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Income Tax Appellate Tribunal, DELHI BENCH: ‘D’ NEW DELHI
Before: SHRI S.V. MEHROTRA & SMT. BEENA A. PILLAI
order of the ld. CIT(A)-VIII, New Delhi vide order dated 11.10.2013 for assessment year 2009-10 on the following grounds of appeal:-
“1. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in restricting the addition u/s 14A read with rule 80 from Rs. 1,78,71,632/- to Rs. 35,10,8441- ?
I.T.A.No. 209/Del/2014 Assessment year 2009-10 2 Whether on the facts and in the circumstances .of the case & law, the Ld. CIT(A) erred in deleting the addition of Rs. 1,68,10,2431- made by the A.O. in respect of expenses debited in P&L A/c under the "Employee Stock Option cost"? 3. Whether on the facts and in the circumstances of the case & law, the Ld. CIT(A) is perverse in nature as the same is in contradiction with the facts as clarified by CBDT vide Circular No. 9/2007 issued on 20.12.2007? 4 That the order of the Ld. CIT(A) is erroneous and is not tenable on facts and in law. 5 That the grounds of appeal are without prejudice to each other.
6. That the appellant craves leave to add, to alter or amend any ground of the appeal raised above at the time of the hearing.”
2. Brief facts as recorded by the authorities below are as under: - 2.1. The return was filed by the assessee on 30.09.2008 declaring total loss of Rs.4,22,08,912/-. The case was selected for scrutiny and notice u/s 143(2) was issued to the assessee. The Assessing Officer during the assessment proceedings observed that the assessee is engaged in the business of owning, operating and managing hotels, motels, resorts, restaurant etc. During the year under consideration, the assessee has made various investments and, therefore, the ld. Assessing Officer computed the I.T.A.No. 209/Del/2014 Assessment year 2009-10 disallowance u/s 14A r/w Rule 8D to the extent of Rs.1,78,71,632/-. The ld. Assessing Officer also made addition of ESOP expenses to the extent of Rs.1,68,10,243/-.
3. Aggrieved by the order of the ld. Assessing Officer, the assessee preferred an appeal to ld. CIT(A). Before the ld. CIT(A), the assessee made various submissions in respect of the additions made by the ld. Assessing Officer. Accordingly, the ld. CIT(A) restricted the addition u/s 14A r/w Rule 8D to an extent of Rs.35,10,844/-. In respect of the ESOP expenses, the ld. CIT(A) held it to be an allowable deduction and, therefore, deleted the addition made by the ld. Assessing Officer.
3. Aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us now.
3.1. At the outset, the assessee submits that ground no. 2 and 3 stand covered by the order of this Tribunal in assessee’s own case for assessment year 2008-09 vide order dated 23.6.2014 in I.T.A. No. 4588/Del/13. He submitted that the revenue had preferred an appeal before the Hon'ble Jurisdictional High Court against the deletion of the disallowance of ESOP expenses for assessment year 2008-09 in I.T.A. No. 107/2015. The Hon'ble I.T.A.No. 209/Del/2014 Assessment year 2009-10 Delhi High Court has upheld the order of this Tribunal and held that ESOP could be debited to the Profit & Loss account of the assessee by following the decision of Madras High Court in the case of CIT-III Chennai vs PVP Ventures Ltd. in TC(A) No.1023 of 2005 and in the case of CIT vs Oswal Agro Mills Ltd. in by the Jurisdictional High Court vide order dated 4th August, 2015. The Hon'ble High Court dismissed the appeal filed by the revenue for assessment year 2008-09 vide its order dated 18.8.2015.
3.2. We, therefore, respectfully following the order of the Jurisdictional High Court in assessee’s own case, dismiss these grounds of appeal filed by the Revenue.
3.3. Ground no. 4 and 5 are general in nature and, therefore, the same are not adjudicated upon.
Ground No.1
This issue relates to the restriction of the disallowance u/s 14A r/w Rule 8D amounting to Rs.35,10,844/-. Ld. AR submitted that the assessee had surplus interest free funds available in its cash flow statement and balance sheet, for the investment made in shares. Ld. AR submitted that the assessee I.T.A.No. 209/Del/2014 Assessment year 2009-10 had shareholders fund amounting to Rs. 279.82 crores as on 1.4.2008, and during the financial year 2008-09, the net cash flow from operating activities amounted to Rs.12.94 crores. He further submitted that the proceeds from issuance of share capital amounted to Rs.79.84 crore and, therefore, the shareholders fund of the assessee for the relevant year increased from Rs. 279.82 crores to Rs.363.91 crores as on 31.3.2009.
4.1. Ld. AR submits that the total investment made in shares during the year under consideration amounted to Rs.78.47 crores. He argued that the assessee had sufficient interest free funds to make such investment in shares and no fresh borrowings were required for such investment made during the year.
