Tcg Lifesciences Pvt. Ltd., Kolkata V. A.C.I.T.,Circle-11(2), Kolkata

ITA 1554/KOL/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7098 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-08-2021
• Assessment Year: 2009-2010
• Appeal Filed On: 26-06-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: RANU BISWAS
• Assessee Lawyers: A K TIBREWAL
• Keywords: Business expenditure; Opportunity of being heard; Earning of tax free income; Revenue expenditure; Capital expenditure; Rule 8D; Set aside
• Section: 143(3); 14A

Judgement Text

1 I.T.A. NO.1553&1554/KOL/2019 ASSESSMENT YEARS: 2008-09 & 2009-10 TCG LIFESCIENCES PVT. LTD. IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, KOLKATA [ BEFORE SHRI P.M. JAGTAP, V.P (KZ) AND SMT. MADHUMITA ROY, JM ] I.T.A. NO.1553&1554/KOL/2019 ASSESSMENT YEARS: 2008-09 & 2009-10 TCG LIFESCIENCES PVT. LTD. PAN: AABCC0401D VS. ACIT, CIRCLE-11(2), KOLKATA APPELLANT RESPONDENT DATE OF HEARING (VIRTUAL) 24/08/2021 DATE OF PRONOUNCEMENT 27/08/2021 FOR THE APPELLANT SHRI A. K. TIBREWAL, AR FOR THE RESPONDENT SMT. RANU BISWAS, ADDL. CIT, DR ORDER PER SMT. MADHUMITA ROY, JM BOTH THE APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE ORDERS BOTH DATED 15.02.2019 PASSED BY THE LD. CIT(A)-11, KOLKATA ARISING OUT OF TWO SEPARATE ORDERS BOTH DATED 29.12.2011 PASSED BY THE LD. DCIT-11, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR THE ASSESSMENT YEAR 2008-09 & 2009-10. 2. SINCE BOTH THE APPEALS RELATE TO THE SAME ASSESSEE, THESE ARE HEARD ANALOGOUSLY AND ARE BEING DISPOSED OF BY A COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.1553/KOL/2019 (A.Y 2008-09):- 3. THE DISALLOWANCE OF RS.39,22,760/- TOWARDS LOAN PROCESSING FEES UPON TREATING THE SAME AS CAPITAL EXPENDITURE IS A SUBJECT MATTER BEFORE US. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT APPEARS FROM THE DETAILS FILED BY THE ASSESSEE THAT A SUM OF RS.39,22,760/- WAS BOOKED UNDER LOAN PROCESSING FEES. THE 2 I.T.A. NO.1553&1554/KOL/2019 ASSESSMENT YEARS: 2008-09 & 2009-10 TCG LIFESCIENCES PVT. LTD. CONTENTION OF THE ASSESSEE IS THAT THESE EXPENSES RELATE TO WORKING CAPITAL LOAN AND ARE ALLOWABLE AS BUSINESS EXPENSES. IT WAS NOT FOUND ACCEPTABLE BY THE LD. ASSESSING OFFICER SINCE ACCORDING TO HIM THIS IS CAPITAL IN NATURE. THUS THE LOAN PROCESSING FEES OF RS.39,22,760/- WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE WHICH WAS, IN TURN, CONFIRMED BY THE FIRST APPELLATE AUTHORITY. HENCE, THE INSTANT APPEAL BEFORE US. THE ASSESSEE OBTAINED A SHORT-TERM WORKING CAPITAL LOAN FROM YES BANK AND INDUSLND BANK AND PAID PROCESSING CHARGES THEREON. ACCORDING TO THE ASSESSEE, THE SAME IS SHORT-TERM WORKING CAPITAL LOAN FOR FUNCTIONING OF THE BUSINESS OF THE ASSESSEE AND THE PROCESSING FEE CHARGES ON THE SAME IS REVENUE EXPENDITURE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS MADE BY THE RESPECTIVE PARTIES, WE HAVE ALSO PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. THE FIRST APPELLATE AUTHORITY CONSIDERED THIS FACT THAT THE APPELLANT HAS CAPITALIZED THE LOAN PROCESSING FEES IN 2007-08, HOWEVER IN THE YEAR UNDER CONSIDERATION HAS CLAIMED IT TO BE REVENUE EXPENDITURE. HE HAS FURTHER CONSIDERED AUDITORS REPORT MENTIONING THE CLAUSE NO.17 THEREOF STATES AS FOLLOWS: 6.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE. I FIND THAT FOR THE AY 2007-08 THE APPELLANT HAD CAPITALIZED THE LOAN PROCESSING FEES. HOWEVER, IN THE INSTANT AY IT HAS CHANGED ITS STANCE AND HAS CLAIMED IT TO BE REVENUE EXPENDITURE. LOOKING INTO THE AUDITED PROFIT AND LOSS ACCOUNT AS WELL AS THE AUDIT REPORT, I FIND THAT IN POINT NO. 17 OF THE ANNEXURE TO AUDITOR'S REPORT, THE AUDITOR HAS MENTIONED THAT, '17. ON THE BASIS OF AN OVERALL EXAMINATION OF THE BALANCE SHEET OF THE COMPANY, IN OUR OPINION AND ACCORDING TO THE INFORMATION AND EXPLANATION GIVEN TO US, WE REPORT THAT SHORT TERM FUNDS (WORKING CAPITAL LOAN WITH RENEWAL OPTION) OF RS. 12,676,807/- HAVE BEEN USED FOR LONG TERM INVESTMENTS AS AT THE YEAR END. 6. HOWEVER, WHILE CONFIRMING THE ADDITION THE LD. CIT(A) OBSERVED AS FOLLOWS: 6.3 I ALSO FIND THAT THE ITEM CAPITAL WORK IN PROGRESS HAS BEEN CAPITALIZED BY THE APPELLANT IN ITS BALANCE SHEET. THEREFORE, ALL EXPENSES WHICH HAVE GONE INTO FORMING THE TOTAL AMOUNT OF CAPITAL WORK IN PROGRESS HAVE TO BE CAPITALIZED IN ORDER TO HAVE A CORRECT ASSESSMENT OF CAPITAL WORK IN PROGRESS. IN OTHER WORDS, THE LOAN PROCESSING FEE IS A COST BY WHICH THE CAPITAL WORK IN PROGRESS HAS INCREASED AND IT SHOULD BE TREATED IN THE SAME WAY THE CAPITAL WORK IN PROGRESS IS TREATED. THIS COST HAS BEEN INCURRED FOR OBTAINING A LOAN. A LOAN, WHICH 3 I.T.A. NO.1553&1554/KOL/2019 ASSESSMENT YEARS: 2008-09 & 2009-10 TCG LIFESCIENCES PVT. LTD. THE AUDITORS HAVE STATED, HAS BEEN USED FOR LONG TERM INVESTMENTS, WHICH ALSO MEANS, IT HAS BEEN APPLIED FOR REAPING LONG TIME AND ENDURING BENEFITS. THEREFORE, I HOLD THAT THE LOAN PROCESSING FEE INCURRED BY THE APPELLANT SHOULD BE TREATED AS CAPITAL EXPENDITURE. HENCE, THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER ON THIS ACCOUNT IS UPHELD AND THIS GROUND OF APPEAL IS DISMISSED. 7. THE CASE MADE OUT BY THE ASSESSEE IS THAT THE PURPOSE OF THE LOAN WAS FOR SHORT-TERM WORKING CAPITAL FOR THE NORMAL FUNCTIONING OF THE BUSINESS WHICH ASPECT OF THE MATTER, ACCORDING TO US, HAS NOT BEEN ENQUIRED INTO BY THE REVENUE. IN THAT VIEW OF THE MATTER, WE DISPOSE OF THIS GROUND BY DIRECTING THE LD. A.O TO RECONSIDER THE ISSUE AFRESH, ON THIS ASPECT AS TO WHETHER THE UTILIZATION OF THE LOAN WAS MADE FOR WORKING CAPITAL AND TO PASS ORDERS THEREON IN ACCORDANCE WITH LAW. THE LD. A.O IS FURTHER DIRECTED TO GIVE AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND TO CONSIDER ANY EVIDENCE WHICH THE ASSESSEE MAY CHOOSE TO FILE AT THE TIME OF HEARING OF THE MATTER. 8. THIS ASSESSEES APPEAL IS, THEREFORE, ALLOWED FOR STATISTICAL PURPOSES. ITA NO.1554/KOL/2019 (A.Y 2009-10):- 9. THE GROUNDS OF APPEAL PREFERRED BY THE ASSESSEE ARE AS FOLLOWS: 1. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND EVIDENCES ON RECORDS, THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-11, KOLKATA ERRED IN CONFIRMING THE DISALLOWANCE OF RS.1,23,80,081 TOWARDS LOAN PROCESSING FEE BY TREATING THE SAME AS CAPITAL EXPENDITURE. 2. THAT, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE AFORESAID DISALLOWANCE OF RS.1,23,80,081 TOWARDS LOAN PROCESSING FEE BY TREATING THE SAME AS CAPITAL EXPENDITURE DISREGARDING THE VARIOUS EVIDENCES PRODUCED BEFORE HIM TO SHOW THAT LOAN PROCESSING FEE WAS PAID ON LOAN OBTAINED FROM BANK TOWARDS SHORT-TERM WORKING CAPITAL AND THEREFORE THE PAYMENT OF LOAN PROCESSING FEES WAS REVENUE IN NATURE. 3. THAT, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-11, KOLKATA ERRED IN CONFIRMING DISALLOWANCE OF RS.10,70,550/- MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT WITHOUT RECORDING SATISFACTION IN ACCORDANCE WITH LAW LAID DOWN IN SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES. 4 I.T.A. NO.1553&1554/KOL/2019 ASSESSMENT YEARS: 2008-09 & 2009-10 TCG LIFESCIENCES PVT. LTD. 4. WITHOUT PREJUDICE TO THE ABOVE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-11, KOLKATA ERRED IN CONFIRMING THE AFORESAID DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2)(II) WITHOUT FOLLOWING THE JUDGEMENT HON'BLE JURISDICTIONAL TRIBUNAL IN THE CASE OF REI AGRO LTD. VS. DCIT [2013] 35 TAXMANN.COM 404 (KOLKATA -TRIBUNAL). 5. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD. COMMISSIONER OF INCOME TAX (APPEALS)-11, KOLKATA ERRED IN NOT ADJUDICATING THE ADDITIONAL GROUND TAKEN BEFORE HIM IN RESPECT OF SUO MOTO DISALLOWANCE OF INTEREST ON DELAYED PAYMENT OF STATUTORY DUES OF RS.29,91,293/- INADVERTENTLY MADE BY THE APPELLANT COMPANY UNDER MISCONCEPTION OF LAW, WHILE FILING THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2009-10, WHICH WAS OTHERWISE AN ALLOWABLE EXPENDITURE. 6. THAT THE APPELLANT CRAVES LEAVE TO ADDUCE ADDITIONAL GROUNDS AND/OR AMEND OR WITHDRAW ANY OF THE ADDITIONAL GROUNDS BEFORE, OR AT THE TIME OF HEARING OF APPEAL. 10. GROUND NOS.1 & 2 RELATE TO DISALLOWANCE OF LOAN PROCESSING FEE OF RS.1,23,80,081/- BY TREATING THE SAME AS CAPITAL EXPENDITURE. THE IDENTICAL ISSUE HAS ALREADY BEEN DECIDED BY US IN ITA NO.1553/KOL/2019 FOR ASSESSMENT YEAR 2008-09 IN ASSESSEES OWN CASE AND IN THE ABSENCE OF ANY CHANGED CIRCUMSTANCES, THE SAME SHALL APPLY MUTATIS MUTANDIS IN THE INSTANT CASE. THUS THIS GROUND IS ALLOWED FOR STATISTICAL PURPOSES. 11. GROUND NOS.3 & 4 RELATE TO DISALLOWANCE OF RS.10,70,550/- U/S 14A OF THE ACT. THE ASSESSEE OBJECTED SUCH GROUND ON THE PLEA THAT THE LD. A.O DISALLOWED THE SAME WITHOUT RECORDING SATISFACTION IN ACCORDANCE WITH LAW LAID DOWN U/S 14A OF THE ACT R.W.R 8D OF THE RULES. 12. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED BEFORE US THAT NO SATISFACTION WAS RECORDED BY THE LD. A.O WHILE DISALLOWING THE AMOUNT INVOKING PROVISION OF SECTION 14A OF THE ACT R.W.R 8D(2)(III) OF THE RULES MAKING REFERENCE TO THE BOOKS OF ACCOUNTS OF THE ASSESSEE COMPANY THOUGH RECORDING OF SUCH SATISFACTION IS A SINE QUA NON FOR ASSUMING JURISDICTION U/S 14A OF THE ACT UNDER THE STATUTE. HE HAS RELIED UPON THE JUDGMENT PASSED BY THE HONBLE SUPREME COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING COMPANY LTD. V. DCIT REPORTED IN [2017] 81 TAXMANN.COM 111 (SC) AND FURTHER THE LD. AR RELIED UPON THE ORDER PASSED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. REI 5 I.T.A. NO.1553&1554/KOL/2019 ASSESSMENT YEARS: 2008-09 & 2009-10 TCG LIFESCIENCES PVT. LTD. AGRO LTD. IN ITAT 161 OF 2013 DATED 23.12.2013 HOLDING THAT THE RECORDING OF SATISFACTION WITH THE CORRECTNESS OF THE CLAIM AS REGARDS THE CLAIM THAT NO EXPENDITURE WAS MADE BY THE ASSESSEE HAS MADE MANDATORY BEFORE MAKING DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT R.W.R 8D(2)(III) OF THE RULES. THE LD. AR FURTHER SUBMITTED THAT DURING THE F.Y 2008-09 RELEVANT TO A.Y 2009-10, THE APPELLANT RECEIVED DIVIDEND INCOME ON ITS INVESTMENT IN MUTUAL FUNDS ONLY AND THAT THE A.O HAS WRONGLY MADE THE DISALLOWANCE OF RS.10,70,550/- U/S 14A OF THE ACT R.W.R 8D(2)(III) OF THE RULES BY COMPUTING 0.5% OF THE AVERAGE VALUE OF INVESTMENT IN SHARES AND MUTUAL FUNS AS ON THE BEGINNING AND AS ON THE END OF THE RELEVANT FINANCIAL YEAR. IF AT ALL, ACCORDING TO THE LD. AR DISALLOWANCE IS TO BE MADE, IT CAN BE MADE ON THE AVERAGE VALUE OF THOSE INVESTMENTS ON WHICH THE ASSESSEE RECEIVED ANY EXEMPT INCOME. ON THIS ASPECT, HE HAS RELIED UPON THE JUDGMENT PASSED BY THE COORDINATE BENCH IN THE CASE OF REI AGRO LTD. VS. DCIT, REPORTED IN (2013) 35 TAXMANN.COM 404. ON THE OTHER HAND, THE LD. DR RELIED UPON THE ORDER PASSED BY THE AUTHORITIES BELOW. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS MADE BY THE RESPECTIVE PARTIES, WE HAVE ALSO PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. WE FIND SUBSTANCE IN THE SUBMISSIONS MADE BY THE LD. AR TO THIS EFFECT THAT THE INVESTMENTS WHICH YIELDED EXEMPT INCOME OF THE ASSESSEE IS REQUIRED TO BE CONSIDERED WHILE COMPUTING DISALLOWANCE U/S 14A R.W.R 8D. ON THIS ASPECT, WE HAVE ALSO CONSIDERED THE RELEVANT JUDGMENT PASSED IN THE MATTER OF REI AGRO LTD. VS. DCIT REPORTED IN (2013) 35 TAXMANN.COM 404 AS RELIED UPON BY THE LD. AR. THE RELEVANT PORTION WHEREOF IS AS FOLLOWS: 8. IN RESPECT OF PROVISIONS OF RULE 8D(2)(II), WHICH IS THE SUBJECT-MATTER OF THE APPEAL IN THE ASSESSEE'S HAND, A PERUSAL OF THE SAID PROVISION SHOWS THAT WHAT IS DISALLOWABLE UNDER RULE 8D(2)(II) IS THE AMOUNT EQUAL TO PERCENTAGE OF THE AVERAGE VALUE OF INVESTMENT THE INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. THUS, UNDER SUB-CLAUSE (II), WHAT IS DISALLOWED IS PERCENTAGE OF THE NUMERATOR B IN RULE 8D(2)(IL). AGAIN THIS IS TO BE CALCULATED IN THE SAME LINE AS MENTIONED EARLIER IN RESPECT OF NUMERATOR B IN RULE 