DCIT, Circle-I, Kolkata, Kolkata V. M/s Dytop Commeodeal Ltd., Howrah

ITA 1467/KOL/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75081 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 5 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2014
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 11-10-2012
• Court: TRIBUNAL
• Department Lawyers: GAUTAM KR MONDAL
• Assessee Lawyers: S M SURANA
• Section: 143(3); 14A

Judgement Text

, B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () BEFORE , /AND . . . . ' '' ''# '#'# '#, $% ) [BEFORE SHRI MAHAVIR SINGH, JM & SHRI ABRAHAM P. GEORGE, AM] & & & & / I.T.A NO. 1467/KOL/2012 '( )* '( )* '( )* '( )*/ // / ASSESSMENT YEAR: 2007-08 DEPUTY COMMISSIONER OF INCOME-TAX, VS. M/S. DYTOP COMMEODEAL LTD. CIRCLE-1, KOLKATA. PAN: AAACD8796P) (,- /APPELLANT ) (./,-/ RESPONDENT ) DATE OF HEARING: 14.03.2014 DATE OF PRONOUNCEMENT: 14.03.2014 FOR THE APPELLANT: SHRI GAUTAM KR. MONDAL, JCIT, SR . (DR) FOR THE RESPONDENT: SHRI S. M. SURANA, ADVOCATE $0 / ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-1, KOLKATA IN APPEAL NO. 471/CIT(A)-1/C-1/09-10 DATED 13.07.2012. ASSESSMEN T WAS FRAMED BY DCIT, CIRCLE-1, KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT, 1961 (HE REINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2007-08 VIDE HIS ORDER DATED 23.12. 2009. 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF EXPENSES U/S. 14A OF THE ACT QUA EX EMPTED INCOME AMOUNTING TO RS.51,28,780/-. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ASSESSEE COMPANY IS A NON-BANKING FINANCE COMPANY REGISTERED WITH RBI AND ENGAGED IN MAKING OF LOANS AND INVESTMENTS IN SHARE S AND SECURITIES. DRING THE PREVIOUS YEAR RELEVANT TO THIS ASSESSMENT YEAR IT EARNED EXEMPTED INCOME I.E. DIVIDEND AND LONG TERM CAPITAL GAINS AT RS.1,57,79,915/- AND RS.78,30,484/- RESPEC TIVELY. THE AO DETERMINED EXPENDITURE ATTRIBUTABLE TO EXEMPTED INCOME AT RS.51,54,451/- I .E. INTEREST AMOUNTING TO RS.51,28,718/- AND DEMAT CHARGES AT RS.25,697/-. THE AO INVOKING RULE 8D(2)(II) OF THE I. T. RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES) MADE A DIS ALLOWANCE AS AGAINST THE SUO MOTU DISALLOWANCE MADE BY ASSESSEE AT RS.7,41,577/-. AG GRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 2 ITA NO.1467/K/2012 M/S. DYTOP COMMEODEAL LTD. , AY:2007-08 4. THE CIT(A) RESTRICTED THE DISALLOWANCE AT RS.11, 05,560/- AND FURTHER OBSERVED THAT THE PROVISIONS OF RULE 8D OF THE RULES WILL NOT APPLY F OR THE RELEVANT ASSESSMENT YEAR 2007-08 AS THIS RULE IS PROSPECTIVE AND IS APPLICABLE FOR AND FROM AY 2008-09. FOR THIS, CIT(A) OBSERVED AS UNDER: I HAVE CAREFULLY CONSIDERED ALL THE FACTS AND DETA IL OF THE CASE. IT IS OBSERVED THAT THE APPELLANT HAD ITSELF ACCEPTED A DISALLOWANCE OF RS. 7,41,577/- U/S. 14A OF THE I.T. ACT, 1961. BUT THE A.O. HAS MADE A DISALLOWANCE OF RS. 5 1,28,718/- U/S. 14A APPLYING RULE 8(2)(II) OF THE I.T. RULES AND THAT TOO TAKING GROS S INTEREST EXPENSES. THE HONBLE BOMBAY HIGH COURT IN ITS ORDER THE CASE OF GODREJ BOYCE MFG,. CO. LTD HAS HELD THAT PROVISION OF RULE 8D SHALL BE APPLICABLE FOR ASSESSMENT YEAR 2008 09 ONWARD. IN THE PRESENT CASE, THE ASSESSMENT YEAR IN VOLVED IN ASSESSMENT YEAR 2007-08. THEREFORE DISALLOWANCE U/S. 14A MADE BY THE A.O. AS PER RULE 8D WILL NOT BE APPLICABLE IN THIS CASE. FURTHER FROM THE RELEVANT PROFIT & LOSS ACCOUNT OF THE APPELLANT COMPANY I FIND THAT THE ASSESSEE COMPANY HAS INCURRED INTEREST EXPENSES TO THE TUNE OF RS. 76,06,411/- ON LOAN TAKEN BY IT AND AT THE SAME TIME IT HAS EARNED INTE REST INCOME ALSO OF RS. 51,78,957/- ON THE LOANS GRANTED BY IT AND TAKING