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THE COMMISSIONER OF INCOME TAX-II Vs. JUBILANT SECURITIES PVT.LTD.
January, 10th 2015
$~4 & 5

*     IN THE HIGH COURT OF DELHI AT NEW DELHI
                       Date of decision: November 27, 2014
+     ITA 490/2014

      THE COMMISSIONER OF INCOME TAX-II
                                                     ..... Appellant
                        Through:    Mr.Rohit Madan,Sr.Standing
                                    Counsel with Mr.Ruchir Bhatia,
                                    Mr.Akash Vajpai, Advs.

                        versus

      JUBILANT SECURITIES PVT.LTD.
                                                    ..... Respondent
                        Through:    Ms.Kavita Jha, Adv.
+     ITA 491/2014

      THE COMMISSIONER OF INCOME TAX-II
                                                     ..... Appellant
                        Through:    Mr.Rohit Madan,Sr.Standing
                                    Counsel with Mr.Ruchir Bhatia,
                                    Mr.Akash Vajpai, Advs.

                        versus

      JUBILANT SECURITIES PVT.LTD.
                                                    ..... Respondent
                        Through:    Ms.Kavita Jha, Adv.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE V. KAMESWAR RAO

SANJIV KHANNA, J (ORAL)

1.    These two appeals filed by the revenue pertain to the

Assessment Year 2009-10 and arise out of one order of the Income Tax

Appellate Tribunal (`Tribunal' in short) dated 09.01.2014.      The

revenue has possibly preferred two appeals as two cross appeals were
disposed by the Tribunal by the said impugned order.

2.    Two issues have been raised in the present appeals. First issue

relates to the deletion of addition of Rs.25,19,529/- made by the

Assessing Officer on account of service charges paid to M/s. Jubilant

Enpro Pvt. Ltd. and the second issue relates to direction of the Tribunal

affirming the order of the Commissioner of Income Tax (Appeals)

restricting the disallowance under Section 14A of the Income Tax Act,

1961 (`Act' in short) read with Rule 8D of the Income Tax Rules,

1962 (`Rules', in short) to Rs. 62,96,037/- as against disallowance of

Rs. 1,02,40,167/- made by the Assessing Officer.

First Issue:-




3.    The       respondent-assessee   had   paid   service   charges   of

Rs.95,84,561/- to a group company M/s. Jubilant Enpro Pvt. Ltd., who

had provided services under a Memorandum of Understanding dated

January 05, 2006. M/s. Jubilant Enpro Pvt. Ltd. was also providing

similar/identical services to other group companies of the respondent

assessee. As per the terms of payment agreed between the respondent

assessee and M/s. Jubilant Enpro Pvt. Ltd., reimbursement or payment

for services provided, was to be made by the assessee and group

companies upon the apportionment of cost incurred by M/s. Jubilant

Enpro Pvt. Ltd. The apportionment was done, on the basis of the rigs

deployed. The Assessing Officer felt that this was not the correct
method of apportionment of cost and the service charges paid to M/s.

Jubilant Enpro Pvt. Ltd.      He made an addition by disallowing

expenditure of Rs.25,19,529/-, observing that the apportionment should

not have been done on the basis of number of rigs but on the basis of

revenue generated. The aforesaid finding was affirmed in the first

appeal by the Commissioner of Income Tax (Appeals).

4.    The said finding has been reversed by the Tribunal in the

impugned order. The Tribunal, accepting the plea of the assessee, has

observed that the services rendered by M/s. Jubilant Enpro Pvt. Ltd.

were in the nature of assistance and support services like assistance in

relation to obtaining work, submissions of bids and subsequent

negotiations, advising current developments, advising regarding Visas

and labour permits, advice on importation and exportation of material

vessels equipments rigs etc. The aforesaid work and obligation

undertaken by M/s. Jubilant Enpro Pvt. Ltd. was dependant upon the

number of rigs and this would determine cost apportionment of the

support services which were given and provided to the recipients. The

services were not dependent upon the size of the rigs or the turnover.

The contention of the respondent assessee that the apportionment of

cost should not be made on the basis of the turnover, but, on the basis

of number rigs was accepted. The aforesaid findings are findings of

fact and there is no reason or ground to hold that the said findings are
perverse.   Noticeably, M/s. Jubilant Enpro Pvt. Ltd. had provided

services to other sister concerns of the respondent assessee. The

amount and quantum paid by the assessee and other group companies

is not in dispute. Any disallowance in the hands of the respondent

assessee would necessarily mean increase of expenditure incurred by

the sister concern, as there is no dispute about the cost incurred by M/s.

