Deva Lease & Finance Pvt Ltd, Kolkata V. I.T.O Wd - 3(1),kolkata, Kolkata

ITA 1554/KOL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4730 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 18-05-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 27-05-2013
• Court: TRIBUNAL
• Department Lawyers: RAJAT SUBHRA BISWAS
• Assessee Lawyers: D K KOTHARI
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 263

Judgement Text

1 ITA NO.1554/KOL/2013-DEVA LEASE & FINANCE )P)LTD.-A .Y.2008-09 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH A KOL KATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI M.B ALAGANESH, AM ] ITA NO.1554/KOL/2013 ASSESSMENT YEAR : 2008-09 DEVA LEASE & FINANCE (P)LTD. -VERSUS- C.I.T., KOL- 1`, KOLKATA KOLKATA (PAN:AABCD7839E) (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI D.K.KOTHARI, FCA FOR THE RESPONDENT: SHRI RAJAT SUBHRA BISWAS, CIT(D R) DATE OF HEARING : 18.05.2016. DATE OF PRONOUNCEMENT : 01.06.2016. ORDER PER N.V.VASUDEVAN, JM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 26.03.2013 OF CIT, KOLKATA-1, KOLKATA, RELATING TO AY 2008-09 PASSED U /S 263 OF THE INCOME TAX ACT, 1961 (ACT). 2. THE CIRCUMSTANCES UNDER WHICH ORDER U/S 263 OF THE ACT WAS PASSED BY THE CIT ARE AS FOLLOWS :- THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUS INESS OF INVESTMENT AND FINANCE. DURING THE PREVIOUS YEAR THE ASSESSEE RECE IVED DIVIDEND INCOME OF RS.42,30,536/-. THE SAID DIVIDEND INCOME WAS NOT CH ARGEABLE TO TAX UNDER CHAPTER III OF THE ACT AND THEREFORE U/S 14A OF THE ACT EXPENDI TURE INCURRED IN EARNING THE EXPENDITURE INCURRED IN EARNING EXEMPT INCOME HAD T O BE DISALLOWED AS DEDUCTION IN COMPUTING TOTAL INCOME OF THE ASSESSEE. IN THE CO URSE OF ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, IN RESPONSE TO A QUERY BY THE AO IN THIS REGARD, THE ASSESSEE SUBMITTED BEFORE THE AO THAT IT HAD INVESTMENTS BOT H IN QUOTED AND UNQUOTED SHARES AND ALSO FILED A STATEMENT SHOWING A SUM OF RS.1,57 ,930/- AS EXPENDITURE INCURRED IN EARNING EXEMPT INCOME. THE BASIS ON WHICH THE SAME ARRIVED AT BY THE ASSESSEE WAS AS FOLLOWS :- 2 ITA NO.1554/KOL/2013-DEVA LEASE & FINANCE )P)LTD.-A .Y.2008-09 CALCULATION OF DISALLOWANCE U/S 14A SUBMITTED TO AS SESSING OFFICER (WITHOUT PREJUDICE) OPENING INVESTMENTS IN SHARES 39,890,609.42 CLOSING INVESTMENTS IN SHARES 23,274,445,65 TOTAL 63,165,055.07 50% OF ABOVE 31,582,527.54 0.55 OF ABOVE 157,913.00 3. THE AO DID NOT ACCEPT THE AFORESAID COMPUTATI ON AS MADE BY THE ASSESSEE. HE HOWEVER OBSERVED THAT THE ASSESSEE WAS DOING COMPOS ITE BUSINESS AND TAKING NOTE OF THIS ASPECT HE ESTIMATED THE EXPENDITURE PERTAINING TO EARNING OF EXEMPT DIVIDEND INCOME AT RS.4,23,054/-. THIS CONSTITUTED 10% OF EX EMPT DIVIDEND INCOME. 