DCIT, CIR-12(1), KOLKATA, Kolkata V. M/s Dalmia Securities Pvt. Ltd., Kolkata

ITA 1369/KOL/2015

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1312 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-03-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 10-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SHRI ABY. T. VARKEY, JM & SHRI M. BALAGANESH, AM ] I.T.A NO. 1369/KOL/20 15 ASSESSMENT YEAR : 2010-1 1 DCIT, CIRCLE- 12(1), KOLKATA. -VS- M/S DALMIA SECURITIES PVT. LTD. [PAN: AABCD 1813 G] (APPELLANT) ( RESPONDENT) FOR THE APPELLANT : SHRI SALLONG YADEN , ADDL. CIT (DR) FOR THE RESPONDENT : SHRI ASHIM CHOWDHURY, AC A DATE OF HEARING : 19.02.2018 DATE OF PRONOUNCEMENT : 07.03.2018 ORDER PER M.BALAGANESH, AM 1. THIS APPEAL BY THE REVENUE ARISES OUT OF THE ORD ER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-4, KOLKATA [IN SHORT THE LD CIT (A)] IN APPEAL NO.254/CIT(A)- 4/CIRCLE-12/KOL/14-15 DATED 17.08.2015 AGAINST THE ORDER PASSED BY THE DCIT, CIRCLE- 12, KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143 (3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 15.03.2013 FOR THE ASSESSME NT YEAR 2010-11. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS. 64,18 ,322/- MADE BY THE LD. AO U/S 14A OF THE ACT READ WITH RULE 8D OF THE RULES, IN THE FACT S AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSESS EE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF SHARE BROKING AND DEALING, INVESTMENT A ND TRADING IN SHARES AND SECURITIES, DEPOSITORY OPERATIONS , RESEARCH AND MANAGEMENT AND MERCHANT BANKING. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 WAS FILED B Y THE ASSESSEE ON 22.09.2010 2 ITA NO.1369/KOL/2015 M/S DALMIA SECURITIES PVT. LTD. A.YR.2010-11 2 DECLARING TOTAL INCOME OF RS. 1,22,28,320/-. THE AS SESSEE EARNED DIVIDEND INCOME OF RS. 12,08,39,575/- AND CLAIMED THE SAME AS EXEMPT IN TH E RETURN OF INCOME. THE ASSESSEE DID NOT DISALLOW ANY EXPENDITURE U/S 14A OF THE ACT IN THE RETURN OF INCOME. THE LD. AO NOT SATISFIED WITH THE REPLY GIVEN BY THE ASSESSEE ARRIVED AT THE DISALLOWANCE U/S 14A OF THE ACT IN THE SUM OF RS. 6418332/- BY APPLYING SEC OND AND THIRD LIMB OF RULE 8D(2) OF THE RULES. 4. BEFORE THE LD. CIT(A), THE ASSESSEE PLEADED THAT NO SATISFACTION WAS RECORDED BY THE LD. AO IN TERMS OF SECTION 14A(2) OF THE ACT READ W ITH RULE 8D(1) OF THE RULES HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. IT WAS PLEA DED THAT THE REASONING GIVEN BY THE LD. AO FOR REJECTION OF THE CLAIM OF THE ASSESSEE WAS V ERY VAGUE AND WAS NOT SUPPORTED WITH COGENT MATERIALS BROUGHT ON RECORD. THE ASSESS EE ALSO PLEADED THAT IT HAD EARNED DIVIDEND INCOME OF RS. 11,75,01,741/- ON SHARES AND UNITS OF MUTUAL FUND HELD AS STOCK- IN-TRADE AND RS. 33,37,834/- ON SHARES HELD AS INVE STMENTS. THE ASSESSEE ALSO PLEADED THAT OUT OF THE TOTAL DIVIDEND INCOME OF RS. 12,08, 39,575/-, A SUM OF RS. 11,36,71,890/- WAS DISALLOWED VOLUNTARILY BY THE ASSESSEE U/S 94( 7) OF THE ACT. IT WAS PLEADED THAT NO SPECIFIC EXPENSES WERE