DCIT, NEW DELHI vs. M/S. JUBILANT SECURITIES PVT. LTD., NOIDA

This is an appeal filed by the Revenue against the order of ld. CIT(A)- VIII, New Delhi dated 28.11.2013 for the assessment year 2010-11. The effective grounds raised by the revenue read as under: “Whether on the facts and circumstances of the case & in law, the Ld CIT(A) erred in allowing relief of Rs.48,03,577/- out of disallowance made u/s. 14A as per provisions of Rule 8D.

The brief facts of the case are that the assessee was engaged in the business of investment, finance and business support services. The assessee filed its return of income on 14.10.2010 at an income of Rs.2,78,08,362/-. The case was processed u/s. 143(1) and later on case was selected for scrutiny and notice was issued and served. Detailed questionnaires were also issued and served. During the course of scrutiny proceedings, the AO found that the assessee has paid service charges to his sister concern named M/s. Jubilant Enpro Pvt. Ltd. The Assessing Officer asked for the justification of payment and basis of allocation. In response to this notice, the assessee submitted detailed reply which is placed at page 29 to 31 of the paper book. The assessee has allocated the revenue/expenditure on the basis of per rig month. The total number of rig months were completed 95 during the assessment year, out of which 83 have been completed by Jubilant Enpro Pvt. Ltd. (sister concern) and 12 rig months were completed by the assessee company. The assessee company apportioned the Revenue/expenditure on per rig month basis. The Assessing Officer disagreed with the calculation as done by the assessee and he computed the expenses on the basis of revenue generation by the company. On the basis of calculation done by the AO, the assessee company claimed excess expenditure of Rs.22,29,292/- and short claimed by his sister concern by similar amount. The AO, therefore, disallowed the excess expenditure as per calculation made by AO as under : Particulars Jubilant Enpro Jubilant Securities Total Pvt. Ltd. Ltd. 83 12 95 Number of Rig Months Rigs - Consultancy income 306608385 33014064 339622449 Income per rig month 3694077 2751172 3574973 Expenditure 66913583 9674253 76587836 806188 806188 806188 Expenses per rig month 66913583 9674253 Apportionment of Expenditure as 76587836 per Rig Months 69142875 - 7444961 76587836 Apportionment of expenses in the ratio of revenue generation DIFFERENCE (-) 22,29,292 22,29,292 Against the order of the AO, the assessee preferred an appeal before the ld. CIT(A) who deleted the addition stating that the department will not get any extra revenue due to adding one expenditure to the other. Against this order of ld. CIT(A), the Revenue is in appeal before the Tribunal.

The ld. DR relied on the order of the AO and argued that the ld. AO has made reasoned order which does not require any interference. The ld. AR relied on the order of the ld. CIT(A) and submitted that the issue in dispute is covered by the decision of Hon’ble Delhi High court in the case of assessee itself in & 491/2014 dated 27.11.2014 for the assessment year 2009-10.

We have considered the rival submissions and perused the materials available on record and we find that the issue under consideration is covered by the decision of Hon’ble Delhi High Court in the case of assessee itself (supra) wherein the Hon’ble Court has held as under : “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 dependent 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 sendees 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 sendees 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.” The ld. DR could not adduce any material on record to take a contrary view. Therefore, respectfully following the decision of jurisdictional High court, we find no infirmity in the order of the ld. CIT(A). Accordingly, ground No. 2 of the revenue’s appeal deserves to fail.

The brief facts relating to ground No. 1 raised by the Revenue are that during the previous year relevant to the assessment year under appeal, the assessee earned dividend income amounting to Rs. 3,11,65,965/-. Such dividend income was claimed as exempt u/s 10(34) of the Act. The assessee had also made investment in the shares of different companies with a view to earn dividend income. The assessee had already offered u/s 14A disallowance of Rs. 55,60,586/- in the return of income. The details of expenses incurred and income earned by assessee are shown in the table below : Particulars Taxable Total Exempted fn Provisions written Income income back co me Consultancy Income 33014064 33014064 Interest 11890841 11890841 31165965 . Dividend 31165965 Provisions for NPA 15405315 and Diminution of 15405315 Investments written back 91476185 44904905 15405315 Total as per Credit 31165965 Side of P & L Expenses- Total Against Against Expenses not Expenses Taxable Exempted considered as Income Income allowable Direct Expenses 9674253 9674253 Service Charges 36376 Direct Expenses - 8146 28230 DMAT Expense , SIT 47,08,000 47.08.000 Interest on Loans - Directly relatable to towards Taxable Income 7314741 2343371 4971370 Interest on Loans - 0 Indirect of Common Amalgamation Expenses 485097 97019 388078 Expenses , Loss on sale of 9692367 9692367 Investments, Provision for Diminution of Investments etc. disallowed Admin Expenses 854971 273901 581070 9692367 Total as per Debit side of 32765805 17096544 5560586 10108675 P&L Returned Income 27808362 The AO did not accept the claim of the assessee and computed the disallowance of expense under rule 8D r/w Section 14A as follows:

The ld. DR relied on the order of the AO and submitted that the ld. CIT(A) was not justified in giving relief to the assessee without any good reason. On the other hand, the ld. AR of the assessee relied on the arguments made before the ld. CIT(A) as incorporated in the impugned order.

Having considered the rival submissions, we find no justification to interfere with the findings reached by the ld. CIT(A), who after applying his mind has taken correct ratio of expenditure towards exempt and taxable income of the assessee. The ld. DR could not be able to adduce any such material which could lead us to disturb the conclusions arrived at by the ld. CIT(A) in the impugned order. The ld. CIT(A) while allowing the relief to the assessee has considered the disproportion of dividend income and other income received by assessee. In the totality of facts and circumstances, we do not find any good reason to disturb the impugned order on this found. Accordingly, the respective ground raised