8D(2)(I) OF THE ACT. 6 I.T.A. NO.1553&1554/KOL/2019 ASSESSMENT YEARS: 2008-09 & 2009-10 TCG LIFESCIENCES PVT. LTD. 8.1 THUS, NOT ALL INVESTMENTS BECOME THE SUBJECT-MATTER OF CONSIDERATION WHEN COMPUTING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D IS TO BE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DONE ONLY BY TAKING INTO CONSIDERATION THE INVESTMENT WHICH HAS GIVEN RISE TO THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. 14. THUS, IN VIEW OF THE ABOVE PROPOSITION OF LAW, WE FIND THAT THE DISALLOWANCE IS TO BE MADE ONLY UPON CONSIDERING THOSE INVESTMENTS FROM WHICH THE ASSESSEE EARNED DIVIDEND. IN THAT VIEW OF THE MATTER, WE SET ASIDE THE ISSUE TO THE FILE OF THE LD. A.O DIRECTING HIM TO GRANT RELIEF TO THE ASSESSEE UPON TAKING INTO CONSIDERATION THOSE INVESTMENTS FROM WHICH DIVIDEND WAS EARNED BY THE ASSESSEE AND TO PASS A REASONED ORDER UPON GRANTING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND UPON TAKING INTO CONSIDERATION THE EVIDENCE WHICH THE ASSESSEE MAY CHOOSE TO FILE AT THE TIME OF HEARING OF THE MATTER. THUS, THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 15. GROUND NO.5 RELATES ADDITIONAL GROUND FOR ADJUDICATION OF THE ISSUE OF SUO MOTO DISALLOWANCE OF INTEREST OF DELAYED PAYMENT OF STATUTORY DUES OF RS.29,91,293/- WHICH WAS MADE BY THE APPELLANT COMPANY UNDER MISCONCEPTION OF LAW WHILE FILING THE RETURN OF INCOME FOR THE A.Y 2009-10 WHICH WAS OTHERWISE AN ALLOWABLE EXPENDITURE AS THE CASE MADE OUT BY THE ASSESSEE. 16. IT WAS SUBMITTED BY THE LD. AR THAT THE SAID GROUND WAS NOT ADJUDICATED BY THE LD. CIT(A) THOUGH THE SAME WAS PLACED BEFORE HIM WHICH WAS NOT CONTROVERTED BY THE LD. DR. 17. WE HAVE HEARD THE SUBMISSIONS MADE BY THE PARTIES AND WE HAVE PERUSED THE MATERIALS ON RECORD. IT APPEARS FROM THE ORDER THAT THE LD. CIT(A) HAS NOT ADJUDICATED THE ADDITIONAL GROUND SINCE IT WAS NOT PART OF THE ASSESSMENT ORDER. NO DELIBERATION IS FORTHCOMING FROM THE LD. CIT(A) ON THIS ISSUE ON MERIT. THUS, WE FIND IT FIT AND PROPER TO REMIT THE ISSUE TO THE FILE OF THE LD. CIT(A) FOR ADJUDICATING THE SAME UPON GRANTING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND UPON TAKING INTO CONSIDERATION THE EVIDENCE 7 I.T.A. NO.1553&1554/KOL/2019 ASSESSMENT YEARS: 2008-09 & 2009-10 TCG LIFESCIENCES PVT. LTD. WHICH THE ASSESSEE MAY CHOOSE TO FILE AT THE TIME OF HEARING OF THE APPEAL. HENCE, THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 18. IN THE COMBINED RESULT, BOTH THE APPEALS FILED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE OPEN COURT ON 27.08.2021 SD/- SD/- (P.M. JAGTAP) (MADHUMITA ROY) VICE-PRESIDENT(KZ) JUDICIAL MEMBER DATED:27.08.2021 RS COPY OF THE ORDER FORWARDED TO: 1. APPELLANT: TCG LIFESCIENCES PVT. LTD., BLOCK-BN, PLOT NO.7, SALT LAKE ELECTRONICS COMPLEX, SECTOR V, KOLKATA. 2 RESPONDENT: ACIT, CIRCLE11(2), KOLKATA . 3. 4. 5. CIT(A), CIT- , DR, ITAT, KOLKATA. / TRUE COPY/ BY ORDER SENIOR PRIVATE SECRETARY/D.D.O