M/s Inter State Oil Carrier Ltd., Kolkata V. ITO, WD-8(4), KOLKATA, Kolkata

ITA 1024/KOL/2016

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 4164 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 12-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S M TAUHEED CIT D R RESPONDE
• Assessee Lawyers: ARIHANT JAIN F
• Keywords: Business income; Depreciation; Earning of tax free income; Speculation loss
• Section: 14A

Judgement Text

I.T.A. NOS 1024 & 1025/KOL/2016 ASSESSMENT YEARS:20 05-2006 & 2010-2011 PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A(SMC) BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER I.T.A. NOS. 1024 & 1025/KOL/2016 ASSESSMENT YEARS: 2005-2006 & 2010-2011 M/S. INTER STATE OIL CARRIER LIMITED,......... .............APPELLANT 113, PARK STREET, PODDAR POINT, SOUTH WING, 5 TH FLOOR, KOLKATA-700 016 [PAN: AAACI 6037 J] -VS.- INCOME TAX OFFICER,................ ....RESPONDENT WARD-8(4), KOLKATA, AAYAKAR BHAWAN, 5 TH FLOOR, P-7, CHOWRINGHEE SQUARE KOLKATA-700 069 APPEARANCES BY: SHRI ARIHANT JAIN, F.C.A., FOR THE APPELLANT SHRI S.M. TAUHEED, ADDL. CIT, D.R. , FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : JULY 23, 2018 DATE OF PRONOUNCING THE ORDER : OCTOBER 12, 2018 O R D E R THESE TWO APPEALS FILED BY THE ASSESSEE ARE DIRECT ED AGAINST TWO SEPARATE ORDERS PASSED BY THE LD. COMMISSIONER OF I NCOME TAX (APPEALS)- 17, KOLKATA, BOTH DATED 08.03.2016 FOR ASSESSMENT Y EARS 2005-06 AND 2010-11. 2. FIRST WE TAKE UP THE ASSESSEES APPEAL FOR A.Y. 2005-06 BEING ITA NO. 1024/KOL/2016, GROUND NO. 1 OF WHICH INVOLVES T HE ISSUE RELATING TO THE DISALLOWANCE OF RS.3,23,969/- MADE BY THE ASSES SING OFFICER UNDER SECTION 35D AND CONFIRMED BY THE LD. CIT(APPEALS). 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF TRANSPORTATION, LEASE FINANCING AND TRADING & INVESTMENT I.T.A. NOS 1024 & 1025/KOL/2016 ASSESSMENT YEARS:20 05-2006 & 2010-2011 PAGE 2 OF 11 IN SHARES AND SECURITIES. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION, I.E. A.Y. 2005-06 WAS FILED BY IT ON 04.10.2005 DECLARING TOTAL INCOME OF RS.5,79,330/-. IN THE PROFIT & LOSS ACCOUNT FILED ALONG WITH THE SAID RETURN, A SUM OF RS.3,23,969/- WAS DE BITED BY THE ASSESSEE ON ACCOUNT OF MISCELLANEOUS EXPENDITURE WRITTEN OFF . IN THIS REGARD, IT WAS EXPLAINED BY THE ASSESSEE DURING THE COURSE OF ASSE SSMENT PROCEEDINGS BEFORE THE ASSESSING OFFICER THAT THE SAID EXPENDIT URE INCURRED ON PUBLIC ISSUE EXPENSES AMOUNTING TO RS.3,22,419/- AND PRELI MINARY EXPENSES AMOUNTING TO RS.1,550/- WRITTEN OFF DURING THE YEAR UNDER CONSIDERATION WAS DEDUCTIBLE UNDER SECTION 35D(2). IT WAS SUBMITT ED THAT THE SAID EXPENDITURE WAS INCURRED BEFORE THE COMMENCEMENT OF ITS BUSINESS BY THE ASSESSEE-COMPANY AND THE SAME WAS CLAIMED