DCIT, Circle -7, Kolkata, Kolkata V. M/s. C.D. Equifinance(P)Ltd, Kolkata

ITA 1034/KOL/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9261 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 7 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 06-03-2017
• Assessment Year: misc
• Appeal Filed On: 11-07-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Assessee Lawyers: D S DAML E FCA LD
• Keywords: Business income; Earning of tax free income
• Section: 14A; 115JB

Judgement Text

1 ITA NO.1034/KOL/12 IN THE INCOME TAX APPELLATE TRIBUNAL,ABENCH, KOLKATA BEFORE: SHRI M.BALAGANESH, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO. 1034/KOL/2012 A.Y 2008-09 DEPUTY COMMISSIONER OF VS. M/S. C.D EQUIFINANCE INCOME TAX, CIR-7, PVT. LTD KOLKATA PAN: AACCP 7333A (APPELLANT) (RESPONDENT) APPEARANCES BY : SHRI SAURABH KUMAR, ADDL. CIT FOR THE REVENUE SHRI D.S. DAMLE, FCA, LD.AR FOR THE ASSESSEE DATE OF HEARING : 06-03-2017 DATE OF PRONOUNCEMENT : 06-03-2017 O R D E R SHRI S.S. VISWANETHRA RAVI, JM :- THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DT: 16-04- 2012 PASSED BY THE COMMISSIONER OF INCOME TAX (APPE ALS), VIII, KOLKATA FOR THE ASSESSMENT YEAR 2008-09. 2. THE APPELLANT REVENUE HAS RAISED TWO GROUNDS OF APPEAL I.E 1) CHALLENGING THE ORDER OF THE CIT(A) IN NOT H OLDING THE AMOUNT OF RS.3,64,42,754/- ARISING FROM TRANSACTION S IN SHARES AND SECURITIES AS BUSINESS INCOME BEING TAXABLE AS SHORT TERM CAPITAL GAINS AND 2) THE CIT-A ERRED IN CONFIRMING THE QUANTUM OF DISALLOWANCE MADE BY AO U/S. 14A OF THE ACT. 2 ITA NO.1034/KOL/12 3. THE SAID APPEAL OF REVENUE WAS DISPOSED OFF BY THIS TRIBUNAL ON 15-04-2016, WHEREIN THE TRIBUNAL ANSWER ED THE GROUND NO.1 THEREIN IN FAVOUR OF ASSESSEE AS THE AM OUNT ARISING FROM TRANSACTION OF SHARES AND SECURITIES TAXABLE A S SHORT TERM CAPITAL GAIN AND NOT AS BUSINESS INCOME BY RELYING ON THE JUDGMENT/ORDER DATED 12-05-2015 OF THE HONBLE CALC UTTA HIGH COURT IN ITA NO. 101 OF 2011, WHICH UPHELD THE ORDE R DATED 09- 12-2010 PASSED IN ITA NO. 1407/KOL/2009 BY THE KOLK ATA TRIBUNAL. 4. IN RESPECT OF GROUND NO. 2, THIS TRIBUNAL RESTRI CTED THE ADDITION TO RS.45,79,093/- AS AGAINST THE DISALLOW ANCE OF RS.34,67,355/- AND DISALLOWANCE OF RS.80,46,448/- U /S. 14A MADE BY THE ASSESSEE ON ITS OWN AND THE AO RESPECTI VELY. THEREAFTER, THE ASSESSEE FILED MA NO. 91/KOL/2016 [ ARISING OUT OF ITA NO. 1034/KOL/12 FOR THE A.Y 2008-09] CONTEND ING THAT THE TRIBUNAL DECIDED THE ISSUE OF DISALLOWANCE U/S . 