Acit Gurgaon v. M S Dlf Info City Developers Kolkata Ltd Gurgaon

In The Income Tax Appellate Tribunal Delhi Bench B New Delhi Before Shri Kuldip Singh Judicial Member And Shri Prashant Maharishi Accountant Member Ita No 969 Del 2016 Assessment Year 2011 12 Acit Circle 1 1 Vs M S Dlf Info City Develop Ers Gurgaon Kolkata Limited 3 Rd Floor Shopping Mall Complex Arjun Marg Dlf City Phase 1 Gurgaon Pan Aabcd 9621 N Co No 167 Del 2016 In Ita No 969 Del 2016 Assessment Year 2011 12 M S Dlf Info City Developers Vs Acit Circle 1 1 Kolkata Limited Gurgaon 3 Rd Floor Shopping Mall Complex Arjun Marg Dlf City Phase 1 Gurgaon Pan Aabcd 9621 N Appellant Respondent Assessee By Shri R S Singhvi Ca And Shri Satyajeet Goel Ca Revenue By Ms Ashima Neb Senior Dr Date Of Hearing 28 11 2017 Date Of Order 07 12 2017 O R D E R Per Kuldip Singh Judicial Member Ita No 969 Del 2016 Co No 167 Del 2016 2 The Aforesaid Appeal Filed By The Revenue And Cross Objections Filed By The Assessee Challenging The Im Pugned Order Are Being Disposed Off By Way Of Consolidated Order To Avoid Repetition Of Discussion 2 The Appellant Assistant Commissioner Of Income Tax Circle 1 1 Gurgaon Hereinafter Referred To As The Revenue By Filing The Present Appeal Sought To Set Aside The I Mpugned Order Dated 16 12 2015 Passed By The Commissioner Of Inco Me Tax Appeals I Gurgaon Qua The Assessment Year 2011 1 2 On The Grounds Inter Alia That 1 Ld Cit A Has Erred In Fact And In Law By Not Appreciating The Application Of Rule 8 D Of The Inco Me Tax Rules 1961 So Made By The A O While Making Th E Disallowance U S 14 A Of The Income Tax Act 1961 2 Ld Cit A Has Erred In Fact And In Law By Restricting The Disallowance U S 14 A Of Income Tax Act 1961 Read With Rule 8 D Of The Income Tax Rules 196 2 From Rs 43 67 640 To Rs 68 433 3 Ld Cit A Has Erred In Fact And In Law By Restricting The Disallowance U S 14 A Of The Income Tax Act 1961 Read With Rule 80 Of The Income Tax Rules 1962 To 10 Of The Exempt Income On The Adhoc Basis Without Any Rationale 3 The Objector M S Dlf Info City Developers Kol Kata Ltd By Filing The Present Cross Objections Challe Nged The Impugned Order Dated 16 12 2015 Passed By The Cit Appeals I Ita No 969 Del 2016 Co No 167 Del 2016 3 Gurgaon For The Assessment Year 2011 12 On The Grou Nds Inter Alia That 1 That On Facts And In The Circumstances Of The Case The Ld Cit A Has Erred In Confirming The Disallowance To The Extent Of Rs 68 433 Under Sec Tion 14 A Read With Rule 8 D Of The Income Tax Act 1961 2 That The Ld Cit A 0 Has Failed To Correctly Appreciate The Provisions Of Section 14 A Of The Inc Ome Tax Act 1961 4 Briefly Stated The Facts Necessary For Adjudication Of The Controversy At Hand Are Assessing Officer Made Di Sallowance Of Rs 43 67 640 By Invoking The Provisions Contained Under Section 14 A Of The Income Tax Act 1961 For Short The Ac T Read With Rule 8 D Of The Income Tax Rules 1962 For Short T He Rules Qua Exempt Income Earned By The Assessee Company During The Year Under Assessment Being Dissatisfied With The Assert Ion Made By The Assessee Company That No Expenditure Has Been Incur Red By The Assessee Company To Earn Exempt Income Which Does N Ot Form Part Of The Total Income Ao Also Rejected The Contenti On Of The Assessee Company That None Of The Investment In The Mutual Fund Has Been Made Out Of Borrowed Interest Bearing Fund S 5 Assessee Carried The Matter By Way Of Filing App Eal Before The Ld Cit A Who Has Restricted The Addition Of Rs 43 67 640 Made By The Ao Under Section 14 A Read With Rule 8 D To Ita No 969 Del 2016 Co No 167 Del 2016 4 Rs 68 433 Feeling Aggrieved The Revenue As Wel L As Assessee Company Has Come Up Before The Tribunal By Way Of F Iling Appeal And Cross Objection Respectively By Challenging The Impugned Order Passed By Ld Cit A 6 We Have Heard The Ld Authorized Representatives Of The Parties To The Appeal Gone Through The Documents R Elied Upon And Orders Passed By The Revenue Authorities Below In T He Light Of The Facts And Circumstances Of The Case 7 Undisputedly The Assessee Company Has Earned Di Vidend Income To The Tune Of Rs 6 84 337 Which Have Been Directly Credited In The Bank Account Of The Assessee Compan Y It Is Also Not In Dispute That Ao Has Not Given Any Computation Of Income To Arrive At