DCIT, New Delhi v. M/s Liquid Investment & Trading Co. P. Ltd, New Delhi

ITA 4717/DEL/2010 | 2005-2006
Pronouncement Date: 30-03-2011 | Result: Allowed

Appeal Details

RSA Number 471720114 RSA 2010
Assessee PAN AAACL0158K
Bench Delhi
Appeal Number ITA 4717/DEL/2010
Duration Of Justice 5 month(s) 2 day(s)
Appellant DCIT, New Delhi
Respondent M/s Liquid Investment & Trading Co. P. Ltd, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 30-03-2011
Appeal Filed By Department
Order Result Allowed
Bench Allotted D
Tribunal Order Date 30-03-2011
Date Of Final Hearing 30-03-2011
Next Hearing Date 30-03-2011
Assessment Year 2005-2006
Appeal Filed On 28-10-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL NEW DELHI BENCH NEW DELHI BENCH NEW DELHI BENCH NEW DELHI BENCH D DD D BEFORE SHRI R. P. TOLANI JUDICIAL MEMBER AND SHRI A K GARODIA ACCOUTANT MEMBER ITA NO. 4717 /DEL/2010 (ASSESSMENT YEAR 2005-06) DCIT CIRCLE 4(1) VS. M/S. LIQUID INVESTMENT & NEW DELHI. TRADING CO. LTD. 15 AURANGZEB ROAD NEW DELHI (APPELLANTS) (RESPONDENTS) PAN / GIR NO. AAACL0158K APPELLANT BY: MRS. BANITA DEVI SR. DR RESPONDENT BY: SHRI AJAY VOHRA SHRI GAURAV JAIN & SHRI JANPRIYA ROOPRAI ADV. ORDER ORDER ORDER ORDER PER A. K. GARODIA AM: PER A. K. GARODIA AM: PER A. K. GARODIA AM: PER A. K. GARODIA AM: 1. THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST T HE ORDER OF LD. CIT(A) VIII NEW DELHI DATED 06.09.2010 FOR THE ASS ESSMENT YEAR 2005-06. THE GROUNDS RAISED BY THE REVENUE READ AS UNDER: 1) THE ORDER OF THE LD. CIT(A) IS ERRONEOUS & CONT RARY TO FACTS AND LAW. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LD. CIT(A) HAS ERRED IN RESTRICTING THE AD DITION MADE U/S 14A TO `10 58 685/- MADE BY THE ASSESSING OFFIC ER. 2.1) THE LD. CIT(A) HAS IGNORED THE FACT THAT THE D ISALLOWANCE HAS BEEN CORRECTLY MADE BY THE ASSESSING OFFICER U/ S 14A OF THE ACT AS PER THE PROVISIONS OF RULE 8D OF THE I. T. RULES. 2. THE BRIEF FACTS OF THE CASE ARE THAT IT IS NOTED BY THE ASSESSING OFFICER ON PAGE 1 OF THE ASSESSMENT ORDER THAT IT W AS SEEN THAT INTEREST INCOME WAS OF ` 1 99 73 780/- DURING THE Y EAR UNDER CONSIDERATION AGAINST WHICH THE ASSESSEE HAS CLAIM ED DEDUCTION OF INTEREST EXPENSES OF ` 2 47 05 642/-. THE ASSESSIN G OFFICER ASKED I.T.A.NO. 4717/DEL/2010 2 THE ASSESSEE TO FURNISH DETAILS OF NAMES OF PARTIES TRANSACTION OF LOAN GIVEN AND TAKEN RATE AND AMOUNT OF INTEREST R ECEIVED AND PAID TO JUSTIFY