ITO,Ward-1(1), Kolkata, Kolkata V. M/s. Ashika Global Securities Ltd, Kolkata

ITA 1059/KOL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75057 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2014
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 16-07-2012
• Court: TRIBUNAL
• Department Lawyers: NIRANJAN SATPATI
• Assessee Lawyers: S M SURANA; SUNIL SU
• Keywords: Earning of tax free income; Proportionate interest
• Section: 143(3); 14A

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () BEFORE , /AND . . . . ' '' ''# '#'# '#, $% ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI ABRAHAM P. GEORGE, AM] & & & & / I.T.A NO. 1059/KOL/2012 '( )* '( )* '( )* '( )*/ // / ASSESSMENT YEAR: 2009-10 INCOME-TAX OFFICER, WD-1(1), KOLKATA. VS. M/S. ASH IKA GLOBAL SECURITIES LTD. (PAN: AACCA7158A) (,- /APPELLANT ) (./,-/ RESPONDENT ) DATE OF HEARING: 06.02.2014 DATE OF PRONOUNCEMENT: 13 .02.2014 FOR THE APPELLANT: SHRI NIRANJAN SATPATI, JCIT, SR. DR FOR THE RESPONDENT: S/SHRI S. M. SURANA, ADVOCAT E & SUNIL SURANA, C.A $0 / ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-I, KOLKATA IN APPEAL NO. 767/CIT(A)-1/1(1)//11-12 DATED 25.04.2012. ASSESSM ENT WAS FRAMED BY ITO, WARD-1(1), KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HE REINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2009-10 VIDE HIS ORDER DATED 11.11. 2011. 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) IN DELETING THE DISALLOWANCE OF INTEREST AND ADMINISTRATIVE EXPENSE S AT RS.66,01,849/- AND RS.5,54,813/- RELSPECTIVELY BY INVOKING THE PROVISIONS OF SECTION 14A READ WITH RLE 8D OF THE I. T. RULES, 1962. FOR THIS, REVENUE HAS RAISED FOLLOWING THREE GROUNDS: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. CIT (A) ERRED IN DELETING THE ADDITIONS FORRS.66,01,849/-ON ACCOUNT OF DISALL OWANCE OF PROPORTIONATE INTEREST ON LOAN WHICH WAS CALCULATED AS PER RULE 8D READ WITH SECTION 14A IN SPITE OF THE FACTS THAT ASSESSEE HAS UTILIZED THE SAID LOAN IN MAKING INVES TMENT IN SUBSIDIARIES AS SHARE CAPITAL. 2. THAT ON THE FACTS AS WELL AS IN THE CIREUMSTANCE S OF THE CASE LD CIT (A) ERRED IN ALLOWING THE INTEREST EXPENSES PLACING RELIANCE ON THE HONBLE SUPRME COURT JUDGMENT IN THE CASE OF M/S S. A. BUILDERS VS CIT ( 288 ITR 1) , WHICH DISCUSSED ALLOWABILITY OF INTEREST U/S 36(1)(III) , ALTHOUGH IN THE PRESENT C ASE INTEREST WAS DISALLOWED U/S 14A AND SECTION 14A BEING SPECIAL PROVISION OF LAW WOULD OV ERRIDE THE GENERAL PROVISION OF LAW LIKE SECTION 36(1)(III). 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE CIT(A) ERRED IN DELETING THE ADDITIONS OF RS. 5,54,813/- (RS. 5,68,539/- MINUS 1 3,726/-) WHICH WAS MADE AS PER CALCULATION MADE UNDER ITEM (III) OF I. TAX RULE 8D READ WITH SECTION 14A. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE HAS 2 ITA NO.1059/K/2012 ASHIKA GLOBAL SECURITIES LTD. , AY:2009-10 DEBITED A SUM OF RS.99,97,690/- AS INTEREST PAID ON UNSECURED LOANS AND ALSO INCURRED ADMINISTRATIVE EXPENSES AT RS.9,80,358/-. THE AO R EQUIRED THE ASSESSEE TO EXPLAIN WHY INTEREST EXPENSES AND ADMINISTRATIVE EXPENSES DEBITED TO P&L ACCOUNT WILL NOT BE DISALLOWED IN VIEW OF THE PROVISIONS OF SECTION 14A OF THE ACT. ACCOR DING TO AO, THE UNSECURED LOANS AND EXPENSES WERE UTILISED FOR MAKING INVESTMENTS. THE ASSESSEE REPLIED THAT IT HAS NO EXEMPT INCOME EARNED DURING THE YEAR AND AS SUCH THERE DOE S NOT ARISE ANY REASON FOR DISALLOWANCE UNDER RULE 8D OF THE I. T. RULES, 1962 R.W.S. 14A O F THE ACT. WE HAVE GONE THROUGH THE ASSESSMENT ORDER AND FOUND THAT THERE IS NO FINDING THAT THE ASSESEE HAS EARNED EXEMPT INCOME AND EVEN NOW WE HAVE ENQUIRED FROM THE ASSESSEES C OUNSEL WHETHER THE ASSESSEE HAS EARNED ANY EXEMPTED INCOME. HE REPLIED IN NEGATIVE. BUT THE AO DISALLOWED THE PROPORTIONATE EXPENSES ON BOTH THE COUNTS AS UNDER: 1. AMOUNT OF DIRECT EXPENSES INCURRED FOR EARNING EXEMPT INCOME NIL 2. PROPORTIONATE AMOUNT OF INTEREST IN R/O EXEMPT INCOME RS. 66,01,849/- 3. 