ITO,Ward-9(2), Kolkata, Kolkata V. M/s. Vivekshil Dealers(P) Ltd, Kolkata

ITA 1050/KOL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 83228 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-08-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 13-07-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAMA PRASAD NAG
• Assessee Lawyers: DILIP KUMAR PATNI
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOLKATA ( ) BEFORE , /AND , ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA , AM ] / I.T.A NO. 1 050 /KOL/20 1 2 / ASSESSMENT YEAR : 200 8 - 09 ITO, WARD - 9(2) VS. M/S VIVEKSHIL DEALERS PVT LTD. P - 7, CHOWRINGHEE SQUARE, 1, R.N. MUKHERJEE ROAD, 5 TH FLOOR, AAYAKAR BHAWAN, 5 TH FLOOR, R.NO.32B, KOLKATA 700 001 ROM 14, KOLKATA 69 (PAN:AACV 9626 L) ( /APPELLANT ) ( / RESPONDENT ) DATE OF HEARING: 18 . 1 1 .201 4 DATE OF PRONOUNCEMENT: 09 . 1 2 .201 4 FOR THE APPELLANT : SHRI RAMA PRASAD NAG, JCIT FOR THE RESPONDENT : SHRI DILIP KUMAR PATNI, CA / ORDER PER SHRI MAHAVIR SINGH, JM : THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF CIT (A) - VII I, KOLKATA IN APPEAL NO. 1 21 / CIT(A) - V II I/KOL/1 0 - 1 1 DATED 03 . 0 5 .20 1 2 . ASSESSMENT W AS FRAMED BY IT O , WARD - 9(2), KOLKATA U/S. 1 4 4(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR ASSESSMENT YEAR 200 8 - 09 VIDE HIS ORDER DATED 27 - 12 - 2010 . 2. THE ONLY ISSUE IN THIS APPEAL OF REVENU E IS AGAINST THE ORDER OF CIT(A) RESTRICT ING THE DISALLOWANCE AT RS.46,33,084/ - AS AGAINST T HE DISALLOWANCE MADE BY A SSESSING O FFICER AT RS,1,11,37,403/ - BY INVOKING THE PROVISION OF SECTION 14A OF THE ACT READ WITH RULE 8D (2) (II) OF THE IT RULES, 1962. FOR THIS, REVENUE HAS RAISED FOLLOWING 4 GROUNDS: - 1. THAT THE LD. CIT(APPEALS) - VIII, KOLKATA ERRED IN LAW AS WELL AS IN FACTS IN RESTRICTING THE DISALLOWANCE OF INTEREST TO RS.64,04,548/ - AND THUS DELETING THE ADDITIONS OF RS.46,33,084/ - MADE U/S 14A OF THE INCOME TAX ACT, 1961 BY THE ASSESSING OFFICER. 2. THAT THE LD. CIT(APPEALS) ERRED IN NEGATING ASSESSING OFFICER S REASONS FOR DISSATISFACTION W.R.T. CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE. 3. THAT THE LD. CIT(APPEALS) VIII, KOLKATA ERRED IN IGNORING THE FACT THAT THE ASSESSEE HAS SUBMITTED REV ISED CALCULATIONS FOR DIRECT EXPENDITURE INTEREST FOR RS.69,14,454.48 BEFORE HIM WHICH PROVES THAT EARLIER CALCULATIONS FOR DIRECT EXPENDITURE INTEREST FOR RS.64,04,548.00 SUBMITTED BEFORE THE ASSESSING OFFICER WAS INCORRECT . 2 ITA NO.1050/K/2012 M/S. VIVEKSHIL DEALERS PVT LTD. AY 2008 - 09 4. THAT THE LD. CIT(APPEALS) VIII, KOLKATA ERRED IN APPRECIATING THE FACT THAT THE ASSESSING OFFICER WAS JUSTIFIED IN INVOKING PROVISIONS OF RULE 8D(2) (II) OF INCOME TAX RULES FOR CALCULATION OF EXPENDITURE DISALLOWABLE U/S 14A OF THE IT ACT, 1961 FOR EXPENSES INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. 