Godavari Commodities Ltd., , Kolkata V. Pr.CIT (Central) - 1, Kolkata , Kolkata

ITA 1246/KOL/2017

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7597 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 1 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 29-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AMIT AGARWALACA
• Keywords: Principle of natural justice; Earning of tax free income; Rule 8D; Set aside
• Section: 153A; 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B, BENC H KOLKATA BEFORE SHRI S.S.GODARA, JM &DR. A.L.SAINI, AM ./ITA NO.1246/KOL/2017 ( / ASSESSMENT YEAR:2013-14) GODAVARI COMMODITIES LTD. 2 ND FLOOR, 18, N.S. ROAD, KOLKATA-700001 VS. PCIT, CENTRAL-1, KOLKATA ./ ./PAN/GIR NO.: AABCG 2253 K (ASSESSEE) .. (REVENUE) ASSESSEE BY : SHRI AMIT AGARWAL, ACA RESPONDENT BY : SHRI A.K. SINGH, CIT DR / DATE OF HEARING : 30/04/2019 /DATE OF PRONOUNCEMENT : 24/07/2019 / O R D E R PER DR. A. L. SAINI: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PERTAI NING TO ASSESSMENT YEAR 2013-14, IS DIRECTED AGAINST THE ORDER PASSED BY TH E PR. COMMISSIONER OF INCOME TAX, CENTRAL-1, KOLKATA, UNDER SECTION 263 OF THE I NCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 24/03/2017. 2. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 24.03.2017 PASSED BY THE LEARNED PR. COMMISSIONER OF INCOME TAX, UNDER SECTION 263 OF THE ACT. THE ASSESSEE`S MAIN GRIEVANCE IS TH AT LDPR.CIT HAS NOT ASSUMED A VALID JURISDICTION UNDER SECTION 263 OF THE ACT TO REVISE THE ASSESSMENT COMPLETED UNDER SECTION 143(3)/153A OF THE ACT, DATED 30.03.2 015. GODAVARI COMMODITIES LTD. ITA NO.1246/KOL/2017 ASSESSMENT YEAR:2013-14 PAGE | 2 3. BRIEF FACTS QUA THE ISSUE ARE THAT A SEARCH AND SURVEY OPERATION WAS CONDUCTED ON BHUTORIA GROUP ON 20TH DECEMBER, 2012 AND SUBSEQ UENT DATES AND SEARCH OPERATION WAS ALSO CONDUCTED AT THE BUSINESS PREMIS ES OF THE ASSESSEE.THEASSESSEE FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR 2013 -2014 ON 01.10.2013, DECLARING TOTAL INCOME OF RS. 11,87,23,300/-. THERE AFTER, THE ASSESSEE`SCASE WAS SELECTED FOR SCRUTINY U/S 143(2) OF THE ACT AND ASS ESSMENT WAS COMPLETED UNDER SECTION 143(3)R.W.S.153A OF THE INCOME TAX ACT, 196 1,VIDE ORDER DATED 30.03.2015. SUBSEQUENTLY, NOTICE U/S 263 WAS ISSUED BY THE PRIN CIPAL COMMISSIONER OF INCOME TAX (CENTRAL)- I, KOLKATA AND SERVED ON THE ASSESSEE ON 02.02.2017 SEEKING TO REVISE THE ORDER PASSED BY THE ASSESSING OFFICER ON THE GROUND THAT ASSESSMENT ORDER PASSED U/S. 143(3)/L53A DATED 30.0 3.2015 IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF REVENUE AS AN AMOUNT OF RS. 1,53,38,820/- WAS REQUIRED TO BE DISALLOWED U/S. 14A READ WITH RULE 8 D INSTEAD OF RS. 4,15,570/-, DISALLOWED AS PER ASSESSMENT ORDER. THE PR.CIT NOTICED THAT ASSESSEE HAS DISALLOWED ONL Y RS.4,15,570/- UNDER SECTION 14A READ WITH RULE 8D OF THE RULES. HOWEVER, ACCORD ING TO PROVISIONS OF RULE 8D (2) (I), (II), AND (III) OF THE INCOME TAX RULES