DCIT, CIR-10(2), KOLKATA, Kolkata V. M/s Tollygunge Estates pvt. Ltd., Kolkata

ITA 1402/KOL/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6613 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 20-11-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Onus to prove
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SHRI J.SUDHAKAR REDDY, AM & HONB LE SHRI S.S. VISWANETHRA RAVI, JM ] I.T.A NOS. 1402&1465/ KOL/2015 ASSESSMENT YEARS : 2010- 11&2011-12 DCIT, CIRCLE-10(2), KOLKATA. -VS- M/S TOLLYGUNG E ESTATE PVT. LTD. [PAN: AABCT 1553 B] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI SALLONG YADEN, ADDL. CIT FOR THE REVENUE : SHRI SUBASH AGARWAL, ADVO CATE. DATE OF HEARING : 17.05.2018 DATE OF PRONOUNCEMENT : .06.2018 ORDER PER J.SUDHAKAR REDDY, AM BOTH THE APPEALS BY THE REVENUE ARE DIRECTED AGAI NST SEPARATE ORDERS OF THE COMMISSIONER OF INCOME TAX(APPEALS)-4, KOLKATA DATE D 23.09.2015 FOR THE ASSESSMENT YEAR 2011-12 AND DATED 02.09.2015 FOR THE ASSESSMEN T YEAR 2010-11 PASSED U/S 250 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT ). 2. THE ASSESSEE IS COMPANY AND IS IN THE BUSINESS O F EARNING RENTAL INCOME AND TRADING ITS SHARES. THE FIRST ISSUE THAT THE DEPARTMENT HA S TAKEN UP IS IN GROUND NOS. 1 AND 2 AND IS WITH REGARD TO WHETHER, THE LD. CIT(A) WAS RIGH T IN DIRECTING THE ASSESSING OFFICER TO TREAT THE INCOME RECEIPTS ON ACCOUNT OF WATER SUPPL Y CHARGES, HIRE CHARGES AND SERVICES AS INCOME FROM BUSINESS AND NOT UNDER THE HEAD IN COME FROM HOUSE PROPERTY. 2 ITA NOS.1402&1465/KOL/2015 M/S TOLLYGUNGE ESTATE PVT. LTD. A.YR S.2010-11&2011-12 2 3. AFTER HEARING RIVAL CONTENTIONS AND CONSIDERING THE PAPERS ON RECORD WE FIND THAT SEPARATE SERVICE AGREEMENT HAVE BEEN ENTERED INTO B Y ITC LTD. WITH THE ASSESSEE COPIES OF WHICH WAS PLACED AT 32 TO 36 OF THE PAPER BOOK. ALSO A SEPARATE SERVICE AGREEMENT WAS ENTERED INTO WITH THE SECRETARY OF STATE FOR FO REIGN AND COMMON WEALTH AFFAIRS OF UNITED KINGDOM, IN ADDITION TO A LEASE DEED, COPIES OF WHICH WERE PLACED AT PAGES 31 TO 57 OF THE PAPER BOOK . THE NATURE OF SERVICES THAT ARE TO BE RENDERED HAVE BEEN STATED IN THE SERVICE AGREEMENT. IN CASE OF AGREEMENT WITH IO L, A COMPOSITE AGREEMENT HAS BEEN ENTERED INTO. THE LD. CIT(A) HAS FOUND THAT IN THE EARLIER ASSESSMENT YEARS, THE INCOME IN QUESTION HAS BEEN ASSESSED AS INCOME FROM BUSIN ESS IN ORDERS PASSED U/S 143(3) OF THE ACT. ON THE ABOVE FACTS, WE DO NOT SEE ANY R EASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) ON THIS ISSUE. THUS GROUND NOS. 1 TO 2 ARE DISMISSED. 