DCIT, Circle-11(1), Room No.312, CR Building, New Delhi. Vs. International Travel House Ltd., T-2, Community Centre, Sheikh Sarai, Phase-I, New Delhi.
May, 15th 2014
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES : C : NEW DELHI
BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER
SHRI A.D. JAIN, JUDICIAL MEMBER
Assessment Year : 2008-09
DCIT, Vs. International Travel House Ltd.,
Circle-11(1), T-2, Community Centre,
Room No.312, Sheikh Sarai, Phase-I,
CR Building, New Delhi.
PAN : AAAACI0093G
Assessee By : Shri Neeraj Jain &
Shri Upvan Gupta, Advocates
Department By : Shri Satpal Singh, Sr. DR
PER A.D. JAIN, JUDICIAL MEMBER:
This is Department's appeal for Assessment Year 2008-09 against the
order dated 26.4.2013, passed by the Ld. CIT (A)-XV, New Delhi, taking the
following grounds of appeal:-
"1. On the facts and circumstances of the case and in law, the ld.
CIT (A) has erred in deleting the disallowance of Rs.1,10,177/- made on
account of depreciation on computer accessories.
2. On the facts and circumstances of the case and in law, the ld.
CIT (A) has erred in deleting the disallowance of Rs.23,04,021/- made
under section 14A r.w. Rule 8D."
2. So far as regards Ground No.1, the assessee claimed depreciation @
60% on computer, UPS and printers, etc. The AO, however, held that UPS,
printers, etc., are not part of computer, but part of machinery, allowed
depreciation @ 15%. The ld. CIT (A) accepted the claim of the assessee and
allowed the depreciation claimed at 60%.
3. The matter, it is seen, is covered in favour of the assessee by the
`1. CIT vs. BSES Rajdhani Powers Ltd.', 1266/2010;
2. `CIT vs. Orient Ceramics and Ind. Ltd.', 200 Taxman 64;
3. `CIT vs. Citicorp Maruti Finance Ltd.', ITA 1712 and 1714/2010;
4. `CIT vs. BSES Yamuna Powers Ltd.', ITA No.1267/2010;
5. `Samiran Majumdar', 280 ITR 74;
6. `DCIT vs. Data Craft India Ltd.', 133 TTJ 377 (Mum);
7. `Container Corporation of India vs. ACIT', (2009) 30 SOT 284; and
8. `Expeditors International India (P) Ltd. vs. Addl. CIT', 118 TTJ 652.
4. Further, it has been brought to our notice that vide order dated
15.12.2011, passed in ITA No.1284 of 2011 in the case of `Birla Soft Ltd.', the
Hon'ble High Court again decided the matter in favour of the assessee,
following `BSES Rajdhani Powers Ltd.' (supra) (a copy of the said order has
been placed by the assessee at APB 2-3). The SLP filed by the department
against the aforesaid order of the Hon'ble High Court in the case of `Birla Soft
Ltd.' also stands dismissed vide order dated 14.02.2014 in SLP (Civil)
No.20645/2012 (Copy at CLPB-1). In view of the above, Ground No.1 is
5. Coming to Ground No.2, the AO observed that the assessee had
dividend income of ` 37,92,143/-. The assessee was asked to show cause as
to why expenses relating to the earning of the dividend be not disallowed u/s
14A of the IT Act. The assessee was also asked to furnish the working of the
disallowance in view of Rule 8D of the IT Rules. In response, it was submitted
on behalf of the assessee that no expense had been incurred for earning the
exempted income. The AO, however, did not accept this contention of the
assessee, observing that administrative expenses had to be incurred for the
purpose of earning of exempt income also. She, therefore, worked out the
disallowance under Rule 8D of the IT Rules, as follows:-
"Expenditure incurred in relation to exempt income = Rs.1,15,394/-
Average Investment = Rs.1.5 crore + 2.5 crore/2 = Rs.2,00,00,000/-
Average Assets = Rs.35,28,77,346/-
Interest paid = Rs.92,28,237/-"
6. The ld. CIT (A) held the AO's action in invoking the provisions of Rule
8D of the IT Rules to be bad in law and deleted the disallowance of ` 1 lac
made by the AO.
7. The ld. DR has contended that while erroneously deleting the
disallowance correctly made, the ld. CIT (A) has failed to take into
consideration the fact that as correctly observed by the AO, administrative
expenses have to be incurred for the purpose of earning of exempt income
also and that therefore, the disallowance made by the AO was just and
8. The ld. Counsel for the assessee, on the other hand, has placed strong
reliance on the impugned order. It has been contended that in its
computation of income filed along with the return of income, the assessee
had suo motu added back ` 1,15,394/-; that this, in any case, was more than
the disallowance that could possibly have been made under the provisions of
Rule 8D (2) (iii); that the assessee had not incurred any interest expenditure
for making investment in mutual funds; that no interest bearing borrowing,
taken in the earlier years, was for the purpose of making investment in
shares/mutual funds; that the assessee's own sources were sufficient, as
available from the accounts; that the interest was concerning vehicle loans;
that the total investment during the year has gone down from that incurred
during immediately preceding assessment year; that Rule 8D (2) (ii) clearly
provides that where the assessee has incurred expenditure by way of
interest during the previous year, which is not directly attributable to any
particular income or receipt, the amount computed in accordance with the
formula given in the Rule, shall form part of the aggregate envisaged by the
Rule as expenditure in relation to income which does not form part of the
total income; that in the present case, the interest, being expenditure for
vehicle loans, cannot be disallowed; and that all these facts have duly been
taken into consideration by the ld. CIT (A) while rightly holding in favour of
the assessee. Reliance has been placed on `ACIT vs. Champion Commercial
Company Ltd.', rendered by the Calcutta Bench of the Tribunal, in ITA
No.644/Kol/2012 and CO No.55/Kol/2012, for AY 2008-09, vide order dated
21.09.2012 (copy at APB 104-109).
