Shree Bidyanath Ayurved Bhawan Pvt. Ltd., Kolkata V. Addl.CIT/Range-12/Kolkata, D.C.IT-CIR-12(2)/kOL, Kolkata

ITA 1146/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1291 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 01-09-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KALYAN NATH
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : KOLKATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI M.B ALAGANESH, AM ] I.T.A NO. 1146/KOL/20 15 ASSESSMENT YEAR : 2011-1 2 SHREE BIDYANATH AYURVED BHAWAN P LTD. -VS- DCIT, CIRCLE-12(2), KOLKATA [PAN: AAECS 5408 D] (APPELLANT) (RESPONDENT) I.T.A NO. 1279/KOL/2015 ASSESSMENT YEAR : 2011- 12 DCIT, CIRCLE-12(2), KOLKATA -VS- SHREE BI DYANATH AYURVED BHAWAN P LTD. [PAN: AAECS 5408 D] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI SUNIL SURANA, FCA FOR THE RESPONDENT : SHRI KALYAN NATH, ADDL. CIT DATE OF HEARING : 19.09.2017 DATE OF PRONOUNCEMENT : 17.10.2017 ORDER PER M.BALAGANESH, AM 1. THESE CROSS APPEALS BY THE ASSESSEE AND REVENUE ARISE OUT OF THE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -4, KO LKATA [IN SHORT THE LD CITA] IN APPEAL NO. 476/CIT(A)-4/R-12/14-15 DATED 20.07.2015 AGAINST THE ORDER PASSED BY THE ACIT, RANGE-12, KOLKATA [ IN SHORT THE LD AO] U NDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 24.01.201 4 FOR THE ASSESSMENT YEAR 2011-12. BOTH THESE APPEALS ARE TAKEN TOGETHER AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2 ITA NOS.1146 & 1279/KOL/2015 SHREE BIDYANATH AYURVED BHAWAN P LTD. A.YR.2011-12 2 2. THE ONLY ISSUE INVOLVED IN THE APPEAL OF THE REV ENUE IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE ON ACCO UNT OF CLAIM OF SCHOLARSHIP EXPENSES, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND MARKET ING OF AYURVEDIC AND HERBAL MEDICINES AND OTHER PRODUCTS THROUGH ITS MANUFACTUR ING FACILITIES SCATTERED OVER A NUMBER OF STATES LIKE MAHARASHTRA, UTTAR PRADESH, B IHAR AND WEST BENGAL. THE LD AO OBSERVED THAT THE ASSESSEE HAD DEBITED A SUM OF RS 36,02,803/- TOWARDS THE COST OF SCHOLARSHIP EXPENSES AND ASSESSEE WAS CONFRONTED WI TH THE SAME TO PROVE AS TO HOW THE SAME WAS LINKED WITH THE BUSINESS ACTIVITY OF THE A SSESSEE. 2.2. THE ASSESSEE REPLIED BEFORE THE LD AO AS UNDER :- SCHEDULE-15 OF AUDITED ACCOUNTS UNDER MISCELLANEOU S EXPENSES CONTAINS RS. 36,02,803.00 INCURRED ON ACCOUNT OF SCHOLARSHIP EXP ENSES. SHREE BAIDYANATH AYURVED BHAWAN PVT. LTD. IS A PRIV ATE COMPANY AND IS BEING RUN BY ACTIVE INVOLVEMENT OF FAMILY MEMBERS OVER A PERIOD OF GENERATIONS. THE COMPANY INCURS EXPENDITURE ON EDUCATING THE NEXT GENERATION MEMBER S SO THAT, WHEN THEY TAKE OVER, THEY WILL TAKE THE COMPANY IN SAME GROWTH PATH. IF NOT, THE COMPANY MIGHT SUFFER AND NOT COPE WITH THE THEN