M/s. Tata Ryerson Ltd. since merged with Tata Steel Processing & Distribution Ltd., Kolkata V. DCIT, C ircle- 8, Kolkata, Kolkata

CO 78/KOL/2010

• Counselvise Citation: [2016] 112 COUNSELVISE.COM (IT) 4328 (ITAT-KOLKATA)
• Duration Of Justice: 6 year(s) 2 month(s) 23 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 21-09-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-09-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 28-06-2010

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI K.NARASIMHA CHARY, JUDICIAL MEMBER ITA NO.1124/KOL/2010 ASSESSMENT YEAR:2006-07 DCIT, CIRCLE-8, AAYAKAR BHAWAN, 7 TH FLOOR P-7, CHOWRIGHEE SQUARE, KOLKATA-700 069 / V/S . M/S TATA RYERSON LTD. (SINCE MERGED WITH TATA STEEL PROCESSING & DISTRIBUTION LTD.) 43, J.L.NEHRU ROAD, KOLKATA- 700071. PAN:AABCT1029L /APPELLANT .. /RESPONDENT C.O.NO.78/KOL/2010 (A/O ITA NO.1124/KOL/2010) ASSESSMENT YEAR:2006-07 M/S TATA RYERSON LTD. (SINCE MERGED WITH TATA STEEL PROCESSING & DISTRIBUTION LTD.) 43, J.L.NEHRU ROAD, KOLKATA- 700071. PAN:AABCT1029L / V/S . DCIT, CIRCLE-8, AAYAKAR BHAWAN, 7 TH FLOOR P-7, CHOWRIGHEE SQUARE, KOLKATA-700 069 /CROSS OBJECTOR .. /RESPONDENT ITA NO.379/KOL/2012 ASSESSMENT YEAR:2008-09 DCIT, CIRCLE-8, AAYAKAR BHAWAN, 7 TH FLOOR P-7, CHOWRIGHEE SQUARE, KOLKATA-700 069 / V/S . M/S TATA RYERSON LTD. (SINCE MERGED WITH TATA STEEL PROCESSING & DISTRIBUTION LTD.) 43, J.L.NEHRU ROAD, KOLKATA- 700071. PAN:AABCT1029L ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 2 /APPELLANT .. /RESPONDENT ITA NO.303/KOL/2012 ASSESSMENT YEAR:2008-09 M/S TATA RYERSON LTD. (SINCE MERGED WITH TATA STEEL PROCESSING & DISTRIBUTION LTD.) 43, J.L.NEHRU ROAD, KOLKATA- 700071. PAN:AABCT1029L / V/S . DCIT, CIRCLE-8, AAYAKAR BHAWAN, 7 TH FLOOR P-7, CHOWRIGHEE SQUARE, KOLKATA-700 069 /APPELLANT .. /RESPONDENT /BY DEPARTMENT SHRI R.P.NAG, ADDL.CIT(DR) /BY RESPONDENT SHRI AMIT PATNI & SHRI KARAN SETHIA /DATE OF HEARING 07-09-2016 /DATE OF PRONOUNCEMENT 21-09-2016 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- ITA NO.1124/KOL/2010 (A.Y.2006-07): THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-VIII, KOLKATA DATED 29.03.2010. ASSES SMENT WAS FRAMED BY DCIT, CIRCLE-8, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 28.11.2008 FOR ASSE SSMENT YEAR 2006-07. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- I. THAT LD. CIT(A) ERRED ON FACTS AND IN CIRCUMSTA NCE OF THE CASE AND IN LAW IN HOLDING THAT NO DISALLOWANCE UNDER SECTION 40(A)(IA ) OF THE INCOME TAX ACT, 1961 IS CALLED FOR IF THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE IN F.Y. 2005-06 ON COMMISSION PAYMENT OF RS.30,00,000/- TO ITS NON- WH OLE TIME DIRECTOR. 2. THAT LD. CIT(A) ERRED ON FACTS AND IN CIRCUMSTAN CE OF THE CASE AND IN LAW IN HOLDING THAT AS PER SECTION 40(A)(IA)(A) OF THE IN COME TAX ACT, 1961, NO DISALLOWANCE IS CALLED FOR WHEN THE ASSESSEE DEDUCT TAX AT SOURCE AFTER THE END OF ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 3 THE FINANCIAL YEAR AND DEPOSIT THE SAME WITHIN THE DUE DATE OF FILING OF RETURN OF INCOME. 3. THE APPELLANT CRAVES LEAVE TO ADD, ALTER OR ABRO GATE ANY GROUND OF APPEAL AT THE TIME OF HEARING. SHRI R.P.NAG, ADDL.CIT. LD. SR. DEPARTMENTAL REPRES ENTATIVE REPRESENTED ON BEHALF OF REVENUE AND SHRI AMIT PATNI AND SRI KARAN SETHIA , ARS APPEARED ON BEHALF OF ASSESSEE. 2. THE SOLITARY ISSUE RAISED BY THE REVENUE IN THIS APPEAL IS THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO FOR RS.30 ,00,000/- TOWARDS COMMISSION EXPENSE TO ITS NON-WHOLE TIME DIRECTOR ON ACCOUNT O F NON DEDUCTION OF TDS U/S 40(A)(IA) OF THE ACT. 3. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IN THE PRESENT CASE IS A LIMITED COMPANY AND IS ENGAGED IN THE BUSINESS OF MANUFACTURING/PRO CESSING OF STEEL. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HAS FILED ITS RETURN O F INCOME ON 22 ND NOVEMBER, 2006 DECLARING THE TOTAL INCOME OF RS.40,45,89,730/- COM PRISING THE INCOME FROM BUSINESS, CAPITAL GAIN AND OTHER SOURCES. THEREAFTER THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 143(2) AND 142(1) OF THE ACT WERE ISSUED UPON T HE ASSESSEE. THE ASSESSMENT WAS FRAMED U/S 143(3) OF THE ACT BY THE DCIT, CIRCLE-8, KOLKATA AT A TOTAL INCOME OF RS.40,76,81,162/- BY MAKING DISALLOWANCE OF RS.30,9 1,432/-. 4. THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION HA S CLAIMED EXPENSES OF RS.30,00,000/- UNDER THE HEAD COMMISSION TO NON W HOLE TIME DIRECTOR. THE AO DURING THE ASSESSMENT PROCEEDINGS FOUND THAT PAYMEN T HAS BEEN MADE WITHOUT DEDUCTING THE TDS AND THEREFORE IT WAS LIABLE TO BE DISALLOWED BY VIRTUE OF THE PROVISION OF SECTION 40(A)(IA) OF THE ACT. ACCORDIN GLY THE AO DISALLOWED THE COMMISSION EXPENSES OF RS.30,00,000/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED THE ASSESSEE HAS PREFERRED AN APPEAL B EFORE THE LD. CIT(A) AND SUBMITTED THAT THE COMMISSION AMOUNT WAS DETERMINED IN THE AGM AND IMMEDIATELY THEREAFTER THE TDS WAS DEDUCTED AND DULY DEPOSITED IN THE GOVERNMENT EXCHEQUER ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 4 BEFORE THE DUE DATE OF FILING THE INCOME TAX RETURN . IN THIS CONNECTION THE ASSESSEE RELIED ON THE ORDER OF HONBLE MUMBAI TRIBUNAL IN T HE CASE OF IDBI VS ITO 293 ITR 267 (MUM). THE ASSESSEE ALSO SUBMITTED THAT THERE I S A RECENT AMENDMENT IN THE PROVISION OF SECTION 40(A)(IA) OF THE ACT BY FINANC E ACT 2008 W.E.F. 1.4.2008 WHICH STATES THAT THERE WILL BE NO DISALLOWANCE IF THE TD S HAS BEEN DEDUCTED BEFORE THE DUE DATE OF FILING THE INCOME TAX RETURN AS SPECIFIED U /S 139(1) OF THE ACT. THE LD. CIT(A) HAS ACCORDINGLY DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER :- IN THIS GROUND OF APPEAL. THE APPELLANT IS DISPUTIN G THE A.O.'S ACTION IN DISALLOWING THE COMMISSION PAID TO ITS NON-WHOLE TI ME DIRECTORS. THE DISALLOWANCE HAS BEEN MADE UNDER SEC. 40A (IA) ON T HE GROUND THAT NO TDS ON THE SAID AMOUNT HAS BEEN MADE. THE APPELLANT'S SUBM ISSION ON THIS ISSUE IS A MATTER OF RECORD. IT HAS RELIED ON THE DECISION OF THE HON'BLE MUMBAI TRIBUNAL