SUCH EXCESS PAYMENT OF INTEREST. IT IS NOTED BY THE ASSESSING OFFICER THAT THE ASSESSEE VIDE LETTERS DA TED 20.09.2007 AND 23.11.2007 FILED REQUISITE DETAILS OF INTEREST RECEIVED AND PAID DURING THE YEAR. THEREAFTER IT WAS OBSERVED BY TH E ASSESSING OFFICER THAT ON PERUSAL OF THE SAID DETAILS IT WAS SEEN THAT THE ASSESSEE RECEIVED AN AMOUNT OF ` 23 CRORES AS LOAN FROM HDFC LTD. ON WHICH INTEREST OF ` 1 85 70 560/- WAS SHOWN AS P AID @ 13% P.A. IT IS ALSO NOTED BY THE ASSESSING OFFICER THAT SUMM ARY OF BANK STATEMENT SHOWING RECEIPT OF SUCH BORROWED FUNDS AN D UTILIZATION THEREOF WAS REQUISITIONED WHICH WAS FILED VIDE LETT ER DATED 04.12.2007. THE ASSESSING OFFICER SAYS THAT IT WAS SEEN THAT THE SAID BORROWED FUNDS WERE UTILIZED FOR FURTHER GIVIN G LOAN TO ITS GROUP CONCERN M/S. MAX INDIA LTD. OF ` 14.80 CRORES ON IN TEREST @ 10.75% AND THE BALANCE AMOUNT OF ` 8.20 CRORES WAS INVESTE D IN UNITS OF MUTUAL FUNDS FOR EARNING INCOME EXEMPT FROM TAX. T HE ASSESSING OFFICER ALSO OBSERVED ON PAGE 2 OF THE ASSESSMENT O RDER THAT THERE IS NO JUSTIFICATION OF BORROWING AT COST HIGHER THA N THE RECOUPABLE COST. IT IS ALSO OBSERVED BY THE ASSESSING OFFICER THAT LIKEWISE NO VALIDATION OF EXPLANATION OF INVESTING INTEREST BEA RING FUNDS IN UNITS OF MUTUAL FUNDS RESULTING IN EXEMPT INCOME EXISTS. THE ASSESSING OFFICER HELD THAT NO ALLOWANCE OF SUCH INTEREST COS T YIELDING INCOME EXEMPT FROM TAX CAN BE ALLOWED AS PER SPECIFIC PROV ISIONS OF SECTION 14A OF THE INCOME TAX ACT 1961. THE ASSESSING OF FICER HAS OBSERVED THAT THE ASSESSEE COULD ONLY RECOUP AN AMO UNT OF ` 55 80 575/- AS INTEREST INCOME FROM FUNDS GIVEN TO ITS GROUP CONCERN M/S. MAX INDIA LTD. DURING THE PRESENT YEAR . THE ASSESSING OFFICER HELD THAT UNDER THESE FACTS THE BALANCE PA YMENT OF INTEREST EXPENDITURE CLAIMED AS DEDUCTIBLE EXPENDITURE OF ` 1 29 89 985/- (1 85 70 560 55 80 575) IS DISALLOWED AND ADDED B ACK TO THE ASSESSABLE INCOME OF THE ASSESSEE. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). I.T.A.NO. 4717/DEL/2010 3 3. IT WAS HELD BY THE LD. CIT(A) THAT ONLY ` 10 58 385/- IS DISALLOWED U/S 14A AND HE CONFIRMED THE DISALLOWANC E TO THIS EXTENT AND GRANTED RELIEF OF BALANCE AMOUNT OF ` 1 19 31 6 00/-. NOW THE REVENUE IS IN APPEAL AGAINST THE RELIEF ALLOWED BY THE LD. CIT(A). 