INCURRED BY THE ASSESSEE TO EARN DIVIDEND INCOME. IT WAS ALSO PLEADED THAT THE ENTIRE EXPENDITURE INCURRED AND DE BITED IN THE PROFIT AND LOSS ACCOUNT WERE MADE FOR THE PURPOSE OF TRADING ACTIVITY OF DE ALING IN SHARES AND SECURITIES ETC. AND ACCORDINGLY ARE NOT ENTITLED FOR THE PURPOSE OF DIS ALLOWANCE U/S 14A OF THE ACT. THE ASSESSEE ALSO FURNISHED WITH FACTS AND FIGURES BEFO RE THE LD. CIT(A) THAT IT HAD SUFFICIENT OWN FUNDS IN ITS KITTY AND THAT THE INVE STMENTS WERE MADE ONLY OUT OF OWN FUNDS AND NOT OUT OF ANY BORROWED FUNDS. IN SUPPORT OF THIS, THE ASSESSEE PLACED RELIANCE ON ITS BALANCE SHEET WHEREIN THE SHARE CAPITAL AND RESERVES AND SURPLUS OF THE COMPANY WERE REFLECTED AT RS. 96.59 CRORES AND 114.09 CRORE S RESPECTIVELY, WHEREAS THE INVESTMENT AS ON 01.04.2009 WAS RS. 30.96 CRORES AND 29.75 CRORES AS ON 31.03.2010. THE BORROWED FUNDS WERE NOT UTILIZED FOR MAKING INV ESTMENTS. ACCORDINGLY, IT WAS PLEADED THAT IN THE INSTANT CASE, NO DISALLOWANCE UNDER THE SECOND LIMB OF RULE 8D(2) 3 ITA NO.1369/KOL/2015 M/S DALMIA SECURITIES PVT. LTD. A.YR.2010-11 3 OF THE RULES COULD BE MADE. IT WAS ALSO PLEADED THA T THE SHARES HELD AS STOCK-IN-TRADE WOULD BE OUTSET THE AMBIT OF DISALLOWANCE U/S 14A O F THE ACT. WITHOUT PREJUDICE TO THE PRELIMINARY ARGUMENT THAT THE LD. AO HAD NOT RECORD ED SATISFACTION HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE WITH COGENT MATERIAL, THE ASSESSEE STATED THAT ONLY INVESTMENTS WHICH YIELDED DIVIDEND INCOME ALONE COULD BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF WORKING OUT DISALLOWANCE U/S 14A OF THE ACT READ WI TH RULE 8D OF THE RULES. IN SUPPORT OF THIS PROPOSITION, IT PLACED RELIANCE ON THE DEC ISION OF THIS TRIBUNAL IN THE CASE OF REI AGRO LIMITED REPORTED IN 144 ITD 141. 5. THE LD. CIT(A) DELETED THE ENTIRE ADDITION MADE IN THE SUM OF RS. 64,18,332/- U/S 14A OF THE ACT READ WITH RULE 8D OF THE RULES BY OB SERVING THAT THE LD. AO HAD NOT RECORDED PROPER SATISFACTION FOR INVOKING THE PROVI SION OF SECTION 14A OF THE ACT READ WITH RULE 8D(1) OF THE RULES THAT THE AMOUNT OF CLA IM FOR EXPENSES INCURRED BY THE ASSESSEE FOR EARNING EXEMPT INCOME IS NOT CORRECT H AVING REGARD TO THE ACCOUNTS OF THE ASSESSEE. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED BY OVERLOOKING THE FACT THAT IN THE ASSESSMENT THE AO HAD SHOW CAUSED VIDE ORDER SHEET DATED 12.09.2012 AND THAT THE CONTENTIO N MADE BY THE ASSESSEE AGAINST THE SAID SHOW CAUSE WAS NOT ACCEPTED BY THE AO BY QUOTING THE REASONS WHICH IS MENTIONED IN THE ORDER OF ASSESSMENT. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED BY IGNORING THAT ISSUING OF SHOW CAUSE AND NON-ACCE PTANCE OF CONTENTION AGAINST SUCH SHOW CAUSE IS ITSELF A SATISFACTION OF THE AO THAT THE ACCOUNT OF THE ASSESSEE WAS NOT CORRECT AS IT FAILED TO COMPUTE ANY AMOUNT OF DISALLOWANCE TOWARDS EARNING OF EXEMPT INCOME IN ITS COMPUTATION OF INCO ME IN THE RELEVANT ASSESSMENT YEAR. 3. IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) HAS ERRED BY IGNORING THE FACT THAT ASSESSEES BUSINESS WAS O NLY DEALING IN SHARES AND SECURITIES, SO, IT CANNOT BE JUSTIFIED THAT THE WHO LE OF THE EXPENSES WAS RELATING TO BUSINESS OF TRADING OF SHARES OF THE ASSESSEE AND N O EXPENSE WAS INCURRED FOR EARNING EXEMPT INCOME. 