Income Tax Appellate Tribunal - Delhi
Dcit, New Delhi vs M/S. Liquid Investment And Trading Co. ... on 31 August, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
(DELHI BENCH 'C' : NEW DELHI)
BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER
and
SHRI KULDIP SINGH, JUDICIAL MEMBER
ITA No.5732/Del./2014
(ASSESSMENT YEAR : 2001-02)
ITA No.5734/Del./2014
(ASSESSMENT YEAR : 2006-07)
DCIT, vs. M/s. Liquid Investment and Trading Co.
Cirlce 4 (1), (P) Limited,
New Delhi. 15, Aurangzeb Road,
New Delhi.
(PAN : AAACL0518K)
CO No.142/Del./2017
(in ITA No.5734/Del./2014)
(ASSESSMENT YEAR : 2006-07)
M/s. Liquid Investment and Trading Co. vs. DCIT,
(P) Limited, Circle 4 (1),
15, Aurangzeb Road, New Delhi.
New Delhi.
(PAN : AAACL0518K)
(APPELLANT) (RESPONDENT)
ASSESSEE BY : Shri Gaurav Jain, Advocate and
Ms. Bhavita Kumar, Advocate
REVENUE BY : Shri Arun Kumar Yadav, Senior DR
Date of Hearing : 03.08.2017
Date of Order : 31.08.2017
ORDER
2 ITA Nos.5732 & 5734/Del./2014
CO No.142/Del/2017
PER KULDIP SINGH, JUDICIAL MEMBER :
Since common questions of facts and law have been raised in the aforesaid appeals filed by the Revenue and the cross objection filed by the assessee, the same are being disposed off by way of consolidated order to avoid repetition of discussion.
2. Appellant, Deputy Commissioner of Income-tax, Circle 4 (1), New Delhi (hereinafter referred to as 'the Revenue'), by filing the present appeals sought to set aside the impugned order dated 28.07.2014 passed by the Commissioner of Income-tax (Appeals)- VIII, New Delhi, for the Assessment Years 2001-02 & 2006-07 on the grounds inter alia that :-
"ASSESSMENT YEAR 2001-02
1. Whether on the facts and circumstances of the case & in law, the Ld. CIT (A) erred in deleting the disallowance to Rs. 90,32,506/- made by the AO in the denovo assessment as per directions of Hon'ble IT AT in its order dated 16.02.2012?
2. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in travelling beyond the specific direction given by the Hon'ble ITAT in its order dated 16.02.2012?
3. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the disallowance amounting to Rs. 90,32,506/- made by the AO by adjudicating upon an all together new ground of appeal which was 3 ITA Nos.5732 & 5734/Del./2014 CO No.142/Del/2017 never raised by the assessee in earlier two assessment proceedings, earlier two appellate proceedings before the CIT(A) and earlier two appellate proceedings before the Hon'ble IT AT in respect of assessments and reassessments framed earlier for the A.Y. 2001-02?
4. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the disallowance amounting to Rs.90,32,506/- made by the AO disregarding the fact that in earlier assessment and appellate proceedings, the assessee had himself had made disallowance u/s 14A which was enhanced during the assessment proceedings and the first appellate authority either confirmed the said addition u/s 14A or only reduced the quantum of addition made u/s 14A?
5. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in giving finding that no addition is required u/s 14A disregarding the fact that in the original assessment the assessee had itself suo-moto made disallowance u/s 14A?
6. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) has ignored the fact that the denovo assessment framed by the Assessing Officer was in respect of the issue set- aside by the Hon'ble ITAT emanating from the grounds of Revenue Appeal before the Hon'ble ITAT and no order adverse to the revenue is justified in supersession of the earlier order of the CIT(A) by considering the issue in the light of an altogether new averment of the assessee?
7. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in ignoring the fact that the source of investment is not a relevant factor even in the method of determining disallowance under Rule 8D after its 4 ITA Nos.5732 & 5734/Del./2014 CO No.142/Del/2017 insertion subsequently. Therefore, the same cannot be take into account for calculating disallowance u/s 14A for pre rule 80D period. Thus the view taken by the CIT-(A) is against the legislative intent?
8. That the order of the Ld. CIT(A) is erroneous and is not tenable on facts and in law.
9. That the grounds of appeal are without prejudice to each other.
10. That the appellant craves leave to add, alter, amend or forego any ground(s) of the appeal raised above at the time of the hearing."
"ASSESSMENT YEAR 2006-07
1. Whether on the facts and circumstances of the case & in law, the Ld. CIT (A) erred in restricting the addition Rs.1,91,93,084/- made by the AO u/s 14A to Rs.70,69,155/-?
2. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in considering the source of investment as a material factor for granting relief of Rs.1,21,23,929/- to the assessee on the issue of disallowance u/s 14A by adjudicating upon an altogether new ground of appeal which was never raised by the assessee in earlier original assessment proceedings and earlier appellate proceedings before the CIT (A) and earlier appellate proceedings before the Hon'ble ITAT in respect of assessment framed earlier for the A.Y. 2006-07?
4. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in ignoring the fact that the source of investment is not a relevant factor even in the method of 5 ITA Nos.5732 & 5734/Del./2014 CO No.142/Del/2017 determining disallowance under rule 8D after its insertion subsequently. Therefore, the same cannot be taken into account for calculating disallowance u/s 14A for pre rule 8D period. Thus the view taken by the CIT (A) is against the legislative intent?
5. Whether on the facts and circumstances of the case & in law, while granting relief on the issue of disallowance u/s 14A,t he ld. CIT (A) has erred in travelling beyond the specific direction given by the Hon'ble ITAT in its order dated 16.02.2012?
6. That the order of Ld. CIT (A) is erroneous and is not tenable on facts and in law.
7. That the grounds of appeal are without prejudice to each other.
8. That the appellant craves leave to add, alter, amend or forego any ground(s) of the appeal raised above at the time of the hearing."
3. The Objector, M/s. Liquid Investment and Trading Co. (P) Ltd., by filing the present cross objections challenged the impugned order dated 28.07.2014 passed by the Commissioner of Income-tax (Appeals)-VIII, New Delhi, for the Assessment Year 2006-07 on the grounds inter alia that :-
"1. That the Commissioner of Income Tax (Appeals) [CIT(A)] erred on facts and in law in not deleting the entire additional disallowance of interest expenditure of Rs.1,91,93,084 made by the assessing officer under section 14A the Income Tax Act, 1961 ('the Act') and restricting the same to Rs.70,69,155.6 ITA Nos.5732 & 5734/Del./2014 CO No.142/Del/2017
1.1 That the CIT(A) erred in not appreciating that disallowance under section 14A of the Act was to be computed by only considering only those investments, which yielded exempt dividend income during the relevant year.
1.2 Without prejudice, the CIT(A) erred on facts and in law in not restricting the disallowance made under section 14A to the extent of Rs. Rs.3,53,657, being the exempt income earned by the assessee."
4. Briefly stated the facts necessary for adjudication of the controversy at hand are : in case of Assessment Year 2001-02, during the scrutiny proceedings, Assessing Officer noticed that the assessee has claimed exempt income of Rs.2,58,11,056/- on account of dividend on shares on certain listed companies. AO further noticed that the assessee has only disallowed an amount of Rs.26,37,780/- in return but claimed interest expenses in P&L account of borrowed fund to the tune of Rs.3,45,00,000/- and by invoking provisions contained under section 14A of the Income-tax Act, 1961 (for short 'the Act') read with Rule 8D of the Income-tax Rules, 1962 (for short 'the Rules') computed an amount of Rs.2,11,55,342/- as expenses related to the income and thereby made an addition thereof to the total income of the assessee. However, ld. CIT (A) restricted the addition to the tune of Rs.90,32,506/-.
7 ITA Nos.5732 & 5734/Del./2014CO No.142/Del/2017
5. In case of Assessment Year 2006-07, during the scrutiny proceedings, AO noticed that the assessee has earned interest income of Rs.73,17,091/- but claimed the interest expenses to the tune of Rs.3,09,26,161/-. From the detailed furnished by the assessee, it has come on record that the assessee has availed a loan of Rs.23,00,00,000/- from HDFC at the interest of 11% and the assessee has also availed of other loans on interest @ 5% to 9.25% and paid the total interest to the tune of Rs.3,09,26,161/- during the year under assessment. AO also noticed that the borrowed funds have been utilized in the mutual funds and shares attracting exempt income. Finding the justification furnished by the assessee not tenable for borrowing the funds at higher rate and advancing its own funds at lower rates, AO disallowed the portion of interest expenditure as deduction by the assessee to the tune of Rs.2,36,09,070/- and made addition thereof to the total income of the assessee. However, ld. CIT (A) restricted the addition to Rs.70,69,155/-
6. The assessee carried the matter before the ld. CIT (A) by way of filing the appeal who has partly allowed the appeals in both the assessment years. Feeling aggrieved, the Revenue has come up before the Tribunal by way of challenging the impugned order 8 ITA Nos.5732 & 5734/Del./2014 CO No.142/Del/2017 passed by ld. CIT (A) by filing the appeals in AYs 2001-02 & 2006-07 and the assessee filed the cross objections challenging the impugned order for AY 2006-07.
