ACIT, Circle-8(2), Kolkata, Kolkata V. M/s. Russell Credit Limited, Kolkata

ITA 1317/KOL/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6384 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 05-06-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S M TANHEED
• Assessee Lawyers: BIKASH CHANDA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, D , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH D KOLKATA BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER AND DR. A.L. SAINI, ACCOUNTANT MEMBER ITA NO. 1317 / KOL / 20 17 ASSESSMENT YEAR :2011-12 ACI, CIRCLE-8(2) P-7, CHOWRINGHEE SQUARE, KOLKATA-69 V/S . M/S RUSSEL CREDIT LIMITED, VIRGINIA HOUSE, 37, J.L. NEHRU ROAD, KOLKATA-71 [ PAN NO.AABCR 3494 H ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI S.M. TANHEED, ADDL. CIT-DR /BY RESPONDENT SHRI BIKASH CHANDA, /DATE OF HEARING 06-06-2018 /DATE OF PRONOUNCEMENT 08-06-2018 / O R D E R PER S.S.GODARA, JUDICIAL MEMBER:- THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2011-12 C HALLENGES CORRECTNESS OF THE COMMISSIONER OF INCOME TAX (APPE ALS)-22, KOLKATAS ORDER DATED 23.03.2017 PASSED IN CASE NO.54/CIT(A)-22/KOL /11-12/16-17, RESTRICTING ASSESSING OFFICERS ACTION MAKING U/S 14A R.W RULE 8D DISALLOWANCE OF 1,20,99,174/- TO 36,44,334/- IN PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT 1961; IN SHORT THE ACT. HEARD BOTH THE PARTIES. CASE FILE PERUSED. 2. WE NOTICE AT THE OUTSET THAT THE CIT(A)S DETAIL ED DISCUSSION GRANTED PART RELIEF TO THE ASSESSEE READS AS UNDER:- 09 DECISION: 1. I HAVE CAREFULLY CONSIDERED THE ACTION OF THE LE ARNED. AO IN MAKING THE IMPUGNED ADDITION / DISALLOWANCE OF RS.1,20,99,174/ - BY INVOKING THE PROVISIONS OF SEC 14A READ WITH RULE 8D. AFTER EXAMINING THE M ATTER, I AM IN AGREEMENT WITH ITA NO.1317/KOL/2017 A.Y. 2011-12 ACIT, CIR-8(2), KOL VS. M/S RUSSEL CRE DIT LTD. PAGE 2 THE FINDING OF THE LD. AO THAT THE DISALLOWANCE UND ER SEC. 14A READ WITH RULE 8D COULD NOT HAVE BEEN ALONG THE LINES OF THE OBSERVAT ION OF THE HON'BLE ITAT IN THE CASE OF THE APPELLANT FOR THE AYS 2005-06 TO 2008- 09, AS VERY CLEARLY RULE 8D WAS NOT APPLICABLE FOR THE YEARS DECIDED BY THE HON 'BLE ITAT. THE HON'BLE ITAT HAD DECIDED THAT THE DISALLOWANCE BE MADE IN ACCORD ANCE WITH THE FORMULA DETERMINED BY THE HON'BLE ITAT, I.E, LUMPSUM AMOUNT FOR PROPORTIONATE MANAGEMENT EXPENSES AND ANOTHER 40% OF THE CUSTODIA L AND DEPOSITORY CHARGES. IN VIEW OF THE INTRODUCTION OF RULE 8D APP LICABLE FROM AY 2009-10 AND ONWARDS, THE SAID FORMULA MAY NO LONGER BE APPLICAB LE IN THE CASE OF THE ASSESSEE-APPELLANT 2. THAT SAID, IT IS ABUNDANTLY CLEAR THAT RULE 8D W OULD BE APPLICABLE IN THE CASE OF THE APPELLANT FOR THE SUBJECT ASSESSMENT YEAR 2011- 12, AND THEREFORE THE MAIN SUBMISSION OF THE ASSESSEE AS MADE OUT BEFORE THE L D. AO AS WELL AS IN APPEAL CANNOT BE ACCEPTABLE. 