IN THE CASE OF IDBI [293 ITR 267 (T MUMBAI)J. IN MY OP INION. THIS LIABILITY OF THE APPELLANT COMES ABOUT ONLY AT THE END OF THE PREVIO US YEAR WHICH IS THE FINANCIAL YEAR. IN THAT EVENT. THE APPELLANT'S CASE WOULD SEE M TO HAVE BEEN COVERED BY THE CLAUSE (A) OF SECTION 40A(IA). THE APPELLANT WOULD THEREFORE BE LIABLE TO DEDUCT AND PAY TAXES BEFORE THE STATUTORY DATE OF FILING T HE RETURN OF INCOME. THERE IS NO DISPUTE IN THE AO.' S ORDER THAT TDS HAD BEEN PAID BEFORE SUCH DATE. UNDER THE CIRCUMSTANCES, I HOLD THAT THE APPELLANT HAS NOT CO NTRAVENED THE PROVISION OF SECTION 40A(IA) OF THE INCOME TAX ACT AND ACCORDING LY THE AO IS DIRECTED TO DELETE THIS DISALLOWANCE. BEING AGGRIEVED BY THIS ORDER OF CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 6. THE LD. DR BEFORE US SUBMITTED THAT THE AMENDMEN T IN THE PROVISION OF SECTION 40(A)(IA) OF THE ACT CAME ON A LATER DATE AND THERE FORE THE BENEFIT OF THE AMENDED PROVISION IS NOT AVAILABLE TO THE ASSESSEE. THE LD. DR RELIED ON THE ORDER OF THE AO. ON THE CONTRARY THE LD. AR FOR THE ASSESSEE SUBMITT ED THAT THE COMMISSION TO NON- WHOLE TIME DIRECTOR ARE NOT COVERED U/S 194H OF THE ACT BUT COVERED U/S 194J OF THE ACT UNDER THE CLAUSE (B)(A) OF THE FINANCE ACT, 201 2 AND IT WAS EFFECTIVE FROM 01.94.2012. AS SUCH THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX ON THE COMMISSION AMOUNT PAID TO THE NON-WHOLE TIME DIRECTOR IN THIS PRESENT CASE. ALTERNATIVELY THE LD. AR SUBMITTED THAT AS PER THE AMENDED PROVISION OF S ECTION 40(A)(IA) OF THE ACT IF THE ASSESSEE HAS PAID TDS AMOUNT BEFORE THE DUE DATE OF FILING OF INCOME TAX RETURN AS ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 5 SPECIFIED U/S 139(1) OF THE ACT AND THEREFORE THE D ISALLOWANCE ON ACCOUNT OF NON DEDUCTION OF TDS IS NOT WARRANTED. THE LD. AR RELIE D ON THE ORDER OF CIT(A). 7. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FOREGOING D ISCUSSION WE FIND THAT THE ASSESSEE IN THE INSTANT CASE HAS PAID THE COMMISSION TO THE NON-WHOLE TIME DIRECTOR WITHOUT DEDUCTING TDS. THE AO IN CONSEQUENCE OF NON DEDUCTI ON OF TDS HAS DISALLOWED THE COMMISSION EXPENSES AND ADDED TO THE TOTAL INCOME O F THE ASSESSEE. HOWEVER, THE LD. CIT(A) HAS ALLOWED RELIEF TO THE ASSESSEE BY HOLDIN G THAT THE ASSESSEE HAS DEDUCTED AND DEPOSITED THE TDS AMOUNT BEFORE THE DUE DATE OF FILING OF THE INCOME TAX RETURN AS SPECIFIED U/S 139(1) OF THE ACT. AFTER HEARING THE PARTIES WE CONCUR WITH THE VIEW OF THE LD. CIT(A) THAT THE ASSESSEE HAS PAID THE TAX A T SOURCE BEFORE THE STATUTORY DATE OF FILING OF INCOME TAX RETURN. IN THIS CONNECTION WE RELY ON THE CASE OF CIT VS VIRGIN CREATIONS IN ITA NO.302 OF 2011, GA NO.3200/2011 DA TED 23 RD NOVEMBER, 2011 WHERE THE HONBLE CALCUTTA HIGH COURT HAS HELD AS U NDER :- 'THE LEARNED TRIBUNAL ON FACT FOUND THAT THE ASSESS EE HAD DEDUCTED TAX AT SOURCE FROM THE PAID CHARGES BETWEEN THE PERIOD APRIL I, 2 005 AND APRIL 28, 2006 AND THE SAME WERE PAID BY THE ASSESSEE IN JULY AND AUGU ST 2006, I.E. WELL BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION. THIS FACTUAL POSITION WAS UNDISPUTED. MOREOVER, THE SUPREME COURT, AS HAS BEEN RECORDED B Y THE LEARNED TRIBUNAL, IN THE CASE OF ALLIED MOTORS PVT. LTD. AND ALSO IN THE CASE OF ALOM EXTRUSIONS LID, HAS ALREADY DECIDED THAT THE AFORESAID PROVISION HA S RETROSPECTIVE APPLICATION. AGAIN, IN THE CASE REPORTED IN 82 ITR 570. THE SUPR EME COURT HELD THAT THE PROVISION, WHICH HAS INSERTED THE REMEDY TO MAKE TH E PROVISION WORKABLE. REQUIRES TO BE TREATED WITH RETROSPECTIVE OPERATION SO THAT REASONABLE DEDUCTION CAN BE GIVEN TO THE SECTION AS WELL. IN VIEW OF THE AUTHORITATIVE PRONOUNCEMENT OF THE S UPREME COURT. THIS COURT CANNOT DECIDE OTHERWISE. HENCE WE DISMISS THE APPEA L WITHOUT ANY ORDER AS TO COSTS. BESIDES THE ABOVE WE ALSO FIND THAT THERE IS AN AME NDMENT IN SECTION 194J OF THE ACT IN TERMS OF ITS CLAUSE (BA) WHICH READS AS UNDER :- 194J (1) (A). (B). ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 6 (BA) ANY REMUNERATION OR FEES OR COMMISSION BY WHAT EVER NAME CALLED OTHER THAN THOSE ON WHICH TAX IS DEDUCTIBLE UNDER SECTION 192, TO A DIRECTOR OF A COMPANY, OR] THIS AMENDMENT WAS BROUGHT UNDER THE STATUTE BY THE FINANCE ACT 2012 EFFECTIVE FROM 01.07.201`2 WHICH MAKES THE ASSESSEE LIABLE TO DEDUCT TDS FROM THE PAYMENT OF COMMISSION TO THE NON WHOLE TIME DIRECTOR. IN THIS CONNECTION WE RELY IN THE CASE OF BHARAT FORGE LTD VS ACIT 144 ITD 455 (PUNE TRIB.) REFERENCE IS DRAWN TO THE DECISION OF THE PUNE TRI BUNAL IN CASE OF BHARAT FORGE LTD. VS. ACIT [2013] 144 ITD 455 (PUNE TRIB.) (COPY OF THE DECISION IS ENCLOSED AS ANNEXURE 3 - KINDLY REFER PAGE NOS. 10 TO 22 OF THE WRITTEN SUBMISSION) WHEREIN SIMILAR ISSUE WAS IN DISPUTE I.E. WHETHER T AX WAS REQUIRED TO BE DEDUCTED UNDER SECTION 194J ON PAYMENT MADE FOR SITTING FEES TO NON- EXECUTIVE DIRECTORS FOR AY 2007-08 & 2008-09. THE HON'BLE TRIBUNAL CONS IDERING THE AMENDMENT BROUGHT IN UNDER SECTION 194J VIDE FINANCE ACT, 201 2, HELD IN FAVOUR OF THE ASSESSEE. THE RELEVANT EXTRACT OF THE ORDER IS REPR ODUCED HERE IN BELOW: 'WE, THEREFORE, FIND FORCE IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SITTING FEES PAID TO THE DIRECTORS DO ES NOT AMOUNT TO FEES PAID FOR ANY PROFESSIONAL SERVICES AS HAS BEEN MENTIONED IN THE EXPLANATION TO SECTION 1941(1). WE FURTHER FIND FROM THE MEMORANDUM EXPLAI NING TO PROVISIONS OF THE FINANCE BILL 2012 THAT AS PER CLAUSE NO. 71 IT WAS SPECIFICALLY MENTIONED THAT THERE WAS NO SPECIFIC PROVISION FOR DEDUCTION OF TA X ON THE REMUNERATION PAID TO A DIRECTOR WHICH IS NOT IN THE NATURE OF SALARY. WE FIND THE PROVISIONS OF SECTION 1941(1)(BA) SPEAKS OF ANY REMUNERATION OR FEES OR C OMMISSION BY WHATEVER NAME CALLED OTHER THAN THOSE ON WHICH TAX IS DEDUCTIBLE U/S. 192 TO A DIRECTOR OF A COMPANY ON WHICH TAX HAS TO BE DEDUCTED AT THE APPL ICABLE RATE AND THE ABOVE PROVISION HAS BEEN INSERTED BY THE FINANCE ACT, 201 2 W.E F., 01-07-2012. WE, THEREFORE, FIND FORCE IN THE SUBMISSION OF THE LEAR NED COUNSEL FOR THE ASSESSEE THAT NO TAX IS REQUIRED TO BE DEDUCTED U/S. 1941 OUT OF SUCH DIRECTOR'S SITTING FEES FOR THE A.Y. 2007-08. IN THIS VIEW OF THE MATTER, THE O RDER OF THE CIT(A) IS SET-ASIDE AND THE GROUND RAISED BY THE ASSESSEE ON THE ISSUE OF TDS ON SITTING FEES PAID TO DIRECTORS IS ALLOWED.' RESPECTFULLY FOLLOWING THE ABOVE POSITION OF LAW AN D THE RATIO OF THE CASE LAWS AS DISCUSSED ABOVE WE FIND NO INFIRMITY IN THE ORDER O F LD. CIT(A). HENCE THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. NOW COMING TO THE C.O.NO.78/KOL/2010 8. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND IN ITS CROSS OBJECTION :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED CIT(APPEALS) ERRED IN HOLDING THAT THE COMPANY IS LIABLE TO DEDU CT TDS ON RS.30 LACS BEING COMMISSION FOR NON-WHOLE TIME DIRECTORS DURING THE YEAR UNDER CONSIDERATION. ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 7 IN THE CO, THE ASSESSEE HAS MERELY SUPPORTED THE IM PUGNED ORDER OF LD. CIT(A), WHEREBY HE DELETED THE DISALLOWANCE MADE BY THE ASS ESSING OFFICER. SINCE, WE HAVE ALREADY UPHOLD THE ORDER OF LD. CIT(A) GIVING RELIE F TO THE ASSESSEE ON THE ISSUE WHILE DISMISSING THE APPEAL OF THE REVENUE, THE CO FILED BY THE ASSESSEE HAS BECOME INFRUCTUOUS AND THE SAME IS ACCORDINGLY DISMISSED. COMING TO ITA NO.379/KOL/2012 (REVENUES APPEAL) FO R A.Y.2008-09 9. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-VIII, KOLKATA DATED 22.12.2011. ASSES SMENT WAS FRAMED BY DCIT, CIRCLE-8, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 31.12.2010 FOR ASSE SSMENT YEAR 2008-09. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING DEDUCTION OF COMMISSION PAYMENT T O NON-WHOLE TIME DIRECTORS WHEN IT WAS CLEARLY DISALLOWABLE U/S 40(A )(IA) OF IT ACT, 1961. 2. THAT THE APPELLANT CRAVES LEAVE TO ADD, TO AND/OR A MEND, ALTER, MODIFY ANY OF THE GROUNDS BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. 10. THE ISSUE RAISED IN THIS APPEAL BY THE REVENUE IS IDENTICAL TO THE ISSUE RAISED IN ITA NO.1124/KOL/2010 FOR A.Y.2006-07. AS WE HAVE AL READY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE IN ITA NO.1124/KOL/2010 THE SAME RATIO APPLIES TO THE ISSUE RAISED IN THIS APPEAL BY THE REVENUE. IN THE RESULT THIS APPEAL OF THE REVENUE IS DISMISSED. COMING TO ITA NO.303/KOL/2012 FOR A.Y.2008-09(ASSES SEES APPEAL) 11. THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDE R OF COMMISSIONER OF INCOME TAX (APPEALS)-VIII, KOLKATA DATED 22.12.2011. ASSES SMENT WAS FRAMED BY DCIT, CIRCLE-8, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 31.12.2010 FOR ASSE SSMENT YEAR 2008-09. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1.THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT THE LIABILITY OF THE COMPANY TO DEDUCT TDS ON COMMISSION FOR NON- WHOLE TIME DIRECTORS ARISES AT THE END OF THE FINAN CIAL YEAR. ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 8 2 (A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE, THE LEARNED CIT (APPEALS) ERRED IN HOLDING THAT PROVISION FOR LEAVE ENCASHMEN T WOULD COME UNDER THE AMBIT OF SECTION 43B OF THE ACT. 2(B) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN DISALLOWING THE LEAVE ENCASHMENT UNDER SECTION 43B OF THE ACT. 3(A) THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E, THE LEARNED CIT (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFF ICER IN DISALLOWING THE EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME UNDE R SECTION 14A OF THE ACT READ WITH RULE 8D. - 3(B) THAT THE OBSERVATION OF THE LEARNED CIT(APPEAL S) IS CONTRARY TO THE FACTS OF THE CASE. 4. THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR ALTE R, AMEND, MODIFY OR RESCIND THE GROUNDS HEREINABOVE BEFORE OR AT THE HEARING OF THE APPEAL. 12. THE FIRST ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO BY DISALLOWING TH E COMMISSION TO NON WHOLE TIME DIRECTORS. THIS ISSUE IS IDENTICAL TO THE ISSUE RAI SED BY THE REVENUE IN ITA NO.1124/KOL/2010. WE HAVE ALREADY DECIDED THIS ISSU E IN FAVOUR OF THE ASSESSEE. HENCE THE ISSUE RAISED BY THE ASSESSEE IS INFRACTUO US. 13. COMING TO THE SECOND ISSUE RAISED BY THE ASSESS EE IN THIS APPEAL IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY DISAL LOWING THE LEAVE ENCASHMENT U/S 43B OF THE ACT LD. COUNSEL FOR THE ASSESSEE ARGUED FOR PROVISION F OR LEAVE ENCASHMENT THAT THIS ISSUE IS PENDING BEFORE HONBLE SUPREME COURT IN THE CASE OF EXIDE INDUSTRIES LTD. VS. UNION OF INDIA (2007) 292 ITR 470 (CAL) AND FAIRLY CONCEDED THAT SUBSEQUENTLY HON'BLE SUPREME COURT HAS STAYED THIS JUDGMENT OF H ON'BLE JURISDICTIONAL HIGH COURT VIDE ORDER 08-05-2009 BY FOLLOWING OBSERVATIONS:- PENDING HEARING AND FINAL DISPOSAL OF THE CIVIL AP PEALS, DEPARTMENT IS RESTRAINED FROM RECOVERING PENALTY AND INTEREST WHI CH HAS ACCRUED TILL DATE. IT IS MADE CLEAR THAT AS FAR AS THE OUTSTANDI NG INTEREST DEMAND AS OF DATE IS CONCERNED, IT WOULD BE OPEN TO THE DEPARTME NT TO RECOVER THAT AMOUNT IN CASE CIVIL APPEAL OF THE DEPARTMENT IS AL LOWED. ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 9 WE FURTHER MAKE IT CLEAR THAT THE ASSESSEE WOULD, D URING THE PENDENCY OF THIS CIVIL APPEAL, PAY TAX AS IF SECTION 43B(F) IS ON THE STATUE BOOK BUT AT THE SAME TIME IT WOULD BE ENTITLED TO MAKE A CLAIM IN ITS RETURNS. IN VIEW OF THE ABOVE, LD. COUNSEL FOR THE ASSESSEE FAIRLY STATED THAT LET HON'BLE SUPREME COURT DECIDE THE ISSUE AND BY THAT TIME THE MATTER CAN BE REMITTED BACK TO THE FILE OF AO FOR FRESH ADJUDICATION IN TERM OF THE DE CISION OF HON'BLE SUPREME COURT. ON THIS, LD. CIT DR HAS NOT OBJECTED TO THE SAME. ACCORDINGLY, WE SET ASIDE THIS ISSUE TO THE FILE OF THE AO TO AWAIT THE DECISION O F HON'BLE SUPREME COURT AND DECIDE THE ISSUE ACCORDINGLY. THIS ISSUE OF ASSESSEES APP EALS IS REMITTED BACK TO THE FILE OF AO AND ALLOWED FOR STATISTICAL PURPOSES. 14. THE THIRD ISSUE RAISED BY THE ASSESSEE IN THIS APPEAL IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF THE AO BY DISALLOWING TH E EXPENDITURE OF RS.69,60,365/- BY VIRTUE OF THE PROVISION OF SECTION 14A R.W.R.8D OF THE IT RULES. THE ASSESSEE DURING THE YEAR HAS EARNED DIVIDEND INCOME OF RS.106.99 LA KHS WHICH WAS CLAIMED AS EXEMPT INCOME U/S 10(34) OF THE ACT. THE AO DURING THE ASS ESSMENT PROCEEDINGS OBSERVED THAT NO DISALLOWANCE HAS BEEN MADE BY THE ASSESSEE U/S 14A R.W.R. 8D OF IT RULES, 1962. THEREFORE THE AO HAS INVOKED THE PROVISION OF SECTION 14A VIS--VIS 8D OF IT RULES AND HAS MADE THE FOLLOWING DISALLOWANCES SL. NO. PARTICULARS AMOUNT 1. RULE 8D(I) NIL 2. RULE 8D(II) INTEREST EXPENSES RS.61,02,750 3. RULE 8D(III) ADMINISTRATIVE EXPENSES RS.8,57,615 /- THE AO HAS MADE THE ABOVE DISALLOWANCE OF RS.69,60, 365/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 15. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFO RE THE LD. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT NO EXPENDITURE WAS INCURRED IN CONNECTION WITH THE DIVIDEND INCOME. THE ACTION OF THE AO IS BASED ON S URMISES AND CONJECTURES. THE INVESTMENT IN THE SHARES/MUTUAL FUNDS WAS MADE OUT OF OWN SURPLUS FUNDS. HOWEVER, THE LD. CIT(A) REJECTED THE PLEA OF THE ASSESSEE BY OBSERVING AS UNDER :- ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 10 IT IS SEEN THAT THE APPELLANT HAS NOT MAINTAINED SE PARATE ACCOUNTS FOR THE INVESTMENTS. THE FUNDS ARE USED FROM THE COMMON KIT TY. THERE IS NO IMMEDIATE CORRELATION BETWEEN THE FUNDS TAKEN FOR LOAN AND IN VESTMENTS MADE IN THE SHARES, HOWEVER THERE IS OTHERWISE ALSO NO DIRECT RELATION BETWEEN THE INVESTMENT MADE AND THE CAPITAL BEING RAISED OR SURPLUS FUNDS AVAIL ABLE OUT OF WHICH THE MONEY IS INVESTED. IT IS A MIXED ACCOUNT OUT OF WHICH THE FU NDS ARE BEING TAKEN OUT FOR BUSINESS AND INVESTMENT. EVERY TIME THE MONEY IS TA KEN OUT FROM THE BANK ONLY BECAUSE THERE IS A CREDIT BALANCE IN THE NAME OF TH E APPELLANT OR THERE MAY BE OVER DRAFT FACILITY USED FROM THE SAME OR OTHER BAN KS AND LOANS OUTSTANDING IN THE NAME OF THE APPELLANT. . FURTHER THE CONTENTION. OF, THE. APPELLANT THAT LOA NS TAKEN HAVE BEEN USED FOR PURCHASE OF ASSETS/MACHINERIES IF CONSIDERED FOR AR GUMENT'S SAKE BUT OUT OF THE USE OF THE ACQUIRED MACHINERIES/ASSETS IN THE MANUF ACTURING PROCESS IS CARRIED OUT AND THE MANUFACTURES GOODS ARE SOLD' AND THE SA LE PROCEEDS SO RECEIVED MAY BE USED FOR INVESTMENT, THEREFORE IT CANNOT BE SAI D THAT THERE IS NO RELATION BETWEEN THE LOANS TAKEN BY THE APPELLANT AND THE I NVESTMENT MADE BY THE APPELLANT AND IT CANNOT ALSO BE ESTABLISHED THAT T HE LOAN FUNDS NEVER MOVE OUT OF BUSINESS AND IN ALL FORMS ARE USED EXCLUSIVELY FOR BUSINESS PURPOSE. THERE IS NO PRESUMPTION PROVIDED IN THE ACT THAT I F THE ASSESSEE HAS INTEREST FREE LOAN AND INTEREST BEARING LOAN AND IS EARNING BOTH EXEMPT AND TAXABLE INCOME THEN IT SHOULD. BE PRESUMED THAT THE EXEMPT INCOME IS OUT OF HIS OR ITS OWN FUNDS. -RULE 8D (2)(B) OF IT RULES, 1962 PROVIDES ANY EXP ENDITURE BY WAY OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICUL AR INCOME OR RECEIPT THEN THE INTEREST HAS TO BE CALCULATED AS PER FORMULA PROV IDED THEREIN. NOW THE LAW HAS PROVIDED A SPECIFIC METHOD OF CALCULATION OF INTERE ST EXPENDITURE ON EXEMPTED INCOME FROM THE ASSESSMENT YEAR 2008-2009 AND IT IS DIRECTLY APPLICABLE IN THE INSTANT CASE OF THE APPELLANT. IN THIS CASE IT CANN OT BE SAID THAT THE LOANS HAVE .BEEN TAKEN FOR SPECIFIC PURPOSES AND THAT MONEY IS ENTIRELY BEING, USED THROUGHOUT THE PERIOD FOR THE SAID SPECIFIC PURPOSE ONLY. WHENEVER THERE IS ANY RECEIPT OUT. OF THE SAID LOAN AMOUNT IN THE FORM OF SALES N IT CAN BE SAID THAT .THE SAME IS AGAIN UTILIZED ONLY FOR MANUFACTURING/BUSI NESS PURPOSES OF THE BUSINESS PURPOSE OUT OF WHICH INCOME EARNED IS TAXABLE. THE APPELLANT CANNOT ALSO SAY THAT ANY SALE OF INVESTMENT IS TO BE ROUTED ONLY FO R INVESTMENT AND DOES NOT PART- TAKE CHARACTER OF BUSINESS EXPENDITURE/PAYMENT. IT IS' A CRISS CROSS TRANSACTION BETWEEN THE CAPITAL, INVESTMENTS, LOANS AND BUSINES S, EXPENDITURE. IN ABSENCE OF ANY PRESUMPTION IN FAVOUR OF THE APPELLANT AND SPEC IFIC RULE I.E. RULE 8D(2)(III) BEING APPLICABLE FROM ASSESSMENT YEAR 2008-2009 THE EXPENDITURE BY WAY OF INTEREST HAS TO BE CALCULATED AS PER THE SPECIFIC P ROVISION PROVIDED IN RULE 8D. BEING AGGRIEVED BY THIS ORDER OF CIT(A) THE ASSESSE E CAME IN SECOND APPEAL BEFORE US. ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 11 16. THE LD. AR BEFORE US FILED A PAPER BOOK WHICH I S RUNNING FROM PAGES 1 TO 133 AND SUBMITTED THAT THE AO HAS INVOKED THE PROVISION OF SECTION 14A OF THE ACT WITHOUT RECORDING THE SATISFACTION AND WITHOUT HAVI NG ANY DEFECT IN THE ACCOUNTS OF THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, THE COMPANY DULY SUBMITTED THAT NO EXPENDITURE WAS INCURRED TO EARN THE DIV IDEND INCOME AND HENCE THERE CANNOT BE ANY DISALLOWANCE UNDER SECTION 14A OF THE ACT [R EFER PAGE NO. 53 OF THE PAPER BOOK] THE AO HOWEVER, APPLIED SECTION 14A READ WITH RULE 8D, AND DISALLOWED RS 69,60,365/- WITHOUT GIVING ANY JUSTIFICATION AND BL INDLY APPLYING THE RULE 8D COMPUTATION. THE LD CIT(A) VIDE ORDER DATED 22-12-2011 UPHELD TH E ACTION OF THE AO IN APPLYING DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D. HOWEVER, CIT (APPEALS) AND DIRECTED THE AO TO RE-COMPUTE THE DISALLOWANCE BY C OMPUTING CORRECT AVERAGE VALUE OF ASSETS. 