Income Tax Appellate Tribunal - Delhi
Cyber Media (India) Ltd., New Delhi vs Department Of Income Tax on 1 March, 2011
TAX APPELLATE TRIBUNAL
DELHI BENCH 'B: NEW DELHI
BEFORE SHRI R. P. TOLANI, JUDICIAL MEMBER
AND
SHRI J SUDHAKAR REDDY, ACCOUNTANT MEMBER
ITA No. 2396/Del/2011
Assessment Year: 2007-08
DCIT Cyber Media (India) Ltd. D-74,
Circle-3(1) Vs. Panchsheel Enclave,
New Delhi New Delhi
PAN AAACC1023E
(Appellant) (Respondent)
Appellant by : Shri Rajan Bhatia, Advocate
Respondent by: Shri Krishna. Ch, DR
ORDER
PER J. SUDHAKAR REDDY, ACCOUNTANT MEMBER
The Appeal filed by the Revenue is directed against the order of the ld CIT(A),-VI, New Delhi dated 01.03.2011 pertaining to the assessment year 2007-08.
2. The ground raised read as under:
"1. The Ld. CIT(A) has erred on facts and in law in deleting addition up to Rs. 7,14,928/- made on account of disallowance of expenses attributable to exempt income u/s 14A of the I.T. Act read with Rule 8D. Ld. CIT(A) has failed to take cognizance of sub-section (3) of section 14A which specified that even if the assessee makes a claim that no expenditure has been incurred in earning the exempted income, sub-section (2) of section 14A shall apply, meaning thereby, disallowance u/s 14A(1) is called for.
2. In the facts and circumstances of the case, the Ld CIT(A) has erred in law and on facts in deleting addition of Rs. 37141/- on account of disallowance of extra depreciation on computer peripherals/ accessories ignoring that as per the IT Rules 60% Page No. 2 ITA No. 2396/Del/2011 depreciation is allowable only on computer and computer software and not on computer peripherals and accessories.
3. The Ld. CIT(A) has erred on facts and in law in deleting addition of Rs. 405205/- made on account of disallowance of interest attributable to interest free loan granted to sister concerns ignoring that the assessee is paying interest @ 10.74% on the loans from the bank and forwarding loans to sister concerns without charging any interest."
3. Apropos deletion of addition of Rs. 7,14,928/- made on account of disallowance of expenses attributable to exempted income u/s 14A of the IT Act read with Rule 8D.
3(a). Briefly stated facts of the case are that the assessee company was carrying on business in media and media services either through itself or through subsidiaries, joint venture and associates. The media business included publications such as Dataquest, Voice & Data, DQ Channels, DQ Weeks, PC Quest, Living Digital, conduct of business conventions, online portal. The media services business included market research, trading of software titles, content BPO etc. 3(b). For the relevant assessment year the assessee furnished return declaring total income of Rs. 6,11,79,430/-. The assessee company had claimed dividend income of Rs. 15,00,000/-. During the assessment proceeding the Assessing Officer raised queries with regard to disallowance under section 14A as per rule 8D. The assessee explained that no expenditure has been incurred in earning the dividend income received from a wholly owned subsidiary in a single tranche. The aforesaid dividend had been received on investment made by the assessee from its own funds. The said investment in IDC (India) Limited amounts to Rs. 1,500,000/- and they have received a dividend of Rs. 49,50,000/- over a period of various previous years from IDC (India) Ltd. The Assessing Officer invoked the provision of section 14A and applied Rule 8D, and relied on the judgment of Special Bench of ITAT and held that a disallowance u/s 14A comes to Rs. 7,14,928/- as expense in earning dividend income of Rs. 15,00,000/- and thus the Assessing Officer Page No. 3 ITA No. 2396/Del/2011 disallowed a sum of Rs. 7,14,928 and added back to the total income of the assessee. On appeal the ld. CIT(A) deleted the said addition relying on the judgment of the Hon'ble Bombay High Court in ITO Vs Daga Capital Management (P) Ltd. (2009) 3 ITR (AT) 1 Mumbai (SB).
3(c). At the outset ld. Counsel representing the assessee submits that the Hon'ble Bombay High Court has opined that Rule 8D is not retrospective. He, in this regard, referred to the decision of Bombay High Court in the case of Godrej & Boyce Mfg. Pvt. Ltd. As reported in 43 DTR 177 (Bom.) and the same view has been taken recently by the Hon'ble Jurisdictional High Court (Delhi) which is reported in (2012) 347 ITR 272 (Delhi).