3. HOWEVER, AFTER PERUSING THE FACTS OF THE CASE, A ND THE ALTERNATIVE SUBMISSIONS, I FIND REASONABLE MERIT IN THE SUBMISSIONS OF THE APP ELLANT THAT THE STRATEGIC INVESTMENTS ARE EXCLUDIBLE FOR THE PURPOSE OF CONSI DERING INVESTMENTS UNDER RULE 8D(2)(II) OF THE IT RULES. TAKING INTO CONSIDERATIO N ALL THE MATERIAL FACTS OF THE CASE, AND THE VARIOUS ISSUES AT HAND, I FIND THAT T HE SECOND ALTERNATIVE SUBMISSIONS OF THE APPELLANT THAT WHILE COMPUTING T HE DISALLOWANCE UNDER RULE 8D, INVESTMENTS NOT YIELDING EXEMPT INCOME REQUIRE TO BE EXCLUDED, TO BE MORE REASONABLE AND WORTHY OF SERIOUS CONSIDERATION. THE SAID PRINCIPLE HAS THE APPROVAL OF THE HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF RIE AGRO LTD. VS. DCIT IN GA NO.3581 OF 2013. IT IS ALSO TRUE THAT THE SA ID PRINCIPLE OF EXCLUSION OF INVESTMENTS NOT EARNING EXEMPT INCOME WHILE CALCULA TING THE DISALLOWANCE U/S. 14A READ WITH RULE 8D HAS BEEN REITERATED IN RESPEC T TO THE CASE OF INTEGRATED COAL MINING LTD VS. DCIT IN ITA NO.1146/KOL/2012 DATED 30 TH NOVEMBER, 2015. 4. IN THE MATTER DISCUSSED ABOVE, THE APPELLANT HAS RE-WORKED OUT THE ELIGIBLE DISALLOWANCE US/S 14A ON THE APPLICATION OF RULE 8D IN LINE WITH THE DECISIONS (SUPRA) WITH THE METHOD OF EXCLUSIONS OF INVESTMENT S NOT EARNING DIVIDEND INCOME, AS UNDER: COMPUTATION OF DISALLOWANCE BASED ON AVERAGE VALUE OF INVESTMENTS AMOUNT (RS) INVESTMENTS YIELDING EXEMPT INCOME AS ON 31.03.2010 31,18,17,657 INVESTMENTS YIELDING EXEMPT INCOME AS ON 31.03.2011 1,14,59,15,817 AVERAGE OF ABOVE: 72,88,66,737 COMPUTATION OF INVESTMENTS EARNING DIVIDEND INCOME AS ON 31.03.2010 AND AS ON 31.03.2011 AMOUNT (RS) AMOUNT (RS) 31.03.2010 31.03.2011 EQUITY SHARES OF INTERNATIONAL TRAVEL HOUSE LTD 21, 21,58,031 21,21,58,031 EQUITY SHARES OF VST INDUSTRIES LTD 9,96,59,626 9,96,59,626 EQUITY SHARES OF HOTEL LEELAVENTURE LTD. 83,40, 98,160 INVESTMENTS EARNING DIVIDEND INCOME 31,18,17,657 1, 14,59,15,817 5. AFTER CONSIDERING THE VARIOUS FACTS AND CIRCUMST ANCES OF THE CASE, AS ALSO THE JUDICIAL PRECEDENTS APPLICABLE, I AM OF THE CONSIDE RED VIEW THAT THE DISALLOWANCE U/S 14A SHOULD BE RESTRICTED TO RS.36,44,334/-, INC LUSIVE OF THE SUO MOTTU DISALLOWANCE, AND THE BALANCE AMOUNTS NEEDS TO BE D ELETED. ITA NO.1317/KOL/2017 A.Y. 2011-12 ACIT, CIR-8(2), KOL VS. M/S RUSSEL CRE DIT LTD. PAGE 3 6. THE GROUND OF APPEAL IS ACCORDINGLY PARTLY ALLOW ED ALONG LINES INDICATED. 3. LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENTLY C ONTENDS DURING THE COURSE OF HEARING THAT THE CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN PARTLY DELETING U/S 14A R.W. 8D DISALLOWANCE. WE FIND NO M ERIT IN REVENUES SOLE SUBSTANTIVE GRIEVANCE. IT IS CLEAR THAT CIT(A) HAS ONLY EXCLUDED THE RELEVANT INVESTMENTS WHICH HAVE NOT YIELDED ANY EXEMPT INCOM E IN THE RELEVANT PREVIOUS YEAR. THE QUESTION AS TO WHETHER SUCH INVE STMENTS ARE TO BE EXCLUDED OR INCLUDED STAND ANSWERED IN HON'BLE JURI SDICTIONAL HIGH COURTS DECISION IN THE CASE OF REI AGRO LTD. VS. DCIT IN A SSESSEES FAVOUR AS REITERATED IN THEIR LORDSHIPS SUBSEQUENT JUDGMENT ( SUPRA) THE REVENUES INSTANT SOLE SUBSTANTIVE GROUND IS REJECTED ACCORDI NGLY. 4. THIS REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 08 /06/2018 SD/- SD/- ( %) (' %) (DR. A.L. SAINI) (S.S.GODARA) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) KOLKATA, *DKP, SR.P.S (- 08 / 06 /201 8 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-ACIT, CIRCLE-8(2), P-7, CHOWRINGHEE SQUA RE, KOLKATA-69 2. /RESPONDENT-M/S RUSSEL CREDIT LTD., VIRGINIA HOUSE, 37, J.L. NEHRU RD. KOL-71 3. 3 4 / CONCERNED CIT KOLKATA 4. 4- / CIT (A) KOLKATA 5. 7 ''3, 3, / DR, ITAT, KOLKATA 6. < / GUARD FILE. BY ORDER/ , /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO 3,