IMC Ltd., Kolkata V. ACIT, CIR-11, KOLKATA, Kolkata

ITA 1239/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1340 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 9 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 02-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 43B; 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : KOLKATA [BEFORE HONBLE SHRI ABY. T. VARKEY, JM & SHRI M. BALAGANESH, AM ] I.T.A NO. 1150/KOL/20 16 ASSESSMENT YEAR : 2008-0 9 JCIT(OSD),CIR-11(1), KOLKATA -VS- M/S IMC LTD. [PAN: AAACI 6884 R] (APPELLANT) (RESPONDEN T) I.T.A NO. 1239/KOL/20 16 ASSESSMENT YEAR : 2008-0 9 M/S IMC LTD. -VS- JCIT(OSD),CIR-11(1), KOLKATA [PAN: AAACI 6884 R] (APPELLANT) (RESPONDEN T) FOR THE APPELLANT : SHRI ARINDAM BHATT ACHARJEE, ADDL. CIT FOR THE RESPONDENT : SHRI P. JHUNJHUNWALA, AD V. DATE OF HEARING : 13.03.2018 DATE OF PRONOUNCEMENT : 16.03.2018 ORDER PER BENCH: 1. THESE CROSS APPEALS BY THE ASSESSEE AS WELL AS REVENUE ARISE OUT OF THE COMMON ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) 9, KOLKATA (IN SHORT THE LD CITA) IN APPEAL NO. 733/CIT(A)-9/RANGE -11/2014-15/KOL DATED 29.02.2016 AGAINST THE ORDER PASSED BY THE JCIT(OSD ),CIR-11(1), KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 30.12.2010 FOR THE ASSESSMENT YEAR 2008-09. 2. THE FIRST ISSUE TO BE DECIDED IN THESE APPEALS I S AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D(2)(III) OF 2 ITA NOS.1150&1239/KOL/2016 M/S IMC LTD. A.YR.2008-09 2 THE RULES AFTER GRANTING PARTIAL RELIEF TO THE ASSE SSEE, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE IS A DOMESTIC COMPANY ENGAGED INTER ALIA IN THE BUSINESS OF PURCHASING AND SELLING OF M OLASSES, LEATHER GOODS, HANDLING OF LIQUIDITY CARGO AND BULK LIQUID STORAGE, BANKING, L ENDING ETC. THE ASSESSEE FILED ITS ORIGINAL RETURN OF INCOME FOR THE ASSESSMENT YEAR 2 008-09 ON 30.09.2008 DECLARING TOTAL INCOME OF RS. 6,72,89,490/-. THE ASSESSEE PRODUCED THE BOOKS OF ACCOUNTS AND RELEVANT SUPPORTING DOCUMENTS BEFORE THE LD. AO WHICH WERE E XAMINED ON TEST CHECK BASIS. THE LD. AO OBSERVED THAT THE ASSESSEE HAD EARNED EXEMPT DIVIDEND INCOME OF RS. 40,83,869/- DURING THE YEAR UNDER APPEAL AND HAD NO T DISALLOWED ANY AMOUNT U/S 14A OF THE ACT IN THE RETURN OF INCOME. WHEN SHOW CAUSED I N THIS REGARD, THE ASSESSEE FILED A REPLY THAT NO EXPENDITURE WAS INCURRED BY IT FOR EA RNING EXEMPT INCOME. THE LD. AO DIRECTED THE ASSESSEE TO FURNISH THE WORKINGS OF AM OUNT DISALLOWABLE U/S 14A OF THE ACT. THE ASSESSEE ACCORDINGLY FURNISHED THE WORKING OF DISALLOWANCE U/S 14A OF THE ACT AMOUNTING TO RS. 3,42,997/-. THE LD. AO DID NOT ACC EPT TO THE WORKINGS OF THE ASSESSEE AND PROCEEDED DIRECTLY