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Income Tax Appellate Tribunal, DELHI BENCHES: Bench ‘F’, NEW DELHI
Before: SMT. BEENA A PILLAI & Dr. B.R.R. KUMAR
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: Bench ‘F’, NEW DELHI BEFORE SMT. BEENA A PILLAI, JUDICIAL MEMBER AND Dr. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA No. 6194/Del/2013 A.Y. 2010-11 R.D.M. Care (India) vs. CIT(A)-XVIII Pvt.Ltd. New Delhi 2/12, West Patel Nagar New Delhi 110 008 PAN: AAACR1673H (Appellant) (Respondent)
Assessee by Sh. Alok Bajaj, C.A.
Dept. by Sh. Surender Pal, Sr.D.R. Date of Hearing 03/01/2019 Date of Pronouncement 03/01/2019
ORDER PER BEENA A PILLAI, JUDICIAL MEMBER Present appeal has been filed by assessee against order dated 05/09/13 passed by Ld.CIT(A)-17, New Delhi dated 05/09/13, on following grounds of appeal: That the Ld. C1T(A) XVIII has erred in dismissing the appeal 1. by passing a non speaking order which confirms all the disallowances made by the Assessing Officer without giving reasons for doing so in spite of written submissions filed thereon. That the Ld. CIT(A) has erred in disallowing the entire 2. expense on account of foreign travelling of Rs. 25,51,499/- wherein only proportionate disallowance relating to Director’s family should have been made as prayed in the written submissions filed with him.
ITA No.6194/Del/2013 AY 2010-11 RDM Care (India) P Ltd.
That the Ld. CIT(A) has erred in proportionate disallowance of interest expenses of Rs. 7,37,904/- incurred in connection with borrowed funds used for normal business activities by simply relying on the order passed by the Assessing Officer and completely ignoring the contention/written submission of the assessee without elaborating on his reasons to do so. 4. That the Ld. CIT(A) has erred in making a disallowance under section 14A of Rs. 10,24,677/- of the Act. Plain reliance has been placed by him on the Assessing Officer’s order and no reason has been cited for making the disallowance despite detailed written submissions filed explaining the facts and circumstances of the case. That the appellant craves leave to add/amend any/ all the grounds of appeal as taken above.
Brief facts of the case are as under: Assessee filed its return of income on 15/10/10 declaring total income of Rs.10,00,50,210/. The case was selected for scrutiny and statutory notice under section 143(2) of the Income Tax Act, 1961 (the Act) was issued to assessee followed by notice under section 142(1) of the Act along with questionnaire. In response to statutory notices, assessee filed written submission dated 09/07/13 before Ld.AO. Ld.AO observed that assessee is engaged in resale of herbal cosmetics and other allied products for almost more than 2 decades. As no one in person appeared before Ld.AO, based upon written submissions filed by assessee, Ld.AO made following additions:
ITA No.6194/Del/2013 AY 2010-11 RDM Care (India) P Ltd.
disallowance of foreign travelling expenses-Rs.25,51,490/- disallowance of interest expenses -Rs. 7,37,904/- disallowance under section 14 A -Rs.10,24,677/-
Aggrieved by the additions made by Ld.AO, assessee preferred appeal before the Ld.CIT (A), who dismissed the appeal filed by assessee. 4. Aggrieved by the order of Ld. CIT (A) assessee is in appeal before us now. 5. Ground No. 1 raised by assessee is general in nature and therefore do not require any adjudication. 6. Ground No. 2 is in respect of addition of Rs. 25,51,490/-on account of foreign travel expenses. 6.1. Ld.AR submitted that during relevant year, assessee claimed foreign travel expenses, which was incurred by Director of assessee who undertook foreign travel to explore the existence as well as future possibility of business. It was submitted that his wife had accompanied him in foreign travel. 6.2. Ld. DR supported orders of authorities below. 6.3. In rejoinder, Ld.AR submitted that in the event any disallowance is to be sustained, he requested for e 50% of expenses to be disallowed on account of expenses assumed to be incurred on behalf of director’s wife. It was submitted by Ld.AR that assessee was not well and therefore was accompanied by his wife on the foreign travel. 7. We have perused the submissions advanced by both sides in the light of records placed before us.
ITA No.6194/Del/2013 AY 2010-11 RDM Care (India) P Ltd.
