Emerald Company Ltd., Kolkata V. DCIT, CIR-8, KOLKATA, Kolkata

ITA 1096/KOL/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9514 (ITAT-KOLKATA)
• Duration Of Justice: 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2017
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 30-11-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 19-05-2016
• Court: TRIBUNAL
• Department Lawyers: H R SINGH JCI T LD
• Assessee Lawyers: P R KOTHARI FCA LD
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL,D BENCH KOLKATA BEFORE : SHRI M.BALAGANESH, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO. 1096/KOL/2016 A.Y 2007-08 EMERALD CO. LTD VS. D.C.I.T, CIR-8. KOLK ATA (AS LIKHAMI LEASING LTD. AMALGAMATED WITH EMERALD CO. LTD.) PAN: AAACL 2059H [APPELLANT] [RESPONDENT] APPELLANT BY : SHRI P. R. KOTHARI, FCA, LD.AR RESPONDENT BY : SHRI H.R. SINGH, JCI T, LD.DR DATE OF HEARING : 30-11-2016 DATE OF PRONOUNCEMENT : 25-01-2017 ORDER SHRI S.S.VISWANETHRA RAVI, JM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 09/03/2016 PASSED BY THE COMMISSIONER OF INCO ME TAX(APPEALS), 18, KOLKATA FOR THE ASSESSMENT YEAR 2007-08. 2. THE SOLE ISSUE THAT REQUIRES FOR OUR CONSIDERAT ION IS AS TO WHETHER THE CIT-A JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF R S.6,00,000/- U/S. 14A OF THE ACT MADE BY THE AO IN THE FACTS AND CIRCUMSTANC ES OF THE CASE. 3. BEFORE US IT WAS SUBMITTED BY THE ASSESSEE THAT M/S. LIKHAMI LEASING LTD GOT AMALGAMATED AND MERGED WITH THE ASSESSEE HE REIN, M/S. EMERALD CO.LTD IN PURSUANCE OF AMALGAMATION SCHEME AS ACCE PTED BY THE HONBLE HIGH COURT OF CALCUTTA VIDE COMPANY PETITION NO. 25 1 OF 2014 CONNECTED WITH COMPANY APPLICATION NO. 101 OF 2014 IN THE HIG H COURT OF CALCUTTA, WHEREIN M/S. LIKHAMI LEASING LTD WAS MERGED/AMALGA MATED WITH THE ASSESSEE COMPANY HEREIN, M/S. EMERALD CO. LTD. A CO PY OF THE SAME IS ITA NO. 1096/KOL/2016 EMERALD CO. LTD. 2 PLACED ON RECORD AND SUBMITTED THAT M/S. LIKHAMI LE ASING LTD IS TO BE CALLED/KNOWN AS EMERALD CO.LTD. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY AND DEALING ITS BUSINESS OF TRADING IN SHARES, SECURITI ES, INVESTMENTS AND FINANCING. INITIALLY THE ASSESSEE WAS ASSESSED TO T AX BY THE DCIT, CIR-4(1), NEW DELHI, WHEREIN HE COMPUTED THE EXPENSES UNDER R ULE 8D(2)(I) TO (III) OF THE IT RULES 63,93,445/- AND RESTRICTED SUCH DISALL OWANCE TO RS.46,49,066/- BASING ON THE EXPENDITURE AS CLAIMED/DEBITED BY THE ASSESSEE IN ITS P & L ACCOUNT, WHICH WAS CONFIRMED BY THE CIT-A, NEW DELH I VIDE HIS ORDER DATED 12-08-2010 IN APPEAL NO. 87/2009-10. 