Income Tax Appellate Tribunal - Delhi
Dcit, New Delhi vs M/S. Dune Leasing And Finance Pvt. Ltd., ... on 11 January, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "B", NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
AND
SHRI O.P. KANT, ACCOUNTANT MEMBER
I.T.A. No.6585/DEL/2016
A.Y. : 2013-14
DCIT, CIRCLE 7(2), VS. M/S DUNE LEASING AND
NEW DELHI FINANCE PVT. LTD.,
2ND FLOOR, 22, COMMUNITY
CENTRE,
BASANT LOK, VASANT VIHAR,
NEW DELHI - 110 017
(PAN: AAACD2153J)
(ASSESSEE) (RESPONDENT)
Revenue by : Ms. Ashima Neb, Sr. DR
Assessee by : Sh. Sanjay Jain, CA
ORDER
PER H.S. SIDHU : JM The Revenue has filed this Appeal against the impugned Order dated 26.10.2016 of the Ld. CIT(A)-3, New Delhi relevant to assessment year 2013-14.
2. The grounds raised in this Appeal read as under:-
1. Ld. CIT(A) erred in law and on facts of the case in deleting the disallowance of Rs.
3,30,25,425/- made by AO u/s. 14A of the Income Tax Act, 1961 read with Rule 8D of the Rules.
1
2. The appellant craves leave, modify, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.
3. The brief facts of the case are that the assessee filed its original e-Return of income at loss of Rs. 1,99,65,442/- on 30.9.2013. The case of the assessee was selected for scrutiny under CASS. Notice u/s. 143(2) of the Income Tax Act, 1961 (hereinafter referred as the Act) was issued on 02.9.2014. AO further issued the questionnaire u/s. 142(1) of the Act on 16.11.2015. In response thereto, the A.R. of the assessee attended the proceedings and filed the details as asked by the AO. During the year under consideration, the assessee company was engaged in the business of Leasing and Finance as per MOA. In this year assessee company has raised a loan amounting to Rs. 50,18,94,630/- from M/s India Bulls Housing Finance Ltd. @16% of rate of interest. Interest expenditure amounting to RS. 8,28,27,590/- was paid by the assessee company on this loan. The amount borrowed by the assessee was utilized by it amounting to Rs. 50,18,94,630/-. Since the loans given by the assessee company was utilized by it for giving interest free/ low interest yielding loans to related parties, the proportionate interest expenditure of Rs. 4,31,30,361/- on the same was disallowed by the assessee company in its computation of 2 income. However, no disallowance u/s. 14A was made by the assessee company on the investments made by it in quoted shares held by it as Stock in trade. The proportionate interest expenses on investments held as Stock in trade amounted to Rs. 1,86,03,077/- (22.46% of interest amount). Interest expenses incurred by the assessee company on investments held as stock in trade is directly attributable to earning of exempt income as per Section 14A of the Act, 1961 and Rule 8D. But the assessee company has claimed that since the tax free income yielding investments owned by it are held as stock in trade and not as investments no disallowance u/s. 14A is warranted. But AO did not accept this contention and asked the assessee as to why no disallowance u/s. 14 of the Act should be made and in reply to the same the AR of the assessee submitted that it has no investment in shares but the quoted shares owned by the assessee company is held as Stock in Trade. Thus no disallowance u/s. 14A and Rule 8D nowhere states to cover only those tax free income yielding securities which are held as "investment" by the assessee. AO did not accept this contention and reject the same by referring the Jurisdictional High Court decision and CBDT Circular No. 5/2014 and disallowed Rs. 3,30,25,425/- by adding back the same to the total income of the assessee u/s. 14A read with Rule 8D of the I.T. Rules, 1962 by assessing the income of 3 the assessee at Rs. 1,20,49,920/- u/s. 143(3) of the Act vide order dated 19.02.2016. Against the aforesaid assessment order, assessee appealed before the Ld. CIT(A)-3, Delhi, who vide his impugned order dated 26.10.2016 has deleted the addition in dispute and directed the AO to modify the assessment order accordingly. Aggrieved with the order of the Ld. CIT(A), the Revenue is in appeal before the Tribunal.