4. GROUND NO. 3 IS DIRECTED AGAINST THE DELETION OF DISALLOWANCE OF EXPENDITURE TO THE EXTENT OF RS. 82,44,062/- BY THE LD. CIT(A). 5. AFTER HEARING RIVAL CONTENTIONS, WE FIND THAT TH E ASSESSEE HAS CLAIMED TOTAL EXPENDITURE OF RS. 94,36,642/-. THE ASSESSING OFFIC ER HAS DISALLOWED AMOUNT OF RS. 82,44,062/-. THE LD. CIT(A) SUSTAINED EXPENDITURE D ISALLOWANCE TO THE TUNE OF RS. 41,06,083/-. THE ASSESSEE HAS GIVEN A TABLE SHOWING THE EXPENDITURE CLAIMED HEADWISE AND EXPLAINING THE REASONS FOR ALLOWANCE FOR THE SA ME. WE HAVE GONE THROUGH EACH OF THIS SUBMISSIONS, THE FINDING OF BOTH THE AO AND TH E LD. CIT(A). THE LD. DR COULD NOT CONTROVERT THE FINDINGS OF THE LD. CIT(A). HENCE WE DO NOT INTERFERE WITH THE FACTUAL FINDINGS OF THE LD. CIT(A). HENCE WE UPHOLD THE SAM E AND DISMISS THE GROUND NO. 3 OF THE REVENUE. 6. GROUND NO. 4 IS ON THE DISALLOWANCE MADE U/S 14 A OF THE ACT. THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 6,04,426/- WHICH IT C LAIMED AS EXEMPT U/S 10(34) OF THE ACT. THE ASSESSING OFFICER MADE DISALLOWANCE OF RS. 3,93,373/- U/S 14A OF THE ACT READ 3 ITA NOS.1402&1465/KOL/2015 M/S TOLLYGUNGE ESTATE PVT. LTD. A.YR S.2010-11&2011-12 3 WITH RULE 8D(2)(III) OF THE INCOME TAX RULES, 1962 (RULES). ON APPEAL THE LD. FIRST APPELLATE AUTHORITY HELD THAT THE ASSESSING OFFICER HAS MECHANICALLY APPLIED THE PROVISION OF RULE 8D AND HAS NOT RECORDED SATISFACT ION BEFORE REJECTING THE CLAIM OF THE ASSESSEE. HE HELD THAT COGENT REASON WERE NOT RECOR DED BY THE ASSESSING OFFICER, JUSTIFYING REJECTION OF THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE RELATABLE TO EARNING OF DIVIDEND INCOME WAS INCURRED BY IT AND DELETED T HE ADDITION. 8. WE FIND FROM THE ASSESSMENT ORDER THAT THE ASSE SSEE WAS ASKED TO EXPLAIN BY THE AO. AS TO WHY RULE 8D READ WITH SECTION 14A OF THE ACT SHOULD NOT BE APPLIED BY THE AO. THE ASSESSEE REPLIED THAT NO EXPENSES WERE INCURRED BY IT IN RELATION TO EARNING DIVIDEND INCOME. AT PARA 4.6.3 THE AO RECORDED THAT, THE ASS ESSEE HAS NOT BACKED ITS CLAIM WITH EVIDENCE AND HENCE THE ASSESSEE HAS NOT DISCHARGED ITS BURDEN OF PROOF. HE FURTHER HELD THAT, THOUGH THE ASSESSEE MIGHT NOT HAVE INCURRED ANY EXPENDITURE IN ORDER TO ACQUIRE THE SHARES DIRECTLY, FACTUALLY THE EXPENSES MADE IN THE PROFIT AND LOSS ACCOUNT MIGHT HAVE BEEN INCURRED INDIRECTLY FOR GENERATING DIVIDE ND INCOME WHICH IS CLAIMED AS EXEMPT INCOME . THEREAFTER HE OBSERVED THAT THE A SSESSEE BEING JURISTIC ENTITY, IT CAN PERFORM THESE TRANSACTIONS ONLY THROUGH EMPLOYEES A ND THE ESTABLISHMENT AND BY USING THE FUND GENERATED. THESE OBSERVATIONS OF THE AO, IN OUR VIEW PROVES THAT THE ASSESSING OFFICER HAS RECORDED HIS SATISFACTIONS, PRIOR TO REJECTING THE CLAIM OF THE ASSESSEE AND INVOKING RULE 8D. THUS THE FINDING OF THE LD. CIT(A) THAT NO SATISFACTION WAS RECORDED BY THE AO PRIOR TO INVOKING THE RULE 8 D IS NOT CORRECT. HENCE WE REVERSE THIS FINDING OF THE LD. CIT(A), AND ALLOW THIS GROU ND OF REVENUE. 