17. IT IS SUBMITTED THAT THE DISALLOWANCE INFLICTED BY THE AO, WHICH HAS BEEN UPHELD BY THE CIT (APPEALS) IS IN DEFIANCE OF PROVI SIONS OF SECTION 14A READ WITH RULE 8D, AS EXPLAINED HEREIN BELOW: AO HAS NOT RECORDED HIS SATISFACTION WHILE REJECTIN G THE APPELLANT'S CLAIM: AS MENTIONED ABOVE, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE COMPANY DULY SUBMITTED THAT THERE HAS BEEN NO EXPENDITURE INCURR ED TO EARN THE DIVIDEND INCOME, HENCE THERE CANNOT BE ANY DISALLOWANCE UNDER SECTIO N 14A OF THE ACT. THE AO, WITHOUT BRINING ANY MATERIAL ON RECORD TO REJECT SA ID CONTENTION OF THE APPELLANT AND WITHOUT RECORDING SATISFACTION, HAS APPLIED RULE 8D MECHANICALLY WHICH IS NOT PERMISSIBLE IN THE EYE OF LAW. 18. IN THIS REGARD, THE COMPANY RELIES ON THE DECIS ION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF REI AGRO LIMITED (GA 3022 OF 2 013) [COPY ENCLOSED AS ANNEXURE 5 - REFER PAGES 35 TO 36 OF WRITTEN SUBMIS SION]. IN THIS CASE, THE HON'BLE CALCUTTA HIGH COURT HAS CONFIRMED THE VIEW OF THE H ON'BLE KOLKATA TRIBUNAL WHICH WAS IN FAVOUR OF THE ASSESSEE. THE HON'BLE KOLKATA TRIBUNAL OBSERVED THAT THE AO HAD NOT EXAMINED THE ACCOUNTS OF THE ASSESSEE AND HAD N OT RECORDED SATISFACTION ABOUT THE ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 12 CORRECTNESS OF THE CLAIM OF THE ASSESSEE BEFORE INV OKING RULE 8D. IT HELD THAT WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGARD TO EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPTED INCOME, THE AO HAD TO INDICATE COGENT REASONS FOR THE SAME AND WAS NOT ENTITLED TO DISREGARD THE ASSESSEE'S CLAIM AND STRAIGHTAWAY EMBARK UPON COMPUTING DISALLOWANCE UNDER RULE 8D. THE ABOVE PRINCIPLE HAS ALSO BEEN AFFIRMED IN THE F OLLOWING CASES: A) MAXOPP INVESTMENTS LTD V CIT [347 ITR 272 (DEL)] B) KOLKATA TRIBUNAL IN THE CASE OF DCIT VS. ASHISH JHUNJHUNWALA ITA NO 1809/KOL/2012 IN VIEW OF ABOVE SUBMISSION, THE-AO SHOULD HAVE GIV EN A CATEGORICAL FINDING IN THE ASSESSMENT ORDER, RATHER THAN MECHANICALLY APPLYING THE PROVISIONS OF RULE 8D WHICH IS IMPERMISSIBLE AS PER THE PROVISIONS OF SECTION 1 4A OF THE ACT/ DECISIONS OF VARIOUS COURTS, AS REFERRED ABOVE. REVISED METHOD OF COMPUTING DISALLOWANCE UNDER RULE 8D IT IS HUMBLY SUBMITTED THAT RULE 8D HAS BEEN RECENT LY RATIONALIZED VIDE CBDT NOTIFICATION NO.43/2016 DATED 02-06-2016 (COPY ENCL OSED AS ANNEXURE 6 - REFER PAGE NO.37 OF 'WRITTEN SUBMISSION) WHICH PROVIDES A REVI SED METHOD TO AMOUNT OF DISALLOWANCE OF EXPENDITURE ON EARNING EXEMPT INCOM E. THIS WAS DONE TO GIVE EFFECT TO HON'BLE FINANCE MINISTER'S PROMISE, WHILE PRESEN TING SPEECH 2016, OF REDUCING THE NUMBER OF DISPUTES IN RELATION TO DISALLOWANCE AS P ER SECTION 14A READ WITH RULE 8D (RELEVANT EXTRACT IS ENCLOSED AS ANNEXURE 7- REFER PAGE NO. 38 OF THE WRITTEN SUBMISSION). THE RELEVANT EXCERPT FROM HIS SPEECH I S REPRODUCED BELOW FOR YOUR KIND REFERENCE: ANOTHER ISSUE WHICH HAS LED TO CONSIDERABLE NUMBER OF DISPUTES IS QUANTIFICATION OF DISALLOWANCE OF EXPENDITURE RELATABLE TO EXEMPT INC OME IN TERMS OF SECTION 14A OF THE INCOME TAX ACT. I PROPOSE TO RATIONALIZE THE FO RMULA IN RULE 8D GOVERNING SUCH QUANTIFICATION. THE SAID RULE IS BEING AMENDED TO P ROVIDE THAT DISALLOWANCE WILL BE LIMITED TO 1% OF THE AVERAGE MONTHLY VALUE OF INVES TMENTS YIELDING EXEMPT INCOME, BUT 'LOT EXCEEDING THE ACTUAL EXPENDITURE CLAIMED. ' ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 13 19. THE REVISED RULE 8D HAS DONE AWAY WITH THE EARL IER RULE 8D(II) WHICH PROVIDED FOR APPORTIONMENT OF INDIRECT INTEREST EXP ENDITURE. FURTHER, THE EARLIER RULE 8D(III) WHICH PROVIDED FOR DISALLOWANCE ON PRESUMPT IVE BASIS (0.5% OF ANNUAL AVERAGE VALUE OF INVESTMENTS YIELDING EXEMPT INCOME ) HAS BEEN AMENDED TO 1% OF ANNUAL AVERAGE OF MONTHLY AVERAGES OF VALUE OF INVE STMENTS. IN RELATION TO THE ABOVE CHANGE IN RULE 8D, IT IS H UMBLY SUBMITTED THAT THIS WAS AIMED AT REMOVING DIFFICULTIES AND IT IS CLARIFICATORY AN D CURATIVE IN NATURE. IN THE CONTEXT OF BENEFICIAL LEGISLATION INTENDED TO REMOVE DIFFICULT IES, THE APPELLANT RELIES ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE O F ALLIED MOTORS VS CIT [1997] 224 ITR 677 (SC) THE HON'BLE APEX COURT, WHILE DECIDING THAT FIRST PROVISO TO SECTION 43B INSERTED WITH EFFECT FROM 1-4-1998, IS CURATIVE IN NATURE AND HAD TO BE READ INTO SECTION 43B FROM ITS INCEPTION, HELD THAT - A PROVISO WHICH IS INSERTED TO REMEDY UNINTENDED C ONSEQUENCES AND TO MAKE THE PROVISION WORKABLE A PROVISO WHICH SUPPLIES AN OBVIOUS OMISSION IN THE SECTION AND IS REQUIRED TO BE READ INTO THE SECTION TO GIVE THE SECTION A REASONABLE INTERPRETATION, REQUIRES TO BE TREATED A S RETROSPECTIVE IN OPERATION SO THAT A REASONABLE INTERPRETATION CAN BE GIVEN TO THE SECTION AS A WHOLE.' FURTHER, IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS DCIT [2010] 328 ITR 81, THE BOMBAY HIGH COURT LAID DOWN THE PRINCIPLES TO DETER MINE WHETHER AN AMENDMENT IS PROSPECTIVE OR RETROSPECTIVE. THE SAME IS REPRODUCE D BELOW: 'THE FOLLOWING PRINCIPLES GUIDE IN DETERMINING AS T O WHETHER AN AMENDMENT IS PROSPECTIVE OR RETROSPECTIVE: (I) IN DETERMINING AS TO WHETHER AN AMENDMENT IS TO TAKE EFFECT PROSPECTIVELY OR WITH A RETROSPECTIVE EFFECT, THE DATE FROM WHICH TH E AMENDMENT IS MADE OPERATIVE DOES NOT CONCLUSIVELY DECIDE THE QUESTION . THE COURT HAS TO EXAMINE THE SCHEME OF THE STATUTE PRIOR TO THE AMENDMENT AN D SUBSEQUENT TO THE AMENDMENT TO DETERMINE WHETHER AN AMENDMENT IS CLAR IFICATORY OR SUBSTANTIVE; (II) AN AMENDMENT WHICH IS CLARIFICATORY IS REGARDE D AS RETROSPECTIVE IN NATURE AND WOULD DATE BACK TO THE ORIGINAL STATUTORY PROVI SIONS WHICH IT SEEKS TO AMEND. A CLARIFICATORY AMENDMENT IS AN EXPRESSION O F INTENT WHICH THE LEGISLATURE HAS ALWAYS INTENDED TO HOLD THE FIELD. A CLARIFICATORY AMENDMENT MAY BE INTRODUCED IN CERTAIN CASES TO SET AT REST D IVERGENT VIEWS EXPRESSED IN DECIDED CASES ON THE TRUE EFFECT OF A STATUTORY PRO VISION . WHERE THE LEGISLATURE ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 14 CLARIFIES ITS INTENT, IT IS REGARDED AS BEING DECLA RATORY OF THE LAW AS IT ALWAYS STOOD AND IS, THEREFORE, CONSTRUED TO BE RETROSPECT IVE; (III)'WHERE ON THE OTHER HAND, AN AMENDMENT SEEMS T O BRING ABOUT A SUBSTANTIVE CHANGE IN LEGAL RIGHTS AND OBLIGATIONS, THE COURT W OULD NOT READILY ACCEPT AN INTERPRETATION OF THE AMENDMENT THAT WOULD RENDER I T RETROSPECTIVE IN CHARACTER. CLEAR WORDS WILL BE NECESSARY IN ORDER TO ENABLE TH E COURT TO REACH TO SUCH A CONCLUSION; (IV) WHERE THE AMENDMENT IS CURATIVE OR WHERE IT IS INTENDED TO REMEDY UNINTENDED CONSEQUENCES OR TO RENDER A STATUTORY PR OVISION WORKABLE, THE AMENDMENT MAY BE CONSTRUED TO RELATE BACK TO THE PR OVISION IN RESPECT OJ WHICH IT SUPPLIES A REMEDIAL EFFECT; (V) WHERE AN AMENDMENT ESSENTIALLY PROVIDES A RULE OF EVIDENCE SUCH AS A METHOD FOR THE VALUATION OF THE PROPERTY BY ADOPTIN