DCIT, Circle - 10(2), Kolkata, Kolkata V. M/s. Sudha Apparels Limited , Kolkata

ITA 1047/KOL/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8575 (ITAT-KOLKATA)
• Duration Of Justice: 10 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 17-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: S M SURANA
• Keywords: Depreciation; Earning of tax free income; Tax effect; Rule 8D
• Section: 14A; 115JB; 32

Judgement Text

1 ITA NOS. 918 & 1047/KOL/2018 SUDHA APPARELS LTD., AY. 2013-14 , D , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: KOL KATA ( ) . . , . ' # $% % , '( ) [BEFORE SHRI A. T. VARKEY, JM & DR. A. L. SAINI, A M] I.T.A. NO. 918/KOL/2018 ASSESSMENT YEAR: 2013-14 SUDHA APPARELS LTD. (PAN: AAHCS6369J) VS. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-10(2), KOLKATA. APPELLANT RESPONDENT & I.T.A. NO. 1047/KOL/2018 ASSESSMENT YEAR: 2013-14 DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-10(2), KOLKATA. VS. SUDHA APPARELS LTD. APPELLANT RESPONDENT DATE OF HEARING 24.01.2019 DATE OF PRONOUNCEMENT 11.04.2019 FOR THE ASSESSEE SHRI S. M. SURANA, ADVOCATE FOR THE ASSESSEE SHRI A. K. NAYAK, CIT, DR ORDER PER SHRI A.T.VARKEY, JM BOTH THESE APPEALS PREFERRED BY THE ASSESSEE AND TH E REVENUE ARE AGAINST THE ORDER OF LD. CIT(A)-4, KOLKATA DATED 19.03.2018 FOR AY 2013- 14. SINCE BOTH THE APPEALS HAVE BEEN HEARD TOGETHER, WE DISPOSE OF THE SAME BY A CONSOLI DATED ORDER FOR THE SAKE OF CONVENIENCE. 2. FIRST WE TAKE UP REVENUES APPEAL. GROUND NO.1 OF REVENUES APPEAL IS AS UNDER: 1. THE LD. CIT(A) ERRED IN HOLDING THAT FOR DISAL LOWANCE UNDER RULE 8D(2)(II), ONLY THOSE INVESTMENTS HAVE TO BE TAKEN INTO ACCOUNT FROM WHIC H EXEMPT INCOME HAS EARNED IGNORING 2 ITA NOS. 918 & 1047/KOL/2018 SUDHA APPARELS LTD., AY. 2013-14 THE FACT THAT THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH THE PARAMETERS LAID DOWN IN RULE 8D(2)(III) & CBDT CIRCULAR NO. 5/2014, THERE I S NO AMBIGUITY THAT ALL THE INVESTMENTS FROM WHICH THE ASSESSEE COULD HAVE EARNED EXEMPT IN COME ARE REQUIRED TO BE CONSIDERED FOR COMPUTING DISALLOWANCE U/S. 14A. 3. AFTER HAVING HEARD BOTH THE PARTIES AND AFTER PE RUSAL OF THE ASSESSMENT ORDER, WE NOTE THAT THE GROUND RAISED BY THE REVENUE INVOLVES THE FURTHER DISALLOWANCE OF RS.35,55,156/- U/S. 14A OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) AS PER NORMAL COMPUTATION OF INCOME WHICH GOES BELO W THE TAX EFFECT AS PRESCRIBED BY THE CBDT CIRCULAR NO. 3/2018 DATED 11.07.2018. SINCE T HIS APPEAL IS HIT BY THE CBDT CIRCULAR, CITED SUPRA, THIS GROUND OF APPEAL OF REV ENUE IS DISMISSED. 4. GROUND NO. 2 OF THE REVENUES APPEAL IS AS UNDER : 2. THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE U/S. 14A OF THE ACT OF RS.94,72,341/- TO THE BOOK PROFIT IGNORING THE SECTION 115JB OF TH E ACT WHICH STATED THAT THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT SHOULD BE ADDED T O THE BOOK PROFIT. 5. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE COMPUTATION AS WELL AS THE ASSESSMENT ORDER IT REVEALS THAT THE ASSESSEE IS AS SESSED UNDER THE NORMAL COMPUTATIONAL PROVISION AND NOT UNDER BOOK PROFIT UNDER MAT. SO, IN THAT VIEW OF THE MATTER, THE DISALLOWANCE U/S. 14A OF THE ACT OF RS.94,72,341/- ADDED BACK U/S. 115JB OF THE ACT WHICH WAS DELETED BY LD. CIT(A) AND NOW URGED IN APPEAL B Y THE REVENUE HAS NO TAX EFFECT FOR THE SIMPLE REASON THAT THE ASSESSEE COMPANY WAS FINALLY ASSESSED UNDER THE NORMAL COMPUTATIONAL PROVISION BY THE AO HIMSELF AND THE COMPUTATION OF BOOK PROFIT WAS ONLY OF ACADEMIC INTEREST HAVING NO BEARING ON THE TAX L IABILITY OF THE ASSESSEE, THEREFORE, THIS GROUND OF APPEAL OF REVENUE IS ALSO TO BE DISMISSED . SO, OVERALL, WE NOTE THAT THE TAX EFFECT IN BOTH THE GROUNDS OF APPEAL BELOW THE THRESHOLD L IMIT PRESCRIBED BY THE CBDT CIRCULAR NO. 3/2018 DATED 11.07.2018 AND, THEREFORE, THE APP EAL OF THE REVENUE IS DISMISSED. 