FOR D EDUCTION TO THE EXTENT OF 1/10 TH IN EACH OF THE TEN CONSECUTIVE PREVIOUS YEARS INCL UDING THE YEAR UNDER CONSIDERATION. THE NATURE OF SUCH EX PENDITURE AGGREGATING TO RS.32,24,172/- AS CLAIMED BY THE ASSESSEE-COMPAN Y WAS ALSO EXPLAINED BEFORE THE ASSESSING OFFICER AND IT WAS CONTENDED T HAT THE SAME WAS DEDUCTIBLE UNDER SECTION 35D TO THE EXTENT OF 1/10 TH DURING THE YEAR UNDER CONSIDERATION, AS THE NEW BUSINESS ACTIVITY W AS COMMENCED BY THE ASSESSEE DURING THE FINANCIAL YEAR 1995-96. THIS CL AIM OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE ASSESSING OFFICER I N THE ABSENCE OF ANY EVIDENCE TO SUBSTANTIATE THAT THE ASSESSEE-COMPANY HAD COMMENCED ITS BUSINESS ACTIVITY ONLY AFTER THE PUBLIC ISSUE OF SH ARES MADE IN THE FINANCIAL YEAR 1995-96. HE ACCORDINGLY DISALLOWED T HE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 35D FOR THE FO LLOWING REASONS:- (I) MORE THAN 10 YEARS HAVE ENDED SINCE THE INCORPO RATION OF THE ASSESSEE-COMPANY; (II) THE ASSESSEE-COMPANY IS NOT AN INDUSTRIAL COM PANY; (III) SHARE ISSUE EXPENSES WERE NOT FOR SETTING UP OF AN INDUSTRIAL UNDERTAKING; (IV) SHARE ISSUE EXPENSES WERE NOT FOR EXTENSION OF AN INDUSTRIAL UNDERTAKING; (V) SHARE ISSUE EXPENSES WERE IN THE NATURE OF CAPI TAL EXPENDITURE. I.T.A. NOS 1024 & 1025/KOL/2016 ASSESSMENT YEARS:20 05-2006 & 2010-2011 PAGE 3 OF 11 4. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER O N ACCOUNT OF ITS CLAIM FOR DEDUCTION UNDER SECTION 35D WAS CHALLENGE D BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(APPEALS) AND SI NCE THE SUBMISSIONS MADE BY THE ASSESSEE IN SUPPORT OF ITS CASE ON THIS ISSUE WERE NOT FOUND ACCEPTABLE BY THE LD. CIT(APPEALS), HE CONFIRMED TH E DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 35D FOR THE FOLLOWING REASONS GIVEN IN HIS IMPUGNED ORDER:- THE ASSESSEE HAS CLAIMED SHARE ISSUE EXPENSES OF RS.32,24,172/- AS AMORTISATION U/S 35D. IT IS PERTI NENT TO NOTE THAT THE COMPANY IS ALREADY MORE THAN TEN YEAR S OLD AND AMORTISATION OF EXPENSES U/S 35D IS ALLOWED FOR PRELIMINARY EXPENSES OF A NEW UNIT. THE ASSESSEE GO T ITSELF LISTED ON THE BOMBAY STOCK EXCHANGE DURING THE FINA NCIAL YEAR 1995-96. THE ASSESSEE HAS CONTENDED THAT THE P UBLIC ISSUE EXPENSES WERE INCURRED FOR COMMENCEMENT OF NE W BUSINESS AND AFTER THE PUBLIC ISSUE THE COMPANY ACQ UIRED FIXED ASSETS OF RS.2,08,95,425/-. IN THIS CONTEXT, IT IS OBSERVED THAT THE ACTION OF THE ASSESSEE IN GOING P UBLIC IS A FINANCIAL DECISION OF THE ASSESSEE FOR RAISING MONE Y. DEDUCTION UNDER SECTION 35D IS ALLOWED AFTER COMMENCEMENT OF BUSINESS OR EXPANSION OF THE EXISTI NG INDUSTRIAL UNIT OR FOR SETTING UP A NEW INDUSTRIAL UNIT. THE ASSESSEE CANNOT BE CLASSIFIED AS AN INDUSTRIAL MANU FACTURING COMPANY AS IT IS ENGAGED IN THE BUSINESS OF TRANSPO RTATION, LEASE FINANCING AND SHARE TRADING & INVESTMENT ACTI VITIES. IN THIS CASE, THE NATURE OF BUSINESS OF THE ASSESSEE R EMAINS THE SAME. MOREOVER, AS IT IS NOT AN INDUSTRIAL COMPANY THE DEDUCTION U/S 35D CLAIMED OF RS.3,23,969/- HAS RIGH TLY BEEN DISALLOWED BY THE A.O. THE SAME IS THEREFORE CONFIR MED. 5. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT AMORTISATION OF CERTAIN PRELIMINARY EXPENSES IS ALL OWED AS PER SECTION 35D(1)(I), WHERE AN ASSESSEE BEING AN INDIAN COMPAN Y INCURS AFTER 31 ST MARCH, 1970 ANY EXPENDITURE SPECIFIED IN SUB-SECTIO N (2) BEFORE THE COMMENCEMENT OF ITS BUSINESS. IN THE PRESENT CASE, THERE IS NO DISPUTE THAT THE EXPENDITURE IN QUESTION CLAIMED BY THE ASS ESSEE WAS IN THE NATURE AS SPECIFIED IN SUB-SECTION (2) OF SECTION 3 5D. THE LD. COUNSEL FOR THE ASSESSEE HAS ALSO CONTENDED THAT THE DEDUCTION IS BEING CLAIMED BY THE ASSESSEE UNDER CLAUSE (I) OF SUB-SECTION (1) OF SECTION 35D AND NOT I.T.A. NOS 1024 & 1025/KOL/2016 ASSESSMENT YEARS:20 05-2006 & 2010-2011 PAGE 4 OF 11 CLAUSE (II) THEREOF AS THE EXPENDITURE IN QUESTION WAS INCURRED BY THE ASSESSEE-COMPANY BEFORE COMMENCEMENT OF ITS TRANSPO RTATION BUSINESS. IN THIS REGARD, HE HAS INVITED MY ATTENTION TO THE PROFIT & LOSS ACCOUNT OF THE ASSESSEE-COMPANY FOR THE FINANCIAL YEAR 1995-96 AS PLACED AT PAGES NO. 5 & 8 OF THE PAPER BOOK TO SHOW THAT THE INCOME FROM FREIGHT HAVING BEEN RECEIVED BY THE ASSESSEE-COMPANY FROM ITS OPER ATION FOR THE FIRST TIME IN THE FINANCIAL YEAR 1995-96, THE BUSINESS HA D COMMENCED IN THAT YEAR AND THE ASSESSEE WAS ENTITLED FOR DEDUCTION ON ACCOUNT OF PRELIMINARY EXPENSES TO THE EXTENT OF 1/10 TH IN EACH OF THE TEN SUCCESSIVE YEARS. IT IS, HOWEVER, OBSERVED THAT THE SIMILAR CL AIM MADE BY THE ASSESSEE OF HAVING COMMENCED THE BUSINESS OF TRANSP ORTATION IN THE FINANCIAL YEAR 1995-96 WAS REJECTED BY THE ASSESSIN G OFFICER ON THE GROUND THAT THERE WAS NO EVIDENCE PRODUCED BY THE A SSESSEE TO SUPPORT AND SUBSTANTIATE THE SAME. THE LD. CIT(APPEALS), ON THE OTHER HAND, CONFIRMED THE SAID DISALLOWANCE MADE BY THE ASSESSI NG OFFICER BY REFERRING TO CLAUSE (II) OF SUB-SECTION (1) OF SECT ION 35D, WHEREAS THE CLAIM OF THE ASSESSEE, AS SUBMITTED BY THE LD. COUN SEL FOR THE ASSESSEE, IS MADE AS PER CLAUSE (I) OF SUB-SECTION (1) OF SECTIO N 35D. KEEPING IN VIEW ALL THESE FACTS OF THE CASE, I CONSIDER IT FAIR AND PROPER AND IN THE INTEREST OF JUSTICE TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING THE SAME IN ACCORDANCE WITH CLAUSE (I) OF SUB-SECTION (1) OF SECTION 35D AFTER VERIFYING THE CLAIM OF THE ASSESS EE OF HAVING COMMENCED THE BUSINESS OF TRANSPORTATION IN THE FIN ANCIAL YEAR 1995-96. THE ASSESSEE IS AT LIBERTY TO PRODUCE THE RELEVANT DOCUMENTARY EVIDENCE TO SUPPORT AND SUBSTANTIATE