14A BY WRONG ASSUMPTION THAT, THE THEN AR OF THE ASSESSEE DID NOT DISPUTE THE APPLICABILITY OF RULE 8D IN COMPUTING S UCH DISALLOWANCE MADE U/S. 14A OF THE ACT. TAKING INTO CONSIDERATION THE AFFIDAVIT FILED IN SUPPORT OF HIS CONTENTIONS DT. 30-06-2016. THE TRIBUNAL VIDE ORDER DATED 25-01-201 7 ALLOWED THE SAID MISC. APPLICATION BY DIRECTING THE REGISTR Y TO FIX THE APPEAL TO AN EXTENT OF GROUND NO.2 FOR HEARING. HEN CE, THE PRESENT APPEAL [ ITA NO. 1034/KOL/2012 A.Y 2008-09 ] IS BEFORE US FOR ADJUDICATION OF GROUND NO.2. 5. GROUND NO. 2 OF IN THIS APPEAL FOR A.Y 2008-09, THE REVENUE HAS CHALLENGED THE ACTION OF CIT(APPEALS) ABOUT THE QUANTUM OF DISALLOWANCE IN RESTRICTING THE DISALLOWANCE OF RS. 34,67,355/- 3 ITA NO.1034/KOL/12 AGAINST RS.80,46,448/- AS MADE BY THE ASSESSING OFF ICER UNDER SECTION 14A OF THE ACT. 6. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E- COMPANY HAD RECEIVED EXEMPT INCOME IN THE FORM OF D IVIDEND AMOUNTING TO RS.5,84,10,892/- AND LONG-TERM CAPITAL GAIN FOR SHORT LTCG HEREAFTER AMOUNTING TO RS.25,77,90,442/-. THE DISALLOWANCE ON ACCOUNT OF EXPENSES OF RS.34,67,355 /- INCURRED IN RELATION TO THE SAID EXEMPT INCOME, HOWEVER, WAS OFFERED BY THE ASSESSEE ON ITS OWN AS REQUIRED BY THE PROVISIO NS OF SECTION 14A. ON VERIFICATION OF SUCH COMPUTATION MADE BY AS SESSEE FOR MAKING DISALLOWANCE ON ITS OWN, THE AO FOUND THE DI RECT EXPENDITURE OF RS.14,30,718/- WAS REASONABLE WITH R EFERENCE TO DIVIDEND. 7. ON LTCG, CONSIDERING THE TOTAL RECEIPTS OF RS.43 ,30,71,742/- THE AO ARRIVED AT DISALLOWANCE OF RS.1,00,08,4311- AND APPLYING RULE 8D(III) AT 0.50% OF AVERAGE INVESTMEN T, HE WORKED OUT THE ADMINISTRATIVE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE EARNING OF EXEMPT INCOM E AT RS.66, 15,730/-. ACCORDINGLY, THE DISALLOWANCE UNDER SECTI ON 14A WAS MADE BY HIM TO THAT EXTENT OF RS.80,46,448/- CONSIS TING OF EXPENDITURES OF RS.14,30,718/- ON DIVIDEND AND RS.6 6,15,730/- BEING ON LTCG. 8. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U NDER SECTION 14A READ WITH RULE 8D WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE CIT(APPEALS) AND AFT ER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE CIT(APPEALS) DID NOT COME 4 ITA NO.1034/KOL/12 TO A CONCLUSION, BUT, HOWEVER, OBSERVED THAT THAT P ROPORTIONATE EXPENSES IS REQUIRED TO BE DISALLOWED IN EARNING OF SUCH EXEMPT INCOME AND THE FOLLOWING REASONS GIVEN IN PAGE NO- 12 OF HIS IMPUGNED ORDER:- 'IN VIEW OF THE FINDINGS AND DISCUSSION ABOVE, AFTE R CAREFULLY CONSIDERING