RE AD WITH PROVISIONS OF SECTION 14A OF THE ACT, THE LD PCIT COMPUTED THE DISALLOWANCE A S FOLLOWS: (I).. UNDER RULE 8D (2) (I), DIRECT EXPENSES = RS. NIL (II). UNDER RULE 8D (2) (II) INTEREST EXPENSES RS.14,32,08,537 X RS.26,25,81,342/RS.268,10,2 9,565= RS.1,40,25,914 (III) UNDER RULE 8D(2) (III). AVERAGE INVESTMENT 0.5% OF RS.26,25,81,342 = RS.13,12,906 TOTAL RS.1,53,38,820 THELDPR.CIT OBSERVED THAT ASSESSING OFFICER HAS DIS ALLOWED RS.4,15,750/-, HENCE A SUM OF RS. 1,49,23,070/- [ BEING THE DIFFERENCE OF RS.1,53,38,820 RS.4,15,750] WAS REQUIRED TO HAVE BEEN DISALLOWED BY AO DURING T HE COURSE OF ASSESSMENT PROCEEDINGS U/S 143(3)/153A OF THE ACT. THEREFORE, PR CIT NOTED THAT LACK OF ENQUIRY, WITHOUT APPLICATION OF MIND, ALLOWING THE CLAIM OF THE ASSESSEE IN GODAVARI COMMODITIES LTD. ITA NO.1246/KOL/2017 ASSESSMENT YEAR:2013-14 PAGE | 3 CONTRAVENTION TO SECTION 14A OF THE IT ACT READ WIT H RULE 8D OF THE IT RULES, HAD RENDERED THE IMPUGNED ASSESSMENT ORDER DATED 30.03. 2015, IN THE CASE OF THE ASSESSEE FOR THE A.Y. 2013-14, ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. CONSIDERING THE ABOVE FACTS, NOTICE UNDER SECTION 263 DATED 22.11.2016 WAS ISSUED TO THE ASSESSEE. 4. IN RESPONSE, THE ASSESSEE SUBMITTED BEFORE THE P R CIT THAT AS PER PROVISION OF SECTION 14A , THE CALCULATION UNDER RULE 8D IS SOUG HT TO BE MADE ONLY WHERE THE ASSESSING OFFICER IS NOT SATISFIED ABOUT THE DISALL OWANCE MADE BY THE ASSESSEEW.R.T. SEC. 14A IS THE RETURN FILED BY HIM. IN THE PRESENT CASE, THE LEARNED A.O. HAVING BEEN APPARENTLY SATISFIED ABOUT THE DIS ALLOWANCE MADE BY THE ASSESSEE U/S 14A DID NOT FIND IT NECEESSARY TO MAKE THE CALC ULATION UNDER RULE 8D. ALL THE FACTS AND FIGURES NECESSARY FOR EXAMINING THE ADEQU ACY OR OTHERWISE OF THE DISALLOWANCE MADE BY THE ASSESSEEWERE AVAILABLE ON RECORD AND THE LEARNED A.O. WAS NOT REQUIRED TO MAKE A SEPARATE ENQUIRY ON THE SAME.IN THE PRESENT CASE, THE ASSESSEE HAS SUO MOTO DISALLOWED AN AMOUNT OF RS. 4 ,15,750/- AS EXPENDITURE RELATABLE TO EXEMPT INCOME AND ASSESSING OFFICER AF TER EXAMINATION OF BOOKS OF ACCOUNTS OF THE ASSESSEE WAS SATISFIED WITH THE CLA IM OF THE ASSESSEE AND HAS, THEREFORE, ACCEPTED THE SAME AND DID NOT INVOKE THE PROVISION OF RULE 8D. MOREOVER, SINCE NO SATISFACTION IS RECORDED THEREFO RE,SECTION 14A READ WITH RULE 8D CANNOT BE APPLIED, HENCE ORDER PASSED BY THE AO IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF THE REVENUE. HOWEVER, LD PCIT REJECTED THE CONTENTION OF THE ASS ESSEE AND HELD THAT A SUM OF RS. 1,49,23,070/- [ BEING THE DIFFERENCE OF RS.1,53 ,38,820 RS.4,15,750] WAS REQUIRED TO HAVE BEEN DISALLOWED BY AO DURING THE C OURSE OF ASSESSMENT PROCEEDINGS U/S 143(3)/ 153A OF THE ACT, HENCE, TH E LD PR CIT SET ASIDE ASSESSMENT ORDER FOR A.Y.2013-14, DATED 30.03.2015 AND DIRECTED THE AO TO PASS FRESH ASSESSMENT ORDER, AS THE ASSESSMENT ORDER WAS ERRONEOUS IN SO FAR AS IT WAS PREJUDICIAL TO THE INTEREST OF THE REVENUE. 