4. LD. D.R. FOR THE REVENUE SUPPORTED THE ASSESSMEN T ORDER WHEREAS THE LD. A.R. FOR THE ASSESSEE SUPPORTED THE ORDER OF LD. CIT(A). IT WAS ALSO SUBMITTED BY HIM THAT THE COPY OF SANCTION FROM HDFC BANK IS AVAILABLE ON PAGES 16-18 OF THE PAPER BOOK WHERE IT CAN BE SEEN THAT A LOAN OF ` 23 CRORES FROM HDFC LT D. WAS @ 10.50 AND NOT @ 13%. IT WAS POINTED OUT THE BENCH THAT ON PAGE 17-18 OF THE PAPER BOOK IS ANNEXURE TO THE SAID SANCTION LET TER OF HDFC AS PER WHICH ADDITIONAL INTEREST OF 2% P.A. WAS PAYABL E BY THE ASSESSEE IN CASE OF DELAY IN REPAYMENT OF LOAN. TH E REPAYMENT WAS DUE ON 27.12.2004 THEN IT HAS TO BE SEEN AS TO WHET HER THE REPAYMENT WAS WITHIN TIME OR NOT AND WHETHER ANY PE NAL INTEREST WAS PAID BY THE ASSESSEE OR NOT. THE BENCH WANTED TO SEE AND EXAMINE THE EXACT WORKING OF INTEREST PAYMENT TO HD FC BANK ON THAT LOAN OF ` 23 CRORES ALONG WITH THE PERIOD FOR WHICH SUCH INTEREST PAYMENT WAS MADE SO THAT THE ACTUAL EFFECTIVE RATE OF INTEREST PAID TO HDFC LTD. ON THIS LOAN OF ` 23 CRORES CAN BE WOR KED OUT. IT WAS SUBMITTED BY THE LD. A.R. FOR THE ASSESSEE THAT THE SAME IS NOT READILY AVAILABLE. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND THAT RELIEF WAS ALLOWED BY THE LD. CIT(A) ON THIS BASIS THAT LOAN OF ` 23 CRORES WAS TAKEN FROM HDFC LTD. @ 10.50% AND NOT @ 13% AS HAS BEEN NOTED BY THE ASSESSING OF FICER IN THE ASSESSMENT ORDER. WE FIND THAT IT HAS BEEN NOTED B Y THE ASSESSING OFFICER IN THE ASSESSMENT ORDER THAT FROM THE PERUS AL OF DETAILS FILED BY THE ASSESSEE IT WAS SEEN THAT THE ASSESSEE RECE IVED A SUM OF ` 23 CRORES AS LOAN FROM HDFC LTD. ON WHICH INTERESTS OF ` 1 85 70 560/- WAS SHOWN @ 13% P.A. HENCE IN OUR CONSIDERED I.T.A.NO. 4717/DEL/2010 4 OPINION THIS WORKING IS REQUIRED AS TO WHAT IS THE EFFECTIVE RATE OF INTEREST ACTUALLY PAID BY THE ASSESSEE TO HDFC LTD. AND THE SAME CAN BE WORKED OUT ON THE BASIS OF PERIOD FOR WHICH THIS INTEREST OF ` 185.70 LACS WAS PAID BY THE ASSESSEE TO HDFC BANK O N THIS LOAN OF ` 23 CRORES OBTAINED ON 29.06.2004. IN THE ABSENCE O F THIS DETAIL IT IS NOT POSSIBLE TO DECIDE AS TO WHAT WAS THE EFFECTIVE RATE OF INTEREST PAID BY THE ASSESSEE TO HDFC LTD. WE ALSO FIND THA T PART OF INTEREST WAS DISALLOWED BY THE ASSESSING OFFICER ON THIS BAS IS THAT THE SAME HAS TO BE DISALLOWED U/S 14A BECAUSE OUT OF THIS LO AN OF ` 23 CRORES THE ASSESSEE HAS MADE INVESTMENT OF ` 8.20 CRORES I N MUTUAL FUNDS ON WHICH THE INCOME TO BE RECEIVED BY THE ASSESSEE WAS EXEMPT INCOME. LD. CIT(A) HAS GIVEN A FINDING IN PARA 4.9 OF HIS ORDER THAT REGARDING THIS INVESTMENT OF ` 8.2 