DCIT, CC-III, KOLKATA, Kolkata V. M/s Apeejay House Pvt. Ltd., Kolkata

ITA 1319/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9214 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 09-06-2014
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A, BENC H KOLKATA BEFORE SHRI N.V.VASUDEVAN, JM & DR. A.L.SAINI, AM ./ ITA NO.1319/KOL/2014 ( / ASSESSMENT YEAR:2010-2011) DCIT, CENTRAL CIRCLE-III, AAYAKAR BHAWAN POORVA, 110, SHANTI PALLY, (3 RD FLOOR), E.M.BY PASS, KOLKATA-700107 VS. M/S APEEJAY HOUSE PVT. LTD., APEEJAY HOUSE, 15- PARK STREET KOLKATA-700016 ./ ./PAN/GIR NO.: AACCA 1959 K ( /APPELLANT ) .. ( / RESPONDENT ) REVENUE BY : SHRI RAJAT KUMAR KUREEL, JCIT ASSESSEE BY : SHRI MANISH TIWARI, FCA / DATE OF HEARING : 27/02/2017 /DATE OF PRONOUNCEMENT 22/03/2017 / O R D E R PER DR. ARJUN LAL SAINI, AM: THE CAPTIONED APPEAL FILED BY THE REVENUE PERTAININ G TO THE ASSESSMENT YEAR 2010-2011, IS DIRECTED AGAINST THE ORDER PASSED BY LD. CIT(A), CENTRAL-I, KOLKATA IN APPEAL NO.24/CC-III/C IT(A)C-I/13-14, DATED 14.03.2014, WHICH IN TURN ARISES OUT OF AN ORDER PA SSED BY THE ASSESSING OFFICER (AO) UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961, (HEREINAFTER REFERRED TO AS THE ACT), DATED 14.03 .2013. 2. BRIEF FACTS OF THE CASE QUA THE ASSESSEE ARE THA T THE ASSESSEE FILED ITS RETURN OF INCOME DISCLOSING TOTAL INCOME OF RS. 1,58,84,250/- ON 28.09.2010. THE RETURN OF INCOME WAS PROCESSED U/S. 143(1) ON 29.06.2011. LATER ON, THE ASSESSEES CASE WAS SELEC TED FOR SCRUTINY U/S.143(3) OF THE ACT AND THE AO HAS COMPLETED THE ASSESSMENT BY MAKING DISALLOWANCE U/S.14A AT RS.37,82,393/-. ITA NO.1319/14 M/S APEEJAY HOUSE PVT. LTD 2 3. AGGRIEVED FROM THE ORDER OF AO, THE ASSESSEE FIL ED AN APPEAL BEFORE THE LD. CIT(A), WHO HAS PARTLY ALLOWED THE A PPEAL OF THE ASSESSEE OBSERVING THE FOLLOWINGS :- 3. GROUND NO 1 RELATES TO THE DISALLOWANCE OF RS.37 ,82,393/- BY APPLYING THE PROVISIONS OF SECTION 14A. THE AO FOUND THAT TH E ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.40,40,048/- WHICH WAS CLAIMED EXEMPT. THE AO NOTED THAT THE ASSESSEE HAD MADE NO DISALLOW ANCE U/S 14A IN ITS RETURN OF INCOME IN AS MUCH AS NO EXPENDITURE WAS R ELATED TO THE EARNING OF THE EXEMPT INCOME. THE ASSESSEE HOWEVER OFFERED DISALLOWANCE OF RS.3,74,843/ - IN COURSE OF THE ASSESSMENT PROCEEDI NGS. THE AO HELD THAT THE ASSESSEE HAD UTILIZED BORROWED FUND FOR TH E PURPOSE OF ACQUIRING SHARES IN APEEJAY HOTELS (PANAMA) INC; AND THEN, MA DE DISALLOWANCE OF RS.22,99,100/- UNDER RULE 8D(2)(II). THE AO ALSO MA DE DISALLOWANCE OF RS.14,83,293/-UNDER RULE 8D(2)(III). THE AO THUS MA DE TOTAL DISALLOWANCE OF RS.37,82,393/ - BY APPLYING SECTION 14A READ WIT H RULE 8D. THE LD AR HAS CLARIFIED THAT APEEJAY HOTELS (PANAMA) INC IS A FOREIGN COMPANY. IT WAS ARGUED THAT THE ASSESSEE HAS ADMITTEDLY UTILIZE D THE BORROWED FUND FOR ACQUIRING SHARES IN APEEJAY HOTELS (PANAMA) INC ; BUT THEN, THE DIVIDEND INCOME FROM A FOREIGN COMPANY IS NOT EXEMP T; 'AND CONSEQUENTLY, THE INVESTMENT