4 ITA NO.1369/KOL/2015 M/S DALMIA SECURITIES PVT. LTD. A.YR.2010-11 4 6. THE LD. DR DREW OUR ATTENTION TO PARA 2.4 TO 2.5 OF THE ASSESSMENT ORDER WHEREIN THE LD. AO HAD DULY RECORDED SUBJECT TO SATISFACTION AS TO WHY IS REJECTING THE CLAIM OF THE ASSESSEE AND RESORTING TO COMPUTATION OF DISALLOWAN CE BY APPLYING METHOD PRESCRIBED IN RULE 8D OF THE RULES. HENCE, HE ARGUED THAT THE DIS ALLOWANCE DELETED BY THE LD. CIT(A) ON THIS ACCOUNT IS UNWARRANTED. HE PLACED RELIANCE ON THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF INDIA BULLS FINANCIAL SER VICE LTD. VS. DCIT DATED 06.12.2016 FOR THE ASSESSMENT YEAR 2009-10 WHEREIN IT WAS HELD THAT MERELY BECAUSE THE LD. AO DID NOT EXPRESSLY RECORD HIS DISSATISFACTION WITH THE A SSESSEE WORKING, DOES NOT MEAN THAT HE CANNOT MAKE THE DISALLOWANCE. THE LD. AO NEED NOT DO SUCH LIP SERVICE AND FORMERLY RECORD DISSATISFACTION. IT IS SUFFICIENT IF THE ORD ER SHOWS DUE APPLICATION OF MIND TO ALL ASPECTS. IN RESPECT TO THIS, THE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) AND FURTHER PLACED RELIANCE ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HDFC BANK LTD. REPORTED IN 366 ITR 505 (BOM) WHEREIN IT WAS HELD THAT NO DISALLOWANCE OF INTEREST UNDER THE SEC OND LIMB OF RULE 8D(2) OF THE RULES COULD BE MADE IF IT IS PROVED THAT THE ASSESSEE IS HAVING SUFFICIENT OWN FUNDS WITH IT. WITH REGARD TO NON-RECORDING OF SATISFACTION HE PLA CED RELIANCE ON THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. REPORTED IN 380 ITR 652 (P&H) WHEREIN IT WAS HELD T HAT THE SATISFACTION TO BE RECORDED BY THE LD. AO MUST BE BASED ON CREDIBLE AND RELEVAN T EVIDENCE AND THAT THE LD. AO CANNOT BY RECORDING GENERAL OBSERVATION, PARTICULAR LY WHERE THE ASSESSEE HAS DENIED USING INTEREST BEARING FUNDS, PROCEED TO INFER THAT THE INTEREST BEARING FUNDS MUST HAVE BEEN USED TO EARN EXEMPTED INCOME. HE PLEADED THAT THE SAID CASE ALSO HELD THAT SECTION 14A OF THE ACT, BEING IN THE NATURE OF AN EXCEPTION , HAS TO BE CONSTRUED STRICTLY AND ONLY WHERE THE AO RECORDS SATISFACTION, ON THE BASIS OF CLEAR AND COGENT MATERIAL, SHOULD AN ORDER BE PASSED U/S 14A OF THE ACT DISALLOWING SUCH A CLAIM. HE ALSO DREW OUR ATTENTION THAT THE GENERAL OBSERVATION MADE BY THE LD. AO IN PARA 2.4 WAS ONLY WITH REGARD TO SHARES HELD AS INVESTMENT AND NOT FOR SHARES HELD A S STOCK-IN-TRADE. WITH REGARD TO RELIANCE PLACED ON THE DECISION OF HONBLE DELHI HI GH COURT (SUPRA) HE SAID THAT THE SAID 5 ITA NO.1369/KOL/2015 M/S DALMIA SECURITIES PVT. LTD. A.YR.2010-11 5 DECISION IS SQUARELY DISTINGUISHABLE ON FACTS, INAS MUCH AS IN THAT CASE, THE LD. AO HAD MADE ELABORATE ANALYSIS HAVING REGARD TO THE ACCOUN TS OF THE ASSESSEE FOR REJECTING THE CLAIM OF THE ASSESSEE IN TERMS OF SECTION 14A READ WITH RULE 8D(1) OF THE RULES. WHEREAS