3(d). On the other hand, Ld. DR relied upon the order of the Assessing Officer and cited judgment of Hon'ble ITAT, Special Bench Mumbai in the case of ITO Vs. Daga Capital Management (P) Ltd. in ITA No. 8057/Mumbai/2003 dated 20.10.2008.
3(e). We have carefully considered the rival submission in the light of the material placed before us. The Hon'ble Bombay High Court in Godrej & Boyce (2010) 328 ITR 81 (Bom) has held that Rule 8D which was notified only on March 24, 2008 would apply only from assessment year 2008-09 and that it cannot have retrospective effect, so that the decision of the Tribunal in ITO Vs. Daga Capital Management (P) Ltd. (2009) 3 ITR (AT) 1 Mumbai (SB) stands impliedly disapproved. Therefore the Assessing Officer, erred in applying the law as decided by Special Bench of ITAT (Mumbai), when the Mumbai High Court has held that Rule 8 will be prospective in its operation and will be applicable only for Assessment Year 2008-09. We find no infirmity in the decision of the Ld CIT(A) who have relied on the decision of the Bombay High Court. We have taken notice of the fact that after the ld CIT(A) has passed this impugned order on 01st March, 2011. The Hon'ble Delhi High Court dealt with the same issue and vide judgment dated 18th November, 2011, in the case of Maxopp Investment Ltd. Vs. CIT 2012 347 ITR 272 (Delhi) wherein it has Page No. 4 ITA No. 2396/Del/2011 reiterated that Rule 8D is not retrospective and would be workable only with effect from the date of introduction of Rule 8D i.e. on March 24, 2008. The Hon'ble Delhi High court in the said judgment has taken into consideration the Hon'ble Bombay High Court's decision in Godrej (supra). Therefore, we find no infirmity in the impugned order of ld CIT(A) in this respect. However we would like to modify the order of the ld CIT(A) and direct the A.O. to apply the law as laid down by the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd (supra). The Hon'ble High Court of Delhi in the case of Maxopp Investment Ltd. Vs. CIT (supra) held as follows:
"Para 42. How is section 14A to be worked for the period prior to the introduction of rule8D?
Sub-section (2) of section 14A, as we have seen, stipulates that the Assessing Officer shall determine the amount of expenditure incurred in relation to income which does not form part of the total income "in accordance with such method as may be prescribed". Of course, this determination can only be undertaken if the Assessing Officer is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. This part of section 14A(2) which explicitly requires the fulfillment of a condition precedent is also implicit in section 14A(1) (as it now stands) as also in its initial avatar as section 14A. It is only the prescription with regard to the method of determining such expenditure which is new and which will operate prospectively. In other words, section 14A, even prior to the introduction of sub-sections (2) and (3) would require the Assessing Officer to first reject the claim of the assessee with regard to the extent of such expenditure and such rejection must be for disclosed cogent reasons. It is then that the question of determination of such expenditure by the Assessing Officer would arise. The requirement of adopting a specific method of determining such expenditure has been introduced by virtue of sub-
section (2) of section 14A. Prior to that, the assessee was free to adopt any reasonable and acceptable method.
Para 43. Thus, the fact that we have held that sub-sections (2) and (3) of section 14A and rule 8D would operate prospectively (and, not retrospectively) does not mean that the Assessing Officer is not to satisfy himself with the correctness of the claim of the assessee with regard to such expenditure. If he is satisfied that the assessee has correctly reflected the amount of such expenditure, he has to do nothing further. On the other hand, if he is satisfied on an objective Page No. 5 ITA No. 2396/Del/2011 analysis and for cogent reasons that the amount of such expenditure as claimed by the assessee is not correct, he is required to determine the amount of such expenditure on the basis of a reasonable and acceptable method of apportionment. It would be appropriate to recall the words of the Supreme Court in Walfort [2010] 326 ITR1 (SC)to the following effect (page17):
"The theory of apportionment of expenditure between taxable and non-taxable has, in principle, been now widened under section 14A."