RACE. THAT IS WHY WE HAVE A PRESENCE IN THE MARKET FOR MORE THAN 100 YEARS VICE VERSA THERE ARE SO MANY COMPANIES IN THE MARKET WHICH VANISHES OVER A PERIOD OF TIME DUE TO CHANGE OF TECHNIQUES. MORE SO THESE NEXT GENERATION MEMBERS WILL BE FUTURE DIRECTORS OF THE COMPANY . AS A MATTER OF POLICY THE COMPANY PREFERS EDUCATIN G THE EXECUTIVES WHO WILL BE SERIOUSLY INVOLVED IN THE BUSINESS OF THE COMPANY. IF AT ALL COMPARISON IS TO BE MADE BETWEEN THE GENERAL EMPLOYEES AND RELATIVE EMPLOYEE S IT IS OBVIOUS THE RELATIVE EMPLOYEES ARE EXPECTED TO PUT MORE EFFORT THAN NORM AL EMPLOYEES. DUE TO THE ENDEAVOUR AND EXPENDITURES ON SCHOLARSHI P, OPERATIONS AND BUSINESS ARE PERFORMED WITH EASE. FURTHER, THE COMPANY UNDERTAKE S FROM THESE RELATIVES WHO PURSUES FOREIGN EDUCATION, WILL SERVE THE COMPANY F OR A MINIMUM PERIOD OF 5 TO 10 YEARS WHEN THEY COMPLETE THEIR EDUCATION. THE COMPA NY IS A CLOSELY HELD PRIVATE LIMITED COMPANY AND IT IS MOST DESIRABLE THAT SENIOR EXECUT IVES POST AND PRESENCE BE MANNED BY MEMBERS BELONGING TO ENTREPRENEURS FAMILY WHO ARE QUALIFIED AND FIT FOR THE POST. THUS, IN THE FINANCIAL YEAR 2010-11 RELATING TO THE ASSESSMENT YEAR 2011-12 PRESENTLY 3 ITA NOS.1146 & 1279/KOL/2015 SHREE BIDYANATH AYURVED BHAWAN P LTD. A.YR.2011-12 3 UNDER ASSESSMENT REVIEW, A SUM OF RS. 36,02,803.00/ - HAS BEEN EXPENDED ON SCHOLARSHIP WHO ARE RELATIVES OF THE DIRECTORS. BRE AKUP OF EXPENDITURE ARE RS. 31,00,776.00/- HAS BEEN FOR MR. RISHI RAJ SHARMA AN D RS. 5,02,027/- FOR MR. YADU RAJ JOSHI. FURTHER, MR. RISHI RAJ SHARMA AND MR. YADU R AJ JOSHI HAVE COMPLETED THEIR STUDIES AND HAVE JOINED THE COMPANY AT NAINI BRANCH AS MANAGEMENT TRAINESS & BUSINESS ANALYST RESPECTIVELY OF THE COMPANY. PRESE NTLY THEIR REMUNERATION IS RS. 20,000/- PM WHICH IS MUCH BELOW THE MARKET RATE OF THE PROFESSIONAL HAD THE COMPANY HIRED OUTSIDERS. 2.3. THE LD AO OBSERVED THAT THE ASSESSEE ITSELF HA D ADMITTED THAT THE SCHOLARSHIP EXPENSES TO THE TUNE OF RS 36,02,803/- WAS INCURRED FOR THE EDUCATION OF SRI RISHI RAJ SHARMA AND SRI YADU RAJ JOSHI WHO ARE RELATIVES OF THE DIRECTORS / PROMOTERS FO THE COMPANY AND FURTHER OBSERVED THAT THE SAME CANNOT B E SAID TO BE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSE SSEE. HE FURTHER OBSERVED THAT THERE IS NO CONCEPT OF ALLOWING EXPENSES FOR THE DEVELOPMENT OF FUTURE MANAGERIAL STAFF. HENCE THE EXPENDITURE INCURRED TOWARDS SCHOLARSHIP WOULD ONLY TANTAMOUNT TO PERSONAL EXPENSES OF THE DIRECTORS AND ACCORDINGLY DISALLOWE D THE SAME IN THE ASSESSMENT. THE LD CITA BY PLACING RELIANCE ON THE ORDER OF HIS PRE DECESSOR FOR THE ASST YEARS 2009-10 & 2010-11 IN ASSESSEES OWN CASE DELETED THE DISALL OWANCE. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- I.T.A. NO. 1279/KOL/2015 1. THAT IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED BY ALLOWING THE CLAIM OF SCHOLARSHIP EXPENSES IGNORING THE FACT THAT THERE IS NO CONCEPT FOR ALLOWING EXPENSES FOR THE DEVELOP MENT OF FUTURE MANAGERIAL STAFF IN THE STATUTE. 2. THAT THE APPELLANT CRAVES LEAVE TO ADD, DELETE O R MODIFY ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 2.4. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE ISSUE UNDER DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE IN ITS O WN CASE BY THE ORDER OF THIS TRIBUNAL FOR THE ASST YEAR 2010-11 IN ITA NO. 90/KOL/2015 DA TED 23.8.2017 WHEREIN IT WAS HELD AS UNDER:- 4 ITA NOS.1146 & 1279/KOL/2015 SHREE BIDYANATH AYURVED BHAWAN P LTD. A.YR.2011-12 4 2. AFTER HEARING THE RIVAL CONTENTIONS WE FIND THA T THE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A. NO. 1314/KOL/2014 FOR A.Y. 2009-10 ORDER DATED 23.02.2017 HAD CONSIDERED THE VERY SAME ISSUE IN THE EARLIER ASSESSMENT YEAR AT PARA 4.3 HELD AS FOLLOWS: 4.3. HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED T HE MATERIAL ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE SUBMISSI ONS OF THE ASSESSEE, AS THE PROPOSITIONS CANVASSED BY LD. AR FOR THE ASSESSEE A RE SUPPORTED BY THE JUDGMENT CITED BY HIM AND FACTS NARRATED BY HIM ABO VE. AS LD. AR FOR THE ASSESSEE HAS POINTED OUT THAT AFTER COMPLETION OF T HE HIGHER STUDY THEY JOINED THE COMPANY AND SERVED THE COMPANY THEREFORE THE EXPEND ITURE IS FOR THE PURPOSE OF BUSINESS. HENCE, CONSIDERING THE FACTUAL POSITION, WE ARE OF THE VIEW THAT THE ORDER PASSED BY THE LD. CIT(A) IS A REASONED ORDER AND DOES NOT REQUIRE INTERFERENCE. THEREFORE, WE CONFIRM THE ORDER OF L D. CIT(A). RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF TH IS TRIBUNAL IN ASSESSEES OWN CASE, WE FIND NO JUSTIFIABLE REASON TO INTERFERE WITH THE OR DER OF THE LD CITA IN THIS REGARD. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 3. THE ONLY ISSUE TO BE DECIDED IN THE APPEAL OF TH E ASSESSEE IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN CONFIRMING THE DISALLOWANCE M ADE IN THE SUM OF RS 15,75,737/- U/S 14A OF THE ACT, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE LD A O OBSERVED THAT THE ASSESSEE HAD CLAIMED EXEMPTION ON DIVIDEND OF RS 8,82,661.47 AND LONG TE RM CAPITAL GAINS OF RS 15,38,282.90 AGGREGATING TO RS 24,20,944.37. HE OB SERVED THAT NO DISALLOWANCE HAS BEEN MADE IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE COMPANY IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. WHEN THE SAME WAS CONFRONTED TO THE ASSESSEE, IT REPLIED THAT INVESTM ENTS IN SHARES AND MUTUAL FUNDS WERE MADE BY THE ASSESSEE ONLY OUT OF OWN FUNDS AS COULD BE EVIDENT FROM THE BALANCE SHEET OF THE ASSESSEE AND NO PART OF THE BORROWED FUNDS