MADE THEREIN WOULD NOT ATTRACT SECTION 14A. THE LD AR HAS FURTHER SUBMITTED THAT NO DIVIDEND IN COME WAS RECEIVED DURING THE RELEVANT YEAR FROM APEEJAY HOTELS (PANAM A) INC. THE JURISDICTIONAL ITAT HAS IN THE CASE OF REI AGRO LTD IN ITA NO. 1331/KOL/2011 HELD THAT ONLY THOSE INVESTMENTS WHIC H HAVE YIELDED TAX- FREE INCOME DURING THE RELEVANT YEAR CAN BE CONSIDE RED FOR DIALLOWANCE UNDER RULE BD(2)(II). THE LD AR HAS THUS ARGUED THA T THE INCOME, FROM THE FOREIGN COMPANY APEEJAY HOTELS (PANAMA) INC IS NOT EXEMPT; AND CONSEQUENTLY, SUCH INVESTMENT CANNOT BE CONSIDERED FOR DISALLOWANCE U/S 14A. THE LD AR HAS ALSO TAKEN AN ALTERNATIVE PLEA T HAT NO INCOME WAS RECEIVED DURING THE YEAR FROM APEEJAY HOTELS (PANAM A) INC; AND SO, THE INVESTMENT MADE IN APEEJAY HOTELS (PANAMA) INC COUL D NOT BE CONSIDERED FOR DISALLOWANCE UNDER RULE 8D(2)(II) IN VIEW OF THE DECISION OF THE JURISDICTIONAL ITAT IN THE CASE OF REI AGRO LTD . IN SO FAR AS THE DISALLOWANCE UNDER RULE 8D(2)(III) IS CONCERNED, TH E LD AR HAS AGAIN PLACED RELIANCE ON THE DECISION OF THE JURISDICTION AL ITAT IN THE CASE OF REI AGRO LTD WHEREIN IT WAS HELD THAT ONLY THOSE IN VESTMENTS WHICH HAVE YIELDED TAX-FREE INCOME DURING THE YEAR COULD BE CO NSIDERED FOR DISALLOWANCE UNDER RULE 8D(2)(III). I HAVE CONSIDER ED THE RIVAL SUBMISSIONS. I AGREE WITH THE ARGUMENT THAT THE DIV IDEND INCOME FROM A FOREIGN COMPANY IS NOT EXEMPT; AND CONSEQUENTLY, TH E INVESTMENT FOR ACQUIRING SHARES OF A FOREIGN COMPANY CANNOT FALL W ITHIN THE AMBIT OF SECTION 14A. I ALSO FIND MERIT IN THE ALTERNATIVE P LEA OF THE LD AR THAT AS NO DIVIDEND INCOME WAS RECEIVED DURING THE YEAR FRO M APEEJAY HOTELS (PANAMA) LNC, NO DISALLOWANCE IN RESPECT OF THE INV ESTMENT MADE THEREIN CAN BE MADE UNDER RULE 8D(2)(II) IN VIEW OF THE DEC ISION OF THE JURISDICTIONAL ITAT IN THE CASE OF REI AGRO LTD. IN VIEW OF THE ABOVE, THE DISALLOWANCE OF RS.22,99,100/- MADE UNDER RULE 8D(2 )(II) IS DELETED. THE ASSESSEE HAS ALSO CONTESTED THE DISALLOWANCE OF RS. 14,83,293/-MADE UNDER RULE 8D(2)(III). I FIND THAT THE AO HAS CONSI DERED THE ENTIRE INVESTMENTS FOR COMPUTING THE DISALLOWANCE UNDER RU LE 8D(2)(III) WHICH IS NOT IN CONFORMITY WITH THE DECISION OF THE JURISDIC TIONAL ITAT IN THE CASE OF REI AGRO LTD. THE AO IS DIRECTED TO RE-COMPUTE THE DISALLOWANCE UNDER ITA NO.1319/14 M/S APEEJAY HOUSE PVT. LTD 3 RULE 8D(2)(III) BY CONSIDERING ONLY THOSE INVESTMEN TS WHICH HAVE YIELDED TAX-FREE INCOME DURING THE RELEVANT YEAR. GROUND NO 1 IS PARTLY ALLOWED. 4. NOT BEING SATISFIED WITH THE ORDER OF LD. CIT(A) , THE REVENUE IS IN APPEAL BEFORE US AND HAS TAKEN THE FOLLOWING GROUND S OF APPEAL : I) THAT ON THE FACTS AND CIRCUMSTANCES LD CIT(A) E RRED IN DELETING THE DISALLOWANCE MADE U/S.14A READ WITH RULE 8D OF RS.3 7,82,393/-. II) THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, ADDUCE OR AMEND, ANY GROUND OR GROUNDS OF APPEAL ON OR BEFORE THE DATE O F HEARING OF THE APPEAL. 5. LD. DR FOR THE REVENUE HAS PRIMARILY RELIED ON THE FINDINGS OF THE AO, WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 6. LD. AR FOR THE ASSESSEE SUBMITTED BEFORE US THAT THE ASSESSEE TOOK THE LOAN SPECIALLY TO INVEST IN APEEJAY HOTELS(PANA MA). IT IS A STRATEGIC INVESTMENT AND THE INTEREST ON THE SAID LOAN SHOULD NOT BE CONSIDERED TO COMPUTE THE DISALLOWANCE UNDER RULE 8D AND SECTION 14A OF THE ACT. MOREOVER, THE COMPANY M/S APEEJAY HOTELS(PANAMA) DI D NOT DECLARE DIVIDEND, THEREFORE, NO DISALLOWANCE SHOULD BE MADE U/S.14A. THE LD AR HAS CLARIFIED THAT APEEJAY HOTELS (PANAMA) INC IS A FOREIGN COMPANY. IT WAS ARGUED THAT THE ASSESSEE HAS ADMITTEDLY UTILIZED TH E BORROWED FUND FOR ACQUIRING SHARES IN APEEJAY HOTELS (PANAMA) INC; BU T THEN, THE DIVIDEND INCOME FROM A FOREIGN COMPANY IS NOT EXEMPT; AND CO NSEQUENTLY, THE INVESTMENT MADE THEREIN WOULD NOT ATTRACT SECTION 1 4A . SINCE NO DIVIDEND INCOME WAS RECEIVED BY THE ASSESSEE DURING THE YEAR FROM APEEJAY HOTEL (PANAMA) NO DISALLOWANCE IN RESPECT OF INVESTMENT M ADE THEREIN MAY BE MADE UNDER RULE 8D(2)(II) IN VIEW OF THE DECISION O F THE JURISDICTIONAL ITAT IN THE CASE OF REI AGRO LTD., ITA NO.1331/KOL/2011. IN ADDITION TO THIS, THE ITA NO.1319/14 M/S APEEJAY HOUSE PVT. LTD 4 ASSESSEE HAS ALSO CONTESTED THE DISALLOWANCE MADE U NDER RULE 8D(2)(III) AS THE AO HAS CONSIDERED THE ENTIRE INVESTMENT FOR COMPUTING THE DISALLOWANCE UNDER RULE 8D(2)(III) WHICH IS NOT CON FORMITY WITH THE DECISION OF JURISDICTIONAL ITAT IN THE CASE OF REI AGRO LTD. (SUPRA).THAT IS, ONLY THOSE INVESTMENTS WHICH HAVE YIELDED TAX-FREE INCOM E DURING THE YEAR COULD BE CONSIDERED FOR DISALLOWANCE UNDER RULE 8D( 2)(III). IN FACT, THESE INVESTMENTS UNDER CONSIDERATION, HAVE NOT YIELDED T AX FEE INCOME THEREFORE, NO ANY DISALLOWANCE CAN BE MADE. 7. HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE SUBMI SSIONS OF THE ASSESSEE, AS THE PROPOSITION CANVASSED BY LD. AR FOR THE ASSE SSEE ARE SUPPORTED BY THE FACTS NARRATED BY HIM ABOVE AND THE CASE LAWS C ITED BY HIM ABOVE. AS LD. AR FOR THE ASSESSEE HAS POINTED OUT THAT THE A SSESSEES CASE IS COVERED UNDER REI AGRO LTD., ITA NO.1331/KOL/2011(S UPRA). IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE AND RESPE CTFULLY FOLLOWING THE JUDICIAL PRECEDENTS OF THE KOLKATA BENCH OF THE TRI BUNAL, WE DO NOT SEE ANY REASON TO INTERFERE IN THE FINDINGS GIVEN BY TH E LD CIT(A) IN THIS REGARD. ACCORDINGLY, WE UPHELD THE ORDER OF THE CIT(A). 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE, IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22/03/ 2017. S D/ - (N.V.VASUDEVAN) S D/ - (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA ; ! DATED 22/03/2017 '#$%& /PRAKASH#MISHRA ,SR.PS. ITA NO.1319/14 M/S APEEJAY HOUSE PVT. LTD 5 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) $ % , / ITAT, KOLKATA 1. / THE APPELLANT-DCIT, CEN.CIR-III, KOLKATA 2. / THE RESPONDENT.- M/S APEEJAY HOUSE PVT. LTD. 3. 0 ( ) / THE CIT(A), KOLKATA. 4. 0 / CIT 5. 12 3 4456 , 56 , / DR, ITAT, KOLKATA 6. 3 78 / GUARD FILE. 1 4 //TRUE COPY//