TO MAKE DISALLOWANCE U/S 14A OF THE ACT BY APPLYING SECOND AND THIRD LIMB OF RULE 8D AND ARRIVED AT THE DISALL OWANCE FIGURE OF RS. 38,57,077/- AND ADDED THE SAME IN THE ASSESSMENT. BEFORE THE LD . LD. CIT(A) THE ASSESSEE PLEADED THAT EVEN TAX AUDITOR IN THE TAX AUDIT REPORT HAD C ERTIFIED THAT THERE HAS BEEN NO EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF TOTAL INCOME. THE ASSESSEE FURTHER SUBMITTED THAT CALCULATION OF DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE RULES MADE BY THE LD. AO SUFFER S FROM COMPUTATIONAL ERROR INASMUCH AS THE LD. AO COMMITTED ERROR IN ARRIVING AT THE OPENING AND CLOSING BALANCE OF INVESTMENTS. IT WAS PLEADED THAT ONLY DIVIDEND B EARING INVESTMENTS OUGHT TO HAVE BEEN TAKEN BY THE LD. AO IN ANY CASE BY FOLLOWING T HE RATIO LAID DOWN IN THE DECISION RENDERED BY THIS TRIBUNAL IN THE CASE OF REI AGRO L TD. REPORTED IN 144 ITD 141. THE LD. CIT(A) PLACED RELIANCE ON THE ORDER OF HIS PRED ECESSOR IN ASSESSEES OWN CASE FOR 3 ITA NOS.1150&1239/KOL/2016 M/S IMC LTD. A.YR.2008-09 3 THE ASSESSMENT YEAR 2010-11 WHEREIN DISALLOWANCE UN DER RULE 8D WAS MADE ONLY UNDER THIRD LIMB THEREON BY APPLYING 0.5% OF THE AVERAGE VALUE OF INVESTMENTS WHICH YIELDED DIVIDEND INCOME. THE LD. CIT(A) FOLLOWING THE SAID ORDER DIRECTED THE LD. AO TO RECOMPUTE THE DISALLOWANCE UNDER RULE 8D. AGGRIEVED , BOTH THE ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: I.T.A. NO. 1239/KOL/2016 ASSESSEE APPEAL 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING DISALLOWANCE, BEING 0.5% OF AVE RAGE VALUE OF INVESTMENT UNDER SECTION 14A OF THE ACT WHILE COMPUTING INCOME UNDER THE NORMAL PROVISION OF THE ACT. I.T.A. NO. 1150/KOL/2016 REVENUE APPEAL 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE L D. CIT(A) HAS ERRED IN DIRECTING THE AO TO CONSIDER ONLY THOSE INVESTMENTS ON WHICH DIVIDEND HAS BEEN EARNED BY THE ASSESSEE IN ARRIVING AVERAGE VA LUE OF INVESTMENTS AND NOT ALL INVESTMENTS HELD DURING THE RELEVANT FINANCIAL YEAR. 4. THE LD. AR SUBMITTED THAT AGAINST THE ORDER PASS ED BY THE LD. CIT(A) FOR THE ASSESSMENT YEAR 2010-11 ( WHICH HAS BEEN RELIED UPO N BY THE LD. CIT(A) IN THE IMPUGNED ORDER), THE ASSESSEE HAD PREFERRED AN APPE AL BEFORE THIS TRIBUNAL AND THIS TRIBUNAL IN I.T.A. NO. 2212/KOL/2014 DATED 10.01.2 018 HAD HELD THAT NO DISALLOWANCE U/S 14A OF THE ACT COULD BE MADE IN VIEW OF THE FAC T THAT THE LD. AO HAD NOT RECORDED ANY SATISFACTION IN TERMS OF SECTION 14A(2) OF THE ACT READ WITH RULE 8D(1) OF THE RULES. HE ALSO PLACED A COPY OF THE HONBLE JURISDI CTIONAL HIGH COURT IN THE CASE OF CIT VS. ASHISH JHUNJHUNWALA IN GA NO. 2990 OF 2013 ITAT NO. 157 OF 2013 DATED 08.01.2014 WHEREIN