W ERE UTILIZED FOR THE SAME. THE INTEREST PAID ON LOANS IS RELATED TO THE CORE BUSIN ESS ACTIVITIES OF THE ASSESSEE COMPANY AND WAS NEVER DISALLOWED IN THE PAST. THE SECURED AND UNSECURED LAONS WERE TAKEN LONG BACK AND CONSIDERABLE PORTION OF THESE LOANS W ERE TAKEN FROM BANKS. APART FROM BANK, THE OTHER MAJOR COMPONENT OF THE LOANS IS SEC URITY DEPOSITS FROM AGENTS TAKEN 5 ITA NOS.1146 & 1279/KOL/2015 SHREE BIDYANATH AYURVED BHAWAN P LTD. A.YR.2011-12 5 LONG BACK. MOREOVER, NO EXPENDITURE WAS ACTUALLY INCURRED FOR THE PURPOSE OF DERIVING THESE EXEMPT INCOME AND HENCE NO DISALLOWANCE U/S 1 4A OF THE ACT READ WITH RULE 8D OF THE RULES WAS MADE BY THE ASSESSEE. THE ASSESSE E VIDE ITS LETTER DATED 15.1.2014 REITERATED THE AFORESAID SUBMISSIONS AND ALSO SUBMI TTED THE COPY OF APPELLATE ORDER FOR ASST YEAR 2006-07 WHEREIN FULL RELIEF WAS GRANTED F OR DISALLOWANCE MADE U/S 14A READ WITH RULE 8D OF THE RULES. HOWEVER, IT SUBMITTED T HE CALCULATION FOR DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE RULES UNDER PROTEST FOR THE ASST YEAR 2011- 12. THE LD AO BASED ON THESE WORKINGS FOR DISALLOWA NCE PROVIDED BY THE ASSESSEE, PROCEEDED TO DISALLOW THE SUM OF RS 15,75,737/- U/S 14A OF THE ACT READ WITH RULE 8D OF THE RULES IN THE ASSESSMENT. 3.2. THE LD CITA OBSERVED THAT THE RELIANCE PLACED BY THE ASSESSEE ON THE ORDER OF HIS PREDECESSOR FOR THE ASST YEAR 2006-07 IS OF NO RELE VANCE AS AT THAT POINT OF TIME, THE PROVISIONS OF RULE 8D OF THE RULES COULD NOT HAVE B EEN MADE APPLICABLE AS THE SAID RULE WAS INTRODUCED ONLY WITH EFFECT FROM 24.3.2008 . ACCORDINGLY THE LD CITA REJECTED THE PLEA OF DISALLOWANCE OF 1% OF EXEMPT I NCOME FOR THE YEAR UNDER APPEAL. IT WAS THE CONTENTION OF THE ASSESSES THAT FOR THE YEA R UNDER CONSIDERATION THAT ON THE OBSERVATION OF THE BALANCE SHEET OF NAGPUR BRANCH O F THE COMPANY FOR THE YEAR ENDED 31.3.2011, THE LOAN TAKEN HAD INCREASED WITHOUT ANY CORRESPONDING INCREASE IN INVESTMENTS AND WHILE OBSERVING THE BALANCE SHEET O F JHANSI & KOLKATA BRANCH FOR THE SAME ACCOUNTING YEAR AS AFORESAID STATED, IT WAS OB SERVED THAT QUANTUM OF LOAN TAKEN IN EARLIER PREVIOUS YEARS HAD REDUCED IN THE FINANCIAL YEAR IN WHICH THE ASSESSEE COMPANY IS IN APPEAL BUT THE INVESTMENT PORTION HAD SHOWN U PWARD RISE. BY THIS THE ASSESSEE PLEADED THAT THE INCREASE IN INVESTMENTS WERE NOT S OURCED BY THE BORROWED FUNDS AND HENCE THERE CANNOT BE ANY DISALLOWANCE OF INTEREST ATTRIBUTABLE TO INVESTMENTS MADE BY THE ASSESSEE. THE LD CITA FINALLY UPHELD THE DIS ALLOWANCE ON THE PLEA THAT THE ASSESSEE ITSELF HAD OFFERED THE SUM OF RS 15,75,737/- FOR DI SALLOWANCE DURING THE COURSE OF 6 ITA NOS.1146 & 1279/KOL/2015 SHREE BIDYANATH AYURVED BHAWAN P LTD. A.YR.2011-12 6 ASSESSMENT PROCEEDINGS AND HENCE NO INTERFERENCE IS CALLED FOR ON THE SAME. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWIN G GROUNDS:- I.T.A. NO. 1146/KOL/2015 1. THAT LD. CIT(A)-4/KOL FAILED TO ANALYZE THE FACT OF THE CASE AND MADE THE ADDITION WITHOUT PROVIDING THE DUE WEIGHTAGE TO THE SUBMISSION AND THE DOCUMENTARY EVIDENCES AS A RESULT UNCALLED ADDITION OF RS. 15,75,737/- WAS MADE. 2. THAT THE APPELLANT COMPANY LEAVE TO SUBMIT FURTH ER AND ADDITIONAL GROUND OR GROUNDS BEFORE OR AT THE TIME OF HEARING OF THE AP PEAL. 3.3. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD A R POINTED OUT THAT THE WORKINGS FOR DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D O F THE RULES WERE SUBMITTED BEFORE THE LD AO ONLY UNDER PROTEST AS HAS BEEN ALREADY NO TED BY THE LD AO IN HIS ORDER. IT WAS NEVER ACCEPTED BY THE ASSESSEE. THIS OFFER UND ER PROTEST HAS BEEN CONVENIENTLY IGNORED BY THE LOWER AUTHORITIES WITHOUT LOOKING IN TO THE FACTUAL ASPECTS OF AVAILABILITY OF SUFFICIENT OWN FUNDS WITH THE ASSESSEE COMPANY. WE ARE IN AGREEMENT WITH THE ARGUMENT ADVANCED BY THE LD AR THAT THE OFFER FOR D ISALLOWANCE WAS MADE ONLY UNDER PROTEST BY THE ASSESSEE BEFORE THE LD AO AS IS EVID ENT FROM THE ASSESSMENT ORDER ITSELF. WITH REGARD TO AVAILABILITY OF SUFFICIENT OWN FUNDS WITH THE ASSESSEE, WE FIND THAT THE LOWER AUTHORITIES HAD NOT EXAMINED THE ISSUE FROM T HAT PERSPECTIVE. HENCE WE DEEM IT FIT AND APPROPRIATE TO REMAND THIS ISSUE TO THE FIL E OF THE LD AO, TO VERIFY THE BALANCE SHEET OF THE ASSESSEE FOR EXAMINATION OF AVAILABILI TY OF OWN FUNDS WITH THE ASSESSEE COMPANY AND THEREAFTER TO DECIDE WHETHER DISALLOWAN CE U/S 14A READ WITH RULE 8D(2)(II) OF THE RULES TO BE INFLICTED OR NOT. WI TH REGARD TO THE THIRD LIMB OF DISALLOWANCE UNDER RULE 8D(2), SINCE THE PART OF TH E ISSUE OF DISALLOWANCE UNDER RULE 8D IS REMANDED TO THE FILE OF THE LD AO, WE DEEM IT FIT AND APPROPRIATE TO REMAND THE OTHER PART OF DISALLOWANCE UNDER RULE 8D ALSO TO TH E FILE OF THE LD AO TO DECIDE THE SAME AFRESH IN ACCORDANCE WITH LAW. ACCORDINGLY, THE GR OUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 7 ITA NOS.1146 & 1279/KOL/2015 SHREE BIDYANATH AYURVED BHAWAN P LTD. A.YR.2011-12 7 4. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED AND APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 17.10.2017 SD/- SD/- [N.V. VASUDEVAN] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 17.10.2017 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. SHREE BIDYANATH AYURVED BHAWAN PVT. LTD., 1, GUP TA LANE, KOLKATA-700006 2. DCIT, CIRCLE-12(2), KOLKATA, AAYAKAR BHAWAN, 6 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA-700069 3..C.I.T.(A)-4, KOLKATA 4. C.I.T.- KOLKATA 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S