Admittedly assessee has not filed any evidence in relation to foreign travel incurred by its director and his wife. However, as it is a settled principle that no one can step into the shoes of a businessman and decide how to conduct his business, we are of the considered opinion that 50% of disallowance as suggested by Ld. AR would be appropriate. Accordingly we grant relief to assessee to an extent of 80% of foreign travel expenses incurred. 9. Accordingly this ground raised by assessee stands partly allowed. 10. Ground No. 3 is in respect of addition of Rs.7,37,904/-, incurred in connection with borrowed funds, used for normal business activity. 11. Ld.AR submitted that assessee took loan, amounting to Rs.5,69,60,914/-. Ld. AO observed that expenses were incurred towards a new bio-gas project at Jabalpur, which was capitalised. Ld.AR submitted that assessee had not taken any borrowed funds from bank for the new bio-gas project but was taken for day-to-day running of business. He submitted that merely because a huge investment towards a new bio-gas project was made by assessee during the year under consideration it cannot be held that borrowed funds were utilised for the purpose. He further submitted that Assessing Officer has not established any nexus between borrowed funds and investment made in bio- gas project. He submitted that assessee has a turnover for the year under consideration amounting to Rs.174 crores and an incremental sale of Rs.7 crore. It is also submitted that during assessment year 2009-10 interest expenses on credit limit was at Rs.31 lakhs approximately as compared to 18 lakhs for the year
ITA No.6194/Del/2013 AY 2010-11 RDM Care (India) P Ltd.
under consideration. It was thus submitted that the incremental business and expansion of existing business set up has not been funded through borrowed sources. Ld.AR further submitted that the investment in the diversified segment being biogas sector is majorly done through Axis bank which is not the account where assessee has credit facilities. 12. On the contrary, Ld.Sr.DR placed reliance upon orders of authorities below. 13. We have perused submissions advanced by both sides in light of records placed before us. 14. On perusal of audited accounts, it is observed that assessee has maintained a separate account for interest paid to banks on various loans taken. Presumption drawn by Ld.AO that the investment made in biogas project is out of the bank loan is not correct as these are based upon mere surmises and conjunctures. Further it is observed that assessee has sufficient funds of its own for the purposes of investment in the biogas project. Under such circumstances, without there being any cogent material/evidences on record to show that borrowed funds have been diverted for investment purposes, no disallowance on proportionate basis could be made in respect of interest paid by assessee. We delete the addition made by Ld.AO 15. Accordingly, ground raised by assessee stands allowed. 16. Ground No. 4 is in respect of disallowance under section 14 A amounting to Rs.10,24,677/-. 16.1. Ld.AR submitted that assessee during the year under consideration had invested in quoted equity shares, mutual funds amounting to Rs.10,57,35,190/-, against which a sum of
ITA No.6194/Del/2013 AY 2010-11 RDM Care (India) P Ltd.
Rs.1,63,070/-, was earned as dividend income. Admittedly it has been submitted that assessee had not offered expenditure as disallowance under section 14 A read with rule 8D. It has been submitted that Assessing Officer in the process of computing the disallowance, made addition of Rs.10,24,677/-, which is almost 63% more than exempt income earned by assessee during the year. Assessee has also placed reliance upon decision of Hon’ble Delhi High Court in case of Joint Investment Pvt.Ltd. vs CIT., reported in (2015) 59 Taxmann.com 295, and submitted that disallowance under section 14 A cannot exceed the exempt income earned by assessee. 16.2. He also submitted that average investment computed by Ld.AO included mutual funds, which cannot yield any dividend income. 16.3. He prayed for deletion of addition made by Ld.AO. 16.4. On the contrary, Ld.DR placed reliance upon decision of Hon’ble Supreme Court in case of CIT vs. Maxopp investments Ltd reported in (2018) 91 Taxmann.com 154. 17. We have perused submissions advanced by both sides in light of the records placed before us. 18. Admittedly the investment has also been made in mutual funds which does not yield any dividend income. Thus in our considered view the investment needs to be excluded from the ambit of computation as enunciated in rule 8D. Further the interest payment made by assessee is in respect of day-to-day affairs and on perusal of accounts it is very clear that assessee has sufficient reserve and surplus for making such investments in equity shares. In our considered opinion considering huge
ITA No.6194/Del/2013 AY 2010-11 RDM Care (India) P Ltd.
quantum of investments made by assessee, having regards to decision of Hon’ble Supreme Court in case of CIT vs. Maxopp investments Ltd (supra) we restrict the disallowance to the extent of exempt income earned by assessee. 19. Accordingly this ground raised by assessee stands partly allowed. 20. In the result appeal filed by assessee stands partly allowed. Order pronounced in the open court on 03/01/2019.
Sd/- Sd/-
(B.R.R. KUMAR) (BEENA A PILLAI) Accountant Member Judicial Member
Dated: 03rd January, 2019.
GMV Copy of the Order forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR 6. Guard File
By Order
Asst. Registrar ITAT, Delhi Benches, New Delhi
ITA No.6194/Del/2013 AY 2010-11 RDM Care (India) P Ltd.
S.No. Details Date 1 Draft dictated on Dragon 03.01.19 2 Draft placed before author 03.01.19 Draft proposed & placed before 03.01.19 3 the Second Member Draft discussed/approved by 4 Second Member Approved Draft comes to the Sr. 5 PS/PS 6 Kept for pronouncement 7. Order uploaded on 8 File sent to Bench Clerk Date on which the file goes to 9 Head Clerk 10 Date on which file goes to A.R. 11 Date of Dispatch of order