G ONE AMONG A SET OF WELL KNOWN AND WELL ACCEPTED METHODS OF VALUATION WITH A VIEW TO ACHIEVE UNIFORMITY IN VALUATION AND AVOIDING DISPARATE VALU ATIONS RESULTING FROM THE APPLICATION OF DIFFERENT METHODS IN RESPECT OF PROP ERTIES OF A SIMILAR NATURE AND CHARACTER, THE COURT WOULD PLACE A CONSTRUCTION ON THE STATUTORY PROVISION, GIVING IT A RETROSPECTIVE EFFECT.' DISALLOWANCE UNDER RULE 8D(2)(II) : WITHOUT PREJUDICE TO THE ABOVE, THE COMPANY HUMBLY SUBMITS BEFORE YOUR HONOURS THAT OUT OF THE TOTAL INTEREST CHARGED OF RS. 12.2 CRORES IN THE PROFIT AND LOSS ACCOUNT, RS. 2.02 CRORES PERTAIN TO TERM LOANS FROM STATE BA NK OF INDIA TAKEN FOR EXECUTION OF VARIOUS CAPITAL PROJECTS OF THE COMPANY. THE BALANC E AMOUNT OF RS. 10.L8 CRORES PERTAINS TO DEMAND LOANS AND UNSECURED LOANS TAKEN FROM STATE BANK OF INDIA AND OTHER FINANCIAL INSTITUTIONS FROM TIME TO TIME BASE D ON NORMAL REQUIREMENT OF WORKING CAPITAL FOR DAY TO DAY OPERATIONS OF THE BUSINESS. IN THIS REGARD, KINDLY REFER PAGE NO. 21 OF THE PAPER BOOK. THE SAID LOANS WERE NOT UTILI SED FOR MAKING INVESTMENTS ON WHICH EXEMPT INCOME HAS BEEN EARNED. SINCE THE UTIL ISATION OF SUCH LOANS HAS RESULTED IN EARNING TAXABLE INCOME, INTEREST EXPENDITURE ON SUCH LOANS ARE NOT REQUIRED TO BE CONSIDERED FOR RULE 8D(2)(II) PURPOSES. 20. FURTHER, IT IS ALSO SUBMITTED THAT ALL INVESTME NTS OUT OF WHICH DIVIDEND HAS BEEN EARNED WERE MADE OUT OF OWNED FUNDS. ON PERUSAL OF THE SAME, YOUR HONOURS WILL ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 15 OBSERVE THAT AS AGAINST CAPITAL + RESERVE AND SURPL US OF RS. 219.75 CRORES, THE AMOUNT OF INVESTMENT (OUT OF WHICH EXEMPT INCOME IS EARNED) IS ONLY RS 19.13 CRORES [KINDLY REFER PAGE NO. 6 OF PAPERBOOK]. HENCE, THE AO GROSSLY ERRED IN PRESUMING THAT THE COMPANY HAD APPLIED LOAN FUNDS IN MAKING INVEST MENT. THE AO HAS FAILED TO PROVIDE ANY FINDING OF ANY NEXUS BETWEEN BORROWED F UND AND INVESTMENT IN MUTUAL FUND UNITS EARNING EXEMPT INCOME. HENCE, NO DISALLO WANCE CAN BE MADE AS PER SECTION 14A (1) AND 14A(2) READ WITH RULE 8D. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION O F HON'BLE KOLKATA TRIBUNAL IN THE COMPANY'S OWN CASE FOR Y 2002-03 [KINDLY REFER PAGE S 127-133 OF THE PAPER BOOK]. IN THIS CASE, THE AO HAD DISALLOWED PROPORTIONATE INTE REST EXPENDITURE. THE COMPANY CONTENDED THAT ALTHOUGH IT HAD A MIXED FUND, THE CO MPANY HAD SUFFICIENT OWN FUNDS TO MAKE THE INVESTMENT. IN ARGUING THE AFORESAID, THE COMPANY RELIED ON THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF BRITANNIA INDUSTRIES LIMITED 280 ITR 525 (CALCUTTA) WHEREIN IT WAS HELD THAT WHEN THERE IS A PAYMENT FROM MIXED ACCOUNT AND THE ASSESSEE HAS SUFFICIENT OWN FUNDS, IT IS TO BE PRESUMED THAT THE PAYMENT WAS MADE FROM ASSESSEE'S OWN FUNDS. BASIS THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN BRITANNIA INDUSTRIES LTD (MENTIONED SUPRA), THE HON'BLE KOLKATA TRIBUNAL DELETED THE DISALLOWANCE MADE BY THE AO AND ALLOWED THE GROUND IN FAVOUR OF THE COMPANY. RELIANCE IS ALSO PLACED ON THE DECISION OF KOLKATA TRIBUNAL IN THE CASE OF DCIT VS. RASOI LIMITED [ ITA NO. 1989/KOL/2013 & 1010/KOL/2013 ] DATED 14-08-2015. IN THIS CASE, THE AO HAD MADE A DISALLOWANCE BY INVOKING PR OVISIONS OF RULE 8D WITHOUT RECORDING A FINDING THAT THERE IS ANY NEXUS BETWEEN BORROWED FUNDS AND INVESTMENT IN SHARES. THE HON'BLE KOLKATA TRIBUNAL HELD THAT THE REVENUE COULD NOT ESTABLISH THAT THE INVESTMENTS M DE IN SHARES GIVING EXEMPTED INCOME I S OUT OF BORROWED FUNDS ON WHICH INTEREST IS PAID BY ASSESSEE AND FURTHER, THE ASSESSEE HAD MADE INVESTMENTS IN SHARES OUT OF ITS OWN FUNDS ONLY. COPY OF THE JUDGE MENT IS ATTACHED AS ANNEXURE 8 - KINDLY REFER PAGE NOS. 39 TO 44 OF THE WRITTEN SUBM ISSION. 21. FURTHER TO THE ABOVE, IT IS HUMBLY SUBMITTED TH AT THE ITAT KOLKATA TRIBUNAL HAS IN THE CASE OF ACIT VS CHAMPION COMMERCIAL CO. LTD. [2012] 139 ITD 108 ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 16 (KOLKATA) [COPY ENCLOSED AS ANNEX RE 9 - REFER PAGE NOS. 45 TO 54 OF THE WRITTEN SUBMISSION] HELD THAT CORRECT APPLICATION OF FORMUL A SET OUT IN RULE 8D(II) WOULD BE THAT INTEREST EXPENSES DIRECTLY ATTRIBUTABLE TO TAX EXEMPT INCOME AS ALSO DIRECTLY ATTRIBUTABLE TO TAXABLE INCOME, ARE REQUIRED TO BE EXCLUDED FROM COMPUTATION OF COMMON INTEREST EXPENSES TO BE ALLOCATED UNDER RULE 8D(2)(II). 'IT IS FOUND THAT NOTWITHSTANDING THE RIGID WORDS O F RULE BD(2)(II), THE STAND TAKEN BY THE REVENUE AUTHORITIES ABOUT ITS APPLICAT ION BEFORE THE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. V . DY. CIT [2010J 328 ITR 81/194 TAXMAN 203, WHEN CONSTITUTIONAL VALIDITY OF RULE 8D WAS IN CHALLENGE, IS THAT 'IT IS ONLY THE INTEREST ON BORROWED FUNDS THAT WOULD BE APPORTIONED AND THE AMOUNT OF EXPENDITURE BY WAY OF INTEREST THAT W ILL BE TAKEN (AS 'A' IN THE FORMULA) WILL EXCLUDE ANY EXPENDITURE BY WAY OF INT EREST WHICH IS DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT (F OR EXAMPLE-ANY ASPECT OF THE ASSESSEE'S BUSINESS SUCH AS PLANT/MACHINERY ETC.)'. THEREFORE, IT IS NOT ONLY THE INTEREST DIRECTLY ATTRIBUTABLE TO TAX EXEMPT INCOME , I.E. UNDER RULE BD(2)(I), BUT ALSO INTEREST DIRECTLY RELATABLE TO TAXABLE INCOME, WHICH IS TO BE EXCLUDED FROM THE DEFINITION OF VARIABLE 'A' IN FORMULA AS PER RU LE 8D(2)(II), AND RIGHTLY SO, BECAUSE IT IS ONLY THEN THAT COMMON INTEREST EXPENS ES, WHICH ARE TO BE ALLOCATED AS INDIRECTLY RELATABLE TO TAXABLE INCOME AND TAX EXEMPT INCOME, CAN BE COMPUTED.' THE HON'BLE CHENNAI TRIBUNAL HAS ALSO IN THE CASE O F ACIT VS BEST & CROMPTON ENGINEERING LTD [2013] 60 SOT 53 (CHENNAI TRIB) RELIED ON THE DECI SION OF THE HON'BLE KOLKATA TRIBUNAL IN THE CASE OF CHAMPION CO MMERCIAL CO. LTD (MENTIONED SUPRA) AND HELD THAT INTEREST ON LOAN SANCTIONED FO R BUSINESS PROJECTS DO NOT FORM PART OF CALCULATION OF DISALLOWANCE UNDER RULE 8D(2)(II) . RELIANCE IS FURTHER PLACED ON THE DECISION OF THE H ON'BLE KOLKATA TRIBUNAL IN THE CASE OF REI AGRO LTD. VS DCIT [2013] 144 ITD 141 (KOLKAT A TRIB.) [COPY ENCLOSED AS ANNEXURE 10- REFER PAGE NOS. 