4. THE CIT IN EXERCISE OF HIS POWERS U/S 263 OF THE ACT WAS OF THE VIEW THAT THE AFORESAID ORDER OF THE AO MAKING DISALLOWANCE U/S 1 4A OF THE ACT WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. ACCORDING T O CIT FOR A.Y.2008-09 RULE 8D OF THE INCOME TAX RULES, 1962 (RULES) WAS APPLICABLE A ND THAT RULE PROVIDES THE BASIS OF MAKING DISALLOWANCE U/S 14A OF THE ACT. ACCORDING T O CIT THE AO OUGHT TO HAVE MADE DISALLOWANCE U/S 14A OF THE ACT IN TERMS OF RU LE 8D OF THE RULES AND IF THE AO HAD DONE SO, THE DISALLOWANCE U/S 14A WOULD HAVE BE EN AS FOLLOWS :- HOWEVER, AS PER PROVISION OF SECTION 14A OF THE L. T. ACT READ WITH RULE 8D THE AMOUNT OF DISALLOWANCES WOULD BE AT RS.44,28,370/-. THUS, THE A.O HAS FAILED TO ADD- BAD, AMOUNT OF RS.40,05,263/-, AS PER THE FOLLOWING WORKING:- IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDIT URE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FO RMULA, NAMELY: A X B/C, WHERE, A = AMOUNT OF EXPENDITURE BY WAY' OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN POINT NO. (I) INCURRED DURING THE PREVIOUS YEAR. B= THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING ILL THE BALA NCE SHEET OF THE ASSESSEE, ON 'HE FIRST DAY AND THE LAST DAY OF TIRE PREVIOUS YEAR. C= THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. HERE, A = RS.8949049/- B= (RS.90859491+RS. 71231695) /2= RS.8 1045593/- AN D SO THE RESULTANT FIGURE OF A X B/C = RS.4023089/- 3 ITA NO.1554/KOL/2013-DEVA LEASE & FINANCE )P)LTD.-A .Y.2008-09 C= (RS.186635229+173934045)/2 = RS.180279637/- THE ERROR MADE BY THE A.O RESULTED IN UNDER ASSESSMENT OF INCOME OF RS.40,05, 263/- RENDERING THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. 3. IN VIEW OF THE FACTS NARRATED ABOVE IT IS CLEAR THAT THE A.O. HAS FAILED TO TAKE NOTICE OF THE ABOVE FACTS AND FAILED TO APPLY THE RELEVANT PROVISIONS OF SECTION 14A READ WITH RULE 8D . HE HAS THEREFORE FAILED TO APPLY HIS MIN D AND DISCHARGE HIS DUTY AS AN ASSESSING OFFICER DURING THE SCRUTINY PROCEEDINGS U /S. 143(3) OF THE LT. ACT. HENCE THE ORDER PASSED BY THE A.O. U/S.143(3) WAS ERRONEOUS I N SO FAR US IT IS PREJUDICIAL TO THE INTEREST OF REVENUE . 5. IN RESPONSE TO THE SHOW CAUSE NOTICE ISSUED B Y THE CIT ON LINES INDICATED ABOVE THE ASSESSEE SUBMITTED THAT THE AO AFTER CONSIDERIN G THE FACTS AND ALL ASPECTS HAS TAKEN POSSIBLE VIEW FOR DISALLOWANCE TO BE MADE U/S 14A O F THE ACT AND THE CIT IN EXERCISE OF POWERS U/S 263 OF THE ACT, THE CIT CANNOT SUBSTI TUTE HIS VIEW WITH THAT OF THE AO. THE ASSESSEE ALSO SUBMITTED THAT INVOKING OF RULE 8 D IS NOT AUTOMATIC AND U/S 14A(2) OF THE ACT THE AOS SATISFACTION WITH REGARD TO THE AMOUNT