IN THE INSTANT CASE BEFORE US, THE LD. AO H AD NOT MADE ANY ANALYSIS TO REJECT THE CLAIM OF THE ASSESSEE BY MAKING SPECIFIC RELIANCE T O THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE FACTS S TATED HEREINABOVE REMAIN UNDISPUTED AND HENCE THE SAME ARE NOT REITERATED FOR THE SAKE OF BREVITY. AT THE OUTSET, WE FIND THAT THE LD. AO HAD DULY RECORDED HIS SATISFACTION AS TO WHY THE CLAIM OF THE ASSESSEE THAT NO EXPENSES WERE INCURRED FOR EARNING EXEMPT INCOME IS NOT ACCEPTABLE. THE LD. AO HAS CLEARLY BROUGHT OUT HIS MIND FOR APPLYING THE PROVI SIONS OF RULE 8D OF THE RULES FOR MAKING DISALLOWANCE U/S 14A OF THE ACT. HENCE, THE PRELIMINARY OBJECTION RAISED BY THE LD. AR IN THIS REGARD IS REJECTED. HOWEVER, WE FIND FROM THE BALANCE SHEET OF THE ASSESSEE, WHICH WAS PLACED BEFORE THE LD. CIT(A) AN D REMAIN UNDISPUTED BEFORE US, WE HOLD THAT THE ASSESSEE HAS SUFFICIENT OWN FUNDS AND HENCE RESPECTFULLY FOLLOWING THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE O F HDFC BANK (SUPRA), WE HOLD THAT NO DISALLOWANCE OF INTEREST IS TO BE MADE UNDE R THE SECOND LIMB OF RULE 8D(2) OF THE RULES. WE ALSO FIND THAT THE ASSESSEE HAS GOT D UAL PORTFOLIO, I.E CERTAIN SHARES WERE HELD AS STOCK-IN-TRADE AND CERTAIN SHARES WERE HELD AS INVESTMENTS THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF G.K.K. CAPITAL MARKETS LT D. IN G.A NO.1150 OF 2015 ITAT NO.52 OF 2015 DATED 10TH FEBRUARY, 2017 HAD HELD TH AT THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE RULES CANNOT BE MADE APPLI CABLE IN RESPECT OF SHARES HELD AS STOCK-IN-TRADE . WE ALSO FIND THAT THIS TRIBUNAL IN THE CASE OF REI AGRO LIMITED REPORTED IN 144 ITD 141 HAD HELD THAT ONLY INVESTMENTS WHICH HAD YIELDED EXEMPT INCOME SHOULD BE CONSIDERED FOR WORKING OUT THE DISALLOWAN CE UNDER RULE 8D OF THE RULES. RESPECTFULLY FOLLOWING THE AFORESAID DECISIONS, WE DIRECT THE LD. AO TO RE-COMPUTE THE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D O F THE RULES ONLY BY CONSIDERING THE 6 ITA NO.1369/KOL/2015 M/S DALMIA SECURITIES PVT. LTD. A.YR.2010-11 6 SHARES AND MUTUAL FUNDS HELD AS INVESTMENTS WHICH H AD YIELDED DIVIDEND INCOME DURING THE YEAR, UNDER THIRD LIMB OF RULE 8D(2) OF THE RU LES. FOR THE SAKE OF CLARITY, WE REITERATE THAT NO DISALLOWANCE OF INTEREST IS TO BE MADE UNDER SECOND LIMB OF RULE 8D(2) OF THE RULES IN THE FACTS OF THE INSTANT CASE. ACCO RDINGLY, GROUNDS RAISED BY THE REVENUE ARE PARTLY ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS PART LY ALLOWED. ORDER PRONOUNCED IN THE COURT ON 07.03.2018 SD/- SD/- [A.T. VARKEY] [ M.BALAGANESH ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 07.03.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. DCIT, CIRCLE-12(1), KOLKATA, AAYAKAR BHAWAN, P-7 , CHOWRINGHEE SQUARE, 7 TH FLOOR, KOLKATA-700069. 2. M/S DALMIA SECURITIES PVT. LTD., IDEAL PLAZA, 11 /1, SARAT BOSE ROAD, 3 RD FLOOR, KOLKATA-700020. 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 7 ITA NO.1369/KOL/2015 M/S DALMIA SECURITIES PVT. LTD. A.YR.2010-11 7