Encord Refricool Private Limited, Kolkata V. ITO, Ward - 8(2), Kolkata, Kolkata

ITA 1226/KOL/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6546 (ITAT-KOLKATA)
• Duration Of Justice: 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2012-2013
• Appeal Filed On: 26-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G HANGSHING
• Assessee Lawyers: P R KOTHARI
• Keywords: Principle of natural justice; Earning of tax free income
• Section: 143(3); 14A; 263

Judgement Text

1 ITA NO.1226/KOL/2017 ENCORD REFRICOOL PRIVATE LIMITED, AY- 2012-13 , A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA ( ) BEFORE . . , /AND . , ) [BEFORE SHRI A. T. VARKEY, JM & SHRI M.BALAGANESH, AM] I.T.A. NO. 1226/KOL/2017 ASSESSMENT YEAR: 2012-13 ENCORD REFRICOOL PRIVATE LIMITED (PAN: AABCE6922D) VS. INCOME-TAX OFFICER, WD-8(2), KOLKATA APPELLANT RESPONDENT DATE OF HEARING 15.02.2018 DATE OF PRONOUNCEMENT 26.04.2018 FOR THE APPELLANT SHRI P. R. KOTHARI, AR FOR THE RESPONDENT SHRI G. HANGSHING, CIT ORDER PER SHRI A.T.VARKEY, JM THE APPEAL FILED BY THE ASSESSEE IS AGAINST THE REV ISION ORDER OF LD. PR. CIT-3, KOLKATA DATED 24.01.2017 FOR AY 2012-13 PASSED U/S. 263 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. BRIEF FACTS OF THE CASE ARE THAT DURING THE COUR SE OF ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE COMPANY HAD INVESTED IN SHA RES BUT DID NOT EARN ANY DIVIDEND INCOME FROM THIS INVESTMENT. THE AO TOOK NOTE OF T HE FACT THAT ASSESSEE HAD PAID INTEREST TO THE TUNE OF RS.1,09,229/- ON SECURED AND UNSECUR ED BORROWING WHICH HAS ENTIRELY BEEN CAPITALIZED. HOWEVER, IN VIEW OF THE CIRCULAR NO. 5/2014 DATED 11.02.2014 ISSUED BY THE CBDT THE AMOUNT OF DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D OF THE I. T. RULES, 1962 (IN SHORT RULES) WAS CALCULATED AS UNDER: TOTAL INVESTMENT AS ON 31.03.2011 RS. 3,66,00,0 00 TOTAL INVESTMENT AS ON 31.03.2012 RS. 5,98,86, 000 AVERAGE INVESTMENT RS. 4,82,83,000 0.5% OF AVERAGE INVESTMENT RS. 2,41,215 A. RULE 8D(2)(I) THE AMOUNT DIRECTLY RELATED TO EXEMPT INCOME RS. NIL B. RULE 8D(2)(II) 2 ITA NO.1226/KOL/2017 ENCORD REFRICOOL PRIVATE LIMITED, AY- 2012-13 INTEREST PAID X AVERAGE INVESTMENT/AVERAGE ASSETS RS. 89,484 C. RULE 8D(2)(III) 0.5% OF AVERAGE INVESTMENT RS. 2,41,215 TOTAL OF (A), (B) AND (C) DISALLOWED U/S. 14A RS . 3,30,699 3. HOWEVER, THE AO RESTRICTED THE AMOUNT OF DISA LLOWANCE ONLY TO RS.1,09,229/- AND PASSED AN ASSESSMENT ORDER ON 11.03.2015. THE LD. P R. CIT EXERCISED HIS REVISIONAL JURISDICTION U/S. 263 OF THE ACT AND FOUND FAULT WI TH THE AFORESAID ACTION OF THE AO. ACCORDING TO HIM, THERE WAS SUFFICIENT EXPENSES CLA IMED BY THE ASSESSEE IN ITS P&L ACCOUNT OUT OF WHICH BALANCE OF THE COMPUTED DISALL OWANCE OF RS.3,30,699/- U/S. 14A OF THE ACT COULD HAVE BEEN MADE AND THE AO SHOULD NOT HAVE RESTRICTED THE DISALLOWANCE TO RS.1,09,229/-. THEREFORE, HE VIDE THE IMPUGNED ORD ER PASSED U/S. 263 OF THE ACT DATED 24.01.2017 SET ASIDE THE ASSESSMENT ORDER DATED 11. 