So, even for the pre-rule 8D period, whenever the issue of section 14A arises before an Assessing Officer, he has, first of all, to ascertain the correctness of the claim of the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income under the said Act. Even where the assessee claims that no expenditure has been incurred in relation to income which does not form part of total income, the Assessing Officer will have to verify the correctness of such claim. In case, the Assessing Officer is satisfied with the claim of the assessee with regard to the expenditure or no expenditure, as the case may be, the Assessing Officer is to accept the claim of the assessee in so far as the quantum of disallowance under section 14A is concerned. In such eventuality, the Assessing Officer cannot embark upon a determination of the amount of expenditure for the purposes of section 14A(1). In case, the Assessing Officer is not, on the basis of the objective criteria and after giving the assessee a reasonable opportunity, satisfied with the correctness of the claim of the assessee, he shall have to reject the claim and state the reasons for doing so. Having done so, the Assessing Officer will have to determine the amount of expenditure incurred in relation to income which does not form part of the total income under the said Act. He is required to do so on the basis of a reasonable and acceptable method of apportionment."
3(f) In the result this ground of the revenue is allowed for statistical purposes and the matter is remanded to the AO. The AO shall follow the steps outlined in para 42 & 43 by Hon'ble High Court of Delhi in the case of Maxoop Investment ltd.
4. Apropos deletion of addition of Rs. 37141/- on computer peripherals/accessories.
4(a) Briefly stated facts of the case are that the assessee company made addition to fixed assets under the head 'computer' and claimed depreciation @ 60%. The Assessing Officer noticed that the assessee had Page No. 6 ITA No. 2396/Del/2011 made purchases of 'computer accessories and peripheral' amounting to Rs.90,817/-. The Assessing Officer was of the view that only computer and computer software are eligible for depreciation of 60% and the same cannot be extended to computer accessories and peripherals. Assessing Officer therefore, restricted the depreciation @ 15% on such items and thus made a disallowance of depreciation claim of Rs. 37,141/-. On appeal by the assessee, the ld CIT(A) directed allowance of depreciation @ 60%. Assailing the said decision the revenue has this issue.
4(b) According to the DR, though the assessee claimed depreciation on printers and scanner @ 60% i.e., the rate applicable to the computers, the Assessing Officer rightly decided that the depreciation applicable to computers could not be allowed on the printers and scanners. Therefore, the AO, restricted the depreciation on the printers and scanners to 15% and has made the disallowance. On the other hand the the AR supported the decision of the Ld CIT(A) who has allowed the said claim of the assessee following the decision of Calcutta Bench and Delhi Benches in the following cases:-
i) ITO Vs. Samiran Majumdar (2006) 98 ITD 119 (Kol)
ii) Expeditors International (India) (P) Ltd. (2008) 118 TTJ 652 (Del)
iii) Container Corporation of India Vs. ACIT (2009) 30 SOT 284 (Del) 4(c). We have heard both the parties on this issue and we find that Ld. CIT(A) has rightly allowed the depreciation claimed by the assessee @ 60% as the same is in accordance with the aforementioned decisions of the Tribunal. For the sake of convenience the observations of the co-ordinate Bench of the Tribunal in the case of Container Corporations of India Vs. ACIT (supra) are reproduced below:-
"40. The accessories and peripherals of computers provide input processing, storage and various output devices. The output devices such as printer, scanner, etc. are computer peripherals and form essential parts of PC. These output devices cannot work in isolation and also working on computer system without an output device such as printer would be futile. In view of the above, the claim of Page No. 7 ITA No. 2396/Del/2011 depreciation at 60% on printer, scanner and other computer peripherals is completely justified. The claim of depreciation of 60 % further gets justified in view of the fact that even computer software which is installed on computer system supports the computer hardware and is eligible for depreciation at 60% per cent."
4(d). In this view of the situation, we find no merit in the appeal filed by the department on this ground and therefore confirm the order passed by the ld CIT(A) on this issue. This ground of the revenue is dismissed.
5. Apropos deletion of addition of Rs.4,05,205/- on interest free loan given to sister concerns.
5(a) Briefly stated facts of the case are that the assessee company granted loan to its sister concern company namely M/s. Cyber Media Foundation Ltd. and M/s. Cyber Media Dice Careers ltd. on which no interest was charged. During the assessment proceedings, the assessee was asked to explain as to why interest to the extent of funds utilized for granting interest free loans to sister concerns should not be disallowed. After considering the assessee's submission the Assessing Officer disallowed interest @ 15% at Rs. 4,05,202/-. However on appeal, the Ld CIT(A) was pleased to order deletion of the said addition of Rs. 4,05,202/-
5 (b) The ld DR submitted that the assessee had granted interest free loans from cash credit account and the assesse had paid interest @ 10.74% to the bank and other bank charges too. On the other hand the ld AR submitted that the AO has miserably failed to establish any nexus between the borrowed funds and interest free loan given by the assessee to the sister concerns and it had been fully established that the assessee had sufficient funds and profits and loan has been given out of the own funds and not interest bearing funds and that fact has been confirmed by the ld CIT(A) based on precedents set by the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd. [2009] 178 Taxman 135.