9. BE AS IT MAY, TOTAL DISALLOWANCE HAS BEEN MADE B Y INVOKING RULE 8D(III) OF THE ACT. WHILE DOING SO, ONLY DIVIDEND YIELDING INVESTMENT HAVE TO BE CONSIDERED AS HELD BY THE SPECIAL BENCH OF THE DELHI TRIBUNAL IN THE CASE OF ACIT VS. VEER INVESTMENT PVT. LTD. IN I.T.A. NO. 502/KOL/2012 DATED 16.06.2017. HENCE WE SET ASIDE THIS ISSUE TO THE FILE OF 4 ITA NOS.1402&1465/KOL/2015 M/S TOLLYGUNGE ESTATE PVT. LTD. A.YR S.2010-11&2011-12 4 THE AO FOR FRESH COMPUTATION OF DISALLOWANCE UNDER SEC. 14A READ WITH RULE 8D, BY APPLYING THE PROPOSITION OF LAW LAID DOWN IN THE CA SE OF M/S VEER INVESTMENT PVT. LTD. 10. NOW TAKE UP IN I.T.A. NO. 1465/KOL/2016 THE FIRST ISSUE IS ON THE DISALLOWANCE OF EXPENSES. THE ASSESSING OFFICER DISALLOWED EXPENSES TO THE TUNE OF RS. 58,32,362/-. THE LD. CI T(A) RESTRICTED THE SAME TO RS. 11,89,867/-. AS IN THE PREVIOUS YEAR THE ASSESSEE H AS GIVEN, IN A TABULAR FORM, EACH OF THE EXPENDITURE CLAIMED AND AN EXPLANATION FOR ALLO WING FOR THE SAME. THE LD. CIT(A) HAS EXAMINED THE CLAIM AS PER THE TABLE AND SUSTAI NED DISALLOWANCE OF RS. 13,31,230/-. THE FACTUAL FINDINGS OF THE LD. CIT(A) COULD NOT BE CONTROVERTED FOR THE LD. DR. HENCE, WE SEE NO REASON TO INTERFERE IN THE SAME. HENCE WE UPHOLD THE ORDER OF THE LD. CIT(A) AND DISMISS GROUND NO.1 OF THE REVENUE. 11. GROUND NO. 2 IS ON THE DISALLOWANCE U/S 14A REA D WITH RULE 8D OF THE RULES. 12. AFTER HEARING RIVAL CONTENTION, WE SET ASIDE T HE MATTER TO THE FILE OF THE AO TO FRESH ADJUDICATION IN ACCORDANCE WITH LAW AS THE ISSUE IS THE SAME AS IN THE PREVIOUS ASSESSMENT YEAR. HENCE THIS GROUND IS ALLOWED FOR S TATISTICAL PURPOSES. 13. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE ALLOWED IN PART. ORDER PRONOUNCED IN THE COURT ON .06.2018 [S.S.VISWANETHRA RAVI] [ J.SUDHAK AR REDDY] JUDICIAL MEMBER ACCOUNTANT MEMB ER DATED : .06.2018 SB, SR. PS 5 ITA NOS.1402&1465/KOL/2015 M/S TOLLYGUNGE ESTATE PVT. LTD. A.YR S.2010-11&2011-12 5 COPY OF THE ORDER FORWARDED TO: 1. DCIT, CIRCLE-10(2), KOLKATA, P-7, CHOWRINGHEE SQ UARE, 3 RD FLOOR, KOLKATA-700069. 2. M/S TOLLYGUNGE ESTATE PVT. LTD., 9/1, LOWER ROWD ON STREET, BLOCK-B, GR. FLOOR, KOLKATA-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