ITS CLAIM WHICH THE ASS ESSING OFFICER SHALL VERIFY AND DECIDE THE ISSUE IN ACCORDANCE WITH LAW. GROUND NO. 1 OF THE ASSESSEES APPEAL IS ACCORDINGLY TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 6. THE ISSUE INVOLVED IN GROUND NO. 2 RELATES TO TH E DISALLOWANCE OF ASSESSEES CLAIM FOR SET OFF OF SPECULATION LOSS OF RS.6,49,330/- AGAINST THE PROFIT OF RS.28,90,809/- EARNED BY THE ASSESSEE FROM DELIVERY BASED TRANSACTIONS. I.T.A. NOS 1024 & 1025/KOL/2016 ASSESSMENT YEARS:20 05-2006 & 2010-2011 PAGE 5 OF 11 7. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E-COMPANY HAD INCURRED SPECULATION LOSS OF RS.6,49,330/- AND THE SAME WAS ADJUSTED AGAINST SHARE TRADING PROFIT OF RS.28,90,809/- UN DER SECTION 73 OF THE ACT. ACCORDING TO THE ASSESSING OFFICER, THE SPECUL ATION LOSS UNDER SECTION 73 OF THE ACT COULD NOT BE SET OFF AGAINST SPECULAT ION INCOME AND THE SET OFF OF SPECULATION LOSS AS AGAINST SHARE TRADING PR OFIT WAS LIABLE TO BE DISALLOWED. HE ACCORDINGLY DISALLOWED THE CLAIM OF THE ASSESSEE FOR SUCH SET OFF. THE ACTION OF THE ASSESSING OFFICER IN DIS ALLOWING ITS CLAIM FOR SET OFF OF SPECULATION LOSS AGAINST SHARE TRADING PROFI T WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(APP EALS) AND SINCE THE SUBMISSION MADE BY THE ASSESSEE IN SUPPORT OF ITS C ASE ON THIS ISSUE WAS NOT FOUND ACCEPTABLE BY THE LD. CIT(APPEALS), HE CO NFIRMED THE ACTION OF THE ASSESSING OFFICER IN REJECTING THE CLAIM OF THE ASSESSEE FOR SET OFF OF SPECULATION LOSS AGAINST THE SHARE TRADING PROFIT F OR THE FOLLOWING REASONS GIVEN IN HIS IMPUGNED ORDER: THE ISSUE HERE IS WHETHER PROFIT OF RS.28,90,809/- EARNED BY THE ASSESSEE ONLY DELIVERY BASED SHARE TRANSACTI ONS CAN BE TREATED AS SPECULATIVE PROFIT OR NOT IN THIS CAS E, THE ASSESSEE HAD MADE A SPECULATIVE LOSS OF RS.6,49,330 /- ON SHARE TRANSACTIONS WHICH WERE SETTLED OTHERWISE THA N BY DELIVERY. THE SAID LOSS WAS TREATED AS SPECULATIVE LOSS BY THE AO/ THERE IS NO DISPUTE ON THIS POINT AND THE A SSESSEE ALSO ADMITS THE SAME AS SPECULATIVE LOSS. HOWEVER, THE AO TREATED THE PROFIT ON DELIVERY BASED SHARE TRANSACT ION AS NON-SPECULATIVE PROFIT. THE ASSESSEE, ON THE OTHER HAND, TREATED THE SAME AS SPECULATIVE IN NATURE IN TERMS OF THE PROVISIONS OF EXPLANATION TO SECTION 73. THE AO DID NOT ALLOW THE SET OFF OF THE SPECULATIVE LOSS RS.6,49,3 30/- AGAINST THE PROFIT ON DELIVERY BASED TRANSACTIONS O F RS.28,90,809/- TREATING THEM AS NORMAL BUSINESS INC OME. THE DISPUTE, THEREFORE, IS WHETHER THE SHARE TRANSA CTION PROFITS, OF RS.28,90,809/- CAN BE TREATED AS SPECUL ATIVE PROFIT UNDER EXPLANATION TO SECTION 73. THE EXPLANA TION HAS TWO EXCEPTIONS: (I) THE GROSS TOTAL INCOME OF THE SAID COMPANY SHOULD CONSIST MAINLY OF INCOMES CHARGEABLE UNDER THE HEADS INCOME FROM