IN HIGH COURT OF DELHI AT NEW DELHI Date of decision: November 27, 2014 ITA 490/2014 COMMISSIONER OF INCOME TAX-II Appellant Through: Mr.Rohit Madan,Sr.Standing Counsel with Mr.Ruchir Bhatia, Mr.Akash Vajpai, Advs. versus JUBILANT SECURITIES PVT.LTD. Respondent Through: Ms.Kavita Jha, Adv. ITA 491/2014 COMMISSIONER OF INCOME TAX-II Appellant Through: Mr.Rohit Madan,Sr.Standing Counsel with Mr.Ruchir Bhatia, Mr.Akash Vajpai, Advs. versus JUBILANT SECURITIES PVT.LTD. Respondent Through: Ms.Kavita Jha, Adv. CORAM: HON'BLE MR. JUSTICE SANJIV KHANNA HON'BLE MR. JUSTICE V. KAMESWAR RAO SANJIV KHANNA, J (ORAL) 1. These two appeals filed by revenue pertain to Assessment Year 2009-10 and arise out of one order of Income Tax Appellate Tribunal ( Tribunal in short) dated 09.01.2014. revenue has possibly preferred two appeals as two cross appeals were disposed by Tribunal by said impugned order. 2. Two issues have been raised in present appeals. First issue relates to deletion of addition of Rs.25,19,529/- made by Assessing Officer on account of service charges paid to M/s. Jubilant Enpro Pvt. Ltd. and second issue relates to direction of Tribunal affirming order of Commissioner of Income Tax (Appeals) restricting disallowance under Section 14A of Income Tax Act, 1961 ( Act in short) read with Rule 8D of Income Tax Rules, 1962 ( Rules , in short) to Rs. 62,96,037/- as against disallowance of Rs. 1,02,40,167/- made by Assessing Officer. First Issue:- 3. respondent-assessee had paid service charges of Rs.95,84,561/- to group company M/s. Jubilant Enpro Pvt. Ltd., who had provided services under Memorandum of Understanding dated January 05, 2006. M/s. Jubilant Enpro Pvt. Ltd. was also providing similar/identical services to other group companies of respondent assessee. As per terms of payment agreed between respondent assessee and M/s. Jubilant Enpro Pvt. Ltd., reimbursement or payment for services provided, was to be made by assessee and group companies upon apportionment of cost incurred by M/s. Jubilant Enpro Pvt. Ltd. apportionment was done, on basis of rigs deployed. Assessing Officer felt that this was not correct method of apportionment of cost and service charges paid to M/s. Jubilant Enpro Pvt. Ltd. He made addition by disallowing expenditure of Rs.25,19,529/-, observing that apportionment should not have been done on basis of number of rigs but on basis of revenue generated. aforesaid finding was affirmed in first appeal by Commissioner of Income Tax (Appeals). 4. said finding has been reversed by Tribunal in impugned order. Tribunal, accepting plea of assessee, has observed that services rendered by M/s. Jubilant Enpro Pvt. Ltd. were in 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. aforesaid work and obligation undertaken by M/s. Jubilant Enpro Pvt. Ltd. was dependant upon number of rigs and this would determine cost apportionment of support services which were given and provided to recipients. services were not dependent upon size of rigs or turnover. contention of respondent assessee that apportionment of cost should not be made on basis of turnover, but, on basis of number rigs was accepted. aforesaid findings are findings of fact and there is no reason or ground to hold that said findings are perverse. Noticeably, M/s. Jubilant Enpro Pvt. Ltd. had provided services to other sister concerns of respondent assessee. amount and quantum paid by assessee and other group companies is not in dispute. Any disallowance in hands of respondent assessee would necessarily mean increase of expenditure incurred by sister concern, as there is no dispute about 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. Assessing Officer did not invoke Section 40A(2) of Act, or hold that payment made were disproportionate to market value of services rendered. Engaging services of M/s. Jubilant Enpro Pvt. Ltd. had helped assessee and other group companies to reduce costs, as for common services they did not engage employees or consultants separately. This is clear from submission made and findings of Tribunal that there was commonality in nature of services and therefore, respondent assessee and other sister concerns had established and taken services from one cost centre i.e. M/s. Jubilant Enpro Pvt. Ltd. respondent company and others had agreed to pay for services by way of reimbursement of expenses. In view of aforesaid position, we do not think, in present appeals, first issues requires admission. Second issue:- 5. On second issue also, appeal preferred by revenue is without merit. By our last order dated 16.10.2014, we had asked learned counsel for revenue to take instructions on whether any appeal was filed against order of Tribunal for Assessment Year 2008-09 and examine whether interest accrued on loan of Rs. 5 Crores given to third party was shown or treated as taxable income in hands of respondent assessee. 