9. We have heard the parties on this issue and have perused the material
on record with regard thereto. The assessee has maintained all through that
no expenses were incurred for earning the exempt income of ` 37,92,143/-
by way of dividend. The AO made disallowance of 0.5% of the average
investment of ` 2 crore, amounting to ` 1 lac. At the outset, undisputedly,
the assessee had itself added back `1,15,395/- in its computation of income
in this regard. Therefore, the disallowance suo motu made by the assessee
was itself more than the disallowance envisaged in the formula provided by
Rule 8D of the Rules. Therefore, on this short score, no further disallowance
was called for and the AO erred on this count.
10. Then, it is on record, as before the taxing authorities also, that the
assessee had not incurred any expenditure during the year. Also, no loans
were taken to make investment in mutual funds. In fact, as available from
page 9 of the APB, which is a copy of Schedule-6 to the audited financial
statement of the assessee for the year under consideration, the total
investment in mutual funds and equity shares as on 31.3.07 (i.e., the end of
the immediately preceding assessment year) was of ` 8,59,44,282/-.
Similarly, investment in the year under consideration, i.e., as at 31.3.08,
stands reduced to ` 2,50,00,000/-. No fresh borrowing was made by the
assessee. As per the assessee's balance sheet as on 31.3.08 (APB-3), the
borrowing as at 31.3.07 was of ` 15,21,75,901/-, which stands reduced to `
9,15,06,633/-, as on 31.3.08. This balance sheet also shows that as on
31.3.08, the reserves and surplus available with the assessee were of `
61,64,30,131/-. The investments, on the other hand, were of only `
2,50,00,000/-. Schedule-3 to the accounts (APB-7) shows secured loans for
vehicles at ` 9,15,06,633/-. This is as per Schedule-17 to the accounts (APB-
13), which shows the interest.
11. As evident from a perusal of the assessment order, none of the above
facts and figures were taken into consideration by the AO while making the
disallowance and it was only alleged that "the assessee's representative
submitted that no expenses have been incurred for earning exempted
income. The assessee's arguments are not acceptable because the
administrative expenses have to be incurred for the purpose of earning of
exempted income also......" (emphasis supplied).
12. Further, in `Champion Commercial Company Ltd.' (supra), while
dealing with the issue, it has been held thus:-
"16. Once the revenue authorities have taken a particular stand about
the applicability of formula set out in rule 8 D(2)(ii), and based on such
a stand constitutional validity is upheld by Hon'ble High Court, it
cannot be open to revenue authorities to take any other stand on the
issue with regard to the actual implementation of the formula in the
case of any assessee. Viewed thus , the correct application of the
formula set out in rule 8D(2)(ii) is that, as has been noted by Hon'ble
Bombay High Court in the case of Godrej and Boyce (supra), "amount
of expenditure by way of interest that will be taken (as 'A' in the
formula) will exclude any expenditure by way of interest which is
directly attributable to any particular income or receipt (for example--
any aspect of the assessee's business such as plant/machinery etc.)".
Accordingly, even by revenue's own admission, interest expenses
directly attributable to tax exempt income as also directly attributable
to taxable income, are required to be excluded from computation of
common interest expenses to be allocated under rule 8D(2)(ii).
17. To the above extent, therefore, we have to proceed on the basis
that rigour of rule 8 D (2)(ii) is relaxed in actual implementation, and
revenue authorities, having taken that stand when constitutional
validity of rule 8 D was in challenge before Hon'ble High Court, cannot
now decline the same. Ideally, it is for the Central Board of Direct
Taxes to make the position clear one way or the other either by
initiating suitable amendment to rule 8D(2)(ii) or by adopting an
interpretation as per plain words of the said rule, but even on the face
of things as they are at present , in our humble understanding,
revenue authorities cannot take one stand when demonstrating lack of
`perversity, caprice or irrationality' in rule 8D before Hon'ble High
Court, and take another stand when it comes to actual implementation
of the rule in real life situations. Therefore, even as we are alive to the
fact that the stand of the learned Departmental Representative is in
accordance with the strict wording of rule 8D(2)(ii), we have to hold
that, for the reasons set out above, this rigid stand
cannot be applied in practice. "
13. In the present case, to reiterate, from the facts as discussed, it is
evincible that though she was required to do so, the AO did not return a
finding that the claim of the assessee that no expenses had been incurred
for earning the exempt income, was incorrect. She merely held that
administrative expenses had to be incurred for earning of exempt income
also. The rejection of the assessee's claim in this manner is found to be
improper and the ld. CIT (A) correctly reversed the action of the AO by
deleting the disallowance made.
14. In view of the above discussion, finding no error whatsoever in the
order of the ld. CIT (A) qua this issue, the same is hereby upheld and the
ground raised by the department is rejected.
15. In the result, the appeal filed by the department is dismissed.
The order pronounced in the open court on 09.05.2014.
[R.S. SYAL] [A.D. JAIN]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated, 09th May, 2014.
Copy forwarded to:
4. CIT (A)
5. DR, ITAT
AR, ITAT, NEW DELHI.