THE HONBLE HIGH COURT UPHELD TH E ORDER OF THE TRIBUNAL BY OBSERVING THAT THE LD. AO HAS NOT CONSIDERED THE CL AIM OF THE ASSESSEE AND STRAIGHT AWAY EMBARKED UPON COMPUTING DISALLOWANCE UNDER RULE 8D OF THE RULES ON PRESUMING THE AVERAGE VALUE OF INVESTMENT AT 0.5% OF THE TOTAL VA LUE. THIS FINDING OF THE TRIBUNAL WAS 4 ITA NOS.1150&1239/KOL/2016 M/S IMC LTD. A.YR.2008-09 4 APPRECIATED BY THE HONBLE HIGH COURT AND ACCORDING LY IT WAS HELD THAT NO INFIRMITY WAS FOUND IN THE ORDER UNDER CHALLENGE. THE LD. AR STATED THAT EVEN IN THE YEAR UNDER APPEAL BEFORE US, THE LD. AO DID NOT EXAMINE THE A CCOUNTS OF THE ASSESSEE IN SPITE OF THE FACT THAT BOOKS OF ACCOUNTS WERE DULY PRODUCED BEFO RE HIM AND HAD NOT ARRIVED ON AN OBJECTIVE SATISFACTION HAVING REGARD TO SUCH ACCOUN TS OF THE ASSESSEE WITH COGENT REASONS AS TO WHY THE PROVISIONS OF RULE 8D(2) ARE TO BE INVOKED IN THE INSTANT CASE. IN RESPONSE TO THIS, THE LD. DR VEHEMENTLY RELIED UPON THE ORDER OF THE LD. AO AND ALSO ARGUED THAT THE WORKINGS FILED BY THE ASSESSEE HAS BEEN PERUSED BY THE LD. AO AND IGNORED BY HIM WHICH ITSELF AMOUNTS TO SATISFACTION RECORDED BY THE LD. AO. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THA T THE LD. AO IS SUPPOSED TO RECORD SATISFACTION IN AN OBJECTIVE MANNER WITH COGENT REA SONS HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE IN ORDER TO REFUTE THE CLAIM MADE BY T HE ASSESSEE THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME. THIS IS THE MAN DATE PROVIDED IN SECTION 14A(2) OF THE ACT READ WITH RULE 8D(1) OF THE RULES. IN THIS REGARD, THE RELIANCE HAS BEEN RIGHTLY PLACED BY THE LD. AR ON THE DECISION OF THIS TRIBU NAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2010-11 IN I.T.A. NO. 2212/KOL/2014 DATED 10.01.2018 WHEREIN IT WAS HELD AS UNDER: 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND TH AT THE LD. AR HAD ARGUED THAT THERE WAS NO QUERY RAISED BY THE LD. AO WITH REGARD TO IS SUE OF DISALLOWANCE U/S 14A OF THE ACT IN THE ENTIRE ASSESSMENT PROCEEDINGS. THIS WE F IND TO BE CORRECT FROM THE PERUSAL OF QUESTIONNAIRE ISSUED BY THE LD. AO WHICH ARE ENCLOS ED IN PAGES 62 AND 63 OF THE PAPER BOOK. WE ALSO FIND THAT THE LD. AO HAD MERELY MADE THE DISALLOWANCE U/S 14A BY PLACING RELIANCE ON THE TAX AUDIT REPORT WITHOUT EV EN GOING INTO THE VERY BASIS OF THE WORKINGS OF THE SAID AMOUNT ARRIVED AT BY THE TAX A UDITOR. DURING THE YEAR UNDER APPEAL, IT IS NOT IN DISPUTE THAT THE PROVISIONS OF RULE 8D ARE APPLICABLE. THEN IT IS THE DUTY OF THE LD. AO TO RECORD SATISFACTION IN TERMS OF SECTION 14A(2) READ WITH RULE 8D(1) OF THE RULES, BEFORE PROCEEDING TO MAKE DISAL LOWANCE AS PER RULE 8D(2) OF THE RULES. IN THE