03.2015 WITH A DIRECTION TO AO TO PASS A FRESH ASSESSMENT ON THE LIMITED ISSUE OF DISALLOW ANCE U/S. 14A OF THE ACT READ WITH RULE 8D OF THE RULES AFTER CONSIDERING THE EXPENSES DEBI TED IN THE P&L ACCOUNT, BOOKS OF ACCOUNT AND AS PER LAW. AGGRIEVED BY THE AFORESAI D ACTION OF THE LD. PR. CIT THE ASSESSEE IS BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE AO HAS PASSED THE 143(3 ) ORDER DATED 11.03.2015 WHICH ORDER OF THE AO HAS BEEN INTERFERED BY THE LD. PR. CIT EXERC ISING HIS JURISDICTION U/S. 263 OF THE ACT, WHICH ACTION OF THE LD. PR. CIT IS UNDER CHALL ENGE BEFORE US. THE ASSESSEE COMPANY HAS CHALLENGED IN THE FIRST PLACE THE VERY USURPATI ON OF JURISDICTION BY LD. PR. CIT TO INVOKE HIS REVISIONAL POWERS ENJOYED U/S. 263 OF THE ACT. THEREFORE, FIRST WE HAVE TO SEE WHETHER THE REQUISITE JURISDICTION NECESSARY TO ASSUME REVI SIONAL JURISDICTION IS THERE EXISTING BEFORE THE PR. CIT TO EXERCISE HIS POWER. FOR THAT, WE HAV E TO EXAMINE AS TO WHETHER IN THE FIRST PLACE THE ORDER OF THE ASSESSING OFFICER FOUND FAUL T BY THE PRINCIPAL CIT IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. FOR THAT, LET US TAKE THE GUIDANCE OF JUDICIAL PRECEDENCE LAID DOWN BY THE HONBLE APEX C OURT IN MALABAR INDUSTRIES LTD. VS. CIT [2000] 243 ITR 83(SC) WHEREIN THEIR LORDSHIP HA VE HELD THAT TWIN CONDITIONS NEEDS TO BE SATISFIED BEFORE EXERCISING REVISIONAL JURISDICT ION U/S 263 OF THE ACT BY THE CIT. THE TWIN CONDITIONS ARE THAT THE ORDER OF THE ASSESSING OFFI CER MUST BE ERRONEOUS AND SO FAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THE FOLLOWING CIRCUMSTANCES, THE ORDER OF THE 3 ITA NO.1226/KOL/2017 ENCORD REFRICOOL PRIVATE LIMITED, AY- 2012-13 AO CAN BE HELD TO BE ERRONEOUS ORDER, THAT IS (I) I F THE ASSESSING OFFICERS ORDER WAS PASSED ON INCORRECT ASSUMPTION OF FACT; OR (II) INCORRECT APPLICATION OF LAW; OR (III)ASSESSING OFFICERS ORDER IS IN VIOLATION OF THE PRINCIPLE OF NATURAL JUSTICE; OR (IV) IF THE ORDER IS PASSED BY THE ASSESSING OFFICER WITHOUT APPLICATION OF MIN D; (V) IF THE AO HAS NOT INVESTIGATED THE ISSUE BEFORE HIM; THEN THE ORDER PASSED BY THE ASSE SSING OFFICER CAN BE TERMED AS ERRONEOUS ORDER. COMING NEXT TO THE SECOND LIMB, WH ICH IS REQUIRED TO BE EXAMINED AS TO WHETHER THE ACTIONS OF THE AO CAN BE TERMED AS PREJ UDICIAL TO THE INTEREST OF REVENUE. WHEN THIS ASPECT IS EXAMINED ONE HAS TO UNDERSTAND WHAT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE HONBLE SUPREME COURT IN THE CASE OF M ALABAR INDUSTRIES (SUPRA) HELD THAT THIS PHRASE I.E. PREJUDICIAL TO THEINTEREST OF THE REVENUE HAS TO BE READ IN CONJUNCTION WITH AN ERRONEOUS ORDER PASSED BY THE ASSESSING OFFICER. THEIR LORDSHIP HEL D THAT IT HAS TO BE REMEMBERED