5(c). We have duly considered the rival contention and gone through the record carefully the order of ld CIT(A). We find that ld First Appellate Page No. 8 ITA No. 2396/Del/2011 Authority has made lucid enunciation of law and facts on this issue. The findings of ld CIT(A) is worth to note:
"6.2 During the proceedings before me, it was submitted that Assessing Officer has failed to establish any nexus between the borrowed funds and interest free loan given by the assessee. In fact, the assessee on the other hand had fully established that the assessee had sufficient funds and profits and loan has been given out of own funds and not interest bearing funds. The assessee's financial position with respect to own funds as per audited accounts is as under.
As on 31.03.07 As on 31.03.06
ocParticulars
(Rs.) (Rs.)
Share Capital 10,00,12,420 10,00,12,420
Reserves & Surplus 27,24,04,258 24,37,12,203
Sub-total 37,24,16,678 34,37,24,623
Less: Miscellaneous Expenditure 4,15,60,174 5,25,96,861
Total own funds 33,08,56,504 29,11,27,762 I
Profit after Tax 4,29,79,585 5,06,68,520
Interest free Loans to CMFL & CMDCL 80,08,000 17,00,000
Own funds - average 31,09,92,133
Loan to CMFL - average product 26,16,986
Loan to CMDCL - average product 84,384
Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd. [2009] 178 Taxman 135 a case dealing with the interpretation of section 36(1 )(iii) regarding deduction of interest has held that in case of a mixed fund, if the assessee is in possession of sufficient interest free funds, then, the presumption would be that investments yielding no return would be out of interest free funds. From the above statement it is evident that interest free loan to Cyber Media Foundation Limited and Cyber Media Dice Career Limited is merely 2.43% of the own funds held by the assessee as on 31.03.07 which is quite insignificant. Even interest free loans of Rs. 80.08 lacs are much less than the profit after tax of Rs. 4.23 crores earned during the year by the assessee. Moreover profit after tax as at beginning of the year stands at Rs. 5.07 crores much higher than the interest free loan given to the said concerns. The Assessing Officer had not been able to controvert or disprove the facts that the assessee had substantial capital and interest free funds available with it, not only in the preceding years but also in the year under consideration: which far exceeded the interest free advances to the said concerns. The Page No. 9 ITA No. 2396/Del/2011 Assessing Officer's contention that the assessee company is charging higher interest @ 15% from other sister concerns because of bank charges is also incorrect and is denied. Reliance was placed on the case of East India Pharmaceuticals Works Limited Vs. Commissioner of Income-tax 224 ITR 627."
5(c) The ld DR could not dispute the facts and figures reproduced above by the CIT(A) in his impugned order in respect to the Assessee's share capital, reserve and surplus which amounts to more than 33 crores and profit after tax is Rs. 4.23 crores earned during the year and Rs. 5.07 crores at the beginning of the year. There is no dispute that only Rs. 80.08 lacs was given as interest free loan to CMFL & CMDCI which is only 2.43 % of the assessee own fund held as on 31.03.2007. Therefore it is crystal clear that assessee possesses sufficient interest-free funds during the relevant P.Y. This fact is established. Now having recorded a clear finding that the assessee possessed sufficient interest-free funds of its own which were generated in the course of the relevant year apart from substantial share holders fund, relying on the Hon'ble Bombay High Court decision presumption stands established that the investment in sister concerns were made by the assessee out of interest-free funds and therefore no part of interest on borrowing can be disallowed on the basis that investments were made out of interest bearing funds. Therefore there is no infirmity in the order of the ld CIT(A) regarding this issue also and we uphold the order of ld CIT(A) and therefore this ground of the Revenue also fails.
6. In the light of the facts and circumstances of the case, we do not find any reason to interfere with the impugned order passed by the ld CIT(A). The same is hereby sustained.
7. In the result, the appeal filed by the Appellant-Revenue is hereby dismissed.
Order pronounced in the open court on 29.11.2013.
Page No. 10 ITA No. 2396/Del/2011
Sd/- Sd/-
(R. P. TOLANI) (J SUDHAKAR REDDY)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated 29/11/2013
A K Keot
Copy forwarded to
1. Applicant
2. Respondent
3. CIT
4. CIT (A)
5. DR:ITAT
ASSISTANT REGISTRAR
ITAT, New Delhi