7. We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
8. This is second round of litigation because initially order passed by the ld. CIT (A) was challenged before the Tribunal for AYs 2001-02 and 2006-07 and the same has been restored to the AO for de novo decision. Thereafter, fresh assessment order dated 24.12.2009 was passed which was challenged before the ld. CIT (A) who has partly allowed the appeal filed by the assessee vide order dated 28.07.2014. Now, the Revenue is in appeal before the Tribunal in AYs 2001-02 and 2006-07. Simultaneously, the assessee has also filed the cross objections in AY 2006-07.
9. From the grounds of appeal, arguments addressed by ld. Authorized Representatives of the parties to the appeal and facts & circumstances of the case, the sole issue arises for determination in this case is :-
"as to whether ld. CIT (A) has erred in deleting the disallowance of Rs.90,32,506/- made by the 9 ITA Nos.5732 & 5734/Del./2014 CO No.142/Del/2017 AO in de novo assessment after direction of the Tribunal in AY 2001-02 and erred in restricting the addition to Rs.70,69,155/- in AY 2006-07 whereas the assessee has itself disallowed a sum of Rs.28,18,144/- u/s 14A of the Act in its return."
10. Ld. DR for the Revenue challenging the impugned order contended inter alia that the ld. CIT (A) has accepted the submissions made by the assessee at the back of the AO; that an apportionment of funds shown at page 5 of the impugned order are illogical; that in Schedule VI of the balance sheet, assessee has shown figure of Rs.12,78,00,000/- as investment as on 31.03.2006 relevant for AY 2006-07; that in AY 2006-07, the total reserve with the assessee was Rs.32,00,00,000/- whereas total investment claimed by the assessee is at Rs.88,00,00,000/-; that at the same time, assessee's own interest free fund was Rs.35,00,00,000/-.
11. However, on the other hand, ld. AR for the assessee, to repel the arguments addressed by the ld. DR contended that when the earlier Bench of the Tribunal has set aside the assessment order as well as the order passed by the ld. CIT (A) for de novo trial, the disallowance made by the assessee itself is not to be taken into account; that Rule 8D is not applicable for AY 2006-07; that the ld. CIT (A) has granted the benefit of free fund to the assessee and thereby allowed the part relief by taking into consideration the free 10 ITA Nos.5732 & 5734/Del./2014 CO No.142/Del/2017 fund of Rs.35,00,00,000/- in AY 2006-07; that section 14A read with Rule 8D is not attracted in case of the assessee; that in case of mis-pool of the funds, presumption has to be drawn in favour of assessee; that in AY 2006-07, the assessee has only earned dividend income to the tune of Rs.3,53,647/- by investing an amount of Rs.88,00,00,000/- as few investments were not earning any dividends.
12. So far as deletion of addition of Rs.90,32,506/- qua AY 2001-02 is concerned, undisputedly, only amount of expenditure incurred for earning exempt income, namely dividend in this case can be disallowed u/s 14A of the Act. The fact that the assessee has made investment out of its own free reserves viz. share capital and reserves & surplus on which no interest was being paid by the assessee is also not in dispute. When we peruse the availability of funds with the assessee company as on 31.03.2001 in the light of its investment, it goes to prove that the assessee has made total investment for earning exempt income during the year under assessment was Rs.9,04,03,525/- as against the total investment of Rs.33,65,81,747/-. Assessee was having own funds of Rs.34,44,42,623/- which are otherwise more than total investment made by the assessee company to the tune of Rs.33,65,81,747/-. 11 ITA Nos.5732 & 5734/Del./2014 CO No.142/Del/2017 For facility of reference, statement of investment and funds available with assessee as on 31.03.2001 is reproduced as under :-
Particulars Amount as on
31.03.2001 (in Rs.)
Total own funds 34,44,42,623
Share Capital 21,25,26,000
Reserves and Surplus 13,19,16,623
Total borrowed funds 24,12,04,766
Secured loans (excluding 20,00,00,000
interest)
Unsecured loans 4,12,04,766
(excluding interest)
Total investments 33,65,81,747
Total investments
yielding exempt income
during the year (for the
purposes of making
disallowance under 9,04,03,525
section 14A)
Max India Limited 8,99,76,279
Nestle India Limited 10,580
Ranbaxy Laboratories 4,16,566
Limited
13. Hon'ble Supreme Court in case of M/s. Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT & Anr. - (2017) 394 ITR 449 (SC) affirmed the decision of Hon'ble Bombay High Court in Godrej & Boyce Manufacturing Company Ltd. by "explaining the procedure for calculation of disallowance u/s 14A of the Act whereby the condition precedent is expenditure sought to be 12 ITA Nos.5732 & 5734/Del./2014 CO No.142/Del/2017 allowed need actually be incurred for earning dividend income." So, in these circumstances, the ld. CIT (A) has rightly deleted the addition as the entire investment made by the assessee for earning exempt income was out of free funds available with it. Even otherwise, Rule 8D section 14A is effective from AY 2008-09. So, we find no illegality or perversity in the findings returned by ld. CIT (A) for AY 2001-02.