AND GRANTING OF LOAN ARE BOTH PART OF BUSINESS ACTIVITIES OF THE COMPANY. ON THE ABOVE FACTS, I FI ND FORCE IN THE ARGUMENT PLACED BY THE AUTHORSED REPRESENTATIVE THAT WHEN THE PART OF BOR ROWED FUND IS UTILIZED FOR GRANTING OF LOAN YIELDING INTEREST INCOME, THERE IS NO REASON W HY THE INTEREST EXPENSES SHOULD NOT BE SET OFF AGAINST INTEREST INCOME BEFORE PROCEEDING F OR ANY DISALLOWANCE OF INTEREST EXPENSES AND IT IS THE NET INTEREST EXPENSES ONLY W HICH CAN BE SUBJECTED TO ANY DISALLOWANCE. THE A.O. IS WRONG IN CONSIDERING ONLY INTEREST EXPENSES FOR THE PURPOSE OF WORKING OUT DISALLOWANCE U/S. 14A. IN MY OPINION, IT IS THE NET INCOME EXPENSES OF RS. 24,27,454/- ONLY WHICH SHALL FORM THE BASIS FOR CALCULATION OF DISALLOWANCE OF INTEREST U /S. 14A PARTICULARLY IN VIEW OF NON- APPIICABILITY RULE 8D IN THE ASSESSMENT IN QUEST ION. NO OTHER MISTAKE HAS BEEN POINTED OUT BY THE A.O. IN THE COMPUTATION SUBMITTED BY THE ASSESSEE COMPANY. HOWEVER, IT IS SEEN THAT THE ASSESSEE COMPANY HAS E ARNED DIVIDEND INCOME OF RS.1,57,79,915/- BESIDES OTHER INCOME AND A PART OF BORROWED FUND HAS BEEN UTILIZED FOR INVESTMENT IN SHARES. FOLLOWING THE DECISION OF THE JURISDICTIONAL KOLKATA HIGH COURT IN THE CASE OF ISG TRADERS LTD. V. C.L.T. KOLKATA ( IT A NO. 264 OF 2003 DECIDED ON 22.09.2011), WORKING OUT A PRO-RATA INTEREST EXPEND ITURE AS RELATABLE TO EARNING OF DIVIDEND INCOME WOULD BE QUITE IN CONFORMITY WITH T HE PROVISIONS OF SEC. 14A OF THE I.T. ACT, AND ACCORDINGLY, THE DISALLOWANCE OF INTEREST EXPENSES U/S. 14A IS WORKED OUT AS UNDER : - DWIDEND INCOME AS PER PROFIT & LOSS ACCOUNT RS. 15779915 TOTAL LNCORNE, OTHER THAN INTEREST INCOME RS. 3 4492551 PERCENTAGE OF DIVIDEND INCOME TO TOTAL INCOME I.E. RS.15779915X1 00 34492551 = 45.75% NET INTEREST EXPENSES RS. RS. 2427454 DISALLOWANCE OF INTEREST EXPENSS BEING RS. 11 10560 45.75% OF RS. 2427454/- 3 ITA NO.1467/K/2012 M/S. DYTOP COMMEODEAL LTD. , AY:2007-08 THEREFORE, ON THE PRO-RATA BASIS OF CALCULATION APP ROVED BY THE JURISDICTIONAL HIGH COURT, TOTAL DISALLOWANCE OF INTEREST COMES TO RS. 11,05,560/-. THE A.O. IS DIRECTED TO RESTRICT THE DISALLOWANCE OF INTEREST U/S. 14A TO R S.11,05,560/-. ON QUERY FROM THE BENCH, THE LD. SR. DR COULD NOT C ONTROVERT THE FINDINGS OF CIT(A) AND EVEN HE COULD NOT FIND FAULT IN THE COMPUTATION OF DISAL LOWANCE MADE BY CIT(A). WE FIND THAT RULE 8D OF THE RULES WILL NOT APPLY TO RELEVANT AY 2007 -08 AS HELD BY HONBLE HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT [2010 ] 328 ITR 81 (BOM.). IT IS FURTHER SEEN THAT THE ASSESSEE ITSELF HAS GIVEN A WORKING FOR DI SALLOWANCE WHEREBY IT HAS MADE DISALLOANCE TO THE TUNE OF RS.7,41,577/- DURING THE COURSE SCRUTIN Y PROCEEDINGS, WHICH IS REPRODUCED IN THE ASSESSMENT ORDER. WE FIND THAT THE CIT(A) HAS GONE INTO THE COMPLETE REWORKING OF CALCULATION AND HE HAS WORKED OUT PRO RATA INTEREST DISALLOWANC E RELATABLE TO EARNING OF DIVIDEND INCOME AND MADE DISALLOWANCE OF EXPENSES AT RS.11,05,560/- AND WE CONFIRM THE SAME. THIS APPEAL OF REVENUE IS DISMISSED. 5. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. 6. ORDER IS PRONOUNCED IN THE OPEN COURT. SD/- SD/- . . . . ' '' ''# '#'# '# , $% , (ABRAHAM P. GEORGE) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 14TH MARCH, 2014 12 '3' 4 JD.(SR.P.S.) $0 5 . 6$ )7- COPY OF THE ORDER FORWARDED TO: 1 . ,- / APPELLANT- DCIT, CIRCLE-1, KOLKATA 2 ./,- / RESPONDENT M/S. DYTOP COMMEODEAL LTD., 251(66), G. T. ROAD, LILUAH, HOWRAH, PIN-711204 3 . 0' ( )/ THE CIT(A), KOLKATA 4. 5. 0' / CIT KOLKATA <= .' / DR, KOLKATA BENCHES, KOLKATA / ./ TRUE COPY, $0'>/ BY ORDER, ' /ASSTT. REGISTRAR .