CRORES IN MUTUAL FUNDS IT IS FOUND THAT INCOME OF ` 4 78 352/- DERIVED FROM MUTUAL FUN DS WAS OFFERED TO TAX BY THE ASSESSEE IN ITS RETURN OF INCOME FOR THE PRESENT YEAR. WE FAIL TO UNDERSTAND THE BASIS OF THIS FINDING OF CIT(A) BECAUSE GENERALLY ANY INCOME FROM INVESTMENT IN MUTUAL FUN D IS EXEMPT INCOME. ON PAGE 20 OF THE PAPER BOOK IS THE DETAIL S REGARDING INCOME OF ` 4 78 352.39. AS PER THESE DETAILS IT IS SEEN THAT THE ASSESSEE IS SHOWING INVESTMENT OF ` 8.20 CRORES ON 30.06.2004 AND ` 2.80 CRORES ON 04.07.2004 TOTALING ` 11 CRORES. THE ASSESSEE IS SHOWING REDEMPTION OF UNITS ON FOUR DATES I.E. 01.0 8.2004 02.08.2004 15.08.2004 AND 28.09.2004 FOR A TOTAL C ONSIDERATION OF ` 11 04 78 302.39. THE TOTAL INCOME FROM INVESTMEN T IN UNITS IS SHOWN AT ` 4 78 352.39. FROM THESE DETAILS AVAILAB LE ON PAGE 20 OF THE PAPER BOOK IT APPEARS THAT THIS INCOME IS NOT ON ACCOUNT OF INTEREST FROM UNITS / MUTUAL FUNDS BUT ON ACCOUNT O F SHORT TERM CAPITAL GAIN ON SALE OF UNITS AND HENCE CIT(A) IS NOT JUSTIFIED TO SAY THAT SINCE THE ASSESSEE HAS REPORTED ITS INCOME OF ` 4.78 LACS ON ACCOUNT OF INVESTMENT OF ` 8.20 CRORES IN THE UNITS OF MUTUAL FUNDS NO DISALLOWANCE U/S 14A IS TO BE MADE ON ACCOUNT OF SUCH INVESTMENT OF INTEREST BEARING BORROWED FUNDS IN TH E UNITS OF MUTUAL FUNDS. LD. CIT(A) HAS ALSO OBSERVED IN PARA 4.9 OF HIS ORDER THAT THE I.T.A.NO. 4717/DEL/2010 5 ASSESSEE HAS MADE NEW INVESTMENT OF ` 96 99 190/- I N THE PURCHASE OF 7.50 LACS EQUITY SHARES OF DOON HOLIDAY RESORTS PVT. LTD. WHICH IS BEING CONSIDERED FOR PROPORTIONATE DISALLOWANCE IN TERMS OF SECTION 14A OF THE INCOME TAX ACT 1961. LD. CIT(A) WORKED OUT DISALLOWANCE ON THE BASIS OF THIS INVESTMENT IN SHA RES AND ALTHOUGH HE HAS NOT OBSERVED THAT HE IS MAKING THIS DISALLOW ANCE AS PER RULE 8D BUT THE WORKING GIVEN BY HIM ON PAGE 13 OF HIS O RDER IS SIMILAR TO THE WORKING PRESCRIBED IN RULE 8D. AS PER THE DECI SION OF HON'BLE HIGH COURT OF BOMBAY RENDERED IN GODREJ & BOYCE MAN UFACTURING PVT. LTD. VS DCIT AS REPORTED IN 43 DTR 177 RULE 8 D IS PROSPECTIVE AND HENCE THE SAME IS APPLICABLE FROM THE ASSESSME NT YEAR 2008- 09 ONWARDS AND THEREFORE THE SAME IS NOT APPLICABL E IN THE PRESENT YEAR BUT REASONABLE DISALLOWANCE HAS TO BE MADE BY THE ASSESSING OFFICER. CONSIDERING ALL THESE FACTS WE FEEL THAT THIS ISSUE SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER FOR A FRE SH DECISION IN THE LIGHT OF THE DECISION OF HON'BLE