4. Ld. DR relied upon the Order of the AO and reiterated the contentions raised in the grounds of appeal.
5. On the other hand, Ld. Counsel of the assessee has relied upon the order of the Ld. CIT(A).
6. We have heard both the parties and perused the records especially the impugned order dated 26.10.2016 passed by the Ld. CIT(A), we find that the assesee has not earned any tax exempt income which form part of the total income during the year under consideration. We further find that Hon'ble Delhi High Court in the case of Holcim India Pvt. Ltd. ITA No. 486/2014 & ITA No. 299/2014 has held as under:-
"14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No 4 contrary decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad Vs. M/s. Lakhani Marketing lncl., ITA No. 970/2008, decided on 02.04.2014, made reference to two earlier decisions of the same Court in CIT Vs. Hero Cycles Limited, [2010} 323 ITR 518 and CIT Vs. Winsome Textile Industries Limited, [2009] 319 ITR 204 to hold that Section 14A cannot be invoked when no exempt income was earned. The second decision is of the Gujarat High Court in Commissioner of Income Tax-I Vs. Corrtech Energy (P.) Ltd. [2014} 223 Taxmann 130 (Guj). The third decision is of the Allahabad High Court in Income Tax Appeal No. 88 of 2014, Commissioner of Income Tax (Ii) Kanpur, Vs. M/s Shivam Motors (P) Ltd. decided on 05.05.2014. In the said decision it has been held:
"As regards the second question, Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax Fee income. Hence, in the absence of any 5 tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A), which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of Rs. 2,03,752/- made by the Assessing Officer was in order" .
15. Income exempt under Section 10 in a particular assessment year, may not have been exempt earlier and can become taxable in future years. Further, whether income earned in a subsequent year would or would not be taxable, may depend upon the nature of transaction entered into in the subsequent assessment year. For example, long term capital gain on sale of shares is presently not taxable where security transaction tax has been paid, but a private sale of shares in an off market transaction attracts capital gains tax. It is an undisputed position that respondent assessee is an investment company and had invested by purchasing a substantial number of shares and thereby securing right to management. Possibility of sale of shares by private placement etc. cannot be ruled out and is not an improbability. Dividend mayor may not be declared. Dividend is declared by the company and strictly in legal sense, a shareholder has no control and cannot insist on payment of dividend. When declared, it is subjected to dividend distribution tax. 16. What is also noticeable is that the entire or whole expenditure has been disallowed as if there was no expenditure incurred by the respondent-assessee for conducting 6 business. The CIT(A) has positively held that the business was set up and had commenced. The said finding is accepted. The respondent-assessee, therefore, had to incur expenditure for the business in the form' of investment in shares of cement companies and to further expand and consolidate their business. Expenditure had to be also incurred to protect the investment made. The genuineness of the said expenditure and the fact that it was incurred for business activities was not doubted by the Assessing Officer and has also not been doubted by the CIT(A).
17. In these circumstances, we do not find any merit in the present appeals. The same are dismissed in limine. "
6.1 We further find that jurisdictional High Court had held that no disallowance u/s 14A can be made if there is no tax exempt income. The Hon'ble High Court reversed the decision of Special Bench, New Delhi in the case of Cheminvest Ltd. VS. ITO reported in 317 AITR 86. In the case in hand, it is clear that there is no income which is exempt from the tax during the year. Besides above, the assessee has suo moto made the disallowance of Rs. 4,31,26,426/- on account of interest debited in the books of accounts. The company is engaged in the business of purchase and sale of shares and securities and the dividend of Rs.10,10,061/- has been received on the securities which were shown in the stock in trade and the dividend has not been claimed as exempt. Keeping in view of the facts and circumstances of the case and respectfully following the precedent, as aforesaid, the addition made by the Assessing Officer u/s 7 14A of the Act read with Rule 8D(2)(ii)&(iii) of the Income Tax Rules, 1962 was rightly deleted by the Ld. CIT(A), which does not need any interference on our part, hence, we uphold the order of the Ld. CIT(A) on the issue in dispute and reject the ground raised by the Revenue.
7. In the result, the appeal filed by the Revenue stands dismissed.
Order pronounced on 11/01/2018.
SD/- SD/-
[O.P. KANT] [H.S. SIDHU]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date 11/01/2018
SRBHATNAGAR
Copy forwarded to: -
1. Assessee -
2. Respondent -
3. CIT
4. CIT (A)
5. DR, ITAT TRUE COPY
By Order,
Assistant Registrar, ITAT, Delhi Benches 8 9