The Disallowance Of Rs 43 67 640 8 Ld Dr For The Revenue Contended Inter Alia That The Ao After Duly Recording His Dissatisfaction Which Is Apparent From Assessment Order Itself Worked Out The Disallowanc E Under Rule 8 D As Per Accounts Rendered By The Assessee Company That Section 114 Of The Evidence Act 1872 Raises Presumption In Favour Of The Revenue That There Was Non Satisfaction Of The Ao A Nd Relied Upon The Order Of The Ao 9 Ld Ar For The Assessee Company To Repel The Arg Uments Addressed By The Ld Dr For The Revenue Contended I Nter Alia That Ita No 969 Del 2016 Co No 167 Del 2016 5 Ao Proceeded To Invoke The Provisions Contained U S 14 A Read With Rule 8 D Without Recording His Satisfaction Th At The Assessee Company Has Not Incurred Any Expenses To Earn The D Ividend Income From Investment Of Mutual Funds That The As Sessee Company Has Substantial Surplus Funds That All The Investments In Mutual Funds Out Of Which The Assessee Company Has Earned Exempt Income Are Old Investment And In The Earlier Years No Disallowance Was Made That Ld Cit A Has Erroneo Usly Sustained The Addition Of Rs 68 433 By Restricting The Same To 10 Of The Exempt Income On Ad Hoc Basis Without Any Basis 10 First Of All The Ld Ar For The Assessee Compa Ny To Substantiate His Contention That The Assessee Compa Ny Has Substantial Reserve And Surplus Fund As On 31 03 20 11 Drew Our Attention Towards Balance Sheet Wherein Reserve And Surplus Funds And Shareholders Funds Share Capital Are Shown A T Rs 61 46 85 927 And Rs 25 00 000 Respectively A S Against Investment Of Rs 14 99 25 994 Made On March 31 2 010 As Per Balance Sheet Available On Record No Investment Ha S Been Made As On March 31 2011 Meaning Thereby The Entire Inves Tment On Which The Assessee Company Has Earned Dividend Was Of Earlier Year Ita No 969 Del 2016 Co No 167 Del 2016 6 11 When The Assessee Company Was Having Substantia L Reserves And Surplus Fund And Shareholders Funds Share Ca Pital To The Tune Of Rs 61 46 85 927 And Rs 25 00 000 Respectivel Y Though Paid Interest Payment On Some Borrowed Funds During The Year Under Assessment The Disallowance Cannot Be Made U S 14 A Read With Rule 8 D More Particularly When No Investment Has Been Made By The Assessee During The Year Under Assessment So In These Circumstances The Presumption Has To Be Raised In Favour Of The Assessee That Investments If Made Were Made Out O F Interest Free Funds Available With The Assessee Company 12 Honble High Court Of Bombay In Case Cited As Cit 2 Mumbai Vs Hdfc Bank Ltd 2014 49 Taxmann Com 3 35 Bombay While Dealing With The Identical Issue Held That W Hen The Assessees Own Funds And Other Non Interest Bearing Funds Were More Than Investment In Tax Free Securities No Dis Allowance On Account Of Interest Payment Under Section 14 A Can B E Made 13 Furthermore The Ao Has Not Recorded His Dissat Isfaction As To The Computation Made By The Assessee Company Tha T No Expenditure Has Been Made By The Assessee Company D Uring The Year Under Assessment To Earn The Interest Free Inc Ome Rather Proceeded Mechanically By Extracting The Bare Langu Age Of Rule 8 D Ita No 969 Del 2016 Co No 167 Del 2016 7 14 Honble Apex Court In Godrej Boyce Manufacture Company Ltd Vs Dcit 394 Itr 449 Sc Thrashed The Issue In Controversy As To Invoking Of The Provisions Contai Ned Under Rule 8 D Of The Rules By Observing As Under 37 We Do Not See How In The Aforesaid Fact Situation A Different View Could Have Been Taken Fo R The Assessment Year 2002 2003 Sub Sections 2 And 3 Of Section 14 A Of The Act Read With Rule 8 D Of The Rules Merely Prescribe A Formula For Determination Of Expenditure Incurred In Relation T O Income Which Does Not Form Part Of The Total Income Under The Act In A Situation Where The Assessing Officer Is Not Satisfied With The Claim Of The Asse Ssee Whether Such Determination Is To Be Made On Application Of The Formula Prescribed Under Rule 8 D Or In The Best Judgment Of The Assessing Officer What The Law Postulates Is The Requirement Of A Satisfaction In The Assessing Officer That Having Regard To The Accounts Of The Assessee As Placed Before Him It Is Not Possible To Generate The Requ Isite Satisfaction With Regard To The Correctness Of The Claim Of The Assessee It Is Only Thereafter That T He Provisions