6. COMING TO ASSESSEES APPEAL. THE SOLE GROUND OF APPEAL RAISED BY THE ASSESSEE IS AS UNDER: 3 ITA NOS. 918 & 1047/KOL/2018 SUDHA APPARELS LTD., AY. 2013-14 FOR THAT UNDER THE FACTS & CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) ERRED IN LAW AS WELL AS ON FACT IN CONFIRMING THE DISALLOWANCE ON ACCOUNT O F DEPRECIATION CLAIM OF RS.21,00,707/- U/S. 14A OF THE ACT READ WITH RULE 8D(2)(II) OF THE I. T. RULES, 1962. 7. BRIEFLY STATED FACTS ARE THAT DURING THE YEAR THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME U/S. 139(1) OF THE INCOME-TAX ACT, 1961 (HER EINAFTER REFERRED TO AS THE ACT) SHOWING A TOTAL INCOME OF RS.8,23,14,780/- BESIDES DISCLOSING EXEMPT DIVIDEND INCOME OF RS.40,89,455/- U/S. 10(34) OF THE ACT. IN RESPECT TO THE SAID EXEMPT INCOME, ASSESSEE SUO MOTO MADE A DISALLOWANCE IN THE RETURN OF RS.59,17, 185/- U/S. 14A OF THE ACT ON ACCOUNT OF EXPENSES RELATABLE TO EARNING OF EXEMPT INCOME. TH E AO, HOWEVER, CALCULATED THE DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES UNDER RULE 8D2(II) BY TAKING ALL INVESTMENTS WHETHER YIELDING EXEMPT INCOME OR NOT. SIMILARLY, DISALLOWANCE FOR OTHER EXPENSES UNDER RULE 8D(2)(III) WAS WORKED OUT TAKING DEPRECIATION CLAIM OF RS.21,00,707/- AND INCLUDED THE SAID AMOUNT OF DEPRECIATION OF RS.21,00,707/- E NHANCING THE DISALLOWANCE U/R 8D(2)(III) OF THE RULES. AGGRIEVED, ASSESSEE PREFERRED AN APP EAL BEFORE THE LD. CIT(A), WHO UPHELD THE ACTION OF AO. AGGRIEVED, ASSESSEE IS BEFORE US . 8. AFTER HAVING HEARD BOTH THE PARTIES THE QUESTION WHETHER DEPRECIATION CLAIMED BY THE ASSESSEE U/S. 32 OF THE ACT CAN BE CONSIDERED FOR T HE PURPOSE OF COMPUTING DISALLOWANCE U/S. 14A OF THE ACT IS NO LONGER RES INTEGRA IN VIE W OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF VISHNU ANANT MAHAJAN VS . ACIT 16 ITR 621, WHEREIN THE TRIBUNAL HELD AS UNDER: 8. COMING TO THE QUESTION REGARDING DEPRECIATION B EING AN EXPENDITURE OR NOT, IT HAS BEEN HELD IN THE CASE OF HOSHANG D. NANAVATI (SUPRA) THA T SECTION 14A DEALS ONLY WITH THE EXPENDITURE AND NOT ANY STATUTORY ALLOWANCE ADMISSI BLE TO THE ASSESSEE. THE DECISION HAS BEEN ARRIVED AT AFTER CONSIDERING THE DECISION IN T HE CASE OF NECTAR BEBVERAGES PVT. LTD. VS. DCIT (2009) 314 ITR 314. THE LD. CIT (DR) HAS N OT BEEN ABLE TO DISPLACE THE RATIO OF THESE CASES. THUS, ON CONSIDERATION, WE FIND THAT S ECTION 14A USES THE WORDS EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME. A STATUTORY ALLOWANCE UNDER SECTION 32 IS NOT AN EXPENDITURE. THEREFORE, WE ARE IN AGREEMENT WITH THE DECISION OF THE DIVISION BENCH IN THE CASE OF HOSHANG D. NANAVATI. 4 ITA NOS. 918 & 1047/KOL/2018 SUDHA APPARELS LTD., AY. 2013-14 9. RESPECTFULLY FOLLOWING THE RATIO LAID BY THE HON BLE SUPREME COURT IN NECTOR BEVERAGES PVT. LTD. VS. DCIT (2009) 314 ITR 314 (SC ) AND THE DECISION OF SPECIAL BENCH IN VISHNU ANANT MAHAJAN (SUPRA), WE ALLOW THE GROUN D OF APPEAL RAISED BY THE ASSESSEE. 10. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED A ND THAT OF THE ASSESSEE IS ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 11.04.2018 SD/- SD/- (DR. A. L. SAINI) (A. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 11TH APRIL, 2019 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 APPELLANT SMT. SUDHA APPARELS LTD., 2/5, SARAT BO SE ROAD, KOLKATA-700 026. 2 RESPONDENT DCIT, CIRCLE-10(2), KOLKATA 3 4 5 CIT (A)-4, KOLKATA.. CIT, KOLKATA. DR, KOLKATA BENCHES, KO LKATA (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, ASSISTANT REGISTRAR