5. ON SECOND APPEAL BY THE ASSESSEE, ITAT, DELHI VI DE ITS ORDER DATED 19- 11-2010 HELD THAT RULE 8D OUGHT NOT TO HAVE APPLIED FOR MAKING DISALLOWANCE U/S. 14A IN VIEW OF JUDGMENT OF THE HO NBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD VS. DCIT REPORTED IN (2010) 328 ITR 81 AND RESTORED THE ISSUE TO THE FILE OF AO FOR RE-ADJUDICATION IN ACCORDANCE WITH LAW. 6. DUE TO CHANGE OF JURISDICTION THE CASE WAS TRANS FERRED TO KOLKATA AND AGAIN THE ASSESSMENT WAS FRAMED BY THE DCIT, CIR-8, KOLKATA, WHEREIN HE COMPUTED THE DISALLOWANCE OF RS. 13,83,663/- AS E XPENSES TOWARDS EXEMPT INCOME U/S. 14A OF THE ACT AT 1% OF RS.13,83 ,66,272/- ON ACCOUNT OF DIVIDEND ON SHARES/SECURITIES AND TAX EXEMPT ON LTCG AND TOGETHER WITH A SUM OF RS.6,00,000/- WHICH FOUND PAID TO MR.M.BAN GUR AS RETAINERSHIP FEE FOR RENDERING ADVISORY SERVICES ON INVESTMENTS TOTA LING TO AN AMOUNT OF RS.19,83,663/- WAS DISALLOWED BY THE AO U/S. 14A OF THE ACT. IN DISALLOWING THE SAME, THE AO RELIED ON THE ORDER OF THE ITAT, KOLKATA IN THE CASE OF M/S. SHREE CAPITAL SERVICES LTD IN ITA NO.442/KOL/1 1 DATED 07-09-2011 FOR THE AY 2005-06, WHEREIN THE ITAT KOLKATA RELIED ON THE SAID JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD AND ITA NO. 1096/KOL/2016 EMERALD CO. LTD. 3 THE ORDER OF ITAT KOLKATA IN THE CASE OF SAGARIKA G OODS & SERVICES P.LTD IN ITA NO. 1278/KOL/2010 FOR THE AY 2005-06 ORDER DATE D 24.09.2010. 7. AGGRIEVED BY SUCH ORDER OF THE AO, THE ASSESSEE CHALLENGED THE SAME BEFORE THE CIT-A AND CONTENDED BEFORE HIM THAT THE AO DID NOT RECORD HIS SATISFACTION DISALLOWING THE AMOUNT OF RS.6,00,000/ - P.A BEING PAID TO MRS. M.BANGUR AS RETAINERSHIP FEES FOR RENDERING ADVISOR Y SERVICES ON INVESTMENT IN ADDITION TO 1% OF DIVIDEND INCOME. THE SPECIFIC CONTENTION OF THE ASSESSEE WAS BEFORE THE CIT-A WAS THAT SERVICES OF MRS. M.BA NGUR WAS NOT ONLY UTILISED FOR EARNING EXEMPT INCOME, BUT ALSO UTILIZ ED FOR OTHER PURPOSES AS THE ASSESSEE DEALS IN TRADING OF SHARES AND SECURIT IES AND IN INVESTMENTS. HOWEVER, THE CIT-A DID NOT ACCEPT SUCH CONTENTION O F ASSESSEE FOR NON PRODUCTION OF ANY EVIDENCE AND CONFIRMED THE IMPUGN ED DISALLOWANCE/ADDITION AS MADE BY THE AO ON THIS ISS UE. 8. BEFORE US THE LD.AR SUBMITS THAT THE ASSESSEE DE RIVED ITS INCOME FOR THE YEAR UNDER CONSIDERATION ON SHORT TERM CAPITAL GAIN AND LONG TERM CAPITAL GAIN TO AN EXTENT OF RS.16,11,132/- AND RS.21,22,43 3/- RESPECTIVELY AND OFFERED TO TAX @ 10% AND REFERRED TO PAGE-10 OF THE PAPER BOOK. HE ALSO SUBMITS THAT THE ASSESSEE AVAILED ADVISORY SERVICES OF MRS. M.BANGUR IN ADVISING FOR INVESTMENTS, WHICH YIELDED TAXABLE INC OME AND NON TAXABLE INCOME AND REFERRED TO PAGE-8 OF THE PAPER BOOK AND ARGUED THAT ADDING THE RS.6,00,000/- TOWARDS EXPENDITURE ON ASSUMPTION THA T ON SUCH ADVISE THE ASSESSEE EARNED DIVIDEND INCOME IS NOT MAINTAINABLE AND URGED TO RESTRICT THE DISALLOWANCE TO AN EXTENT OF RS.13,83,663/- I. E 1% AS MADE BY THE AO. 9. ON THE CONTRARY, THE LD.DR RELIED ON THE ORDERS OF THE AUTHORITIES BELOW. ITA NO. 1096/KOL/2016 EMERALD CO. LTD. 4 10. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L AVAILABLE ON RECORD. WE FIND THAT THE CONTENTION OF THE ASSESSEE FROM TH E FIRST INSTANCE THAT THE ADVICES RENDERED BY MRS. M.BANGUR GAINED NOT ONLY E XEMPT INCOME, BUT ALSO TAXABLE INCOME. THE CIT-A CONFIRMED THE SAID RS.6,0 0,000/- AS DIRECT EXPENDITURE FOR INVESTMENT ACTIVITY AND FOR NON FIL ING OF ANY EVIDENCE TO SHOW THAT THIS IS NOT DIRECT EXPENDITURE. BEFORE US ALSO THE LD.AR SUBMITTED THAT THE AO OUGHT NOT TO HAVE ADDED THE RETAINERSHI P FEE AS PAID TO MRS. M. BANGUR BY THE ASSESSEE AS EXPENDITURE ATTRIBUTABLE TO IN EARNING TO EXEMPT INCOME. BECAUSE IN THE TAXABLE INCOME THE ASSESSEE OFFERED 10% AS TAX, WHICH CAN BE SEEN FROM PAGE NO-10 OF THE PAPER BOOK REGARDING COMPUTATION OF INCOME. THE ASSESSEE OFFERED @ 10% AS TAX ON SHORT TERM AND LONG TERM CAPITAL GAINS. THE LD. AR ALSO SUBMIT S THAT THE ASSESSEE APPOINTED MRS. M.BANGUR AS ADVISOR TO RENDER HER AD VICE ON THE MATTERS OF INVESTMENT IN SHARES, SECURITIES AND PORT FOLIO MAN AGEMENT, WHICH IS PLACED AT PAGE NO-8 OF THE PAPER BOOK AND WHICH ESTABLISHE S THAT THE SHE ADVISED THE ASSESSEE IN RESPECT OF ITS INVESTMENT APPLICABL E TO TAXABLE AND NON TAXABLE INCOME. WE FIND THAT THE ASSESSEE OFFERED I TS INCOME DERIVED FROM SHORT TERM AND LONG TERM CAPITAL GAINS AND TAXED TH EREON @ 10% AND AGAIN DISALLOWING THE RETAINERSHIP FEE AS PAID TO MRS. M. BANGUR, SAID ADVISOR TO THE EXPENDITURE ATTRIBUTABLE IN EARNING DIVIDEND INCOME , IN OUR VIEW, THIS IS NOT PERMISSIBLE. 11. IT IS PERTINENT TO NOTE THAT THE AO DISALLOWED IN RESPECT OF OTHER EXPENSES AT RS.13,83,663/- BEING 1% TOTAL EXEMPT IN COME OF RS.13,83,66,272/- AND IN OUR OPINION, IT IS JUSTIFI ED AS WE DERIVE SUPPORT FROM THE HONBLE JURISDICTIONAL HIGH COURT OF CALC UTTA IN THE CASE OF CIT VS M/S R.R.SEN & BROTHERS IN GA NO.3019/12 I N ITAT NO.243/2012 WHEREIN IT UPHELD THE DECISION OF THE KOLKATA TRIBUNAL IN COMPUTING THE EXPENDITURE AT 1% OF DIVI DEND INCOME. THE RELEVANT PORTION OF WHICH IS REPRODUCED HEREIN BELOW: THE COURT:- THE ASSESSEE DID NOT SHOW ANY EXPENDITU RE INCURRED BY HIM FOR THE PURPOSE OF EARNING THE MONE Y WHICH IS EXEMPTED UNDER THE INCOME TAX. THE TRIBUNAL HAS COM PUTED EXPENDITURE AT 1 PER CENT OF SUCH DIVIDEND INCOME W HICH, ITA NO. 1096/KOL/2016 EMERALD CO. LTD. 5 ACCORDING TO THEM, IS THE THUMB RULE APPLIED CONSIS TENTLY. WE FIND NO REASON TO INTERFERE. 12. IN THE LIGHT OF PRINCIPLE LAID DOWN BY THE HON BLE JURISDICTIONAL HIGH COURT OF CALCUTTA AND IN VIEW OF THE DISCUSSIO N HEREIN ABOVE, WE ARE OF THE VIEW THE ORDER OF CIT-A IS NOT JUSTIF IED AND THEREFORE, THE SAID DISALLOWANCE OF RS.6,00,000/- IS LIABLE TO BE DELETED, ACCORDINGLY, WE RESTRICT THE DISALLOWANCE RS.13,83,663/- AGAINST RS.19,83,663/- AS DISALLOWED BY THE AO. THE SOLE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25-01-2017 SD/- SD/- M. BALAGANESH S.S.VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 25-01-2017 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT/ASSESSEE: M/S. EMERALD COMPANY LTD ( AS LIKHAMI LEASING LTD AMALGAMATED WITH EMERALD C O. LTD) 31, CHOWRINGHEE ROAD, KOLKATA-16. 2 RESPONDENT/DEPARTMENT : DEPUTY COMMISSIONER OF INC OME TAX, CIRCLE-8, AAYKAR BHAWAN, P-7 CHOWRINGHEE SQUAR E, KOLKATA-69. 3. CIT, 4. CIT(A), 5. DR, KOLKATA BENCHES, KOLKATA **PP/SPS [ TRUE COPY ] BY ORDER, ASSTT REGISTRAR ITA NO. 1096/KOL/2016 EMERALD CO. LTD. 6