CIT vs. JINDAL EQUIPMENT LEASING & CONSULTANCY SERVICES LTD

IN THE HIGH COURT OF DELHI AT NEW DELHI . . . ITA 68/2012 . . . CIT ..... Appellant . Through Mr. Sanjeev Sabharwal, Sr. Standing Counsel. . . . versus . . . JINDAL EQUIPMENT LEASING and CONSULTANCY SERVICES LTD. ..... Respondent . Through Nemo. . . . CORAM: . HON'BLE MR. JUSTICE SANJIV KHANNA . HON'BLE MR. JUSTICE R.V.EASWAR . . . O R D E R . 03.02.2012 . . . Revenue impugns the order dated 21st April, 2011 passed by the Income Tax Appellate Tribunal (tribunal, for short) confirming the order of the Commissioner of Income Tax (Appeals) deleting penalty under Section 271(1)(c) of the Income Tax Act, 1961 (Act, for short). . 2. The Assessing Officer imposed penalty, inter alia, recording that the Assessing Officer had disallowed expenses to the extent of Rs.1,07,34,968/- (from interest expenses) and Rs.5,12,401/- (from administrative costs) under Section 14A read with Section 115O of the Act. The respondent assessee had challenged the additions before the CIT(Appeals), but was unsuccessful. Appeal filed before the tribunal was dismissed for non-prosecution. . 3 The Assessing Officer thereafter passed a penalty order under Section 271(1)(c) of the Act, which as noted above, was set aside and the penalty was deleted by the CIT(Appeals). The tribunal has affirmed the order passed by the CIT (Appeals). . 4. During the course of assessment proceedings, the assessee had given the following explanation and expressed their stand, why no disallowance should be made under Section 14A of the Act:- . ? Section 14A deals with those expenditure which are incurred by the assessee in relation to income does not form part of the total income under this Act. The expression ?in relation to? has to be read in a broader sense. The words ?in relation to? signify or imply a direct and proximate relationship between expenditure and income. It cannot cover any expenditure relating to the source but not attributable to exempt income. It is submitted that in a case of one indivisible business, Section 14A does not have any applicability. As was explained, the company holds shares as a part of the promoters stake and not as investment simpliciter. The main activity of the company is to have control over the investee companies. . . . Dividend income is only incidental to the holding of the shares. These are other types of income/rights which are earned from the holding of promoters stake, like . . . Profit on sale of shares . Right to appoint Director/Directors fees . Right to participate in Rights issue . Stock Lending . Voting rights . . . All of the above are valuable rights and the income referred above is earned, e.g. the directors of the company earn directors fees/commission which is chargeable to tax. . . . All such income find their genesis in the promoters? holding. . . . In view of the above, it is submitted that it is wholly wrong to state that the interest expenditure has been incurred by the company to earn dividend income. At the sake of repetition, it is once again stated that the shares are held by the company as a part of the promoters stake and are therefore, are the tools through which the company conducts its business of acquiring / retaining management control over the investee companies. Expenditure for the purpose of business merits to be allowed as a deduction.? . . . 5. The assessee in support of its contention had relied upon CIT versus Raeeva Lochan Kanoria, (1994) 208 ITR 616 (Cal.), CIT versus Indian Bank Limited, (1965) 56 ITR 77 (SC), CIT versus Maharashtra Sugar Mills Limited, (1971) 82 ITR 452 (SC) and Rajasthan State Warehousing Corporation versus CIT, (2000) 242 ITR 450 (SC). . 6. The CIT (Appeals) and the tribunal have considered the aforesaid explanation given by the assessee to justify their claim why no disallowance was mandated under Section 14A in the present case. They have accepted that the explanation given by the assessee was genuine and bona fide. The contention of the respondent assessee may have been rejected in the quantum proceedings but when deciding whether or not penalty for concealment should be imposed, the justification and . explanation why the assessee had made the claim, is to be examined. Disallowance under the said Section have been subject matter of debate and different views have been expressed. A legal contention which was plausible and merited consideration was raised. Accordingly, the appellate authorities have applied the explanation to Section 271(1)(c) of the Act. Looking at the nature of explanation offered and the provision in question i.e. Section 14A, which was incorporated by the Finance Act, 2001 with retrospective effect from 1st April, 1962, we do not think in the present case any substantial question of law arises in view of the factual matrix involved. Accordingly, the appeal is dismissed. . . . . . SANJIV KHANNA, J. . . . . . . . R.V. EASWAR, J. . FEBRUARY 03, 2012 . VKR . $ 62. .