5. AGGRIEVED BY THE ORDER OF THE LD PCIT, UNDER SEC TION 263 OF THE ACT, THE ASSESSEE IS IN APPEAL BEFORE US. GODAVARI COMMODITIES LTD. ITA NO.1246/KOL/2017 ASSESSMENT YEAR:2013-14 PAGE | 4 6. THE ASSESSEE COMPANY HAS CHALLENGED IN THE FIRS T PLACE, THE VERY USURPATION OF JURISDICTION BY LD. PRINCIPAL CIT TO INVOKE HIS REV ISIONAL POWERS ENJOYED U/S 263 OF THE ACT. THEREFORE, FIRST WE HAVE TO SEE WHETHER TH E REQUISITE JURISDICTION NECESSARY TO ASSUME REVISIONAL JURISDICTION IS THERE EXISTING BEFORE THE PR. CIT TO EXERCISE HIS POWER. FOR THAT, WE HAVE TO EXAMINE AS TO WHETHER I N THE FIRST PLACE THE ORDER OF THE ASSESSING OFFICER FOUND FAULT BY THE PRINCIPAL CIT IS ERRONEOUS AS WELL AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. FOR THA T, 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 LO RDSHIP HAVE HELD THAT TWIN CONDITIONS NEEDS TO BE SATISFIED BEFORE EXERCISING REVISIONAL JURISDICTION U/S 263 OF THE ACT BY THE CIT. THE TWIN CONDITIONS ARE THAT TH E ORDER OF THE ASSESSING OFFICER MUST BE ERRONEOUS AND SO FAR AS PREJUDICIAL TO THE INTEREST OF THE REVENUE. IN THE FOLLOWING CIRCUMSTANCES, THE ORDER OF THE AO CAN BE HELD TO BE ERRONEOUS ORDER, THAT IS (I) IF THE ASSESSING OFFICERS ORDER WAS PA SSED 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 MIND; (V) IF THE AO HAS NOT INVESTIGATED THE ISSUE BEFORE HIM; THEN THE ORDER PASSED BY THE ASSESSING OFFICER CAN BE TERMED AS ERRONEOUS ORDER. COMING NEXT TO THE SECOND LIMB, WHICH IS REQUIRED TO BE EXAMINED AS TO WHETHER THE ACTIONS OF THE AO CAN BE TERMED AS PREJUDICIAL TO THE INTEREST OF REVENUE. WHEN THIS ASPECT IS EXAMINED O NE HAS TO UNDERSTAND WHAT IS PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE HON BLE SUPREME COURT IN THE CASE OF MALABAR 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 HELD THAT IT HAS TO BE REMEMBERED THAT EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF ASS ESSING OFFICER CANNOT BE TREATED AS PREJUDICIAL TO THE INTEREST OF THE REVEN UE. 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 AS SESSING OFFICER HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT B E TREATED AS AN ERRONEOUS ORDER PREJUDICIAL TO THE INTEREST OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ASSESSING OFFICER IS UNSUSTAINABLE IN LAW. GODAVARI COMMODITIES LTD. ITA NO.1246/KOL/2017 ASSESSMENT YEAR:2013-14 PAGE | 5 7.TAKING NOTE OF THE AFORESAID DICTUM OF LAW LAID D OWN BY THE HONBLE APEX COURT, LET US EXAMINE WHETHER THE ORDER PASSED BY T HE ASSESSING OFFICER U/S 153A/143(3) DATED 30.03.2015 IS ERRONEOUS AS WELL A S PREJUDICIAL TO THE INTEREST OF THE REVENUE. WE NOTE THAT SO FAR AS THE DISALLOWANCE UNDER RULE 8D(2) (I) IS CONCERNED, AS IT RELATES TO EXPENDITURE DIRECTLY RELATED TO THE EXEM PTED INCOME. SINCE THE DIRECT EXPENDITURE IS NIL THEREFORE DISALLOWANCE IS NOT RE QUIRED. HENCE, ORDER PASSED BY THE AO IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE SO FAR RULE 8D (2) (I) DISALLOWANCE IS