HOUSE PROPERTY, CAPITAL GAINS AND INCOME FROM OTHER SOURCES. I.T.A. NOS 1024 & 1025/KOL/2016 ASSESSMENT YEARS:20 05-2006 & 2010-2011 PAGE 6 OF 11 (II) A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS GRANTING OF LOANS AND ADVANCES. THE COMPANY IS NOT ENGAGED IN THE BUSINESS OF GRANT ING OF LOANS AND ADVANCES SO IT DOES NOT FALL IN THE SECON D CATEGORY OF EXCEPTION. TO EXAMINE WHETHER THE COMPA NY FALLS UNDER THE FIRST EXCEPTION THE COMPOSITION OF INCOME UNDER THE VARIOUS HEADS IS ANALYSED AS FOLLOWS: PARTICULARS AMOUNT PROFITS FROM TRANSPORTATION BUSINESS(A) (-)RS.22,53,503/- NON-DELIVERY BASED SHARE TRANSACTIONS(B) (-)RS. 6,49,330/- DELIVERY BASED SHARE TRANSACTIONS(C) RS.28,90,809/- SHORT-TERM CAPITAL GAIN (AFTER BROUGHT FORWARD LOSS SET OFF)(D) RS.25,77,369/- FROM THE COMPOSITION OF THE INCOME DECLARE UNDER DI FFERENT HEADS, IT CAN BE SEEN THAT THE ASSESSEE DURING THE YEAR EARNED SHORT-TERM CAPITAL GAIN OF RS.33.65 LACS BEF ORE SET OFF OF BROUGHT FORWARD LOSSES. AFTER SET OFF THE NE T INCOME UNDER THE HEAD CAPITAL GAIN IS RS.25,77,369/-. THER EFORE, ITS INCOME UNDER THE HEAD CAPITAL GAINS IS MUCH MORE TH AN THE BUSINESS INCOME AND ACCORDINGLY IT IS NOT HIT BY TH E PROFITS AS PER EXPLANATION TO SECTION 73. THE ACTION OF THE AO IN TREATING THE PROFIT OF RS.28,90,809/- ON DELIVERY B ASED SHARE TRANSACTIONS AS NORMAL BUSINESS INCOME IS HEREBY CONFIRMED. 8. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS HELD BY THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS.- PARKVI EW PROPERTIES (P) LIMITED [139 TAXMAN 38 (CALCUTTA) CITED BY THE LD. COUNSEL FOR THE ASSESSEE, IT IS A WELL SETTLED PROPOSITION THAT THE WORDS INCOME, PROFITS AND GAINS HAVE TO BE UNDERSTOOD AS INCL UDING LOSSES IN THE SENSE THAT PROFIT AND GAINS REPRESENT POSITIVE INCO ME WHEREAS LOSS REPRESENTS NEGATIVE INCOME. IT WAS HELD THAT THIS P RINCIPLE IS REQUIRED TO BE APPLIED EVEN FOR THE PURPOSE OF EXPLANATION TO S ECTION 73 AND IF THERE WAS A LOSS IN THE SHARE DEALING ACCOUNT, I.E. RS.8, 98,799/-, WHICH IS TREATED TO BE A NEGATIVE PROFIT, THEN DEFINITELY TH E INCOME FROM OTHER I.T.A. NOS 1024 & 1025/KOL/2016 ASSESSMENT YEARS:20 05-2006 & 2010-2011 PAGE 7 OF 11 SOURCES AND DIVIDEND INCOME BEING RS.5,73,701/- IS LESSER. IF THE SAID PRINCIPLE IS APPLIED IN THE FACTS OF THE PRESENT CA SE, I FIND THAT THE GROSS TOTAL INCOME OF THE ASSESSEE WOULD NOT CONSIST MAIN LY OF INCOME, WHICH IS CHARGEABLE UNDER THE HEAD CAPITAL GAINS AS ITS BU SINESS INCOME COULD BE MORE THAN INCOME FROM CAPITAL GAINS AND THE PROFIT FROM THE PURCHASE AND SALE OF SHARES COULD BE DEEMED TO BE A SPECULATION PROFIT AS PER EXPLANATION TO SECTION 73. CONSEQUENTLY THE ASSESSE E WOULD BE ENTITLED TO SET OFF THIS SPECULATION LOSS FROM THE SAID PROFIT AS PER SECTION 73 AS RIGHTLY CLAIMED BY IT. I, THEREFORE, ALLOW THE CLAI M OF THE ASSESSEE FOR SUCH SET OFF AND ALLOW GROUND NO. 2 OF THE ASSESSEES AP PEAL FOR A.Y. 2005-06. 