55 TO 61 OF THE WRITTE N SUBMISSION]. IN THIS ASSESSEE HAD INCURRED INTEREST EXPENDITURE ON LOANS TAKEN FOR BU SINESS PURPOSES. THE AO INVOKED RULE 8D AND MADE DISALLOWANCE UNDER 2ND AND 3RD LIM BS. THE HONBLE TRIBUNAL MADE THE FOLLOWING OBSERVATIONS: RULE 8D(2) HAS THREE SUB-PARTS. THE FIRST SUB-PART I.E. (I) DEALS WITH THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO THE INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME. THAT ISSUE IS NOT IN DISPUTE HERE. IN SECOND SUB-PART I.E. (II), IT IS A COMPUTATION PROVIDED IN RESPECT OF EXPENDITURE INCU RRED BY THE ASSESSEE BY ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 17 WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS N OT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. THIS CLEARLY MEANS T HAT IF THERE IS ANY INTEREST EXPENDITURE, WHICH IS DIRECTLY RELATABLE TO ANY PAR TICULAR INCOME OR RECEIPT, SUCH INTEREST EXPENDITURE IS NOT TO BE CONSIDERED U NDER RULE 8D(2)(II). IN THE ASSESSEE'S CASE HERE THE INTEREST HAS BEEN PAID BY THE ASSESSEE ON THE LOANS TAKEN FROM THE BANKS FOR ITS BUSINESS PURPOSE. THER E IS NO ALLEGATION FROM THE BANKS NOR THE ASSESSING OFFICER THAT THE LOAN FUNDS HAVE BEEN DIVERTED FOR MAKING THE INVESTMENT IN SHARES OR FOR NON- BUSINES S PURPOSES. THUS FOR BRINGING ANY INTEREST EXPENDITURE, CLAIMED BY THE A SSESSEE, UNDER THE AMBIT OF RULE 8D(2)(II) IT WILL HAVE TO BE SHOWN BY THE ASSE SSING OFFICER THAT THE SAID INTEREST IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTIC ULAR INCOME OR RECEIPT.' 22. ON THE OTHER HAND, THE LD. DR BEFORE US SUBMITT ED THAT THE AO HAS DERIVED HIS SATISFACTION BY HOLDING THAT ON GOING THROUGH THE COMPUTATION OF INCOME FILED BY THE ASSESSEE IT IS NOTED THAT THE ASSESSEE HAS NOT COMP UTED THE DISALLOWANCE U/S 14A OF THE ACT, 1961. FURTHER IT WAS THE DUTY OF THE ASSESSEE TO SHOW THAT THE INTEREST BEARING LOAN HAS NOT BEEN UTILIZED IN THE INVESTMENT WHICH WERE GENERATING NON TAXABLE INCOME TO THE ASSESSEE. IN THE ABSENCE OF ANY DOCUM ENTARY EVIDENCE THE AO HAS NO OPTION BUT TO RESORT TO RULE 8D OF THE IT RULES. T HE LD. DR FURTHER SUBMITTED THAT THE ASSESSEE HAS MADE HUGE INVESTMENT IN THE SHARES OF VARIOUS COMPANIES AND THEREFORE IT REQUIRES LOT OF APPLICATION OF MIND, TIME AND KNOWL EDGE. THEREFORE IT CANNOT BE HELD THAT NO EXPENDITURE HAS BEEN INCURRED BY THE ASSESS EE IN EARNING THE DIVIDEND INCOME. THE LD DR VEHEMENTLY SUPPORTED THE ORDER OF THE LOW ER AUTHORITIES. 23. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FOREGOING D ISCUSSIONS WE FIND THAT THE AO HAS MADE THE DISALLOWANCE U/S 14A OF THE ACT R.W.R.8D ( II) AND (III) OF THE IT RULES. WE FIND THAT THE OWNED FUNDS OF THE ASSESSEE ARE OF RS . 21974.68 LACS AND INVESTMENTS ARE OF RS. 1912.89 LACS ONLY AT THE END OF THE YEAR. FR OM THE FIGURES WE FIND THAT THE ASSESSEE HAS SUFFICIENT FUND TO MAKE THE INVESTMENT S. THE LOWER AUTHORITIES HAVE NOT BROUGHT ANYTHING ON RECORD TO PROVE THAT THE BORROW ED FUNDS HAVE BEEN INVESTED IN THE INVESTMENT MADE BY THE ASSESSEE. IN THIS CONNECTION WE RELY IN THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF BRITANNI A INDUSTRIES LIMITED. 280 ITR 525 WHERE IT WAS HELD AS UNDER : ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 18 OUT OF THE INTEREST-FREE ADVANCE OF RS. 165 LAKHS, MCAP SUPPLIED CASHEW NUT KERNELS TO THE ASSESSEE-COMPANY BETWEEN THE PERIOD DECEMBER, 1983 AND JUNE, 1984 AMOUNTING TO RS. 91.45 LAKHS OUT OF THE TOTAL CASHEW NUT EXPORT OF THE ASSESSEE OF RS. 120.75 LAKHS FOR THE PERIOD ENDED 3 0TH JUNE, 1984, WHICH ACCOUNTED FOR 70.45 PER CENT OF THE TOTAL CASHEW NU T KERNELS EXPORTED BY THE ASSESSEE IN THAT YEAR. THE CIT(A) FOUND THAT THE AO HAD MISSTATED THE FACTS IN HIS ORDER. THIS FINDING WAS AFFIRMED BY THE TRIBUNA L. THUS, THE FINDING, WHICH IS A FINDING OF FACT, BECOMES A CONCURRENT FINDING OF FACT CONCLUDED BY THE CIT(A) AND THE TRIBUNAL. THERE IS NO MATERIAL TO CONTRADIC T THE FINDING OF CIT(A) AND THOSE OF THE TRIBUNAL. THE DEPARTMENT HAS ALSO NOT FILED ANY CROSS-OBJECTION NOR APPEAL AGAINST THIS PARTICULAR FINDING BEFORE T HE TRIBUNAL. ADMITTEDLY, THE ORDER OF THE AO MERGES IN THOSE OF THE CIT(A) AND T HOSE OF THE TRIBUNAL AND IT IS THE DECISION OF THE LAST COURT THAT BECOMES THE ULTIMATE FINDING OF FACTS AND IN THIS CASE THE FINDING BEING A CONCURRENT FINDING OF FACT, IN THE ABSENCE OF ANY MATERIAL TO HOLD THE FINDING AS PERVERSE, COURT CAN NOT INTERFERE WITH SUCH FINDINGS. AS SOON IT APPEARS THAT THE ADVANCE WAS M ADE FOR OBTAINING SUPPLY OF RAW MATERIALS AND OUT OF WHICH CERTAIN PORTION OF R AW MATERIALS REPRESENTING ALMOST 70 PER CENT OF THE TOTAL ADVANCE IS MADE, IN THAT EVENT, IT CANNOT BUT BE HELD THAT THE ADVANCE WAS MADE FOR THE PURPOSE OF B USINESS AND THE ADVANCE CANNOT BE SAID TO HAVE BEEN MADE FOR ANY OTHER CONS IDERATION EXTRANEOUS OR OTHERWISE.CIT VS. GILLANDERS ARBUTHNOT & CO. LTD. (1981) 24 CTR (CAL) 339 : (1982) 138 ITR 763 (CAL) RELIED ON; CIT VS. MALAYALAM PLANTATIONS LTD. (1964) 53 ITR 140 (SC) APPLIED; CIT VS. ORISSA CEMENT LTD. (2002) 177 CTR (DEL) 361 : (2002) 258 ITR 365 (DEL) AND CIT VS. H.R. SUGAR FACTORY (P) LTD. (1990) 87 CTR (ALL) 132 : (1991) 187 ITR 363 (ALL) DISTINGUISHED. FROM THE ACCOUNTS, IT APPEARS, AS WAS FOUND BY THE TRIBUNAL, THAT THE TOTAL SALE PROCEEDS OF THE RELEVANT FINANCIAL YEAR WAS RS. 114.08 CRORE S AND THAT THE ENTIRE SALE PROCEEDS USED TO BE DEPOSITED IN THE MIXED ACCOUNT AND THE ADVANCE WAS ALSO GRANTED FROM THE MIXED ACCOUNT. THEREFORE, THERE WE RE SUFFICIENT FUNDS FOR MAKING ADVANCE OF RS. 1.65 CRORES OUT OF TOTAL TRAN SACTION OF RS. 114.08 CRORES. IF THERE ARE SURPLUS AND THE ADVANCE IS MADE OUT OF THE MIXED FUND, IN THAT EVENT, IT CANNOT BE SAID THAT THE AMOUNT BORROWED A S CAPITAL FROM THE BANK WAS ADVANCED, IN ORDER TO DENY THE BENEFIT OF S. 36(1)( III). IF IT IS ESTABLISHED THAT THE PAYMENT WAS MADE FROM THE MIXED ACCOUNT AND THE ASS ESSEE HAD SUFFICIENT FUNDS THEN IT IS TO BE PRESUMED THAT THE PAYMENT WA S MADE OUT OF THE ASSESSEES OWN FUND AND THAT THE BORROWED CAPITAL WAS NOT SIPH ONED OUT. IT APPEARS THAT THERE WERE SUFFICIENT FUNDS AND THAT THE ADVANCE WA S MADE FROM MIXED ACCOUNT AND AS SUCH IN THIS CASE THE TRIBUNAL AND THE CIT(A ) BOTH WERE RIGHT IN PRESUMING THAT THE ADVANCE WAS MADE OUT OF THE ASSE SSEES OWN FUNDS. WOOLCOMBERS OF INDIA LTD. VS. CIT (1981) 23 CTR (CAL) 204 : (1982) 134 ITR 219 (CAL), CIT VS. SAMUEL OSBORN (INDIA) LTD. (1982) 26 CTR (CAL) 294 : (1982) 135 ITR 699 (CAL), INDIAN EXPLOSIVES LTD. VS. CIT (1983) 35 CTR (CAL) 244 : (1984) 147 ITR 392 (CAL), ALKALI & CHEMICAL CORPORATION OF INDIA LTD. VS. CIT (1986) 50 CTR (CAL) 139 : (1986) 161 ITR 820 (CAL) AND RECKITT & COLMAN OF INDIA LTD. VS. CIT (1982) 26 CTR (CAL) 24 : (1982) 135 ITR 698 (CAL) FOLLOWED. ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 19 ASSESSEE HAVING MADE INTEREST-FREE ADVANCE TO A FIR M AGAINST SUPPLY OF RAW MATERIALS, THE ADVANCE WAS MADE FOR THE PURPOSE OF BUSINESS; FURTHER, THE ADVANCE WAS GIVEN FROM THE MIXED ACCOUNT WHERE THE ENTIRE SALE PROCEEDS WERE DEPOSITED AND THEREFORE IT HAS TO BE PRESUMED THAT THE PAYMENT WAS MADE OUT OF ASSESSEES OWN FUND AND, DEDUCTION UNDER S. 36(1 )(III) IN RESPECT OF INTEREST ON BORROWED FUNDS CANNOT BE DENIED. 8. FROM THE ABOVE DISCUSSION, WE FIND IN RELATION T O EACH ASSESSMENT YEARS INVOLVED IN THIS APPEAL THAT: THE RECIPIENT OF INTE REST-FREE LOAN WAS NOT A FIRM OF RELATIVES; THE ADVANCE WAS MADE FOR THE PURPOSE OF BUSINESS WITHIN THE MEANING OF S. 36(1)(III); THAT THERE WAS REGULAR CO URSE OF BUSINESS BETWEEN THE ASSESSEE AND THE FIRM; AND THAT THE ADVANCES WERE M ADE TO MCAP IN REGULAR COURSE OF BUSINESS; SUCH ADVANCES WERE MADE IN COUR SE OF BUSINESS FOR COMMERCIAL EXPEDIENCE AND FOR THE PURPOSE OF BUSINE SS; THE FINDINGS ARRIVED AT BY THE LEARNED TRIBUNAL WERE NOT PERVERSE; THE ENTI RE EXPENDITURE WAS MADE FROM THE MIXED ACCOUNT; THEREFORE, THERE WOULD BE A PRESUMPTION THAT THE AMOUNT WAS MADE OUT OF THE OWN FUND OF THE ASSESSEE AND NOT FROM THE BORROWED CAPITAL; THAT THERE WERE SUFFICIENT FUND A ND THAT THE ADVANCES WERE MADE FROM THE MIXED ACCOUNT. THEREFORE, THE CIT(A) AND THE LEARNED TRIBUNAL BOTH WERE RIGHT IN PRESUMING THAT THE ADVANCE WAS M ADE OUT FROM THE ASSESSEES OWN FUND ELIGIBLE FOR THE BENEFIT OF S. 36(1)(III). SIMILARLY WE ALSO RELY IN THE CASE OF CIT VS. HDFC BANK LTD. 366 ITR 505 WHERE THE HONBLE BOMBAY HIGH COURT HAS HELD AS UNDER : THE FINDING OF FACT GIVEN BY THE ITAT IN THE PRESE NT CASE IS THAT THE ASSESSEE'S OWN FUNDS AND OTHER NON-INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX-FREE SECURITIES. THIS FACTUAL POSITION I S NOT ONE THAT IS DISPUTED. THE ITAT THEREFORE HELD THAT THERE WAS NO BASIS FOR DEE MING THAT THE ASSESSEE HAD USED THE BORROWED FUNDS FOR INVESTMENT IN TAX FREE SECURITIES. ON THIS FACTUAL ASPECT, THE ITAT DID NOT FIND ANY MERIT IN THE CONT ENTION RAISED BY THE REVENUE AND THEREFORE, ACCORDINGLY ANSWERED THE QUESTION IN FAVOUR OF THE ASSESSEE. IN THE PRESENT CASE, UNDISPUTEDLY THE ASSESSEE'S CAPIT AL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE I NVESTMENT IN THE TAX-FREE SECURITIES. IT WOULD HAVE TO BE PRESUMED THAT THE I NVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST-FREE FUNDS AV AILABLE WITH THE ASSESSEE. THE TRIBUNAL WAS JUSTIFIED IN DISMISSING THE APPEAL OF THE REVENUE ON GROUND. COMMISSIONER OF INCOME TAX V/S RELIANCE UTILITIES A ND POWER LTD., REPORTED IN (2009) 313 ITR 340 (BOM), APPLIED. WHERE ASSESSEE'S CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER TH AN THE INVESTMENT IN TAX- FREE SECURITIES, IT WOULD HAVE TO BE PRESUMED THAT INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST-FREE FUNDS AV AILABLE WITH ASSESSEE AND NO DISALLOWANCE WAS WARRANTED U/S 14A. FROM THE ABOVE, WE FIND THAT THE FUNDS OF THE ASSES SEE WERE SUFFICIENT ENOUGH TO MAKE THE INVESTMENT. THE LOWER AUTHORITIES HAVE ALSO NOT BROUGHT ANYTHING ON RECORD WHICH ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 20 PROVES THAT THE INVESTMENT WAS MADE OUT OF THE BORR OWED FUND. IN THE ABSENCE OF ANY SPECIFIC INFORMATION AND CLARITY FROM THE ORDERS OF LOWER AUTHORITIES WE ARE OF THE VIEW THAT THE INVESTMENT WAS MADE OUT OF THE OWNED FUNDS OF THE ASSESSEE. ACCORDINGLY THE ADDITION MADE BY THE LOWER AUTHORITIES UNDER SECTIO N 14A R.W.R. 8D(2)(II) DESERVES TO BE DELETED. 24. NOW COMING TO THE ISSUE OF ADDITION UNDER RULE 8D(2)(III) WE FIND THAT THE ASSESSEE HAS NOT FURNISHED ANY DETAILS OF THE EXPEN SES TO JUSTIFY THAT NO ADMINISTRATIVE EXPENSES HAS BEEN INCURRED FOR THE EARNING OF DIVID END INCOME. THEREFORE THE AO WAS HAVING NO OPTION BUT TO CALCULATE THE DISALLOWANCE UNDER SECTION 14A R.W.R. 8D OF INCOME TAX RULES. THEREFORE WE AGREE WITH THE ARGUM ENT OF THE LD. DR THAT THE ASSESSEE HAS DERIVED THE SATISFACTION BY RECORDING THE FACT ON GOING THROUGH THE COMPUTATION OF INCOME FILED BY THE ASSESSEE . IN VIEW OF ABOVE, WE FIND NO REASON TO INTERFERE IN THE ORDER OF LD. CIT(A). ACCORDINGLY T HE ADDITION MADE BY THE LOWER AUTHORITIES UNDER SECTION 14A R.W.R. 8D(2)(III) DES ERVES TO BE CONFIRMED. HENCE THIS GROUND OF APPEAL OF THE ASSESSEE PARTLY ALLOWED. 25. IN THE RESULT, BOTH APPEALS OF REVENUE ARE DISMISSE D AND THAT OF ASSESSEES APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AN D CO OF ASSESSEE IS DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED IN OPEN COURT ON 21/09/2016 SD/- SD/- (K.NARASIMHA CHARY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP/PS ! - 21/09/2016 / KOLKATA ITA NOS.1124/KOL/2010 & C.O.NO.78/KOL/2010 A.Y. 2006-07 DCIT. CIR-8, KOL. VS. M/S TATA RYERSON LTD. ITA NOS.379&303/KOL/2012 A.Y.2008-09 PAGE 21 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-DCIT, CIRCLE82, AAYAKAR BHAWAN, 7 TH FLOOR P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 2. /RESPONDENT-M/S TATA RYERSON LIMITED (SINCE MERGED WITH TATA STEEL PROCESSING & DISTRIBUTION LTD.), 43, J.L.NEHRU ROAD , KOLKATA-700071. 3. '# % / CONCERNED CIT 4. % - / CIT (A) 5. &'( ))'# , '# / DR, ITAT, KOLKATA 6. (*+ / GUARD FILE. BY ORDER/ , /TRUE COPY/ / '#,