TO BE DISALLOWED CAN BE MATERIAL AND ONLY IF THE AO IS SO SATISFIED RESORT TO THE PROVISION OF RULE 8D HAVE TO BE MADE. 6. CIT HOWEVER DID NOT AGREE WITH THE CONTENTION S AS PUT FORTH BY THE ASSSESSEE AND HE HELD AS FOLLOWS :- 13. IN THIS CASE THE A.O. HAS FAILED TO MAKE CORRE CT DISALLOWANCES U/S.14A OF THE ACT READ WITH RULE 8D(I) OF LT. RULES 1962 RESULTED IN UNDER ASSESSMENT OF INCOME OF RS 400,5263/-. THEREFORE, THE ORDER PASSED BY HIM IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. IN VIEW OF THE ABOVE THE ORDER PASSED BY THE A.O. IS SET ASIDE WITH THE DIRECTION THAT HE SHOULD PASS THE ASSESSMENT O RDER AFTER EXAMINING THE ISSUE IN THE CONTEXT OF PROVISION OF SECTION 14A READ WITH RULE 8D(1) OF I. T. RULES 1962. THE A.O SHOULD PASS SPEAKING ORDER AFTER PROVIDING REASONAB LE OPPORTUNITY TO THE ASSESSEE AND VERIFYING DOCUMENTS AND EVIDENCES CONNECTED WITH TH E ISSUE OF DISALLOWANCES U/S. 14A READ WITH RULE 8D(L) OF I. T. RULES 1962. HENCE THE ORDER PASSED BY THE A.O. U/S. 143(3) OF T HE LT. ACT, 1961 FOR THE ASSESSMENT YEAR 2008-09 IS SET ASIDE TO BE FRAMED DE-NOVO AS P ER DIRECTION CONTAINED IN THE ABOVE PARTS OF THIS ORDER. 7. AGGRIEVED BY THE ORDER OF CIT THE ASSESSEE H AS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE PRO VISIONS OF SECTION 14A AS ORIGINALLY INTRODUCED AND AS AMENDED FROM TIME TO TIME AS WELL AS THE INSERTION OF RULE 8D WAS SUBJECT-MATTER OF SEVERAL DECISIONS RENDERED BY VAR IOUS BENCHES OF THE ITAT AS WELL AS THE HONBLE HIGH COURTS. THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP 4 ITA NO.1554/KOL/2013-DEVA LEASE & FINANCE )P)LTD.-A .Y.2008-09 INVESTMENTS LTD. V. CIT 2011) 203 TAXMAN 364 (DEL) AND THE HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. 328 ITR 81 (BOM) HAVE TAKEN A VIEW THAT RULE 8D OF THE I.T. RULES WILL APPLY ONLY FOR A.YS. 2008-09 AND SUBSEQUENT ASSESSMENT YEARS. IT HAS ALSO BEEN LAID DOWN THAT THE ASSESSEE HAS TO MAKE A CLAIM (INCLUDING A CLAIM THAT NO EXPENDITURE WAS INCURRED ) WITH REGARD TO EXPENDITURE INCURRED FOR EARNING INCOME WHICH IS NOT CHARGEABLE TO TAX. SUCH A CLAIM HAS TO BE EXAMINED BY THE AO AND ONLY IF ON AN OBJECTIVE SATI SFACTION ARRIVED AT BY THE AO THAT THE CLAIM MADE BY THE ASSESSEE, CAN THE AO PROCEED TO APPLY THE COMPUTATION MODE AS SPECIFIED IN RULE 8D(2) OF THE RULES. 