3. BRIEFLY STATED FACTS ARE THAT DURING THE YEAR UNDER CONSIDERATION ASSESSMENT WAS COMPLETED BY THE AO U/S 143(3) OF THE ACT ON 27 - 12 - 2010. THE ASSESSEE IS A NON - BANKING FINANCE COMPANY REGISTERED WITH RE SERVE BANK OF INDIA AS NBFC. THE ASSESSEE IS ENGAGED IN THE BUSINESS ON LOAN FINANCING AND INVESTING FUND IN SHARES ON SECURITY OUT OF OWN FUND AND ALSO BORROWED FUNDS. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE EARNED INTEREST INCOME OF RS.2,03,79,3 79/ - FROM GRANTING TO LOAN TO DIFFERENT PARTIES AND ALSO PAID INTEREST TO THE EXTENT OF RS.1,97,50,600/ - TO DIFFERENT LENDERS. THE ASSESSEE ADMITTED IN ITS STATEMENT OF FACTS THAT BORROWED FUNDS HAVE BEEN UTILIZED FOR GRANTING OF LOANS AND ALSO MAKING INVE STMENT IN SHARES AND SECURITIES. THE ASSESSEE HAS EARNED DIVIDEND TO THE EXTENT OF RS.50,71,126/ - . THE ASSESSEE MADE DISALLOWANCE OF PROPORTIONATE EXPENSES TO THE EXTENT OF RS.98,084/ - AS UNDER: - CALCULATION MADE BY THE ASSESSEE WAS AS UNDER: [4,92,253.28 * 5071126 / (2,03,79,379 + 50,71,126) = 98,083.65] [WHEREAS 4,92,253.28 = TOTAL INDIRECT EXPENSES DEBITED TO P&L A/C, 50,71,126 = TOTAL DIVIDEND EARNED AND 2,03,79,379 = GROSS RECEIPTS] DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY EXPENSES INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT SHOULD NOT BE DISALLOWED. THE ASSESSEE RE - WORKED OUT THE DISALLOWANCE AND SUBMITTED THE CALCULATION THAT THE DISALLOWANCE TO THE EXTENT OF RS.4 ,37,957/ - CAN BE MADE IN RESPECT OF THE INVESTMENTS MADE ON WHICH DIVIDEND INCOME WAS EARNED BY ASSESSEE AND WHICH IS CLAIMED TO BE EXEMPT U/S 10(34) OF THE ACT . THE RELEVANT CALCULATION SUBMITTED BY ASSESSEE READS AS UNDER: - NATURE OF INCOME AMOUNT % OF TOTAL INCOME INTEREST (NET) 6,28,779.00 11.03% DIVIDEND 50,71,125.50 88.97% 56,99,904.50 100% TOTAL ADMINISTRATIVE EXPENSES 4,92,253.28 88.97% OF EXPENSES (THAT MAY BE ATTRIBUTED TO DIVIDEN D INCOME) 4,37,957.74 FINALLY, THE ASSESSEE VIDE LETTER DATED 20 - 12 - 2010 AGAIN RE - COMPUTED THE DISALLOWANCE IN TERMS OF RULE 8D(2) OF THE IT RULES AND SUBMITTED THE COMPUTATION AS UNDER: - AGAIN, THE ASSESSEE COMP8UTED THE EXPENDITURE TO BE DISALLOWED IN TERMS OF RULE 8D AS UNDER: - 1) DIRECT EXPENDITURE INTEREST 64,04,548.00 (AS PER SHEET ATTACHED) 2) INTEREST EXPENDITURE NIL 3) % OF AVERAGE VALUE OF INVESTMENT INCOME FROM WHICH IS TAX FREE = 0.5% {(37,18,54,571.90 + 3 ITA NO.1050/K/2012 M/S. VIVEKSHIL DEALERS PVT LTD. AY 2008 - 09 6,80,53,900)/2} = 10,99,771/ - AS THE INDIRECT EXPENDITURE OF THE COMPANY IS ONLY 4,92,253 SO THIS AMOUNT IS RESTRICTED TO ACTUAL INDIRECT EXPENSE 4,92,253.00 TOTAL EXPENDITURE TO BE DISALLOWED 68,96,801.00 IN TERM OF THE ABOVE, ASSESSEE ITSELF HAS RECALCULATED THE DISALLOWANCE AT RS.68,96,801/ - BUT THE AO NOT SATISFIED BY THE COMPUTATION OF THE ASSESSEE , RE - COMPUTED THE DISALLOWANCE IN TERM OF RULE 8D(2) OF THE IT RULES AND MADE DISALLOWANCE AT RS.1,11,37,403/ - . 4. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A) , WHO AFTER TAKING THE DEPLOYMENT OF FUNDS AND DETAILS OF INTEREST PAYMENTS RESTRICTED THE DISALLOWANCE AT RS.64,04,548/ - AND RS.4,92,253/ - UNDER RULE8D(2)(II) AND 8D(2)(III) BY OBSERVING AS UNDER: - AFTER CONSIDERING THE SUBMISSION OF THE APPELLANT OF THE APPELLANT ALONG WITH THE DETAIL FURNISHED, PERUSING THE ENTIRE FACTS OF THE CASE INCLUDING THE IMPUGNED ASSESSMENT ORDER AND THE OTHER MATERIALS ON RECORD, THE LONE GROUND OF THE APPEAL REGARDING DISALLOWANCE UNDER SECTION 14A OF THE ACT, IS PARTLY ALLOWE D FOR THE FOLLOWING REASONS: - I) THE AO HAS APPLIED THE PROVISION OF RULE 8D OF INCOME TAX RULES, 1962 TO THE CASE OF THE APPELLANT FOR THE REASONS THAT DURING THE ASSESSMENT PROCEEDING APPELLANT HAS OFFERED DIFFERENT AMOUNT OF EXPENSES FOR DISALLOWANCE UNDE R SECTION 14A. INITIALLY THE APPELLANT HAS SUBMITTED THAT NO EXPENSE HAS BEEN INCURRED FOR EARNING EXEMPT INCOME. BUT IN REPLY DATED 06.12.2010 THE APPELLANT HAS WORKED OUT RS.4,37,957/ - AS EXPENSES DISALLOWABLE UNDER SECTION 14A OF THE ACT. HOWEVER, IN RE PLY DATED 20.12.2010 THE APPELLANT HAS SUB MITTED THAT A SUM OF RS.68,69,801/ - CAN BE DISALLOWED BY APPLYING THE PROVISION OF SECTION 14A OF THE ACT. II) THE APPELLANT IN HIS REPLY DATED 20.12.2010 HAS SUBMITTED BEFORE THE AO THAT DIRECT INTEREST EXPENDITURE OF RS.64,04,548/ - HAS BEEN INCURRED BY THE APPELLANT IN RESPECT OF INVESTMENT MADE IN TAX FREE SECURITIES. HOWEVER, THE AO BY APPLYING THE PROVISION OF RULE 8D (2)(II) OF INCOME TAX RULES, 1962 HAS HELD THAT A SUM OF RS.1,00,37,632/ - IS DISALLOWABLE AS INT EREST. III) THE AO HAS NOT POINTED OUT ANY DISCREPANCY IN THE AMOUNT OF RS.68,69,801/ - WORKED OUT AS DISALLOWABLE OUT OF INTEREST BY THE APPELLANT BUT HAS APPLIED THE PROVISION OF RULE 8D OF INCOME TAX RULE, 1962. IV) THAT THE SUB - SECTION (2) OF SECTION1N 14A PROVI DES AS UNDER: - (2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. V) THAT SUB - RULE 1 OF RULE 8D PROVIDES AS UNDER: - (1) WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH: - A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR 4 ITA NO.1050/K/2012 M/S. VIVEKSHIL DEALERS PVT LTD. AY 2008 - 09 