DCIT, New Delhi v. M/s. Decent Financials Services Pvt. Ltd., New Delhi

ITA 273/DEL/2015 | 2010-2011
Pronouncement Date: 03-11-2017 | Result: Partly Allowed

Appeal Details

RSA Number 27320114 RSA 2015
Assessee PAN AAACD2899P
Bench Delhi
Appeal Number ITA 273/DEL/2015
Duration Of Justice 2 year(s) 9 month(s) 21 day(s)
Appellant DCIT, New Delhi
Respondent M/s. Decent Financials Services Pvt. Ltd., New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 03-11-2017
Appeal Filed By Department
Tags No record found
Order Result Partly Allowed
Bench Allotted B
Tribunal Order Date 03-11-2017
Assessment Year 2010-2011
Appeal Filed On 13-01-2015
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: B NEW DELHI BEFORE SHRI G.D. AGRAWAL HONBLE PRESIDEN T & SHRI K.N. CHARY JUDICIAL MEMBER ITA NO.-273/DEL/2015 ( ASSESSMENT YEAR: 2010-11) DCIT CIRCLE 7(1) NEW DELHI. VS DECENT FINANCIALS SERVICES PVT. LTD. A-86 DDA SHED OKHLA INDUSTRIAL AREA PHASE-1 NEW DELHI. AAACD2899P ASSESSEE BY SH. F.R. MEENA SR. DR REVENUE BY SH. VED JAIN CA MS. DEVINA SHARMA ADV. ORDER PER SHRI K.N. CHARY JUDICIAL MEMBER AGGRIEVED BY THE ORDER DATED 11.11.2014 IN APPEAL N O. 144/2012-13 PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEA LS)-XIII DELHI (HEREINAFTER FOR SHORT CALLED AS THE LD. CIT (A)) REVENUE PREFERRED THIS APPEAL ON THE FOLLOWING GROUNDS: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW LD. CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF I NTEREST OF RS. 75 93 474/- MADE BY THE AO U/S 14A OF THE ACT. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT (A) HAS ERRED IN RESTRICTED THE DISALLOWANC E OF RS. 37 58 360/- DATE OF HEARING 25.10.2017 DATE OF PRONOUNCEMENT 03.11.2017 2 ITA NO. 273/DEL/2015 MADE BY THE AO TO RS. 2 65 500/- UNDER RULE 8D(III) READ WITH SECTION 14A READ WITH RULE 8D(II) OF THE ACT/RULES. 3. THE APPELLANT CRAVES TO LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS ACTIVITIES IN SHARES AND SECURITIES DURING RELEVANT TIME AND FOR THE AY 2010-11 THEY HAVE FILED THEIR RETURN OF INCOME ON 1 5.10.2010 DECLARING THE TOTAL INCOME AS NIL UNDER THE INCOME TAX ACT AND RS . 1 22 87 615/- U/S 115JB OF THE INCOME TAX ACT 1961 (FOR SHORT REFERR ED TO AS THE ACT). DURING THE SCRUTINY U/S 143(3) OF THE ACT AO MADE A N ADDITION OF RS. 113.51 LACS BY MAKING DISALLOWANCE U/S 14A OF THE A CT AND COMPUTED THE INCOME OF THE ASSESSEE AT RS. 113.51 LACS UNDER THE NORMAL PROVISIONS OF THE ACT AND AT RS. 236.39 LACS UNDER 115JB OF THE A CT. AO CALCULATED THE DISALLOWANCE BY INVOKING RULE 8D OF THE ACT AND HE REACHED A SUM OF RS. 75 93 474/- UNDER RULE 8D(II) AND A SUM OF RS. 37 5 8 360/- UNDER RULE 8D(III) OF THE RULES THE AGGREGATE OF WHICH COMES TO RS. 1 13 51 834/-. IN APPEAL LD. CIT (A) REDUCED THE DISALLOWANCE TO RS. 2 65 500/- BY TOTALLY DELETING THE ADDITION UNDER RULE 8D(II) OF THE RULE S AND REDUCING THE ADDITION UNDER RULE 8D(III) OF THE RULES. THE REVE NUE THEREFORE FILED THIS APPEAL CHALLENGING THE