9. IN THE PRESENT CASE, THE ASSESSEE, IN SO FAR I T RELATES TO COMMON EXPENSES [FALLING WITHIN THE AMBIT OF RULE 8D(2)(III) OF THE RULES, H AS TAKEN A STAND THAT A PARTICULAR AMOUNT HAS TO BE DISALLOWED AS EXPENDITURE INCURRED IN EARNING EXEMPT DIVIDEND INCOME. THE AO DID NOT AGREE WITH THE CLAIM OF THE ASSESSEE AND HE ESTIMATED THE DISALLOWANCE ON A DIFFERENT BASIS. THE QUESTION IS WHETHER IT IS MANDATORY FOR THE AO TO APPLY RULE 8D OF THE RULES, THE MOMENT HE REJECT S THE BASIS OF DISALLOWANCE AS MADE BY THE AO. WE ARE OF THE VIEW THAT EVEN IN A CASE WHERE THE AO REJECTS THE CLAIM OF THE ASSESSEE THAT NO EXPENSES WERE INCURRE D TO EARN THE EXEMPT INCOME, IT IS NOT MANDATORY FOR HIM TO INVOKE THE METHOD OF CALCU LATION PRESCRIBED BY RULE 8D(2) OF THE RULES AND IS FREE TO MAKE THE DISALLOWANCE O N ANY REASONABLE BASIS. IF RULE 8D OF THE RULES IS BLINDLY BY THE AO SOMETIMES IT WILL LEAD TO ABSURD RESULTS. THE AO EXAMINING THE CLAIM OF THE ASSESSEE REGARDING EXPEN DITURE INCURRED IN EARNING THE EXEMPT INCOME, IS BOUND TO TAKE NOTE OF SUCH ABSUR DITIES AND REFRAIN FROM INVOKING THE METHOD OF DISALLOWANCE OF EXPENSES AS PRESCRIBE D BY RULE 8D(2) OF THE RULES. IN OTHER WORDS, IT IS ONLY WHEN NO REASONABLE AND PROP ER PARAMETERS FOR MAKING DISALLOWANCE CAN BE ARRIVED AT, THAT RESORT TO RULE 8D(2) CAN BE HAD BY THE AO. RULE 8D(2) WILL THUS BE A LAST RESORT WHEN IT BECOMES IM POSSIBLE TO ARRIVE AT A JUST CONCLUSION ON THE AMOUNT OF EXPENSES THAT HAS TO BE DISALLOWED AS ATTRIBUTABLE OR INCURRED IN EARNING EXEMPT INCOME. 10. FOR THE REASONS GIVEN ABOVE WE ARE OF THE V IEW THAT INVOKING OF RULE 8D OF RULES IS NOT AUTOMATIC AND THAT THE AO U/S 14A OF T HE ACT HAS THE DISCRETION TO 5 ITA NO.1554/KOL/2013-DEVA LEASE & FINANCE )P)LTD.-A .Y.2008-09 SUBSTITUTE THE COMPUTATION OF DISALLOWANCE U/S 14A AS MADE BY THE ASSESSEE IS UNDER ESTIMATION. THE SATISFACTION CONTEMPLATED U/.S 14A (2) OF THE ACT IS NOT MERELY RESTRICTED TO REJECTING THE CLAIM MADE BY THE ASSES SEE AND THE DISALLOWANCE TO BE MADE U/S 14A OF THE ACT BUT ALSO INCLUDES SUBSTITUTING T HE CLAIM MADE BY THE ASSESSEE ON ANY OTHER REASONABLE BASIS AS THE AO DEEM IT FIT. I N SUCH CIRCUMSTANCES THE CORRECTNESS OF THE AOS JUDGMENT CAN BE REVIEWED BUT IT CANNOT BE SAID THAT THE AO HAD NO JURISDICTION TO DO SO AND AO OUGHT TO RESORT ONLY T O THE PROVISION OF RULE 8D OF THE RULES. IN OTHER WORDS RULE 8D IS NOT AUTOMATIC AND CAN BE RESORTED TO BY THE AO ONLY AS A MEASURE OF LAST RESORT. FOR THE REASONS GIVEN ABOVE, WE QUASH THE ORDER U/S 263 AND ALLOW THE APPEAL OF THE ASSESSEE. 11. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE COURT ON 01.06.2016. SD/- SD/- [M.BALAGANESH ] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 01.06.2016. [RG PS] COPY OF THE ORDER FORWARDED TO: 1.M/S. DEVA LEASE & FINANCE (P)LTD., 1A, KBR COMPLE X, 4, HO-CHI-MINH SARANI, KOLKATA-700071. 2. I.T.O. WARD-3 (1), KOLKATA. 3. CIT-KOL-1, KOLKATA 4. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER, ASST. REGISTRAR, ITAT, KOLKATA BENCHES 6 ITA NO.1554/KOL/2013-DEVA LEASE & FINANCE )P)LTD.-A .Y.2008-09