RVS Management Ltd., Kolkata V. CIT (A)-5, KOLKATA, Kolkata

ITA 1459/KOL/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5066 (ITAT-KOLKATA)
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2016
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 10-12-2015
• Court: TRIBUNAL
• Department Lawyers: RAJAT KUMAR KUREEL
• Assessee Lawyers: SOURAV GUPTA
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH: K OLKATA [BEFORE SHRI MAHAVIR SINGH, JM] I.T.A NO.1459KOL/2015 ASSESSMENT YEAR: 2009-10 RVS MANAGEMENT LTD. VS. INCOME-TAX OFFICER, WD -2(1), KOLKATA (PAN:AABCR4809A) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 22.02.2016 DATE OF PRONOUNCEMENT: 22.02.2016 FOR THE APPELLANT: SHRI SOURAV GUPTA, FCA FOR THE RESPONDENT: SHRI RAJAT KUMAR KUREEL, JCI T, SR. DR ORDER THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A)-5, KOLKATA VIDE APPEAL NO. 278/CIT(A)-5/WD-2(1)/11-12/14-15 DATED 29.10.2015. ASSESSMENT WAS FRAMED BY ITO, WD- 2(1), KOLKATA U/S. 143(3) OF THE INCOME TAX ACT, 19 61 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2009-10 VIDE HIS ORDER DATED 30.11. 2011. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) CONFIRMING THE ACTION OF AO IN MAKING DISALLOWANCE OF EXPENSES REL ATABLE TO EXEMPT INCOME BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE I. T. RULES, 1962 AND ALSO ENHANCED THE INCOME. 3. I HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS AN IN VESTMENT COMPANY ENGAGED IN THE BUSINESS OF PROVIDING INTER-CORPORATE LOANS AND ADVANCES TO VAR IOUS PARTIES AND ALSO MAKING INVESTMENT IN SHARES TO VARIOUS COMPANIES. THE ASSESSEE COMPANY D ECLARED INTEREST INCOME OF RS.19,87,953/- AND ALSO CLAIMED EXPENDITURE OF RS.20,21,997/- OUT OF WHICH CLAIMED EXPENDITURE ON SALARY AT RS.18,34,581/-. ACCORDING TO AO, THE EXPENSES INCU RRED ARE ATTRIBUTABLE TO EARNING EXEMPT INCOME OF LTCG ON SALE OF SHARES OF RS.3,99,3/-. A CCORDINGLY, THE AO BY APPLYING THE FORMULA AS PROVIDED UNDER RULE 8D(III) OF I. T. RULES, 1962 DISALLOWED 0.5% IF AVERAGE VALUE OF INVESTMENT AT RS.8,48,359/-. AGGRIEVED, ASSESSEE P REFERRED APPEAL BEFORE CIT(A), WHO ENHANCED THE ADDITION BY ANOTHER AMOUNT OF RS.5,43, 208/- BY OBSERVING THAT ABOUT 88% OF THE FUND IS INVESTED IN SHARES HAVING THE POTENTIAL TO YIELD MORE EXEMPT INCOME AND ACCORDINGLY, 0.5% IS MUCH LOWER DISALLOWANCE THAN THE EXPENSES E STIMATED WITH THE EXEMPT INCOME. ACCORDINGLY, HE MADE TOTAL DISALLOWANCE AT RS.13,91 ,567/-. AGGRIEVED, ASSESSEE CAME IN SECOND APPEAL BEFORE TRIBUNAL. 2 ITA NO.1459/KOL/2015 RVS MANAGEMENT LTD., AY 2009-10 2 4. I FIND FROM THE FACTS OF THE CASE THAT ASSESSEE HAS EARNED ONLY EXEMPT INCOME TO THE TUNE OF RS.3933/- AND THIS ISSUE STANDS COVERED IN FAVOU R OF ASSESSEE AND AGAINST THE REVENUE BY THE DECISION OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PR. CIT V EMPIRE PACKAGE PVT. LTD. IN ITA NO. 45 OF 2015 DATED 12.01.2016, WHEREI N IT HAS HELD THAT THE DISALLOWANCE BY INVOKING THE PROVISIONS OF SECTION 14A READ WITH RU LE 8D OF I. T. RULES, 1962 CAN BE MADE ONLY TO THE EXTENT OF EXEMPT INCOME. HONBLE HIGH COURT HELD THAT D ISALLOWANCE UNDER SECTION 14A OF THE ACT REQUIRES FINDING OF INCURRING OF EXP ENDITURE IN RESPECT OF EXEMPTED INCOME AND WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INC OME, NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A OF THE ACT CANNOT ST AND. IT IS FURTHER HELD THAT IF THE ASSESSEE HAD NOT MADE ANY EXPENDITURE ON EARNING EX EMPT INCOME, THE AO IN TERMS OF SUB SECTION (2) OF SECTION 14A OF THE ACT WAS REQUIRED TO COLLECT SUCH MATERIAL EVIDENCE TO DETERMINE EXPENDITURE IF ANY INCURRED BY THE ASSESS EE IN RELATION TO EARNING OF EXEMPT INCOME. IN THE CASE BEFORE HONBLE HIGH COURT THE I NCOME FROM DIVIDEND HAD BEEN SHOWN AT RS. 1,11,564/- WHEREAS DISALLOWANCE UNDER SECTIO N 14A READ WITH RULE 8D OF THE RULES WORKED OUT BY THE AO CAME TO RS. 4,09,675/-. THUS, THE AO DISALLOWED THE ENTIRE TAX EXEMPT INCOME WHICH IS NOT PERMISSIBLE AS PER SETTL ED POSITION OF LAW. THE WINDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14A, AND IS ON LY TO THE EXTENT OF DISALLOWING EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION T O THE TAX EXEMPT INCOME. THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D AS WORKED OUT BY THE AO IS NOT IN ACCORDANCE WITH LAW AND AS SUCH WORKING IS NOT SUST AINABLE. HONBLE HIGH COURT CONFIRMED THE VIEW OF TRIBUNAL. 5. IN VIEW OF THE ABOVE FACTS AND PRECEDENT CITED A BOVE, I AM OF THE VIEW, IN THE GIVEN FACTS THAT ASSESSEE HAS EARNED ONLY EXEMPT INCOME TO THE TUNE OF RS.3933/-, HENCE DISALLOWANCE SHOULD BE RESTRICTED ONLY TO THE TUNE OF RS.3933/- ONLY. I ORDER ACCORDINGLY. THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. 6. IN THE RESULT, APPEAL OF ASSESSEE IS PARTLY ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- (MAHAVIR SINGH) ` JUDICIAL MEMBER DATED : 22ND FEBRUARY, 2016 JD. SR. P.S 3 ITA NO.1459/KOL/2015 RVS MANAGEMENT LTD., AY 2009-10 3 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT RVS MANAGEMENT LTD., 41D/118, BIPLABI B ARIN GHOSH SARANI, MURARIPUKUR ROAD, KOLKATA-700067. 2. RESPONDENT ITO, WD-2(1), KOLKATA. 3. CIT(A) , KOLKATA 4. CIT , KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .