M/s. Agarwal Galvanising(P)Ltd, Kolkata V. ITO, Ward-9(1), Kolkata, Kolkata

ITA 1401/KOL/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7859 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2014
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 01-10-2012
• Court: TRIBUNAL
• Department Lawyers: D BANERJEE
• Assessee Lawyers: S CHOUDHURY
• Keywords: Reopening of assessment; Earning of tax free income
• Section: 14A; 147; 148

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOLKATA ( ) BEFORE , /AND , ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI SHAMIM YAHYA , AM ] / I.T.A NO. 1 401 /KOL/20 1 2 / ASSESSMENT YEAR : 200 8 - 0 9 M/S. AGARWAL GALVANISING (P) LTD. VS. INCOME - TAX OFFICER, WD - 9(1), KOLKATA (PAN:AADCA4296Q) ( /APPELLANT ) ( / RESPONDENT ) DATE OF HEARING: 1 2 . 12 .201 4 DATE OF PRONOUNCEMENT: 18 . 1 2 .201 4 FOR THE APPELLANT : SHRI S. CHOUDHURY, ADVOCATE FOR THE RESPONDENT : SHRI D. BANERJEE, JCIT / ORDER PER SHRI MAHAVIR SINGH, JM : THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT (A) - VIII , KOLKATA IN APPEAL NO. 7 4 / CIT(A) - VIII / KOL /10 - 11 DATED 1 1 . 0 7 .20 1 2 . ASSESSMENT W AS FRAMED BY ITO), WD - 9(1) , KOLKATA U/S. 147/ 1 4 3 (3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR ASSESSMENT YEAR 200 8 - 0 9 VIDE HIS ORDER DATED 30 . 09 .20 1 0 . 2. THE FIRST ISSUE IN THIS APPEAL OF ASSESSEE IS AGAINST THE REOPENING OF ASSESSMENT U/S. 147 READ WITH SECTION 148 OF THE ACT. FOR THIS, ASSESSEE HAS RAISED FOLLOWING GROUND NO.1: 1. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A ) ERRED IN CONFIRMING THE ACTION OF THE LD. AO IN REOPENING THE ASSESSMENT AND SUCH ACTION OF THE LD. CIT(A) IS ILLEGAL AND THE REOPENING NOTICE U/S. 148 NEEDS TO BE QUASHED. 3. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SHRI SOUMITRA CHOUDHURY, ADVOCAT E STATED THAT HE HAS INSTRUCTIONS FROM ASSESSEE NOT TO PRESS THIS ISSUE AND THE SAME MAY BE TREATED AS WITHDRAWN. LD. SR. DR HAS NOT OBJECTED TO THE SAME. IN VIEW OF THE ABOVE, WE TREAT THE ABOVE ISSUE AS DISMISSED BEING WITHDRAWN. 4. THE NEXT ISSUE ON MERITS IS AS REGARDS TO THE ORDER OF CIT(A) CONFIRMING THE ACTION OF AO DISALLOWING THE EXPENSES OF RS.7,97,496/ - U/S. 14A READ WITH RULE 8D OF THE I. T. RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES ) IN RELATION TO EXEMPT INCOME. FOR THIS, ASSESSEE HAS RAISED FOLLOWING GROUND NOS. 2 TO 6: 2. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.7,97,496/ - U/S 14A RE A D WITH RULE 8D TOWARDS ALLEGED EXPENSES INCURRED IN RELATION TO EXEMPT DIVIDEND INCOME AS THE EXPENDITURE INCURRED BY THE COMPANY WAS MAINLY IN THE NATURE OF ADMINIS T RATIVE EXPENSES WITHOUT HAVING ANY BEARING WITH EARNING OF DIVIDEND INCOME. 2 ITA NO.1 40 1/K/201 2 M/S. AGARWAL GALVANISING (P) LTD. AY 200 8 - 0 9 3. FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE TH E LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE LD AO IN APPLYING THE RULE 8D AS THE LD AO HAD FAILED TO RECORD AS HOW HE IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED FOR EA RNING THE EXEMPT INCOME. 4. WITHOUT PREJUDICE THE PROVISIONS OF SECTION 14A, RULE 8D BEING AN ARBITRARY METHOD OF WORKING OUT OF THE AMOUNT OF DISALLOWANCE U/S 14A IS ULTRA VIRUS THE CONSTITUTION OF INDIA. 5. WITHOUT PREJUDICE, ADMINISTRATIVE EXPENDITURES WHICH WERE INCURRED FOR RUNNING THE BUSINESS OF THE COMPANY CANNOT BE DISALLOWED U/S. 14A READ WITH RULE 8D. 6. WITHOUT PREJUDICE THE ADDITION OF RS.7,97,496/ - U/S. 14A READ WITH RULE 8D IS HIGHLY EXCESSIVE TH EREFORE NEEDS TO BE DELETED. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY HAS EARNED DIVIDEND INCOME OF RS.17,43,351/ - AND CLAIMED THE SAME AS EX EMPT. ACCORDING TO AO, THE ASSESSEE HAS NOT OFFERED ANY RELATABLE EXPENDITURE PERTAINING TO EXEMPT INCOME I.E. DIVIDEND INCOME AS DISALLOWANCE TO INCOME NOT FORMING PART OF TOTAL INCOME. ACCORDINGLY, AO MADE DISALLOWANCE OF RS.7,97,496/ - BY COMPUTING DIS ALLOWANCE AS PER RULE 8D OF THE RULES AS UNDER: AMOUNT OF EXPENDITURE, REQUIRES TO BE DISALLOWED IS COMPUTED AS PER RULE 8D AS UNDER: AS PER RULE 8D(2)(I) NIL AS PER RULE 8D(2)(II) NIL AS PER RULE 8D(2)(III) INVESTMENT AS ON 01.04 .2008 : RS.21,91,65,138 INVESTMENT AS ON 01.04.2007: RS. 9,98,33,456 RS.31,89,98,594 AVERAGE VALUE OF INVESTMENT: RS. 1,59,49,929 % OF ABOVE: RS. 7 ,97,496 RS.7,97,496 HENCE, RS.7,97,496 IS ADDED TO THE TOTAL INCOME. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALSO CONFIRMED THE ACTION OF AO BY HOLDING THAT DISALLOWANCE OF EXPENDITURE INCURRED FOR EARNING EXEMPT DIVIDEND INCOME U/S. 14A OF THE ACT BY APPLY ING THE PROVISIONS OF RULE 8D(2)(II) OF THE RULES IS AS PER THE PROVISIONS OF THE ACT. FOR THIS, HE FINALLY OBSERVED AS UNDER: ACCORDINGLY HE CALCULATED THE PROPORTIONATE EXPENDITURE PERTAINING TO THE SAID EXEMPT INCOME AND THEREAFTER AS PER RULE 8D(2)(III) THE A.O. WORKED OUT THE DISALLOWANCE AMOUNT OF EXPENDITURE OF RS.7,97,496/ - U/S. 14A. THIS IS ALSO NOW WELL SETTLED LAW THAT THE PROVISION OF RULE 8D IS APPLICABLE FOR DETERMINING THE EXPENDITURE REQUIRED TO BE DISALLOWED U/S. 14A OF THE ACT FR OM THE AY 2008 - 09 I.E. FOR THE RELEVANT AY UNDER CONSIDERATION. AGGRIEVED, ASSESSEE IS NOW IN APPEAL BEFORE US. 6. WE FIND THAT THE AO HAS MADE DISALLOWANCE BY APPLYING RULE 8D(2)(III) OF THE RULES AND NOT 8D(2)(I) OR 8D(2)(II) OF THE RULES. WE HAVE ALSO GONE THROUGH THE P&L ACCOUNT 3 ITA NO.1 40 1/K/201 2 M/S. AGARWAL GALVANISING (P) LTD. AY 200 8 - 0 9 FILED BY ASSESSEE BEFORE US AND SEEN THAT THE EXPENDITURE RELATES TO ADMINISTRATIVE EXPENSES SUCH AS AUDIT FEE, BANK CHARGES, FILING FEE, TRAVELLING AND CONVEYANCE, SALARY AND BONUS, LEGAL FEE, INCENTIVES, PROFESSIONAL FEE, OF FICE RENT, COMPLIANCE REPORT FEE AND RETAINER SHIP FEE. ALL THESE EXPENSES RELATE TO ADMINISTRATIVE EXPENSES AND DO NOT FALL UNDER INVESTMENTS. RULE 8D(3) (III) SPECIFICALLY MEANT FOR DISALLOWANCE OF AVERAGE OF INVESTMENT I.E. AN AMOUNT EQUAL TO 1.5% OF T HE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE 1 ST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. RULE 8D(2)(II) RELATES TO DISALLOWANCE OF INTEREST EXPENDITURE AND ASSESSEE HAS NOT INCURRED ANY EXPENDITURE IN RELATION TO INTEREST. ONLY EXPENDITURE DISALLOWANCE CAN BE MADE IS ON ACCOUNT OF DIRECT EXPENSES RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME U/S. 8D(2)(I) OF THE ACT, B UT THE AO, AS IS EVIDENT CLEARLY FROM THE REPRODUCED ASSESSMENT ORDER, THE DISALLOWANCE IS MADE ON ACCOUNT OF AVERAGE OF INVESTMENT UNDER RULE 8D(2)(III). BUT THE AO COULD NOT CORRELATE WHICH INVESTMENT IS IN RELATION TO EXEMPT INCOME BECAUSE THE ASSESSEE HAS FILED COMPLETE DETAILS IN RESPECT TO INVESTMENT MADE IN SHARES OUT OF ITS OWN FUNDS AND NOT THE BORROWED FUNDS. IN SUCH CIRCUMSTANCES, WE HAVE NO ALTERNATIVE BUT TO DELETE THE ADDITION BECAUSE THE AO HAS MISERABLY FAILED TO CORRELATE THE INVESTMENT WIT H THAT OF THE EXEMPT INCOME. IN TERM OF THE ABOVE, THE APPEAL OF ASSESSEE IS ALLOWED. 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS ALLOWED. 8 . ORDER PRONOUNCED IN OPEN COURT ON 1 8 . 1 2 . 2 0 1 4 S D / - S D / - , , ( SHAMIM YAHYA ) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 1 8 T H DECEMBER , 201 4 JD.(SR.P.S.) - COPY OF THE ORDER FORWARDED TO: 1 . / A PPELLANT M/S. AGARWAL GALVANISING (P) LTD., C/O, R. PATODIA & CO., 9, JAGMOHAN MULLICK LANE, 3 RD FLOOR, KOLKATA - 700 007 2 / RESPONDENT ITO, WD - 9(1), KOLKATA. 3 . ( )/ THE CIT(A), KOLKATA 4. 5. / CIT KOLKATA / DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, / BY ORDER, /ASSTT. REGISTRAR .