M/s Lucass Estates Pvt. Ltd., Kolkata V. ACIT, CIR-37, KOLKATA, Kolkata

CO 65/KOL/2014

• Counselvise Citation: [2016] 119 COUNSELVISE.COM (IT) 3257 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 10 month(s) 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 11-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 09-05-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 25-06-2014
• Court: TRIBUNAL
• Department Lawyers: MD GHAYAS UDDIN ANSARI
• Assessee Lawyers: S M SURANA
• Keywords: Question of law
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KO LKATA [BEFORE SHRI N. V. VASUDEVAN, JM & SHRI M. BALAGAN ESH, AM] C.O. NO. 65/KOL/2014 IN I.T.A NO.721/KOL/2014 ASSESSMENT YEAR: 2009-10 M/S. LUCASS ESTATES PVT. LTD. VS. ASSISTANT COMM ISSIONER OF INCOME-TAX, (PAN: AAACL5860A) CIRCLE-37, KOLKATA ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 09.05.2016 DATE OF PRONOUNCEMENT: 11.05.2016 FOR THE APPELLANT: SHRI S. M. SURANA, ADVOCATE FOR THE RESPONDENT: MD. GHAYASUDDIN ANSARI, JCIT , SR. DR ORDER PER SHRI BALAGANESH, AM: THIS CROSS OBJECTION BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A)-VI, KOLKATA VIDE APPEAL NO. 110/CIT(A)-VI/WD.6(2)/11-12/KOL DA TED 19.11.2013 AGAINST THE ASSESSMENT WAS FRAMED BY ITO, WD-6(2), KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASS ESSMENT YEAR 2009-10 VIDE HIS ORDER DATED 22.11.2011. 2. AT THE OUTSET, WE FIND THAT THE CROSS OBJECTION PREFERRED BY ASSESSEE IS DELAYED BY TWO DAYS. IT WAS EXPLAINED BY THE LD. AR THAT T HE DIRECTOR WAS OUT OF STATION ON THE DUE DATE AND HENCE, THE APPEAL COULD NOT BE FILED W ITHIN TIME AND IMMEDIATELY ON HIS RETURN TO OFFICE, SIGNATURE WAS OBTAINED ON THE CRO SS OBJECTION AND FILED THE SAME BEFORE THE TRIBUNAL. WE ARE CONVINCED WITH THE EXPLANATIO N GIVEN BY THE LD. AR FOR THE DELAY AND ACCORDINGLY, WE HEREBY CONDONE THE DELAY AND AD MIT THE CROSS OBJECTION. 3. WE FIND THAT THE ASSESSEE HAS RAISED THE ADDITIO NAL GROUND IN ITS CROSS OBJECTION AS BELOW: FOR THAT THE LD. CIT(A) ERRED IN CONFIRMING PART OF THE DISALLOWANCE U/S 14A READ WITH RULE 8D WHEN NO SUCH DISALLOWANCE WAS CALLED FOR EV EN IF THE ASSESSEE HIMSELF OFFERED THE SAID AMOUNT FOR TAXATION. 4. WE FIND THAT THE GROUND RAISED HEREINABOVE GOES TO THE ROOT OF THE MATTER AND DOES NOT REQUIRE FRESH INVESTIGATION OF THE FACTS. HENCE, IN THE LIGHT OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERM AL POWER CO. LTD. VS. CIT REPORTED IN (1998) 229 ITR 383 (SC) , WE ADMIT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE FOR THE PURPOSE OF ADJUDICATION. 2 CO NO. 65/K/2014 IN ITA NO.721/K/2014 LUCASS ESTATES PVT. LTD. AY 2009-10 5. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 1. FOR THAT THE APPEAL IS BARRED BY LIMITATION AN D THEREFORE LIABLE TO BE DISMISSED AS SUCH. 2. FOR THAT THE LD. C.I.T(A) WAS PERFECTLY JUSTIFIE D IN DELETING THE ADDITION OF RS. 13,24,582/ - WHEN THE AO DID NOT RECORD ANY SATISFA CTION AND MECHANICALLY APPLIED THE PROVISIONS OF SEC. 14A READ WITH RULE 80. 3. FOR THAT THE LD. C.I.T(A) WAS FULLY JUSTIFIED IN DELETING THE ADDITION OF RS. 13,24,582/- WHEN NO NEXUS OF INVESTMENT WAS ESTABLISHED WITH TH E BORROWED FUNDS AND IN ANY CASE THE APPELLANT'S OWN CAPITAL WAS MUCH MORE THAN THE INVE STMENTS MADE IN THE SHARES. 4. FOR THAT THE FACTS AND CIRCUMSTANCES OF THE CASE THE ORDER OF THE LD. C.1. T(A) WAS FULLY JUSTIFIED. 5. FOR THAT THE ASSESSEE CRAVES LEAVE TO ADD, ALTER OR AMEND ANY GROUND BEFORE OR AT THE TIME OF HEARING.. 6. WE FIND THAT THE ASSESSEE HAS DERIVED DIVIDEND I NCOME FROM SHARES AND MUTUAL FUNDS AMOUNTING TO RS.19,21,520/- AND TAX FREE INTE REST INCOME OF RS.2,11,741/-. THE ASSESSEE VOLUNTARILY DISALLOWED A SUM OF RS.6,38,55 3/- U/S. 14A OF THE ACT AS EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING EXE MPT INCOME. THE LD AO WITHOUT RECORDING ANY SATISFACTION IN TERMS OF RULE 8D(1) O F THE I. T. RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES) HAVING REGARD TO THE AC COUNTS OF THE ASSESSEE, PROCEEDED TO DIRECTLY INVOKE RULE 8D(2) OF THE RULES AND MADE DI SALLOWANCE OF RS.13,24,582/- AFTER REDUCING THE AMOUNT ALREADY DISALLOWED BY THE ASSES SEE IN THE SUM OF RS.6,38,553/-. DURING THE COURSE OF HEARING, THE LD. AR ASSAILED T HE ISSUE BEFORE US ON TWO GROUNDS. HE ARGUED THAT THE ASSESSEE HAS GOT SUFFICIENT OWN FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES TO THE TUNE OF RS.11,74,60,048/- AND WHERE AS THE INVESTMENTS MADE BY THE ASSESSEE IS ONLY RS.10,01,63,643/-, WHICH GOES TO P ROVE THAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS TO MAKE INVESTMENTS IN SHARES AND MUTUAL FUNDS. HE ALSO ARGUED THAT IT IS NOT THE CASE OF THE LD. AO THAT THE BORROWED FUNDS HAVE BEEN DIVERTED FOR NON-BUSINESS PURPOSES, WHICH IS QUITE EVIDENT FROM THE FACT THAT NO DISALLOWANCE OF INTEREST U/S. 36(1)(III) OF THE ACT HAS BEEN MADE BY THE AO IN TH E ASSESSMENT. SECONDLY, HE ARGUED THAT NO SATISFACTION WAS RECORDED BY THE AO IN TERM S OF RULE 8D(1) OF THE RULES AND ACCORDINGLY, NO DISALLOWANCE U/S. 14A OF THE ACT CO ULD BE MADE BY THE LD. AO AND IN SUPPORT OF WHICH HE PLACED RELIANCE ON THE COORDINA TE BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF HINDUSTAN MOTORS LTD. VS. DCIT IN ITA N O.171/KOL/2012 FOR AY 2008-09 DATED20.11.2015. IN RESPONSE TO THIS, THE LD. DR V EHEMENTLY SUPPORTED THE ORDER OF THE LD. AO. 3 CO NO. 65/K/2014 IN ITA NO.721/K/2014 LUCASS ESTATES PVT. LTD. AY 2009-10 7. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAS GOT SUFFICIENT OWN FU NDS IN THE FORM OF SHARE CAPITAL AND RESERVES AND SURPLUS, WHICH IS MUCH MORE THAN THE I NVESTMENTS MADE BY THE ASSESSEE AND HENCE, IT CAN BE SAFELY CONCLUDED THAT THE INVE STMENTS WERE MADE ONLY OUT OF THE OWN FUNDS OF THE ASSESSEE. IN THIS RESPECT, WE PLA CE RELIANCE ON THE RECENT DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. MICROLABS LTD. REPORTED IN (2016) 383 ITR 490 (KAR), WHEREIN IT WAS HELD THAT WE HAVE HEARD THE RIVAL SUBMISSIONS. A COPY OF TH E AVAILABILITY OF FUNDS AND INVESTMENTS MADE WAS FILED BEFORE US WHICH IS AT PAGES 38 TO 42 OF THE ASSESSEE'S PAPER BOOK AND THE SAME IS ENCLOSED AS ANNEXURE-ILL TO THIS ORDER. IT IS CLEAR FROM THE SAID STATEMENT THAT THE AVAIL ABILITY OF PROFIT, SHARE CAPITAL AND RESERVES AND SURPLUS WAS MUCH MORE THAN INVESTMENTS MADE BY THE ASSESSEE WHICH COULD YIELD TAX- FREE INCOME. THE HON'BLE BOMBAY HIGH COURT IN CIT V. RELIANCE UT ILITIES AND POWER LTD. [2009] 313 ITR 340 (BOM) HAS HELD THAT WHERE THE INTEREST-FREE FUNDS FAR EXCEED THE VALUE OF INVESTMENTS, IT SHOULD BE CONSIDERED THAT INVESTMEN TS HAVE BEEN MADE OUT OF INTEREST-FREE FUNDS AND NO DISALLOWANCE UNDER SECTION 14A TOWARDS ANY INTEREST EXPENDITURE CAN BE MADE. THIS VIEW WAS AGAIN CONFIRMED BY THE HON'BLE BOMBAY HIGH COURT IN CIT V. HDFC BANK LTD., I. T. A. NO. 330 OF 2012, JUDGMENT DATED JULY 23, 2014 - [2014] 366 ITR 505 (BOM) WHEREIN IT WAS HELD THAT WHEN INVESTMENTS ARE MADE OUT OF COMMON POOL OF FUNDS AND NON-INTEREST BEARING FUNDS WERE MORE THAN THE I NVESTMENTS IN TAX-FREE SECURITIES, NO DISALLOWANCE OF INTEREST EXPENDITURE UNDER SECTION 14A CAN BE MADE. IN THE LIGHT OF THE ABOVESAID DECISIONS, WE ARE OF THE VIEW THAT DISALLOWANCE OF INTEREST EXPENSES IN THE PRESENT CASE OF RS. 49,42,473 MADE UNDER RULE 8D(2)(II) OF THE INCOME-TAX RULES SHOULD BE DELETED. WE ORDER ACCORDINGLY.' THE AFORESAID SHOWS THAT THE TRIBUNAL HAS FOLLOWED A DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF CIT V. HDFC BANK LTD., I. T. A. NO. 330 OF 2012, JUDGMENT DATED JULY 23,2014 - [2014] 366 ITR 505 (BOM)). WHEN THE ISSUE IS ALREADY COVERED BY A DECISION OF THE HIGH COURT OF BOMBAY WITH WHICH WE CONCUR, WE D O NOT FIND ANY SUBSTANTIAL QUESTION OF LAW WOULD ARISE FOR CONSIDERATION AS CANVASSED. 6. IN VIEW OF THE ABOVE OBSERVATIONS, THE APPEAL IS DISMISSED. 