DCIT, CIR-3(1), KOLKATA, Kolkata V. M/s MSTC Ltd., Kolkata

ITA 1303/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1910 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 09-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NICHOLUS MURMU
• Assessee Lawyers: J L RAHA
• Keywords: Earning of tax free income; Source of fund
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI M.B ALAGANESH, AM ] I.T.A NO. 1303/KOL/20 16 ASSESSMENT YEAR : 2011-1 2 DCIT, CIRCLE-3(1), KOLKATA -VS- M/S MSTC LIMITED [PAN: AACCM 0021 E] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI NICHOLUS MURMU , ADDL.CIT, SR. DR FOR THE REVENUE : SHRI J.L.RAHA, CA DATE OF HEARING : 02.01.2018 DATE OF PRONOUNCEMENT : 05.01.2018 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE REVENUE ARISES OUT OF THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, KOLKATA [ IN SHORT THE LD C ITA] IN APPEAL NO. 73/CIT(A)- 1/CIR-3/2014-15 DATED 17.03.2016 AGAINST THE ORDER PASSED BY THE DCIT, CIRCLE-3, KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 20.03.2014 FOR THE ASSESSM ENT YEAR 2011-12. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/S 14A OF THE AC T READ WITH RULE 8D(2)(II) OF THE RULES AMOUNTING TO RS. 34,06,067/-, IN THE FACTS AN D CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE IS A GOVERNMENT OF INDIA UNDERTAKING ENGAGED IN THE BUSINESS OF SELLING, DISTRIBUTION AN D MARKETING OF SCRAP, NON-ALLOY STEELS 2 ITA NO.1303/KOL/2016 M/S MSTC LIMITED A.YR.2011-12 2 AND EARNS INCOME FROM SELLING, AGENCY ACTIVITY IN A DDITION TO OTHER SOURCES OF INCOME LIKE DIVIDEND AND INTEREST. THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 DECLARING TOTAL INCOME OF RS. 150,77,7 5,730/- ON 23.09.2011 WHICH WAS FURTHER REVISED ON 22.03.2013. THE SAID REVISED RET URN WAS ACCEPTED AS THE ORIGINAL RETURN WAS FILED WITHIN DUE DATE. THE LD. AO OBSERV ED THAT THE ASSESSEE HAD MADE INVESTMENTS IN UNQUOTED SHARES OF RS. 15,81,00,000/ - AS ON 31.03.2011. THE ASSESSEE MADE VOLUNTARILY DISALLOWANCE U/S 14A OF THE ACT IN TERMS OF RULE 8D(2)(III) AMOUNTING TO RS. 7,90,500/- WORKED OUT AT 0.5% OF AVERAGE VAL UE OF INVESTMENTS. THE ASSESSEE IN RESPONSE TO SHOW CAUSE NOTICE ISSUED BY THE LD. AO IN THIS REGARD REPLIED THAT IT HAD MADE INVESTMENT IN 20,000/- EQUITY SHARES OF RS. 1, 000/- EACH VALUED AT RS. 15.81 CRORES IN ITS FULLY OWNED SUBSIDIARY COMPANY M/S FERRO SCR AP NIGAM LTD.. THE LD. AO OBSERVED THAT THE ASSESSEE HAD PAID INTEREST ON ITS BORROWED FUNDS AND HELD THAT THE ASSESSEE HAD UTILIZED THE BORROWED FUNDS FOR THE PU RPOSE OF MAKING INVESTMENT AND ACCORDINGLY MADE DISALLOWANCE UNDER RULE 8D(2)(II) OF THE ACT AMOUNTING TO RS. 34,06,067/- IN ADDITION TO DISALLOWANCE ALREADY MAD E BY THE ASSESSEE UNDER RULE 8D(2)(III) OF THE RULES AMOUNTING TO RS. 7,90,500/- . 