B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR S UCH PREVIOUS YEAR, HE SHALL DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB - RULE (2) VI) FORM THE PERUSAL OF SECTION 14(2) AND RULE 8D(1) IT IS EVIDENT THAT FOR APPLYING THE RULE 8D THE AO HAS TO BE SAT ISFIED THAT THERE IS SOME MISTAKE IN THE AMOUNT OFFERED FOR DISALLOWANCE UNDER SECTION 14A BY THE APPELLANT. THIS VIEW OF MINE IS DULY SUPPORTED BY FOLLOWING JUDICIAL PRONOUNCEMENTS: - CIT VS. HERO CYCLES LTD. (2010) 323 ITR 518 (P&H) CIT VS. WINSOME TEXTI LE INDUSTRIES LTD. (2009) 319 ITR 203 (P&H) CIT VS. PRINTERS HOUSE (P) LTD, (2010) 188 TAXMAN 70 (DEL) CIT VS. SHAPOORJI PALONJI AND CO. LTD (2009) 318 ITR 417 (BOM) VII) IN THE CASE OF THE APPELLANT THE AO HAS NOT POINTED OUT ANY DISCREPANCY IN THE AMOUNT OF INTEREST (RS.64,04,548/ - ) OFFERED FOR DISALLOWANCE UNDER SECTION 14A OF THE ACT, BY THE APPELLANT, HENCE THE AO WAS NOT JUSTIFIED IN APPLYING THE FORMULA PROVIDED IN RULE 8D(2)(II) OF THE INCOME TAX RULES, 1962 IN THE CASE OF APPELLANT AND WORKING OUT THE AMOUNT OF RS.1,10,37,632/ - AS DISALLOWABLE UNDER SECTION 14A. AC C ORDINGLY THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE OF INTEREST TO RS.64,04,548/ - THUS THE APPELLANT GETS RELIEF OF RS.46,33,084/ - ON ACCOUNT OF INTEREST DISALLOWED UNDER SECTION 14A. VIII) THE AO HAS DISALLOWED A SUM OF RS.10,99,771/ - BY APPLYING RULE 8D(2)(III) OF THE INCOME TAX RULES, 1962 WHEREAS AS MENTIONED IN THE ASSESSMENT ORDER THE APPELLANT TOTAL INDIRECT EXPENSE IS RS.4,92,253/ - ONLY. I AM OF THE VIEW THAT THE DISALLOWANCE UNDER SE CTION 14A OF THE ACT CANNOT EXCEED THE ACTUAL EXPENSES INCURRED BY THE APPELLANT FOR EARNING THE EXEMPT INCOME. SINCE IN THE CASE OF THE APP IT HAS INCURRED TOTAL INDIRECT EXPENSE OF RS.4,92,253/ - FOR EARNING EXEMPT AS WELL AS TAXABLE INCOME, HENCE THE DIS ALLOWANCE UNDER RULE 8D(2)(III) CANNOT EXCEED THAT AMOUNT. ACCORDINGLY THE DISALLOWANCE UNDER RULE 8D(2)(III) IS RESTRICTED TO RS.4,92,253/ - THUS THE APPELLANT GETS RELIEF OF RS.6,07,518/ - AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 5 . BEFORE US LD. SR - DR SHOWN US GROUND NO.1 AS REPRODUCED BY CIT(A) AND RAISED BY ASSESSEE WHICH READS AS UNDER: - 1) THAT THE LD. AO HAS DISALLOWED THE EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME U/S 2114A AS PER THE METHOD PR ESCRIBED IN RULE 8D. WE HAVE BORROWED THE FUND BOTH FOR ACQUIRING THE SHARES AND ALSO FOR GRANTING THE LOAN TO DIFFERENT PARTIES. OUT OF TOTAL EXPENDITURE OF RS.1,97,50,600/ - ON ACCOUNT OF INTEREST, RS.69,14,454/ - IS RELATED TO INTEREST ON LOAN BORROWED F OR ACQUIRING S H ARES AND BALANCE RS.1,28,36,146/ - IS RELATED TO INTEREST ON LOAN BORROWED FOR GRANTING