6. Learned Sr.Standing Counsel for revenue has not been able to obtain instructions but on behalf of respondent assessee, copy of order dated 26.10.2012 relating to Assessment Year 2008-09 passed by Tribunal has been placed on record. As per findings recorded in said order, interest on loan of Rs.5 Crores had been utilized for giving loan of same amount to another party. Further, loan to third party had earned taxable income. Therefore, interest on such loan proportionate to utilization, was excluded from total interest for purpose of Clause (ii) of Sub- Rule (2) to Rule 8D of Rules. 7. When we examine order of Commissioner of Income Tax (Appeals) who had accepted assessee s contention in present Assessment Year, it is obvious that this factual position is correct. Commissioner of Income Tax (Appeals) has recorded and held that interest of Rs.47,08,000/- was incurred exclusively towards earning of taxable income and therefore should be excluded from total interest of Rs.1,23,27,915/-, while computing disallowance under Clause (ii) to Rule 8D(2) of Rules. Thereafter, Commissioner of Income Tax (Appeals) recomputed disallowance under said Clause (ii) to Rule 8D(2) as under: (A). Interest expenditure claimed in P&L A/c 76,19,915/- (B). Average value of investment 32,70,93,142/- (C). Average value of assets 44,20,94,179/- (D). Relatable interest (A"B/C) (76,19,915 " 32,70,93,142/ 44,20,94,179) = Rs. 56,37,762/-. 8. For sake of clarity, we record that assessee in present case has himself followed Sub-Rule (ii) Clause (ii) of Rule 8D of Rules for computing disallowance in respect of interest paid. 9. We notice that Assessing Officer while computing disallowance under Rule 8D had treated Direct Administrative Expenses incurred by assessee for earning of exempt income as NIL . However, assessee in revised computation, had quantified Administrative Expenses incurred for earning of exempt income at Rs.6,58,275-. When we add Rs.56,36,875/- and Rs. 6,58,275/-, resultant figure is Rs.62,95,150/-. Disallowance of Rs.62,95,150/- has been upheld by Tribunal, affirming order of Commissioner of Income Tax (Appeals). In Assessment Order, no ground or reason has been given, why Assessing Officer was not satisfied with disallowance of Rs.6,58,275/-, why and for what reason on examining accounts, said disallowance was not appropriate and reasonable. Noticeably, assessee had filed application under Section 154 of Act during course of assessment proceedings, revising disallowance from Rs.93,43,343/- to Rs.62,95,150/-. reason for reworking of disallowance is decipherable when we refer to chart reproduced by Commissioner of Income Tax (Appeals) in paragraph 6. assessee had wrongly computed figure of Rs.93,43,343/- by taking total interest at Rs.1,27,27,103/-, i.e. without excluding interest of Rs. 47,08,000/-, which was incurred on loan utilized for earning of taxable income. 10. other reason why we are not inclined to interfere is that disallowance made by Assessing Officer under Clause (iii) to Rule 8D(2) was Rs.16,35,466/-, as against disallowance made by assessee of Rs.6,58,275/-. Assessing Officer had not made any disallowance on account of direct expenses. difference between two amount is Rs.10 lakhs. Thus, quantum of tax involved would be rather low. 11. Learned counsel for assessee has also stated that order for Assessment Year 2008-09 has been accepted by revenue and has attained finality. 12. In view of aforesaid factual position, we are not inclined to entertain present appeal on second issue also. appeals are accordingly dismissed. SANJIV KHANNA, J V. KAMESWAR RAO, J NOVEMBER 27, 2014/akb Commissioner of Income-tax-II v. Jubilant Securities Pvt. Ltd