SAME. 3. IT IS THE ARGUMENT OF THE LD. DR THAT MERELY BEC AUSE THE ASSESSEE HAD THEIR OWN FUNDS DERIVED OUT OF SALE OF INVESTME NTS IT CANNOT 3 ITA NO. 273/DEL/2015 AUTOMATICALLY BE PRESUMED THAT NO PART OF BORROWED AMOUNT WAS USED FOR INVESTMENT. AS FAR AS THE ADDITION UNDER RULE 8D(I II) IS CONCERNED IT IS HIS SUBMISSION THAT AFTER RULE 8D COMING INTO FORCE NO DISCRETION IS LEFT WITH THE AUTHORITIES TO REDUCE THE AMOUNTS THAT WERE CAL CULATED BY APPLYING THE FORMULA UNDER RULE 8D. HE FURTHER SUBMITTED THAT T HE OBSERVATION OF THE CIT THAT NO TRAVELLING EXPENDITURE CAN BE ALLOCATED TO THE INVESTMENT PORTFOLIO IS UNWARRANTED AND IS NOT BASED ON ANY RE CORD. HE THEREFORE SUBMITTED THAT AOS ORDER MAY BE RESTORED. PER CON TRA IT IS THE SUBMISSION OF THE LD. AR THAT LD. CIT (A) IS PERFEC TLY JUSTIFIED IN DELETING THE ADDITION CALCULATED UNDER RULE 8D(II) OF THE RU LES BECAUSE ON FACTS HE FOUND NOT ONLY THAT THE OWN FUNDS OF THE ASSESSEE A RE FAR EXCEEDING THE INVESTMENT INASMUCH AS AN AMOUNT OF RS. 3.86 CRORES RELEASED ON THE SALE OF INVESTMENT WAS AVAILABLE WITH THE ASSESSEE AS AGAINST THE 1.37 CRORES OF NEW INVESTMENTS BUT THE FUNDS BORROWED D URING THE YEAR WERE USED FOR THE BUSINESS OF SHARES AND SECURITIES. IN SO FAR AS THE RULE 8D(III) IS CONCERNED IT IS HIS SUBMISSION THAT LD. CIT (A) WAS RIGHT IN DELETING THE TRAVELLING EXPENSES AND APPORTIONING THE BALANCE BE TWEEN TRADING AND INVESTMENT ACTIVITIES. 4. WE HAVE GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. ORDER OF THE LD. CIT (A) VIDE PARAGRAPH NO. 2.1 CLEARLY SHOW S THAT ON CONSIDERATION 4 ITA NO. 273/DEL/2015 OF THE EVIDENCE ADDUCED BEFORE HIM LD. CIT (A) FOU ND THAT AN AMOUNT OF RS. 3.86 CRORES WAS AVAILABLE WITH THE ASSESSEE ON THE SALE OF THE INVESTMENT OUT OF WHICH THE ASSESSEE MADE FRESH INV ESTMENT OF RS. 1.3 CRORES. LD. CIT (A) FURTHER FOUND FROM THE RECORD THAT THE FUNDS BORROWED DURING THE YEAR WERE USED FOR THE BUSINESS PURPOSES AND NO PART OF BORROWED FUNDS WAS USED FOR EARNING THE EXEMPT INCO ME. LD. CIT (A) FURTHER NOTED THAT THERE IS NO FINDING OF FACT IN R ESPECT OF EARLIER YEARS THAT THE DISALLOWANCE OF INTEREST WAS MADE IN THE EARLIE R YEARS IN CONNECTION WITH THE INVESTMENTS CARRIED FORWARD AND HELD DURIN G THE YEAR. BASING ON THESE FACTUAL FINDINGS LD. CIT (A) THOUGHT IT FIT TO DELETE THE ADDITION OF RS. 75 94 474/- MADE UNDER RULE 8D(II) OF THE RULES. W E SEE NO REASON TO DISTURB THIS FINDING OF FACT BASED ON RECORD. 5. NOW COMING TO THE ADDITION MADE UNDER RULE 8D(II I) OF THE RULES BOTH THE AUTHORITIES BELOW HAVE RECORDED A FINDING THAT THE SUO MOTO DISALLOWANCE OF RS. 44 143/- TOWARDS THE EXPENDITUR E INCURRED FOR EARNING THE EXEMPT INCOME CANNOT BE CORRECT IN VIEW OF THE FACT THAT HUGE AMOUNT OF RS. 75 16 71 942/- WAS IN INVESTMENT TO EARN THE EXEMPT INCOME. ON THIS ASPECT WE ARE IN AGREEMENT WITH THE AUTHORITI ES BELOW THAT IN VIEW OF THE FACT THAT MAKING INVESTMENT MAINTAINING OR CON TINUING WITH ANY INVESTMENT IN A