CONCERNED. WE NOTE THAT RULE 8D (2) (II) RELATES TO DISALLOWAN CE OF INTEREST EXPENDITURE. THE LD COUNSEL SUBMITTED BEFORE US THE BALANCE SHEET FO R A.Y.2013-14, WHERE WE NOTE THAT TOTAL OWN FUNDS CONSISTING SHARE CAPITAL AND R ESERVE AND SURPLUS ARE TO THE TUNE OF RS.144,29,03,940/-, WHICH IS MORE THAN THE TOTAL INVESTMENTS OF RS.20,69,06,913/-, THUS THERE IS A GENERAL PRESUMPT ION THAT INVESTMENTS WERE MADE OUT OF OWN FREE FUNDS AND THEREFORE NO DISALLOWANCE IS WARRANTED UNDER RULE 8D (2) (II) OF THE RULES. WE NOTE THAT D IRECT NEXUS BETWEEN THE OWN FUNDS AND TAX FREE INVESTMENT SHOULD NOT BE SEEN AND IT IS ONLY THE OV ERALL AVAILABILITY OF OWN FUNDS THAT HAS TO BE SEEN AS LAID DOWN BY THE HON`BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES & POWER LTD., 313 ITR 340(BOM.). THE HONBLE BOMBAY HIGH COURT HAS HELD THAT IF THERE WERE FUNDS AVAILABLE BOTH IN TEREST FREE AND OVER DRAFT/LOANS ARE TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTME NT WOULD BE OUT OF THE INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE ASSESSEE, IF THE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. THEREFORE, SO FAR RULE 8D (2) (II) IS CONCERNED, ORDER PASSED BY THE AO IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTE REST OF REVENUE. COMING TO THE THIRD LIMB, THAT IS, SO FAR RULE 8D (2) (III) IS CONCERNED, WE NOTE THAT THE CO-ORDINATE BENCH OF ITAT KOLKATA IN THE C ASE OF REI AGRO LTD. REPORTED IN 144 ITD 141 HAS HELD THAT IT IS ONLY THE INVESTM ENT WHICH YIELDS DIVIDEND DURING THE PREVIOUS YEAR THAT HAS TO BE CONSIDERED WHILE ADOPTING THE AVERAGE VALUE OF INVESTMENT FOR THE PURPOSE OF RULE 8D(2)(I II). THE AFORESAID VIEW OF THE TRIBUNAL HAS SINCE BEEN AFFIRMED BY THE HONBLE CAL CUTTA HIGH COURT AS CORRECT IN G.A. NO. 3581 OF 2013 IN THE APPEAL AGAINST THE ORD ER OF THE TRIBUNAL IN THE CASE GODAVARI COMMODITIES LTD. ITA NO.1246/KOL/2017 ASSESSMENT YEAR:2013-14 PAGE | 6 OF REI AGRO LTD (SUPRA). THEREFORE, ASSESSING OFFIC ER IS SUPPOSED TO TAKE DIVIDEND BEARING INVESTMENTS FOR THE PURPOSE OF DISALLOWANCE UNDER RULE 8D(2) (III) OF THE RULES, WHICH HE HAD NOT DONE, THEREFORE ORDER PASSE D BY HIM IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, SO FAR THIRD LIMP RULE 8D(2) (III) IS CONCERNED. THAT IS, AO HAS NOT MADE DISALLOWANCE UN DER RULE 8D(2) (III) OF THE RULES, AT ALL. THEREFORE, WE DIRECT THE AO TO COMPU TE THE DISALLOWANCE UNDER RULE 8D (2) (III) TAKING INTO ACCOUNT ONLY DIVIDEND BEAR ING SECURITIES AS NARRATED IN THE JUDGMENT OF THE COORDINATE BENCH IN THE CASE OF REI AGRO (SUPRA). 8. IN THE RESULT, THE APPEAL OF THE ASSESSEEIS ALL OWED AS PER DISCUSSION MADE (SUPRA). ORDER PRONOUNCED IN THE COURT ON 24.07.2019 SD/- ( S.S.GODARA ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA; / DATE: 24/07/2019 ( SB, SR.PS ) COPY OF THE ORDER FORWARDED TO: 1. GODAVARI COMMODITIES LTD. 2. PCIT, CENTRA-1, KOLKATA 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, KOLKA TA BENCHES