Of Section 14 A 2 And 3 Read With Rule 8 D Of The Rules Or A Best Judgment Determination A S Earlier Prevailing Would Become Applicable 15 Honble Delhi High Court In Ht Media Limited Vs Pr Cit In Ita No 548 2015 Dated 23 08 2017 Decided The Issue In Controversy In Favour Of The Assessee By Returning The Following Findings 39 Turning Now To The Order Of The Itat In Para 33 It Recorded The Submission Of The Ar That The A O Did 1 0 T Record Any Satisfaction About The Assessee Not Properly Offering Expenditure Incurred In Relation To The Exempt Income At Rs 3 Lakhs The Ita No 969 Del 2016 Co No 167 Del 2016 8 Itat Reproduced The Contents Of Para 3 3 1 Of The Assessment Order Which Has Been Extracted By This Court Hereinbefore Which Contains General Observations Regarding Earning Of Exempt Income This Cannot Be Accepted As A Recording By The Ao Of Satisfaction Regarding The Claim Of The Assessee Af Ter Examining Its Accounts Again In Para 34 Of Its Order The Itat Simply Reproduced Para 3 3 6 Of The Assessment Order Where Again No Reasons Have Been Provided But Only A Conclusion Has Been Reached That The Ao Was Satisfied That The Assesse E Had Incurred Expenses To Manage Its Investments Which May Yield Exempt Income And Assessee Grossly Failed To Calculate Such Expenses In A Reasonable Manner To Ascertain The True And Correct Picture Of Its Income And Expenses 40 Consequently On The Aspect Of Administrative Expenses Being Disallowed Since There Was A Failur E By The Ao To Comply With The Mandatory Requirement Of Section 14 A 2 Of The Act Read Wit H Rule 8 D 1 A Of The Rules And Record His Satisfaction As Required Thereunder The Question O F Applying Rule 8 D 2 Iii Of The Rules Did Not Ari Se The Question Framed In Ita 549 Of 2015 Is Answered Accordingly 16 Following The Decision Rendered By Honble Apex Court In Godrej Boyce Manufacture Company Ltd Supra And Honble Delhi High Court In Ht Media Ltd Supra We Are Of The Considered View That The Findings Returned By Ao Th At The Claim Of The Assessee That The Amount Invested In Mutual Funds Was Only Out Of Its Own Funds And No Part Of It Was Invested Out Of Borrowed Funds Cannot Be Accepted As Entire Money Of A Comp Any Is Part Of A Common Kitty As Was Held By Jurisdictional High Court In Cit Ita No 969 Del 2016 Co No 167 Del 2016 9 Vs Abhishek Industries 2006 156 Taxman 257 Are Not Sustainable Because The Assessee Company Has Come U P With Categoric Plea That It Has Not Incurred Any Expense S To Earn The Mutual Funds And That The Assessee Has Substantial Pool Of Share Capital Reserves And Surplus And No Amount Out Of Interest Bearing Funds Have Been Invested To Earn The Exempt Income 17 The Ao Has Not Pointed Out Any Defect In The Co Mputation Made By The Assessee Company And As Such Provision S Contained U S 14 A Read With Rule 8 D Are Not Attracted Becau Se Sub Section 2 3 Of Section 14 A With Rule 8 D Of The Rules Has Only Prescribed A Formula For Determination Of An Expend Iture To Earn The Income Which Does Not Form Part Of The Total In Come Under The Act Which Can Only Be Invoked If The Ao Is Not Sat Isfied With The Claim Of The Assessee 18 Furthermore Cit A Erred In Sustaining The Di Sallowance Of Rs 68 433 By Restricting The Same To 10 Of The E Xempt Income Even Despite Agreeing With The Assessee Company Tha T No Satisfaction Has Been Recorded By The Ao That Nil E Xpenses Has Been Incurred To Earn Tax Free Dividend Income Rather Pr Oceeded To Sustain The Addition Of Rs 68 433 On The Basis Of Surmises And Guesswork Which Is Not Sustainable In The Given C Ircumstances The Contentions Raised By Ld Dr Are Not Sustainabl E Ita No 969 Del 2016 Co No 167 Del 2016 10 19 In View Of What Has Been Discussed Above Appea L Filed By The Revenue Challenging To Restrict The Disallowanc E U S 14 A Read With Rule 8 D From Rs 43 67 640 To Rs 68 433 Is Dismissed Being Without Merit However Cross Objections Fil Ed By The Assessee Are Hereby Allowed And Addition Of Rs 68 4 33 Is Hereby Ordered To Be Deleted Order Pronounced In Open Court On This 7 Th Day Of December 2017 Sd Sd Prashant Maharishi Kuldip Singh Accountant Member Judicial Member Dated The 7 Th Day Of December 2017 Ts Copy Forwarded To 1 Appellant 2 Respondent 3 Cit 4 Cit A I Gurgaon 5 Cit Itat New Delhi Ar Itat New Delhi