. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEA L BEFORE US. 16. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. WE FIND THAT ASSESSEE HAS SUBMITTED BEFORE THE LD. COM MISSIONER OF INCOME TAX (A) THAT THERE IS NO MATERIAL ON RECORD T O SHOW THAT INTEREST BEARING FUNDS WERE USED IN MUTUAL FUNDS AGGREGATING TO RS. 82 LACS AS ON 31.3.2008. THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUNDS AND HENCE NO INFERENCE COULD BE DRAWN THAT THESE INVEST MENTS WERE MADE OUT OF BORROWED FUNDS. THE ABOVE SUBMISSION OF THE A SSESSEE HAVE NOT BEEN REBUTTED BY THE LD. DEPARTMENTAL REPRESENTATIVE . FURTHERMORE WE NOTE THAT IN THE PRECEDING ASSESSMENT YEAR LD. C OMMISSIONER OF INCOME TAX (A) HAS RESTRICTED THE DISALLOWANCE TO THE SUM OF RS. 41 600/- EQUIVALENT TO THE AMOUNT OF INVESTMENT OF IN VESTMENT IN EQUITY SHARES IN THE APPEAL FOR A.Y. 2007-08. WE FI ND THAT IT HAS NOT BEEN BROUGHT ON RECORD THAT THE ABOVE DECISION OF T HE LD. COMMISSIONER OF INCOME TAX (A) WAS CHALLENGED BY THE DEPARTMENT. ITA NOS. 113 & 400/DEL/2012 14 HENCE WE FIND THAT FOLLOWING THE PREVIOUS ORDER L D. COMMISSIONER OF INCOME TAX (A) HAS DECIDED THE ISSUE BY RESTRICTIN G THE ADDITION U/S. 14A TO RS. 20 000/- WHICH IS THE TOTAL VALUE OF INV ESTMENT THE INCOME FROM WHICH IS EXEMPT FROM TAX. NO CONTRARY DECISION TO THE ABOVE HAS BEEN SHOWN. HENCE WE DO NOT FIND ANY INFIRMITY I N THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (A). ACCORDINGLY WE UPHOLD THE SAME. 17. IN THE RESULT THE REVENUES APPEAL AS WELL AS ASSESSEES APPEAL STAND DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 31/7/2013. SD/ SD/ SD/ SD/- -- - SD/ SD/ SD/ SD/- -- - [ [[ [I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR I.C. SUDHIR] ]] ] [SHAMIM [SHAMIM [SHAMIM [SHAMIM YAHYA] YAHYA] YAHYA] YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE:- 31/7/2013 SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR SRBHATNAGAR COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR ITAT BY ORDER ASSISTANT REGISTRAR ITAT DELHI BENCHES ITA NOS. 113 & 400/DEL/2012 15