Jubilant Enpro Pvt. Ltd. Otherwise also, it would result in reduction or

lower income earned by M/s. Jubilant Enpro Pvt. Ltd. The Assessing

Officer did not invoke Section 40A(2) of the Act, or hold that the

payment made were disproportionate to the market value of the

services rendered. Engaging services of M/s. Jubilant Enpro Pvt. Ltd.

had helped the assessee and other group companies to reduce costs, as

for the common services they did not engage employees or consultants

separately. This is clear from the submission made and findings of the

Tribunal that there was commonality in the nature of services and

therefore, the respondent assessee and other sister concerns had

established and taken services from one cost centre i.e. M/s. Jubilant

Enpro Pvt. Ltd. The respondent company and others had agreed to pay

for the services by way of reimbursement of expenses. In view of the

aforesaid position, we do not think, in the present appeals, the first

issues requires admission.

Second issue:-
5.    On the second issue also, the appeal preferred by the revenue is

without merit. By our last order dated 16.10.2014, we had asked the

learned counsel for the revenue to take instructions on whether any

appeal was filed against the order of the Tribunal for the Assessment

Year 2008-09 and examine whether interest accrued on loan of Rs. 5

Crores given to a third party was shown or treated as taxable income in

the hands of the respondent assessee.

6.    Learned Sr.Standing Counsel for the revenue has not been able

to obtain instructions but on behalf of the respondent assessee, a copy

of the order dated 26.10.2012 relating to the Assessment Year 2008-09

passed by the Tribunal has been placed on record. As per the findings

recorded in the said order, the interest on loan of Rs.5 Crores had

been utilized for giving loan of the same amount to another party.

Further, the loan to the third party had earned taxable income.

Therefore, the interest on such loan proportionate to utilization, was

excluded from the total interest for the purpose of Clause (ii) of Sub-

Rule (2) to Rule 8D of the Rules.

7.    When we examine the order of the Commissioner of Income Tax

(Appeals) who had accepted the assessee's contention in the present

Assessment Year, it is obvious that this factual position is correct. The

Commissioner of Income Tax (Appeals) has recorded and held that

interest of Rs.47,08,000/- was incurred exclusively towards earning of
taxable income and therefore should be excluded from the total interest

of Rs.1,23,27,915/-, while computing the disallowance under Clause

(ii) to Rule 8D(2) of the Rules. Thereafter, the Commissioner of

Income Tax (Appeals) recomputed the disallowance under the said

Clause (ii) to Rule 8D(2) as under:

      (A). Interest expenditure claimed in the P&L A/c 76,19,915/-
      (B). Average value of investment      32,70,93,142/-
      (C). Average value of assets      44,20,94,179/-
      (D). Relatable interest (A"B/C) (76,19,915 " 32,70,93,142/
         44,20,94,179) = Rs. 56,37,762/-.

8.    For the sake of clarity, we record that the assessee in the present

case has himself followed Sub-Rule (ii) Clause (ii) of Rule 8D of the

Rules for computing the disallowance in respect of interest paid.

9.    We notice that the Assessing Officer while computing the

disallowance under Rule 8D had treated the Direct Administrative

Expenses incurred by the assessee for earning of exempt income as

`NIL'.   However, the assessee in the revised computation, had

quantified the Administrative Expenses incurred for earning of exempt

income at Rs.6,58,275-.      When we add Rs.56,36,875/- and Rs.

6,58,275/-, the resultant figure is Rs.62,95,150/-. Disallowance of

Rs.62,95,150/- has been upheld by the Tribunal, affirming the order of

the Commissioner of Income Tax (Appeals). In the Assessment Order,

no ground or reason has been given, why the Assessing Officer was
not satisfied with the disallowance of Rs.6,58,275/-, why and for what

reason on examining the accounts, the said disallowance was not

appropriate and reasonable.    Noticeably, the assessee had filed an

application under Section 154 of the Act during the course of the

assessment proceedings, revising the disallowance from Rs.93,43,343/-

to Rs.62,95,150/-. The reason for reworking of the disallowance is

decipherable when we refer to the chart reproduced by the

Commissioner of Income Tax (Appeals) in paragraph 6. The assessee

had wrongly computed the figure of Rs.93,43,343/- by taking the total

interest at Rs.1,27,27,103/-, i.e. without excluding     interest of Rs.

47,08,000/-, which was incurred on loan utilized for earning of taxable

income.




10.   The other reason why we are not inclined to interfere is that

disallowance made by the Assessing Officer under Clause (iii) to Rule

8D(2) was Rs.16,35,466/-, as against the disallowance made by the

assessee of Rs.6,58,275/-. The Assessing Officer had not made any

disallowance on account of direct expenses. The difference between

the two amount is Rs.10 lakhs. Thus, the quantum of tax involved

would be rather low.

11.   Learned counsel for the assessee has also stated that the order for

the Assessment Year 2008-09 has been accepted by the revenue and

has attained finality.
12.   In view of the aforesaid factual position, we are not inclined to

entertain the present appeal on the second issue also.

      The appeals are accordingly dismissed.



                                                 SANJIV KHANNA, J


                                             V. KAMESWAR RAO, J
NOVEMBER 27, 2014/akb

 
 
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