0.5% OF THE AVERAGE INVESTMENT COMES TO RS.9,80, 358/- DISALLOWED TO THE EXTENT OF ADMINISTRATIVE EXPE NDITURE DEBITED IN P/L A/C. RS. 5,68,539/- TOTAL: RS.71,70,388/- AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO DELETED THE DISALLOWANCE ENTIRELY ON THE FACT THAT THIS LOAN WAS GIVEN TO SUBSIDIARY COM PANY FOR THE PURPOSE OF BUSINESS AND NOT FOR THE PURPOSE OF EARNING DIVIDEND INCOME. ACCORDINGL Y, APPLYING THE RATIO OF HONBLE SUPREME COURT IN THE CASE OF S. A. BUILDERS LTD. VS. CIT (2 007) 288 ITR 1 (SC) ALLOWED THE CLAIM OF THE ASSESSEE ON BOTH THE COUNTS AND DELETED THE ADD ITION. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 4. WE FIND THAT THERE IS A CLEAR CUT FACTUAL POSITI ON THAT ASSESSEE HAS NOT EARNED ANY EXEMPTED INCOME WHICH FALLS UNDER THE PROVISIONS OF SECTION 14A OF THE ACT. ONCE THERE IS NO EXEMPTED INCOME, THERE IS NO QUESTION OF ANY DISALL OWANCE OF EXPENSES. APART FROM THIS, ON MERITS ALSO THE AO HAS NOWHERE BROUGHT ON RECORD TH E NEXUS BETWEEN THE BORROWED FUNDS AND THE INVESTMENTS MADE IN EXEMPTED INCOME. RATHER, TH E CIT(A) HAS GIVEN A CLEAR FINDING THAT THE BORROWED FUNDS WERE UTILISED BY THE ASSESSEE IN ITS SUBSIDIARIES AND NOT FOR EARNING EXEMPTED INCOME. NOW THIS VIEW HAS ALSO BEEN SUPPOR TED BY THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. RE I AGRO LTD. IN GA NO.3022 OF 2013, ITAT 161 OF 2013 DATED 23.12.2013 DISCUSSED THE FACTS TH AT I N AY 2009-10 THE ASSESSEE EARNED DIVIDEND INCOME OF RS.1.65 LAKHS WHICH WAS CLAIMED EXEMPT U/S 10(34) OF THE ACT. THE ASSESSEE CLAIMED THAT NO DISALLOWANCE U/S 14A OF TH E ACT COULD BE MADE BECAUSE NO EXPENDITURE HAD BEEN INCURRED TO EARN THE SAID DIVI DEND. IT WAS CLAIMED THAT NO LOANS WERE TAKEN FOR MAKING THE INVESTMENTS FOR EARNING THE DI VIDEND INCOME. THE AO WAS NOT CONVINCED WITH THE REPLY OF THE ASSESSEE AND COMPUTED THE DIS ALLOWANCE AT RS. 32.43 LAKHS U/S 14A BY 3 ITA NO.1059/K/2012 ASHIKA GLOBAL SECURITIES LTD. , AY:2009-10 MAKING CALCULATION UNDER RULE 8D. THIS WAS DELETED BY THE CIT(A). THE DEPARTMENT FILED AN APPEAL BEFORE THE TRIBUNAL WHICH WAS DISMISSED. THE TRIBUNAL RELIED ON J. K. INVESTORS (BOMBAY) LTD OF MUMBAI ITAT AND NOTED THAT THE AO HAD NOT EXAMI NED THE ACCOUNTS OF THE ASSESSEE AND HAD NOT RECORDED SATISFACTION ABOUT TH E CORRECTNESS OF THE CLAIM OF THE ASSESSEE BEFORE INVOKING RULE 8D. IT HELD THAT WHILE REJECTI NG 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 ASSESSEES CLAIM AND STRAIGHTAWAY EMBARK UPON COMPUTING DISALLOWANCE UNDER RULE 8D. HONBLE HIGH COURT HELD THAT THE AO DISALLOWED THE EXPENDITURE U/S 14A WITHOUT FIRST RECORDING THAT HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM AS REGA RDS THE CLAIM THAT NO EXPENDITURE WAS MADE BY THE ASSESSEE. THE DISALLOWANCE U/S 14A OF THE IN COME-TAX ACT, 1961 IS PLAINLY CONTRARY TO THE PROVISIONS OF THE STATUTE. THE CIT ALLOWED THE APPEAL OF THE ASSESSEE AND THE TRIBUNAL DID NOT INTERFERE. HONBLE HIGH COURT WAS OF THE OPINIO N THAT NO POINT OF LAW HAS BEEN RAISED. THEREFORE, THE APPEAL WAS DISMISSED. IN THE PRESEN T CASE ALSO, THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HONBLE HIGH COURT, RESPECTFULLY FO LLOWING THE SAME, WE CONFIRM THE ORDER OF CIT(A). APPEAL OF REVENUE IS DISMISSED. 5. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. 6. ORDER IS PRONOUNCED IN THE OPEN COURT ON 13.02.2 014 SD/- SD/- . . . . ' '' ''# '#'# '# , $% , (ABRAHAM P. GEORGE) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 13TH FEBRUARY, 2014 12 '3' 4 JD.(SR.P.S.) $0 5 . 6$ )7- COPY OF THE ORDER FORWARDED TO: 1 . ,- / APPELLANT ITO, WARD-1(1), KOLKATA. 2 ./,- / RESPONDENT M/S. ASHIKA GLOBAL SECURITIES LTD., 226/1, A.J.C. BOSE ROAD, 7 TH FLOOR, KOLKATA-20. 3 . 0' ( )/ THE CIT(A), KOLKATA 4. 5. 0' / CIT KOLKATA <= .' / DR, KOLKATA BENCHES, KOLKATA / ./ TRUE COPY, $0'>/ BY ORDER, ' /ASSTT. REGISTRAR .