OF LOANS. HOWEVER, THE LD. AO HAS DISALLOWED RS.1,00,37,632/ - ON ACCOUNT OF INTEREST. FURTHER, THE COMPANY HAS INCURRED RS.4,92,253/ - TOWARDS INDIRECT EXPENSES FOR ITS BUSINESS. HOWEVER, LD. AO DISALLOWED RS.10,99,771/ - BEING .5% OF AVERAGE VALUE OF INVESTMENT. DISALLOWANCE TOWARDS INDIRECT EXPENSES CANNOT EXCEED THE TOTAL AMOUNT OF EXPENDITURE INCURRED BY THE COMPANY. THEREFORE, TOTAL DISALLOWANCE U/S 1 4A COMPUTED IN ACCORDANCE WITH RULE 8D OF THE INCOME TAX RULE 1962 SHOULD BE RS.74,06,707/ - ( RS.69,14,454/ - TOWARDS INTEREST AND RS.4,92,253/ - TOWARDS INDIRECT EXPENSES ) INSTEAD OF RS.1,11,37,403/ - . LD. DR STATED THAT NEITHER THE ASSESSEE NOR AO IS CLEAR HOW MUCH IS TO BE DISALLOWED FOR THE REASON THAT THE DETAILS ARE NOT PROPERLY ANALYZED. IN VIEW OF THE ABOVE GROUND, LD. DR FURTHER STATED THAT 5 ITA NO.1050/K/2012 M/S. VIVEKSHIL DEALERS PVT LTD. AY 2008 - 09 ASSESSEE ITSELF ADMITTED THE DISALLOWANCE VIDE ABOVE GROUND SHOULD BE MADE AT RS.74,06,707/ - . LD. DR IN TERM OF THE ABOVE WHICH STATED THAT LET THIS ISSUE BE EXAMINED BY AO AFRESH AFTER PERUSING THE EVIDENCES. ON THIS WHEN THE BENCH ENQUIRE FROM THE LD. COUNSEL FOR THE ASSESSEE, HE FAIRLY CONCEDED THAT THERE IS MISTAKE IN THE COMPUTATION OF DISALLOWANCE AND ON THIS ACCOUNT, THE ASSESSEE ITSELF HAS RAISED THE DISALLOWANCE TO THE EXTENT AT RS.74,06,707/ - IN THE ABOVE GROUND. 6 . WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT NONE OF THE AUTHORITIES BELOW HAVE CLE ARLY SORTED OUT THE FACTS. EVEN NOW LD. COUNSEL FOR THE ASSESSEE COULD NOT SUBSTANTIATE , HOW THE DISALLOWANCE CAN BE RESTRICTED AT RS.68,69,801/ - OR AT RS.74,06,707/ - AS THE GROUND RAISED BEFORE THE CIT(A). IN TERM OF THE ABOVE, WE FEEL THAT THE ENTIRE FAC T NEEDS RE - EXAMINATION AND HENCE, BETTER OPTION WILL BE LET THIS ISSUE TO BE EXAMINED AFRESH BY THE ASSESSING OFFICER. IN TERM OF THE ABOVE, THE ORDER OF CIT(A) IS SET ASIDE AND APPEAL OF REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. HENCE, THE MATTE R IS SET ASIDE TO THE FILE OF ASSESSING OFFICER. 7 . IN THE RESULT, REVENUE S APPEAL PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN OPEN COURT ON _ 09 1 2 /2014 . S D / - S D / - , , ( SHAMIM YAHYA ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 9 TH DECEMBER , 2014 *DKP/KOL - COPY OF THE ORDER FORWARDED TO: 1 . / A PPELLANT ITO, WARD - 9(2), P - 7, CHOWRINGHEE SQURE, AAYAKAR 2 BHAWAN, 5 TH FLOOR ROOM - 14, KOL - 69 / RESPONDENT M/S VIVEKSHIL DEALERS PVT. LTD. 1, R.N.MUKHERJEE 5 TH FLOOR, R.NO.32B, KOLKATA - 01 3 . ( )/ THE CIT(A), KOLKATA 4. 5. / CIT KOLKATA / DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, / BY ORDER, /ASSTT. REGISTRAR .