THE SUBMISSION OF THE APPELLANT, PERUSI NG THE ENTIRE FACTS OF THE CASE INCLUDING THE IMPUGNED ASSESSMENT ORDER AND OTHER MATERIALS ON RECORD AND RESPECTFULLY FOLLOWIN G THE JUDGEMENT OF THE HON'BLE ITAT, KOLKATA IN THE CASE OF BALRAMPUR CHINI MILLS LTD. (SUPRA), I AM IN AGREEMENT WITH TH E ARGUMENT OF THE AR THAT THE FINDING OF THE AO THAT LONG TERM CA PITAL GAIN WAS NOT CHARGEABLE TO TAX WAS FACTUALLY INCORRECT A S IN THE INSTANT CASE, THE TOTAL INCOME OF THE APPELLANT FOR A. Y. 2008-09 WAS ASSESSED U/S 115JB OF THE ACT AT RS.34,27,71,09 8/- WHICH INTER ALIA INCLUDED INCOME BY WAY OF LONG TERM CAPI TAL GAIN AND THEREBY SUFFERED TAX @ 10%. IT IS ALSO SEEN THAT TH E AO DID NOT POINT OUT ANY OTHER INFIRMITY IN THE APPELLANT'S WO RKING OF THE AMOUNT DISALLOWABLE U/S 14A OF THE ACT. IN THE LIGHT OF THE ABOVE FINDINGS AND DISCUSSION, IT IS HELD THAT THE DISALLOWANCE U/S 14A MADE BY THE AO ON THE BAS IS OF THE HIS REASONING WAS UNWARRANTED AND NOT JUSTIFIED AND THEREFORE THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE U/S 14A TO THE AMOUNT AS PER THE WORKING OF THE APPELLANT FOR THE PURPOSE OF THE COMPUTING BOOK PROFIT U/S 115JB. HOWEVER, I DO NOT AGREE WITH THE CONTENTION OF THE APPELLANT THAT THE DISAL LOWANCES U/S 14A BE RESTRICTED TO RS.34,67,355/- UNDER NORMAL CO MPUTATION PROVISIONS AS THE LONG TERM CAPITAL GAINS IS EXEMPT FROM INCOME TAX AND THEREFORE PROPORTIONATE EXPENSES IS REQUIRED TO BE DISALLOWED RELATING TO EARNING OF SUCH EXEMPT IN COME.' 9. THE LD.DR BEFORE US SUBMITS THAT THE CIT-A DID N OT AGREE WITH THE SUBMISSIONS OF THE ASSESSEE IN RESTRICTING THE DISALLOWANCE AS MADE U/S. 14A BY THE ASSESSEE ON IT S OWN TO AN EXTENT OF RS.34,67,355/-. HE ARGUED THAT THE FINDIN G OF THE CIT- A WAS WRONG IN RESPECT OF THE LONG TERM CAPITAL GAI N IS NOT CHARGEABLE TO TAX UNDER NORMAL PROVISIONS AND AS SU CH PROPORTIONATE EXPENSES U/S. 14A IS REQUIRED TO BE D ISALLOWED. THE LD.AR SUBMITS THAT THE INCOME OF THE ASSESSEE W AS DETERMINED UNDER BOOK PROFIT IN WHICH THE LTCG IS PART AND PARCEL AND SUFFERED TAX AND AGAIN BRINGING THE SAME FOR TAX FOR COMPUTING THE EXPENDITURE THAT MAY HAVE INCURRED IN EARNING THE SAME FOR THE PURPOSE OF SECTION 14A OF THE ACT IS 5 ITA NO.1034/KOL/12 UNWARRANTED. THE LD.AR SUBMITS THAT THE ASSESSMENT WAS COMPLETED ON BOOK PROFIT U/S. 115JB OF THE ACT AND ARGUED THAT INCOME ARISING OUT OF LONG TERM CAPITAL GAIN IS EXE MPTED U/S. 10(38) UNDER NORMAL PROVISIONS OF THE ACT. THE SAI D LONG TERM CAPITAL GAIN IS PART