4. THE ASSESSEE STATED THAT IT HAD DERIVED DIVIDEND INCOME OF RS. 86.37 LACS. FROM ITS SUBSIDIARY COMPANY PURSUANT TO STRATEGIC INVESTMENT MADE BY IT. THE ASSESSEE ALSO EXPLAINED THAT THESE INVESTMENTS WERE MADE IN THE E ARLIER YEARS AND FURTHER STATED THAT 1.20 CRORES WAS INVESTED BY THE ASSESSEE OUT OF FU NDS PROVIDED BY THE GOVERNMENT OF INDIA FROM 1979 TO 1981 TO THE ASSESSEE AND BALANCE AMOUNT OF RS. 14.61 CRORES WERE INVESTED OUT OF ITS OWN RESERVES AND SURPLUS AT THE RELEVANT POINT OF MAKING INVESTMENT WHEREIN THE NET SURPLUS AVAILABLE WITH THE ASSESSE E WAS RS. 92.65 CRORES. ACCORDINGLY, IT WAS PLEADED THAT THE ASSESSEE HAD MADE INVESTMEN TS ONLY OUT OF ITS OWN FUNDS AND HENCE NO DISALLOWANCE UNDER RULE 8D(2)(II) IS WARRA NTED. THE LD. CIT(A) DULY APPRECIATED THESE FACTS BASED ON THE FUND FLOW STAT EMENT INDICATING THE SOURCE OF INVESTMENT FILED BY THE ASSESSEE AND PLACING RELIA NCE OF HONBLE BOMBAY HIGH COURT IN 3 ITA NO.1303/KOL/2016 M/S MSTC LIMITED A.YR.2011-12 3 THE CASE OF RELIANCE UTILITIES AND POWER LIMITED RE PORTED IN 313 ITR 340 DELETED THE DISALLOWANCE MADE IN THE SUM OF RS. 34,06,067/- UND ER RULE 8D(2)(II) OF THE RULES. 5. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: 01. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN LAW IN DELETING THE DISALLOWANC E OF RS. 3406067/- U/S 14A OF THE IT ACT, 1961 R.W. RULE 8D(2)(II) OF I.T. RULE, 1962, IGNORING THE FACT THAT THE ASSESSEE WAS UNABLE TO PROVE BY PRODUCING EVIDENCE THAT THE DIVIDEND YIELDING SHARES WERE PURCHASED FROM ITS OWN FUND AND NOT FRO M INTEREST BEARING LOAN FUND. 02. THE REVENUE SHALL ALWAYS CRAVE FOR ADDING OR AL TERING ANY GROUND ON OR BEFORE THE DATE OF HEARING. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THA T THE LD. AR PLACED ON RECORD THE COPY OF DECISION OF CO-ORDINATE BENCH OF THIS TRIBU NAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 IN I.T.A. NO. 1536/KOL/2013 DATED 08.06.2016 WHEREIN, A CLEAR FINDING HAS BEEN GIVEN WITH REGARD TO AVAILAB ILITY OF OWN FUNDS WITH THE ASSESSEE FOR THE PURPOSE OF MAKING INVESTMENTS IN SUBSIDIARY COMPANY TO THE TUNE OF RS. 15.81 CRORES IN THE EARLIER YEARS. WE HAVE GONE THROUGH T HE SAID ORDER AND WE FIND THIS TRIBUNAL HAD HELD AS UNDER: HAVING REGARD TO ALL THESE FACTS OF THE CASE, WE A RE OF THE VIEW THAT THE ONUS THAT LAYS ON THE ASSESSEE TO PROVE THAT OWN FUNDS HAD BEEN UT ILIZED FOR EARNING EXEMPT INCOME WAS SATISFACTORILY DISCHARGED AND THERE IS NO CASE TO MAKE A DISALLOWANCE ON ACCOUNT OF INTEREST UNDER SECTION 14A BY APPLYING RULE 8D. IN THAT VIEW OF THE MATTER, WE DELETE THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONF IRMED BY THE LD. CIT(APPEALS) UNDER SECTION 14A TO THE EXTENT OF INTEREST AMOUNTI NG TO RS. 1,12,26,422/- AND PARTLY ALLOW GROUND NO. 2 OF THE ASSESSEES APPEAL. RESPECTFULLY FOLLOWING THE AFORESAID FACTUAL FINDIN GS GIVEN BY THIS TRIBUNAL IN EARLIER YEARS IN ASSESSEES OWN CASE, WHICH REMAINS UNCONTR OVERTED BY THE REVENUE, WE HOLD THAT THE LD. CIT(A) HAD RIGHTLY DELETED THE DISALLO WANCE MADE UNDER RULE 8D(2)(II) OF 4 ITA NO.1303/KOL/2016 M/S MSTC LIMITED A.YR.2011-12 4 THE RULES. HENCE, WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A) IN THIS REGARD. ACCORDINGLY, GROUNDS RAISED BY THE REVENUE ARE DISM ISSED. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE COURT ON 05.01.2018 SD/- SD/- [N.V. VASUDEVAN] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 05.01.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. DCIT, CIRCLE-3(1), KOLKATA, P-7, CHOWRINGHEE SQU ARE, AAYKAR BHAWAN, 4 TH FLOOR, ROOM NO. 19, KOLKATA-69. 2. M/S MSTC LIMITED, 225C, A.J.C. BOSE ROAD, KOLKAT A-700020 3..C.I.T.(A)- , 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