4.2. Ld. AR submitted that the loans on which interest has been paid by the assessee during the year under consideration pertain to specific hotel projects undertaken by the assessee across the country. He submitted that the sanction letters of various loans on which interest has been paid by the assessee are placed at pages 83 to 135 of the Paper Book. Ld. AR submitted that since the assessee did not obtain any loan specifically for investment in shares, no interest expenditure is attributable to such investment 5 I.T.A.No. 209/Del/2014 Assessment year 2009-10 and question of disallowance of attributable interest expenditure does not arise to the facts in hand. Ld. AR placed his reliance on the following decisions:- a) Relaxo Footwears Ltd. vs ACIT (20-12) 18 taxmann.com 333
(Delhi) b) ACIT vs SIL Investment Ltd. (2012) 54 SOT 54 (Del) c) ACIT vs Mohan Exports (P) Ltd. (2012) 138 ITD 108 (Delhi) d) Siva Projects Engineering & Enterprises Ltd.
(I.T.A.No.1896/Mds/2011) e) REI Agro Ltd. (I.T.A.No. 1331 & 1423/Kol/2011) f) CIT vs Metalman Auto (P) Ltd. (2011) 336 ITR 434 (P&H) g) Godrej and Boyce Mfg. Co. Ltd. vs DCIT (2010) 328 ITR 81
(BOM) h) Maxopp Investment Ltd. vs CIT (2012) 247 CTR 162 (Delhi)
4.3. Without prejudice to the above submissions, the ld. AR submitted that the disallowance sustained by the ld. CIT(A) is towards the interest paid on other loans. Ld. AR submitted that the assessee is running hotels under the brand name Lemon Tree and it has made investment in shares of certain subsidiary companies that are also operating or setting up Lemon Tree hotels with a view to obtain controlling interests. He submitted 6 I.T.A.No. 209/Del/2014 Assessment year 2009-10 that the investments made by the assessee during the year under consideration are in the subsidiary companies from its own surplus interest free funds available with the assessee on which no interest expenditure has been incurred.
On the contrary, ld. DR relies upon the orders of the authorities below.
We have perused the orders of the authorities below, the paper book filed by the assessee and the decisions relied upon by the assessee.
6.1. There is no doubt that the assessee has made investments in shares of its sister concerns to acquire controlling interest in those companies which are also in the same line of business as the assessee. Further, the assessee has earned dividend income of Rs.9,10,081 during the year which has been claimed as exempt in the return of income. It is also an undisputed fact that the assessee has not made any suo moto disallowance u/s 14A r/w Rule 8D.
6.2. It is an accepted position that as the year under consideration is 2009-10, Rule 8D is applicable to the assessee and that there has to be a disallowance u/s14 A of the Act, that I.T.A.No. 209/Del/2014 Assessment year 2009-10 needs to be made in the event of earning any exempt income from investments made by the assessee during an assessment year.
The disallowance u/R. 8D has to made by applying, sub clause (i), (ii) and (iii) of sub section 2 of R.8D. Sub clause (i) & (ii) relates to direct and indirect expenses that could be attributable to the earning of the exempt income.
6.3. The contention of the assessee, that the term loans raised by it have been utilized for the purpose of setting up and operating the hotels and that it has no connection whatsoever with the investment in shares, could not be ignored. The sanction letters placed by the assessee at pages 83 to 135 are self-explanatory to that effect. For calculating the disallowance u/s 14A r/w Rule 8D (2) sub-section (i) and sub-section (ii) is, therefore, not applicable as there has been no direct and indirect interest expenditure incurred by the assessee that could be attributable to the earning of exempt income from the investments made by the assessee.
6.4. The third limb of Rule 8D (2), deals with disallowance an amount equal to 1 ½ of the average of the value of investment, income from which does not or shall not form part of the total income as appearing in the balance sheet of the assessee on the 8 I.T.A.No. 209/Del/2014 Assessment year 2009-10 first day and the last day of the previous year. The language of this sub-section is very clear to hold that only those investments should be considered under this limb from which exempt income has been earned during the year under consideration by the assessee. The argument raised by the assessee that since there has been no direct or indirect interest expenditure, that could be attributable to the earning of exempt income and therefore, no disallowance could be made u/s 14A r/w 8D of the Act, cannot be accepted. Rule 8D (2)(iii) would be applicable and the disallowance u/s 14A r/w Rule 8D has to be made in accordance to sub section (iii) of section (2) of Rule 8D.
6.4. We, accordingly, on the basis of the above discussion and findings, set aside this issue to the file of the Assessing Officer for re-computing the disallowance u/s 14A r/w Rule 8D(iii), with a specific direction to consider only those investments from which the assessee has earned tax free income for the year under consideration. It is specifically mentioned that the disallowance has to be made in accordance with law under Rule 8D (2)(iii) for the year under consideration.
Accordingly, this ground filed by the Revenue is statistically allowed. 9 I.T.A.No. 209/Del/2014 Assessment year 2009-10 The appeal filed by the Revenue, therefore, stands Partly allowed.
Order pronounced in the open court on 18/01/2016