AND PARCEL OF ASSESSMENT MADE U/S. 115JB FOR THE BOOK PROFIT AND SECTION 14A OF THE ACT HAD NO APPLICATION IN COMPUTING THE LONG TERM CAPITAL GAIN . HE ALSO SUBMITS THE FINDING OF THE AO IN RESPECT OF CALCULA TION OF LONG TERM CAPITAL GAIN FOR THE PURPOSE OF COMPUTING THE EXPENDITURE U/S. 14A IS WRONG. THUS, HE URGED TO RESTRICT THE D ISALLOWANCE OF RS.34,67,355/- AS MADE BY THE ASSESSEE ON ITS OW N. 10. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L AVAILABLE ON RECORD. WE FIND THAT THE AO WHILE EXAMINING THE CALCULATION FILED BY THE ASSESSEE IN SUPPORT OF ITS SUO MOTU CO MPUTATION OF EXPENDITURE, THE AO FOUND SATISFIED THE DETERMINING OF DIRECT EXPENDITURE IN RESPECT OF EARNING EXEMPT INCOME. T HE AO FOUND NOT SATISFIED WITH THE CALCULATION OF ADMINIS TRATIVE EXPENSES THAT WAS DETERMINED IN RESPECT OF DIVIDEND INCOME. IT IS ALSO OBSERVED THAT THE ASSESSEE EARNED INCOME F ROM LONG TERM CAPITAL GAIN OF RS.2,57,79,442/-. BASING ON W HICH, THE AO FOUND THE SAME INCOME THAT SHOULD HAVE BEEN CONSIDE RED FOR THE PURPOSE OF DETERMINING THE EXPENDITURE U/S. 14 A OF THE ACT. ADMITTEDLY, THE SAID AMOUNT THOUGH IT IS EXEMP TED UNDER NORMAL PROVISIONS OF THE ACT IN PURSUANCE TO SECTIO N 10(38) OF THE ACT AND HAS BEEN CONSIDERED FOR DETERMINING THE TOTAL INCOME OF ASSESSEE UNDER THE BOOK PROFIT U/S. 115JB OF THE ACT. IN SUCH CIRCUMSTANCES, WE FIND THAT THE LD.AR OF TH E ASSESSEE HAS RIGHTLY POINTED OUT THAT THE SAME CANNOT BE CON SIDERED AGAINST U/S.14A TOWARDS ADMINISTRATIVE EXPENSES. TH EREFORE, WE 6 ITA NO.1034/KOL/12 FIND FORCE IN THE SUBMISSIONS OF THE LD.AR OF THE A SSESSEE AND HOLD THAT SECTION 14A HAS NO APPLICATION IN COMPUTI NG THE EXPENDITURE IN EARNING SUCH LONG TERM CAPITAL GAIN, WHICH IS NOT EXEMPT U/S. 115JB. THEREFORE, WE RESTRICT THE DISAL LOWANCE TO RS.34,67,355/- AS COMPUTED AND DISALLOWED BY THE AS SESSEE ON ITS OWN. THEREFORE, WE FIND NO INFIRMITY IN THE ORD ER OF THE CIT-A AND IT IS JUSTIFIED. THE GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN OPEN COURT ON 06 /03/ 2017 M.BALAGANESH S. S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 06-03 -2017 SD/- SD/- *PP/SPS: COPY OF THE ORDER FORWARDED TO: 1 . THE APPELLANT/REVENUE: THE DEPUTY COMMISSIONER OF INCOME TAX, CIR-7, 5 TH FLOOR, ROOM NO.15, P-7 CHOWRINGHEE SQUARE KOLKATA-69. 2 THE RESPONDENT/ASSESSEE: M/S. C. D EQUIFINANCE PVT . LTD 37 SHAKESPEARE SARANI, 1 ST FL., KOLKATA-17. 3 4. THE CIT(A) THE CIT 5 . DR, KOLKATA BENCH 6 . GUARD FILE . BY ORDER, ASSTT. REGISTRAR