14. So far as question of restricting the addition of Rs.1,91,93,084/- made by the AO u/s 14A to Rs.70,69,155/- in AY 2006-07 is concerned, ld. CIT (A) restricted the addition of Rs.1,91,93,084/- to Rs.70,69,155/- made by the AO in mechanical manner. The ld. CIT (A) by relying upon the computation of disallowance calculation submitted by the assessee vide written submission dated 07.07.2014 restricted the addition to Rs.70,69,155/- reproduced at page 5 which are extracted below :-
PARTICULARS AMOUNT
A Investments Rs.886,556,595
B Less : Unquoted Investments Rs.361,692,862
C Total quoted investments Rs.524,863,733
D Less : Investment in MF taxable Rs. 79,500,000
(Growth Option giving Gains) Rs.445,363,733
E Less : Total of Free Reserves RS.353,274,483
(Share Capital + Reserves & Surplus)
F Interest bearing loan amount used for
long term investments (other than trade) 13 ITA Nos.5732 & 5734/Del./2014 CO No.142/Del/2017 i.e. to earn exempted income (F-E) Rs.171,589,250 G Net Interest Paid Rs. 23,609,070 H Total Unsecured Loan Rs.573,061,763 Interest attributable to long term investments disallowable u/s 14A Rs. 7,069,155 G*F / H
15. Ld. CIT (A) has picked up the amount of Rs.35,32,74,483/- from the balance sheet as free reserves available with assessee and granted relief thereon by restricting the disallowance to Rs.70,69,155/-. However, the ld. AR for the assessee contended that in case of mispool of funds, presumption must have been drawn in favour of the assessee and filed cross objection against the part addition sustained by ld. CIT (A). No doubt, by invoking theory of presumption, no addition can be made. When the assessee has earned dividend income to the tune of Rs.3,53,643/- only by investing an amount of Rs.88,00,00,000/- it needs to be worked out as to whether dividend income has been earned by the assessee from the investment made out of tax free fund as contended by ld. AR for the assessee or from the borrowed fund.
16. No doubt, assessee has invested an amount of Rs.88,00,00,000/- which is much more than the tax free fund available with the assessee which are to the tune of Rs.35,00,00,000/-. But this fact needs to be examined in the light 14 ITA Nos.5732 & 5734/Del./2014 CO No.142/Del/2017 of the fact that in the earlier year, the assessee was having tax free fund to the tune of Rs.34,00,00,000/- and in the year under assessment, the assessee was having interest free fund to the tune of Rs.35,00,00,000/-. To arrive at the exact calculations, it needs to be worked out as to whether the investment to earn the dividend income was old investment or it was the new investment from the interest free fund available with the assessee during the year under assessment. So, in these circumstances, we are of the considered view that the CIT (A) has erred in restricting the addition to Rs.70,69,155/- merely on the basis of presumption which is not permissible and in these circumstances, this issue raised vide cross objections is required to be set aside to the file of ld. CIT (A) to decide afresh after providing an opportunity of being heard.
17. However, so far as appeal filed by the Revenue for AY 2006-07 is concerned, in view of the law laid down by the Hon'ble Supreme Court in Godrej & Boyce Manufacturing Company Ltd. (supra) when the assessee has interest free reserves to the tune of Rs.35,32,74,483/- and disallowance made by the AO is not proved to be expenses incurred for the purpose of earning dividend income as the entire investment has been made out of interest free funds 15 ITA Nos.5732 & 5734/Del./2014 CO No.142/Del/2017 available with the assessee, no ground is made out to interfere into the findings returned by ld. CIT (A) to that extent.
18. Resultantly, the appeals filed by the Revenue for AYs 2001- 02 and 2006-07 are dismissed and the cross objection filed by the assessee for AY 2006-07 is allowed for statistical purposes. Order pronounced in the open court on this 31st day of August, 2017 Sd/- sd/-
(N.K. SAINI) (KULDIP SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated the 31st day of August, 2017
TS
Copy forwarded to:
1.Appellant
2.Respondent
3.CIT
4.CIT(A)-XXVI, New Delhi.
5.CIT(ITAT), New Delhi. AR, ITAT
NEW DELHI.