9. NOW WE SHALL TAKE UP THE APPEAL OF THE ASSESSEE FOR A.Y. 2010-11 BEING ITA NO. 1025/KOL/2016 , WHICH INVOLVES A SOLITARY ISSUE RELATING TO THE DISALLOWANCE OF RS.11,46,263/- MADE BY THE A SSESSING OFFICER UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF T HE INCOME TAX RULES, 1962, WHICH IS CONFIRMED BY THE LD. CIT(APPEALS). 10. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESS MENT YEAR 2010-11, THE ASSESSEE-COMPANY HAD EARNED DIVIDEND INCOME OF RS.10,02,821/- WHICH WAS CLAIMED TO BE EXEMPT FROM TAX. THE DISALL OWANCE OF EXPENSES INCURRED IN RELATION TO THE SAID EXEMPT INCOME TO T HE EXTENT OF RS.3,77,450/- WAS OFFERED BY THE ASSESSEE IN THE CO MPUTATION OF TOTAL INCOME IN ACCORDANCE WITH SECTION 14A. FOR THE REAS ONS GIVEN IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER DID NOT ACC EPT THE QUANTUM OF DISALLOWANCE OFFERED BY THE ASSESSEE UNDER SECTION 14A AND PROCEEDED TO WORK OUT SUCH DISALLOWANCE TO BE MADE UNDER SECTION 14A BY APPLYING RULE 8D AS UNDER:- (1) AS PER RULE 8D(2)(I): ASSESSEE INCURRED DEMAT EXPENSES AMOUNTING TO RS.19,867/- AND EXPENSES RELA TING TO SHARES AMOUNTING TO RS.77,753/- AND DEBITED THE SAME IN P&L A/C. HENCE, DISALLOWANCE UNDER RULE 8D(2)(I) COMES TO RS.97,620/- {RS.19,867/- + RS.77,753/-]. (II)AS PER RULE 8D(2)(II): DISALLWOANCE UNDER RULE 8D(2)(II) = INTEREST (A) X (B)/(C), WHERE A STAND S FOR I.T.A. NOS 1024 & 1025/KOL/2016 ASSESSMENT YEARS:20 05-2006 & 2010-2011 PAGE 8 OF 11 AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE YEAR. B STANDS FOR THE AVERAGE OF VALUE OF IN VESTMENT, INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL I NCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; AN D C STANDS FOR THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. ON PERUSAL OF AUDITED BALANCE SHEET SUBMITTED BY AS SESSEE, IT IS SEEN THAT THE AVERAGE VALUE OF INVESTMENT IN SHARES AND UNITS OF MUTUAL FUNDS IS RS.6,10,86,132/- (B); AVERAGE VALUE OF ASSETS IS (RS.13,70,80,884/- + RS.17,48,10 ,702/-)/2 =RS.15,59,45,793/- (C); AND EXPENDITURE BY WAY OF I NTEREST IS RS.28,61,176/- (A). THEREFORE, DISALLOWANCE UNDER RULE 8D(2)(II) = INTE REST (A) X (B)/(C) =RS.28,61,176/- X RS.6,10,86,132/-/RS.15,59,45,793/ - =RS.11,20,763/-. (III)THE AVERAGE VALUE OF INVESTMENT WHICH AS PER R ULE 8D(2)(III) IS WORKED OUT AS: OPENING INVESTMENT + CLOSING INVESTMENT 2 =RS.5,64,90,504/- + RS.6,56,81,760/- = RS.6,10,86,132/- 2 THEREFORE, DISALLOWANCE U/S. 8D(2)(III) = 0.5% OF T HE AVERAGE OF VALUE OF INVESTMENT =0.5% OF RS.6,10,86,132/- = RS.3,05,430/-. THE ASSESSING OFFICER THUS WORKED OUT THE DISALLOWA NCE TO BE MADE UNDER SECTION 14A BY APPLYING RULE 8D AT RS.15,23,813/- A ND SINCE THE ASSESSEE- COMPANY HAD ALREADY MADE A DISALLOWANCE OF RS.3,77, 450/-, A FURTHER DISALLOWANCE OF RS.11,46,363/- WAS MADE BY HIM UNDE R SECTION 14A. 11. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS.11,46,363/- UNDER SECTION 14A WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(APPEALS) AND SINCE THE SUBMISSIO NS MADE BY THE ASSESSEE IN SUPPORT OF ITS CASE ON THIS ISSUE WERE NOT FOUND ACCEPTABLE BY THE LD. CIT(APPEALS), HE CONFIRMED THE SAID DISALLO WANCE FOR THE FOLLOWING REASONS GIVEN IN HIS IMPUGNED ORDER:- I.T.A. NOS 1024 & 1025/KOL/2016 ASSESSMENT YEARS:20 05-2006 & 2010-2011 PAGE 9 OF 11 THE GRIEVANCE OF THE ASSESSEE IS THAT WHILE WORKIN G DISALLOWANCE AS PER RULE 80(2)(II) THE AO HAS TAKEN THE FIGURE OF INTEREST AT RS. 28,61,176/- AS AGAINST TH E FIGURE PURPOSED BY THEM OF RS. 8,14,713/-. THE DIFFERENCE IN THE INTEREST FIGURE COMES ON ACCOUNT OF INTEREST ON LOA N FOR PURCHASE OF VEHICLE OF RS. 20,46,463/. IT IS THE C ONTENTION OF THE ASSESSEE THAT SINCE THE LOAN FOR PURCHASE OF VEHICLE WAS FOR ACQUIRING TRUCKS AND TANKERS, WHICH WERE SUBSEQUENTLY USED IN THE TRANSPORTATION BUSINESS, T HE SAME SHOULD NOT BE CONSIDERED FOR THE PURPOSES OF COMPUTING THE DISALLOWANCE U/S. 14A. IN THE ASSESSM ENT ORDER THE AO HAS RECORDED HIS SATISFACTION FOR INVO KING RULE 8D. THE ASSESEE HAD SUOMOTO OFFERED DISALLOWAN CE OF RS.3,77,450/ U/S. 14A. THE AO OBSERVED THAT THE AS SESSEE HAD SUBSTANTIAL INVESTMENTS IN SHARES FROM WHICH CONSIDERABLE EXEMPTED INCOME WAS EARNED, FURTHER, H E OBSERVED THAT THE ASSESSEE HAD NOT MAINTAINED THE SEPARATE BOOKS OF ACCOUNTS SO AS TO QUANTIFY THE EX PENSES IN RELATION TO THE EXEMPT INCOME. ACCORDINGLY, HE I NVOKED RULE 8D. NOW THE CONTENTION OF THE ASSESSEE IS THAT INTEREST PAID TOWARDS VEHICLE LOAN SHOULD NOT BE TA KEN INTO CONSIDERATION FOR COMPUTING THE DISALLOWANCE U NDER RULE 8D(2)(II). THE PURPOSE OF INTRODUCTION OF RULE 8D WAS TO BRING UNIFORMITY IN THE METHODOLOGY FOR COMP UTING THE DISALLOWANCE U/S. 14A. THE BASIC PURPOSE WAS TO ENSURE THAT ALL AO FOLLOWED A UNIFORM CODE WHILE WO RKING THE DISALLOWANCE U/S.14A, THE INTENTION BEING TO RE DUCE THE SUBJECTIVITY IN COMPUTING THE SAID DISALLOWANCE . NOW THE ASSESSEE WANTS TO INTRODUCE A FURTHER COMPLICAT ION WITH ITS CONTENTION THAT INTEREST PAID FOR VEHICLE LOAN SHOULD BE EXCLUDED WHILE COMPUTING THE DISALLOWANCE U/S. 14A. THIS BEING SO IT DEFEATS THE BASIC INTENTION B EHIND THE INTRODUCTION OF RULE 8D. IT IS A SETTLE PRINCIP LE OF LAW THAT WHEN THE LANGUAGE OF STATUTE IS CLEAR NOTHING EXTRA SHOULD BE READ INTO IT. THE RULE 8D(2)(II) IS SIMPL E AND GIVES THE DISALLOWANCE U/S.14A ON ACCOUNT OF INTERE ST' PAID. THE RULE DOES NOT SPEAK ABOUT EXCLUDING ANY K IND OF INTEREST. THEREFORE, I DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE AO AND THE DISALLOWANCE MAE ON THIS GROUND I S HEREBY CONFIRMED. AGGRIEVED BY THE ORDER OF THE LD. CIT(APPEALS), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 12. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE LD. COUN SEL FOR THE ASSESSEE HAS I.T.A. NOS 1024 & 1025/KOL/2016 ASSESSMENT YEARS:20 05-2006 & 2010-2011 PAGE 10 OF 11 MAINLY DISPUTED THE DISALLOWANCE UNDER SECTION 14A AS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST BY APPLYIN G RULE 8D(2)(II) AT RS.11,20,763/-. IN THIS REGARD, HE HAS POINTED OUT FROM THE BALANCE-SHEET OF THE ASSESSEE-COMPANY FOR THE YEAR UNDER CONSIDER ATION THAT SUFFICIENT OWN FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVE & SURPLUS TO THE TUNE OF RS.11.71 CRORES WERE AVAILABLE WITH THE ASSESSEE -COMPANY AT THE RELEVANT TIME AND THE SAME BEING MORE THAN THE INVE STMENT MADE BY THE ASSESSEE-COMPANY IN SHARES AMOUNTING TO RS.6.57 CRO RES, NO DISALLOWANCE ON ACCOUNT OF INTEREST UNDER SECTION 14A WAS WARRAN TED. SINCE THE LD. D.R. HAS ALSO NOT DISPUTED THIS POSITION WHICH IS CLEARL Y EVIDENT FROM THE RELEVANT BALANCE-SHEET OF THE ASSESSEE-COMPANY SHOW ING THAT SUFFICIENT OWN FUNDS WERE AVAILABLE WITH THE ASSESSEE-COMPANY TO MAKE THE INVESTMENT IN SHARES AT THE RELEVANT TIME, I FIND M ERIT IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE DISALLOWA NCE ON ACCOUNT OF INTEREST UNDER SECTION 14A AS MADE BY THE ASSESSING OFFICER BY APPLYING RULE 8D AND CONFIRMED BY THE LD. CIT(APPEALS) IS NO T WARRANTED. IN MY OPINION, THE DISALLOWANCE UNDER SECTION 14A READ WI TH RULE 8D THUS WORKS OUT TO RS.4,03,050/- AS AGAINST RS.15,23,813/ - WORKED OUT BY THE ASSESSING OFFICER. I ACCORDINGLY DIRECT THE ASSESSI NG OFFICER TO RE-COMPUTE THE DISALLOWANCE TO BE MADE UNDER SECTION 14A READ WITH RULE 8D AND ALLOW PARTLY THE APPEAL OF THE ASSESSEE FOR A.Y. 20 10-11. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE FOR A.Y. 2005-06 IS TREATED AS ALLOWED, WHEREAS THE APPEAL OF THE ASSESSEE FOR A.Y . 2010-11 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON OCTOBER 12, 2 018. SD/- (P.M. JAGTAP) ACCOUNTANT MEMBER KOLKATA, THE 12 TH DAY OF OCTOBER, 2018 COPIES TO : (1) M/S. INTER STATE OIL CARRIER LIMITED, 113, PARK STREET, PODDAR POINT, SOUTH WING, 5 TH FLOOR, KOLKATA-700 016 I.T.A. NOS 1024 & 1025/KOL/2016 ASSESSMENT YEARS:20 05-2006 & 2010-2011 PAGE 11 OF 11 (2) INCOME TAX OFFICER, WARD-8(4), KOLKATA, AAYAKAR BHAWAN, 5 TH FLOOR, KOLKATA-700 069 (3) COMMISSIONER OF INCOME TAX (APPEALS)-17, KOLK ATA, (4) COMMISSIONER OF INCOME TAX- , (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, HEAD OF OFFICE/D.D.O. INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.