PARTICULAR SHARE/MUTUAL FUND ETC. A ND THE TIME WHEN TO EXIT 5 ITA NO. 273/DEL/2015 FROM ONE INVESTMENT TO ANOTHER ARE ALL THE ACTIVITI ES REQUIRING WELL COORDINATED AND WELL INFORMED MANAGEMENT DECISIONS INVOLVING NOT ONLY INPUTS FROM VARIOUS SOURCES BUT IT ALSO INVOLVES AC UMEN OF SENIOR MANAGEMENT FUNCTIONARIES. WE FURTHER AGREE WITH TH E REASONING OF THE LD. CIT (A) THAT THERE ARE INCIDENTAL ADMINISTRATIV E EXPENSES ON COLLECTING THE INFORMATION RESEARCH ETC. WHICH HELPS IN ARRI VING AT PARTICULAR INVESTMENT DECISIONS AND THESE EXPENSES RELATING T O EARNING OF INCOME ARE EMBEDDED IN THE INDIRECT EXPENSES WITHOUT WHICH IT WOULD NOT BE POSSIBLE TO CARRY OUT THIS HERCULEAN TASK. WE THE REFORE AGREE WITH THE AUTHORITIES BELOW THAT THE EXPENDITURE OF RS. 44 14 3/- DOES NOT REFLECT THE TRUE NEXUS BETWEEN THE ACTUAL EXPENDITURE REQUIRED AND THE TASK TO BE PERFORMED. 6. NOW COMING TO THE ARGUMENT OF THE LD. DR THAT AF TER RULE 8D COMING INTO FORCE ON 24.03.2008 NO DISCRETION IS L EFT WITH THE AUTHORITIES TO MEDDLE WITH THE AMOUNT OF EXPENDITURE REACHED BY AP PLYING THE FORMULA PRESCRIBED UNDER RULE 8D(III) OF THE RULES. HERE IN THIS MATTER NO ERROR IN CALCULATION OF THE AMOUNT UNDER RULE 8D(III) IS POI NTED OUT. LD.CIT (A) ALSO DID NOT DISTURB THE QUANTIFICATION OF THIS AMO UNT. HOWEVER WITH REFERENCE TO RS. 31.85 LACS THE ADMINISTRATIVE EXP ENDITURE DEBITED TO PROFIT AND LOSS ACCOUNT LD. CIT (A) STATED THAT OU T OF THIS RS. 31.85 LACS A 6 ITA NO. 273/DEL/2015 SUM OF RS. 26.54 LACS BEING SPENT ON TRAVELLING CAN NOT BE ALLOCATED TO THE INVESTMENT PORTFOLIO AND HAS TO BE EXCLUDED FROM CO NSIDERATION. HE APPORTIONED THE BALANCE AMOUNT OF 5.31 LACS TO TRAD ING AND INVESTMENT AND REACHED THE FIGURE OF 2 65 500/- UNDER RULE 8D( III) OF THE RULES READ WITH SECTION 14A OF THE ACT. IN OUR OPINION THIS D ISCRETION IS NOT AVAILABLE WITH THE LD. CIT (A) AND ONLY CAP THAT COULD BE PUT ON THE QUANTUM OF DISALLOWANCE IS THE ADMINISTRATIVE EXPENDITURE DEBI TED TO PROFIT AND LOSS ACCOUNT WHICH IS RS. 31.85 LACS IN THIS MATTER. FI NDING OF THE LD. CIT(A) THAT THE TRAVELLING EXPENSES ARE EXCLUDABLE DOES NO T BASE ON ANY MATERIAL MUCH LESS A CONVINCING ONE. WE THEREFORE FIND THA T THE LD. CIT (A) IS NOT JUSTIFIED IN EXERCISING ANY DISCRETION WITH THE FIG URE REACHED BY THE AO UNDER RULE 8D(III) OF THE RULES. HOWEVER KEEPING IN VIEW THE FACT THAT THE TOTAL ADMINISTRATIVE EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT IS ONLY RS. 31.85 LACS WE HOLD THAT THE DISALLOWANCE UNDER RULE 8D(III) OF THE RULES COULD BE RESTRICTED TO 31.85 LACS. TO THIS E XTENT WE ALLOW THE GROUNDS OF APPEAL. 7 ITA NO. 273/DEL/2015 7. IN THE RESULT THE APPEAL OF THE REVENUE IS ALLO WED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 03.11.2017 SD/- SD/- (G.D. AGRAWAL) (K.N. CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 03.11.2017 *KAVITA ARORA COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT TRUE COPY ASSISTANT REGISTRAR ITAT NEW DELHI