THAT EVERY LOSS OF REVENUE AS A CONSEQUE NCE OF AN ORDER OF ASSESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. WHEN THE ASSESSING OFFICER ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND I T HAS RESULTED IN LOSS TO THE REVENUE, OR WHERE TWO VIEWS ARE POSSIBLE AND THE ASSESSING OFFI CER HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRO NEOUS ORDER PREJUDICIAL TO THE INTEREST OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. 5. TAKING NOTE OF THE AFORESAID DICTUM OF LAW LAID DOWN BY THE HONBLE APEX COURT, LET US EXAMINE WHETHER THE ASSESSING OFFICER PASSED ORD ER U/S 143(3) DATED 11.03.2015 IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE NOTE THAT THE AO HAS CATEGORICALLY OBSERVED THAT ASSESSEE COMPANY DID N OT EARN ANY DIVIDEND INCOME FROM THE INVESTMENT MADE IN SHARES. IN SUCH A SCENARIO AS P ER THE ORDER OF THE HONBLE DELHI HIGH COURT IN CHEM INVESTMENT LTD. VS. CIT (2015) 61 TAX MAN.COM 118 (DEL) WHEREIN THEIR LORDSHIPS HELD THAT SEC. 14A WILL NOT APPLY IF NO E XEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR AND SET ASIDE THE SPECIAL BENCH ORDER OF THE TRIBUNAL REPORTED IN CHEM INVESTMENT LTD. 121 ITD 318 (DEL) WHICH HAS BEEN REFERRED TO BY THE LD. PR. CIT TO FIND FAULT WITH THE ORDER OF AO FOR NOT INVOKING RULE 8D. WE NOTE THAT THE AO HAS RESTRICTED THE DISALLOWANCE TO RS.1,09,229/- W HICH WAS THE INTEREST EXPENSES OF THE ASSESSEE (THAT TOO WHICH HAS BEEN CAPITALIZED). IN ANY EVENT, THE AO HAS ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND EVEN IF IT HAS RESUL TED IN LOSS TO THE REVENUE, THE SAID DECISION 4 ITA NO.1226/KOL/2017 ENCORD REFRICOOL PRIVATE LIMITED, AY- 2012-13 OF THE AO CANNOT BE TREATED AS ERRONEOUS AND PREJUD ICIAL TO THE INTEREST OF REVENUE AS HELD BY THE HONBLE SUPREME COURT IN MALABAR INDUSTRIES LTD . (SUPRA), SINCE THE ORDER OF THE AO CANNOT BE HELD TO BE ERRONEOUS AS WELL AS PREJUDICI AL TO THE INTEREST OF THE REVENUE. THEREFORE, THE FACTS AND CIRCUMSTANCES NARRATED AB OVE, USURPATION OF JURISDICTION BY LD. PR. CIT EXERCISING HIS REVISIONAL JURISDICTION IS NULL IN THE EYES OF LAW AND, THEREFORE, WE ARE INCLINED TO QUASH THE ASSUMPTION OF JURISDICTION TO INVOKE REVISIONAL JURISDICTION U/S. 263 OF THE ACT BY THE PR. CIT. THEREFORE, WE QUASH THE ORD ER OF THE PRINCIPAL CIT PASSED U/S. 263 OF THE ACT. APPEAL OF THE ASSESSEE IS ALLOWED. 6. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 26.04.2018 SD/- SD/- (M. BALAGANESH) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 26TH APRIL, 2018 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT ENCORD REFRICOOL PRIVATE LIMITED, BA ID & KOTHARI, CHARTERED ACCOUNTANTS, 7/1B, GRANT LANE 1 ST FLOOR, KOLKATA-700 012. 2 RESPONDENT ITO, WARD-2(2), KOLKATA. 3. THE CIT(A) KOLKATA. 4. 5. CIT KOLKATA DR, ITAT, KOLKATA. / TRUE COPY, BY ORDER, SR. PVT. SECRETARY