INSTANT CASE, WE FIND THAT THE ASSESS EE HAS CLAIMED THAT NO EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF EARNING EXEMPT INC OME WHICH IS QUITE EVIDENT FROM THE FACT THAT NO DISALLOWANCE U/S 14A OF THE ACT HAS BE EN MADE BY THE ASSESSEE IN THE RETURN OF INCOME. ONCE IT IS DONE BY THE ASSESSEE, IT IS T HE DUTY OF THE LD. AO FIRST TO DISTURB SUCH BELIEF OF THE ASSESSEE BY RECORDING PROPER SAT ISFACTION HAVING REGARD TO THE 5 ITA NOS.1150&1239/KOL/2016 M/S IMC LTD. A.YR.2008-09 5 ACCOUNTS OF THE ASSESSEE IN TERMS OF SECTION 14A (2 ) OF THE ACT READ WITH RULE 8D(1) OF THE RULES. WE FIND NO SUCH SATISFACTION HAS BEEN RE CORDED BY THE LD. AO IN THE INSTANT CASE. THIS ISSUE IS NOW SETTLED IN FAVOUR OF THE A SSESSEE BY THE VARIOUS DECISIONS OF HONBLE JURISDICTIONAL HIGH COURT IN THE FOLLOWING CASES: I) CIT VS. R.E.I. AGRO LTD. IN GA NO. 3022 OF 2013 ITAT NO. 161 OF 2013 DATED 23.12.2013 II) CIT VS. ASHISH JHUNJHUNWALA IN GA NO. 2990 OF 2 013 ITAT NO. 157 OF 2013 DATED 08.01.2014. WE FIND THAT IN BOTH THE DECISIONS IT HAS BEEN HEL D THAT IT IS THE DUTY OF THE LD. AO FIRST TO RECORD SATISFACTION HAVING REGARD TO ACCOUNTS OF THE ASSESSEE THAT THE CLAIM MADE BY THE ASSESSEE WITH REGARD TO NON-INCURRENCE OF ANY E XPENDITURE FOR THE PURPOSE OF EARNING INCOME, IS INCORRECT WITH COGENT REASONS T HEREON. WITHOUT RECORDING SUCH SATISFACTION, THE LD. AO CANNOT PROCEED TO MAKE DIS ALLOWANCE U/S14A OF THE ACT READ WITH RULE 8D OF THE RULES. IN THESE FACTS AND CIRCU MSTANCES, WE HOLD THAT NO DISALLOWANCE U/S 14A OF THE ACT COULD BE MADE IN TH E INSTANT CASE. ACCORDINGLY, GROUND NO. 1 RAISED BY THE ASSESSEE IS ALLOWED. RESPECTFULLY FOLLOWING THE SAME WE DIRECT THE LD. A O NOT TO MAKE ANY DISALLOWANCE U/S 14A OF THE ACT IN THE INSTANT CASE. ACCORDINGLY, GROUND NO. 1 RAISED BY THE ASSESSEE IS ALLOWED AND GROUND NO. 1 RAISED BY THE REVENUE IS D ISMISSED. 6. THE NEXT ISSUE TO BE DECIDED IN THE APPEAL OF TH E ASSESSEE IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF PROVISION FOR LEAVE ENCASHMENT IN THE SUM OF RS. 29,74,020/- BY APPLYING THE PROVI SION OF 43B(F) OF THE ACT, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 7. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSES SEE HAS MADE PROVISION FOR LEAVE ENCASHMENT IN THE SUM OF RS. 29,74,020/- AND CLAIME D THE SAME AS ALLOWABLE EXPENDITURE IN THE RETURN OF INCOME. THE LD. AO DIS ALLOWED THE SAME U/S 43B(F) OF THE ACT. THIS ACTION OF THE LD. AO WAS UPHELD BY THE LD . CIT(A). AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUND:- 6 ITA NOS.1150&1239/KOL/2016 M/S IMC LTD. A.YR.2008-09 6 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF PROVISION FOR L EAVE ENCASHMENT AMOUNTING TO RS 29,74,020/-, UNDER SECTION 43B OF THE ACT WHI LE COMPUTING INCOME UNDER THE NORMAL PROVISIONS OF THE ACT. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THA T THOUGH THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD VS UNION OF INDIA REPORTED IN 292 ITR 470 (CAL) HAD STRUCK DOWN THE PROVISIONS OF SECTION 43B (F) OF THE ACT AS UNCONSTITUTIONAL, THE REVENUE HAD CARRIED THE MATTER FURTHER TO THE H ONBLE SUPREME COURT WHICH INITIALLY IN SPECIAL LEAVE TO APPEAL (CIVIL) CC 12060 / 2008 DATED 8.9.2008 HAD HELD AS UNDER:- THE PETITION WAS CALLED ON FOR HEARING TODAY. UPON HEARING COUNSEL THE COURT MADE THE FOLLOWING O RDER. ISSUE NOTICE. IN THE MEANTIME, THERE SHALL BE STAY OF THE IMPUGNE D JUDGEMENT, UNTIL FURTHER ORDERS. LATER THE HONBLE SUPREME COURT IN SPECIAL LEAVE TO APPEAL (CIVIL) NO(S). CC 22889 / 2008 DATED 8.5.2009 HAD HELD AS UNDER:- THE PETITION WAS CALLED ON FOR HEARING TODAY. UPON HEARING COUNSEL THE COURT MADE THE FOLLOWING O RDER DELAY CONDONED. LEAVE GRANTED. PENDING HEARING AND FINAL DISPOSAL OF THE CIVIL APP EAL, DEPARTMENT IS RESTRAINED FROM RECOVERING PENALTY AND INTEREST WHICH HAS ACCRUED T ILL DATE. IT IS MADE CLEAR THAT AS FAR AS THE OUTSTANDING INTEREST DEMAND AS OF DATE IS CO NCERNED, IT WOULD BE OPEN TO THE DEPARTMENT TO RECOVER THAT AMOUNT IN CASE CIVIL APP EAL OF THE DEPARTMENT IS ALLOWED. WE FURTHER MAKE IT CLEAR THAT THE ASSESSEE WOULD, D URING THE PENDENCY OF THIS CIVIL APPEAL , PAY TAX AS IF SECTION 43B(F) IS ON THE STA TUTE BOOK BUT AT THE SAME TIME IT WOULD BE ENTITLED TO MAKE A CLAIM IN ITS RETURNS. HENCE FROM THE AFORESAID SUPREME COURT JUDGMENT, IT COULD BE INFERRED THAT THE HONBLE SUPREME COURT HAD NOT STAYED THE JUDGMENT O F THE CALCUTTA HIGH COURT DURING 7 ITA NOS.1150&1239/KOL/2016 M/S IMC LTD. A.YR.2008-09 7 LEAVE PROCEEDINGS. BUT THE HONBLE SUPREME COURT H AD ONLY PASSED AN INTERIM ORDER ON THE IMPUGNED ISSUE. HENCE WE DEEM IT FIT AND APP ROPRIATE , IN THE INTEREST OF JUSTICE AND FAIR PLAY, TO SET ASIDE THIS ISSUE TO THE FILE OF THE LD AO TO PASS ORDERS BASED ON THE OUTCOME OF THE MAIN APPEAL ON MERITS BY THE HONBLE SUPREME COURT AS STATED SUPRA. ACCORDINGLY GROUND NO. 2 RAISED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 16.03 .2018 SD/- SD/- [A.T. VARKEY] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 16.03.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. JCIT(OSD), CIR-11(1),KOLKATA, P-7, CHOWRINGHEE S QUARE, KOLKATA-700069. 2. M/S IMC LTD., 232A, AJC BOSE ROAD, KOLKATA-70002 0. 3. C.I.T(A)- , KOLKATA 4. C.I.T.- K OLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S 8 ITA NOS.1150&1239/KOL/2016 M/S IMC LTD. A.YR.2008-09 8