HIGH COURT OF BOMB AY RENDERED IN THE CASE OF GODREJ & BOYCE MANUFACTURING PVT. LTD. (SUPRA). THE ASSESSING OFFICER SHALL ALSO EXAMINE THE FACTUAL AS PECT AS TO WHETHER THE INCOME EARNED BY THE ASSESSEE OF ` 4.78 LACS ON ACCOUNT OF INVESTMENT IN UNITS OF MUTUAL FUNDS ON I TS REDEMPTION HAS BEEN OFFERED BY THE ASSESSEE AS INTERESTS INCOM E UNDER THE HEAD INCOME FORM OTHER SOURCES OR AS SHORT TERM C APITAL GAIN AND IF IT IS FOUND THAT SUCH INCOME HAS BEEN OFFERED AS SHORT TERM CAPITAL GAIN AND ASSESSED AS SUCH THEN THIS INVESTMENT SHO ULD ALSO BE CONSIDERED FOR THE PURPOSE OF MAKING DISALLOWANCE U /S 14A ALONG WITH THE INVESTMENT OF ` 96 99 190/- INVESTED BY TH E ASSESSEE IN PURCHASE OF 7.50 LACS EQUITY SHARES OF DOON HOLIDAY RESORTS PVT. LTD. THE ASSESSING OFFICER SHOULD ALSO EXAMINE AS TO HOW THE MONEY WAS INVESTED BY THE ASSESSEE ON RED EMPTION O F UNITS IN AUGUST 2004 BECAUSE OUT OF BORROWED FUNDS OF ` 23 C RORES ` 8.20 CRORES WAS INVESTED BY THE ASSESSEE IN THE UNITS OF FRANKLIN TEMPLETON MUTUAL FUNDS ON 30.06.2004 AND THOSE UNIT S WERE REDEEMED PARTLY ON 01.08.2004 AND BALANCE ON 02.08. 2004 AND I.T.A.NO. 4717/DEL/2010 6 HENCE IT HAS TO BE EXAMINED AS TO HOW THE AMOUNT W AS UTILIZED BY THE ASSESSEE THEREAFTER FOR THE PURPOSE OF DECIDING THE ALLOWABILITY OF INTEREST PAID BY THE ASSESSEE ON THE LOAN OF ` 2 3 CRORES TAKEN FROM THE HDFC LTD. WITH THESE OBSERVATIONS WE SET ASIDE THE ORDER OF LD. CIT(A) AND RESTORE THE ENTIRE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR A FRESH DECISION. THE ASSESS ING OFFICER SHALL ALSO EXAMINE THE EFFECTIVE RATE OF INTEREST PAID TO HDFC LTD. ON THE LOAN OF ` 23 CRORES TAKEN BY THE ASSESSEE BY WORKIN G AS TO FOR HOW MUCH PERIOD THE ASSESSEE MADE PAYMENT OF INTEREST ON ` 23 CRORES. THE ASSESSING OFFICER SHALL PASS NECESSARY ORDER AS PER LAW AS PER ABOVE DISCUSSION AND IN THE LIGHT OF JUDGEMENT OF H ON'BLE HIGH COURT OF BOMBAY RENDERED IN GODREJ & BOYCE MANUFACTURING PVT. LTD. (SUPRA) AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEI NG HEARD TO THE ASSESSEE. 6. IN THE RESULT APPEAL FILED BY THE REVENUE STAND S ALLOWED FOR STATISTICAL PURPOSES. 7. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH MARCH 2011. SD./- SD./- (R. P. TOLANI) (A K GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED:30 TH MARCH 2011 SP. COPY FORWARDED TO 1. APPELLANT 2. RESPONDENT 3. CIT TRUE COPY: BY ORDER 4. CIT(A) 5. DR DY. REGISTRAR ITAT NEW DELHI