8. APROPOS, THE NON-RECORDING OF SATISFACTION BY TH E LD. AO IN TERMS OF RULE 8D(1) OF THE RULES, WE HOLD THAT THE LD. AO IS SUPP OSED TO RECORD HIS SATISFACTION AS TO HOW THE DISALLOWANCE MADE BY THE ASSESSEE IN THE RETURN OF INCOME IS INCORRECT WITH SPECIFIC REFERENCE TO BOOKS OF ACCOU NT OF THE ASSESSEE. IN THE INSTANT CASE, THE LD. AO HAD NOT RECORDED THE SATISFACTION IN THE REQUIRED MANNER AS PER RULE 8D(1) OF THE RULES. HENCE, WE HOLD THAT LD. A O IS NOT ENTITLED TO MECHANICALLY APPLY RULE 8D(2) OF THE RULES WITHOUT RECORDING SATISFACTION IN TERMS OF RULE 8D(1) OF THE RULES. IN THIS REGARD, WE PLA CE RELIANCE ON THE DECISION OF 4 CO NO. 65/K/2014 IN ITA NO.721/K/2014 LUCASS ESTATES PVT. LTD. AY 2009-10 COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF HI NDUSTAN MOTORS LTD., SUPRA, WHEREIN IT WAS HELD THAT 11. IT IS ALSO OBSERVED THAT IN THE COMPUTATION O F TOTAL INCOME, DISALLOWANCE OF RS.2,47,79,104/- WAS OFFERED BY THE ASSESSEE UNDER SECTION 14A IN RELATION TO THE EXPENDITURE INCURRED IN RELATION TO EARNING OF EXEM PT INCOME AND THERE WAS NO REASON GIVEN BY THE ASSESSING OFFICER, HAVING REGARD TO TH E ACCOUNTS OF THE ASSESSEE, TO SHOW HIS DISSATISFACTION WITH THE CORRECTNESS OF QUANTUM OF EXPENDITURE DISALLOWED BY THE ASSESSEE UNDER SECTION 14A. IN THE CASE OF REI AGRO LIMITED (SUPRA) CITED BY THE LD. COUNSEL FOR THE ASSESSEE, IT WAS HELD BY THE COORDINATE BENCH O F THIS TRIBUNAL THAT WHERE THE ASSESSEE MAKES A CLAIM THAT ONLY A PARTICULAR AMOUNT IS TO B E DISALLOWED UNDER SECTION 14A AND IF THE ASSESSING OFFICER PROPOSES TO INVOKE SECTION 14 A, HE HAS TO RECORD THE SATISFACTION AS TO HOW THE CLAIM OF THE ASSESSEE IS NOT CORRECT HAV ING REGARD TO THE ACCOUNTS OF THE ASSESSEE. IT WAS HELD THAT IF THERE IS NO SUCH SATI SFACTION RECORDED BY THE ASSESSING OFFICER, NO DISALLOWANCE COULD BE MADE BY HIM BY IN VOKING THE PROVISIONS OF SECTION 14A. KEEPING IN VIEW THIS DECISION OF THE COORDINATE BEN CH OF THIS TRIBUNAL IN THE CASE OF REI AGRO LIMITED, WHICH HAS BEEN AFFIRMED BY THE HON'BL E CALCUTTA HIGH COURT, WE HOLD THAT IN THE ABSENCE OF REQUISITE SATISFACTION RECORDED B Y THE ASSESSING OFFICER SHOWING HOW THE DISALLOWANCE OFFERED BY THE ASSESSEE UNDER SECTION 14A WAS NOT CORRECT HAVING REGARD TO ITS BOOKS OF ACCOUNT, IT WAS NOT PERMISSIBLE TO THE ASSESSING OFFICER IN LAW TO INVOKE SECTION 14A AND MAKE A FURTHER DISALLOWANCE. RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS HERE INABOVE AND IN VIEW OF THE AFORESAID FINDINGS, WE ALLOW THE ADDITIONAL GROUND AND GROUND S RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION. 9. IN THE RESULT, CROSS OBJECTION OF ASSESSEE IS AL LOWED. 10. ORDER IS PRONOUNCED IN THE OPEN COURT ON 11.05. 2016 SD/- SD/- (N. V. VASUDEVAN) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED : 11TH MAY, 2016 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT M/S. LUCASS ESTATES PVT. LTD., 21/E, B .R.B. BASU ROAD, KOLKATA-700001. 2 RESPONDENT ACIT, CIRCLE-37, KOLKATA. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .