DCIT, Circle - 8, Kolkata, Kolkata V. M/s. Newdeal Finance & Investment Limited, Kolkata

ITA 1558/KOL/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5006 (ITAT-KOLKATA)
• Duration Of Justice: 4 year(s) 3 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2016
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 18-02-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 15-11-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: MD GHYAS UDDIN J
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Business income; Earning of tax free income; Revenue expenditure
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 1558 / KOL / 2011 ASSESSMENT YEAR :2007-08 DCIT, CIRCLE-8, AAYAKAR BHAWAN, 5 TH FLOOR, P7, CHOWRINGHEE SQUARE, KOLKATA-700 069 V/S . M/S NEWDEAL FINANCE & INVESTMENT LTD., 37, J.L.NEHRU ROAD, KOLKATA-700 069 [ PAN NO.AAACN 2378 P ] . /APPELLANT .. / RESPONDENT /BY APPELLANT MD. GHYAS UDDIN, JCIT-DR /BY RESPONDENT SHRI K.R. VASUDEVAN, ADVOCATE /DATE OF HEARING 18-02-2016 /DATE OF PRONOUNCEMENT 11-03-2016 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-VIII, KOLKATA IN APPEAL NO.289 /CIT(A)-VIII/KOL/09-10 DATED 09.08.2011. ASSESSMENT WAS FRAMED BY DCIT, CI RCLE-8, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) VIDE HIS ORDER DATED 14.12.2009 FOR ASSESSMENT YEAR 2007 -08. GROUNDS RAISED BY REVENUE ARE REPRODUCED BELOW:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT UPHOLDING THE FINDING OF THE ASSESSING OFFICER THAT THE ENTIRE INTEREST EXPENDITURE OF RS.3,52,12,792/- WAS PAID O N BORROWED FUND UTILIZED BY THE ASSESSEE IN INVESTMENT IN SHARES WHICH IS EASIL Y ASCERTAINABLE FROM THE SHAREHOLDERS FUND AVAILABLE WITH THE ASSESSEE AND THE AMOUNT OF INVESTMENT STANDING IN THE ASSESSEES BALANCE SHEET. ITA NO.1558/K/2011 A.Y. 2007-08 DCIT CIR-8, KOL. V. M/S NEWDEAL FINANCE & IN VESTMENT LTD. PAGE 2 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE U/S. 14A TO R S.2,80,090/- BEING 2% OF THE DIVIDEND INCOME, WHICH IS ARBITRARY AND CONTRARY TO THE FACTS OF THE CASE IN RELATION TO THE ASSESSMENT YEAR 2007-08. 2. FIRST WE TAKE UP REVENUES GROUND NO.1 WHERE THE ASSESSEE RAISED THE ISSUE IS THAT LD. CIT(A) ERRED IN UPHOLDING THE ENT IRE INTEREST EXPENDITURE OF RS.3,52,12,792/-. 2.1 BRIEF FACTS OF THE CASE ARE THAT A SSESSEE IS A NON BANKING FINANCIAL COMPANY (NBFC FOR SHORT) REGISTERED WITH RESERVE BA NK OF INDIA AND MAINLY DEALING IN THE BUSINESS OF BUYING AND SELLING OF SHARES AND SECURITIES. ASSESSEE HAS FILED ITS RETURN OF INCOME FOR THE AY 2007-08 AS ON 30.10.200 7 SHOWING A BUSINESS LOSS OF RS.3,36,20,144/-. THE RETURN WAS DULY PROCESSED UND ER SEC 143(1) OF THE ACT AND NOTICE U/S 143(2) OF THE ACT WAS ISSUED UPON THE AS SESSEE FOR SCRUTINY ASSESSMENT. THE FINANCIAL POSITION OF THE COMPANY AS ON 31 ST MARCH 2007 AND 31 ST MARCH 2006 STANDS AS UNDER : SOURCES OF FUNDS AS ON 31.03.07 AS ON 31.03.06 SHARES CAPITAL 11, 76,00,070 11,76,00,070 RESERVE & SURPLUS 2,4 3,24,828 1,60,03,634 CURRENT LIABILITIES 64,03,66,977 54,98,59,33 9 APPLICATION OF FUNDS AS ON 31.03.07 AS ON 31.03.06 INVESTMENTS 7 7,66,33,978 68,04,03,245 CURRENT ASSETS 56,57,897 30,59, 798 DURING THE ASSESSMENT PROCEEDINGS, AO OBSERVED THAT ASSESSEE HAD BORROWED FUND WHICH WAS UTILIZED FOR THE INVESTMENT IN SHARES. A COMPARISON OF THE INVESTMENT AND BORROWED FUND BETWEEN BALANCE SHEET OF 31 ST MARCH 2006 AND 31 ST MARCH 2007 RESPECTIVELY REVEALS THAT THE ENTIRE AMOUNT OF BORR OWED FUND HAS BEEN UTILIZED IN THE INVESTMENT IN SHARES. THE ASSESSEE HAS INCURRED TH E EXPENSE OF INTEREST ON LOAN LIABILITY OF RS.3,52,12,792/-. SO, IT IS CLEAR THA T THE ASSESSEE IS NOT IN THE TRADING BUSINESS OF SHARES. THE INVESTMENT MADE BY THE ASSE SSEE WILL EITHER RESULT IN DIVIDEND INCOME OR CAPITAL GAIN INCOME. ALL THE INC OMES FROM THE INVESTMENT WILL EITHER BE EXEMPTED OR BE SUBJECT TO CONCESSIONAL RA TE OF TAX. HOWEVER, ASSESSEE HAS DECLARED FOLLOWING INCOME IN ITS INCOME TAX RET URN FOR THE YEAR UNDER CONSIDERATION ITA NO.1558/K/2011 A.Y. 2007-08 DCIT CIR-8, KOL. V. M/S NEWDEAL FINANCE & IN VESTMENT LTD. PAGE 3 INCOME FROM BUSINESS RS.3,36,20,144/- (-) INCOME FROM OTHER SOURCES RS. 10,46,801/- INCOME FROM CAPITAL GAINS RS. 14,20 ,475/- FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE HAS C LAIMED THE INTEREST EXPENDITURE FROM THE BUSINESS INCOME ON THE BORROWED FUND WHICH WAS UTILIZED IN THE INVESTMENT OF SHARES AND THE SAME HAS RESULTED IN THE EXEMPTED INCOME AND THE INCOME WHICH IS SUBJECT TO CONCESSIONAL RATE OF TAX. ACCORDINGL Y, AO DISALLOWED THE INTEREST EXPENDITURE OF RS. 3,52,12,792/- FROM THE BUSINESS INCOME AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. 3. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) . BEFORE LD. CIT(A) ASSESSEE SUBMITTED THAT IN PREVIOUS AYS I.E .1999-00 TO 2004-05 AND EXPENDITURE ON INTEREST WAS DISALLOWED BY THE AO B UT LD. CIT(A) ALLOWED THE SAME U/S 36(1)(III) OF THE ACT. HOWEVER THE LD. CIT(A) DISALLOWED OF EXPENSES U/S 14A OF THE ACT @ 2% OF EXEMPT INCOME. LD. AR OF ASSESSEE SUBMITTED THAT ASSESSEE HAS BORROWED MONEY FOR ITS BUSINESS ACTIVITIES AS WELL AS ITS OWN MONEY WHICH REPRESENTS IN THE BOOKS OF ACCOUNT AS TRADE INVESTM ENTS. THE PRINCIPLE AS SPECIFIED U/S 36(1)(III) OF THE ACT FOR DEDUCTION IS THAT BOR ROWINGS ON WHICH INTEREST IS PAID SHOULD BE USED FOR THE PURPOSE OF BUSINESS IRRESPEC TIVE OF WHETHER IT IS USED FOR CAPITAL OR REVENUE PURPOSE. LD. AR FURTHER SUBMITTE D THAT ASSESSEE REBUTS THE CONTENTION OF AO THAT WHOLE OBJECTIVE OF ASSESSEES INVESTMENTS WAS WITH A VIEW TO ACQUIRING CONTROL OVER EIH LTD. THE ASSESSEE HELD O NLY 4.5% OF SHARES IN THE CAPITAL OF EIH LTD. AND NOT WITH A VIEW TO ACQUIRING CONTRO L OVER IT. LD. AR STATED THAT IT WAS NOTHING BUT A STRATEGIC INVESTMENT AND HE RELIED ON THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT V. AMOLA HOLDINGS (P) LTD. 197 TAXMANN. 18, WHERE HON'BLE DELETED THE ADDITION OF DISALLOWANCE OF INT EREST MADE BY THE AO AND HELD THAT SHARES WERE PURCHASED NOT FOR ACQUIRING CONTRO LLING RIGHTS IN ANOTHER COMPANY. LD. AR FURTHER RELIED ANOTHER CASE OF LAW HON'BLE G UJARAT HIGH COURT IN THE CASE OF ACIT V. LAXMI AGENTS 125 ITR 227 (GUJ), WHERE HON'BLE COURT HELD THAT E VEN IF THE COMPANY INVESTS IN SHARES WITH A VIEW TO EXERCISING CONTROL OVER ANOTHER COMPANY AS IT IS DONE BY THE MANAGING AGENT IN ORDER TO HAV E MORE AND BETTER CONTROL OVER IT, SUCH INVESTMENTS WOULD CONSTITUTE TO HAVE CLOSE CON NECTION WITH THE BUSINESS ACTIVITIES OF THE COMPANY. ACCORDINGLY, THE INVESTM ENTS MADE BY THE APPELLANT IN THE PRESENT CASE OF EIH LTD. WERE NOT INVESTMENTS SIMPLICITER BUT THOSE WERE FOR THE ITA NO.1558/K/2011 A.Y. 2007-08 DCIT CIR-8, KOL. V. M/S NEWDEAL FINANCE & IN VESTMENT LTD. PAGE 4 PURPOSE OF BUSINESS OF THE APPELLANT AS HELD BY THE TRIBUNAL. LD. AR FURTHER STATED THAT MONEY BORROWED WAS FOR THE PURPOSE OF BUSINESS AND THE INTEREST EXPENDITURE INCURRED THEREON IS AN ALLOWABLE DEDUCTION AND IN T HIS REGARD RELIED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF STATE OF MADRAS V. COELHO (1964) 53 ITR 186 (SC) HELD THAT IN ORDINARY COMMERCIAL PRACTICE, PAYMENT OF INTERE ST IS TAKEN AS A REVENUE EXPENDITURE. FURTHER, WHEN THE CAPITAL WAS BORROWED FOR THE PUR POSE OF BUSINESS, IT IS IMMATERIAL HOW THE BORROWED CAPITAL WAS APPLIED BECAUSE CLAUSE (II) OF SEC. 36(1) REQUIRES THAT BORROWINGS, ON WHICH INTER EST IS PAID, SHOULD BE FOR THE PURPOSE OF BUSINESS. EVEN IF THE BORROWED MONEY IS APPLIED IN MAKING INVESTMENT WHICH YIELD DIVIDEND, THE ENTIRE INTEREST PAID ON B ORROWING SHOULD BE ALLOWED AS DEDUCTION FOR COMPUTING BUSINESS INCOME AND NO PART OF INTEREST SHOULD BE APPORTIONED AND DEDUCTED FROM DIVIDEND AS PER RATIO HELD BY HON'BLE SUPREME COURT IN THE CASE OF VEECUMSEES V. CIT (1996) 220 ITR 185 (SC). THIS PRINCIPLE HAS BEEN ENUNCIATED IN VARIOUS JUDICIAL PRONOUNCEMENTS IN TH E CASE OF INDIA CEMENTS LTD. V. CIT 60 ITR AND BY HOC GUJARAT HIGH COURT IN THE CASE O F ALEMBIC GLASS INDUSTRIES LTD. (1976) 103 ITR 715 (GUJ). ACCORDINGLY THE LD. CIT( A) DISALLOWED THE ADDITION MADE BY AO BY OBSERVING AS UNDER:- THE AO HAS DISCUSSED THE ISSUE AT LENGTH IN THE AS SESSMENT ORDER AND OBSERVED THAT THE APPELLANT HAD HUGE TEMPORARY OVER DRAFT AS ON 31.3.2007 AND IT HAS MADE INVESTMENT IN SHARES MORE THAN THAT AMOUNT THEREFORE, HE CONCLUDED THE WHOLE OVERDRAFT WAS UTILIZED FOR ACQU ISITION OF SHARES AND THUS HE MADE IMPUGNED DISALLOWANCE ON ACCOUNT OF INTERE ST PAID ON SUCH OVERDRAFTS. THE AR OF THE APPELLANT HAS ALSO MADE D ETAILED AND LENGTHY SUBMISSIONS IN THIS REGARD BY REBUTTING THE ALLEGAT ION OF THE AO. IDENTICAL ISSUE HAD COME UP FOR CONSIDERATION IN APPELLANTS OWN APPEAL FOR THE ASSESSMENT YEARS 1999-2000, 2000-2001-2002 & 2004-0 5 ALSO AND THE OBSERVATIONS AND FINDINGS OF THE AO AND THE SUBMISS IONS OF THE AR IN RESPECT OF THIS ISSUE FOR THE YEAR UNDER CONSIDERATION ARE SIMILAR TO THOSE MADE FOR THE ASSESSMENT YEARS 1999-2000, 2000-2001, 2001-2002 & 2004-05. THE SALIENT FEATURES OF THE AO'S OBSERVATIONS AND FINDINGS AND OF THE ARS SUBMISSIONS SHAVE BEEN DISCUSSED BY THE CIT(A)V & VI, CHENNAI I N THE APPELLANTS APPEAL FOR THE ABOVE MENTIONED ASSESSMENT YEARS. THE FACTS OF THE CASE IN RESPECT OF THEE PRESENT ISSUE FOR THE YEAR UNDER CONSIDERAT ION ARE IDENTICAL TO THOSE FOR THE ASSESSMENT YEARS 1999-2000, 2000-2001, 2001 -2002 & 2004-05. FOR THE REASONS DISCUSSED IN THE APPELLANTS APPEAL FOR THE ASSESSMENT YEARS 1999-2000, 2000-2001, 2001-2002 2004-05, RELYING UP ON THE DECISION OF THE HON'BLE CHENNAI BENCH OF ITAT IN THE CASE OF M/S SU NDARAM FINANCE LTD., THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE AT RS.2,80,090/- BEING 2% OF THE EXEMPT DIVIDEND INCOME OF RS.1,40,04,552/- CONS IDERED TO BE ATTRIBUTED TO THE EARNING OF SUCH EXEMPT INCOME. ITA NO.1558/K/2011 A.Y. 2007-08 DCIT CIR-8, KOL. V. M/S NEWDEAL FINANCE & IN VESTMENT LTD. PAGE 5 BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS AN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US LD. DR SUBMITTED THAT THE INVESTM ENT MADE BY ASSESSEE IS OUT OF BORROWED FUND AND INCOME FROM THE INVESTMENT IS EIT HER EXEMPTED FROM TAX OR CHARGEABLE AT CONCESSIONAL RATE OF TAX. LD. DR SUBM ITTED THE CASE LAWS IN SUPPORT OF HIS CONTENTIONS AND HE RELIED ON THE ORDER OF AO. 1) CIT THRISSUR V. SMT. LEENA RAMACHANDRAN (2011) 1 0 TAXMAN.COM 109 (KER) 2) DCIT V. S.G. INVESTMENT & INDUSTRIES (2004) 89 I TD 44 (KOL) 3) DHANUKA & SONS V. CIT (2011) 12 TAXMANN.COM 227 (CAL) 4) CIT, THIRUVANANTHAPURAM V. STATE BANK OF TRAVANC ORE (2011) 16 TAXMANN.COM 289 (KER) 5) MOHAN T. ADVANI FINANCE (P) LTD. V. ITO (2006) 9 SOT 675 (MUM) 6) MOHANLAL M. SHAH V. DCTI, (2007) 105 ITD 669 (MU M) PRADEEP KAR V. ACIT (2009) 319 ITR 416 (KAR) ITO V. SANATAN TEXTRADE LTD. (2010) 4 ITR (TRIB) 59 3 (MUM) 5. ON THE OTHER HAND, LD. AR RELIED ON THE ORDER LD . CIT(A). THE LD. AR FURTHER SUBMITTED THAT FROM THE READING OF THE AFORESAID SE CTION, IT IS CLEAR THAT NO DEDUCTION IS DISALLOWABLE IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING EXEMPT INCOME. IN THIS REGARD, A SPECIAL BENCH OF T HIS TRIBUNAL IN THE CASE OF PUNJAB STATE INDUSTRIAL CORPORATION V. DCIT 102 ITD 1 (SB) HELD THAT NO DISALLOWANCE CAN BE MADE IN THIS REGARD ON ESTIMATE BASIS. IN OUR OPINI ON, THIS RATIO IS VERY MUCH APPLICABLE IN THIS CASE ALSO. IN VIEW OF THE ABOVE DECISION OF THE SPECIAL BENCH, THE DECISION OF ITAT CHENNAI RELIED UPON BY THE LD. CIT (A) WILL NOT BE APPLICABLE. BOTH THE COUNSELS FAIRLY AGREED THAT THEY WILL NOT HAVE ANY OBJECTION IF THE MATTER IS REMITTED BACK TO THE FILE OF AO TO DECIDE THE ISSUE DE NOVO AFTER EXAMINING THE EXPENDITURE ACTUALLY INCURRED BY THE ASSESSEE IN EA RNING THE EXEMPT INCOME. ACCORDINGLY, WE REMIT THIS ISSUE TO THE FILE OF THE AO TO FIND THE EXPENDITURE INCURRED IN THIS REGARD AND DECIDE THIS ISSUE AFRESH. LD. AR FURTHER RELIED ON THAT IN EARLIER ASSESSMENT YEARS I.E., AYS 1999-00 TO 2002-03 AND AY 2004-05 THE EXPENDITURE ON INTEREST WAS DISALLOWED BY THE AO. ON APPEAL, LD. C IT(A) ALLOWED THE INTEREST U/S. 36(1)(II) OF THE ACT BUT MADE A DISALLOWANCE OF IN TEREST U/S. 14A TO THE EXTENT OF 2% OF EXEMPT INCOME. THE REVENUE PREFERRED APPEAL BEFO RE ITAT AND THE ASSESSEE ITA NO.1558/K/2011 A.Y. 2007-08 DCIT CIR-8, KOL. V. M/S NEWDEAL FINANCE & IN VESTMENT LTD. PAGE 6 ALSO FILED A CROSS OBJECTION. THE HON'BLE ITAT RELY ING ON THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN PUNJAB STATE INDUSTRIAL CO RPORATION V. DCIT 102 ITD 1 HELD THAT NO DISALLOWANCE CAN BE MADE IN THIS REGARD ON ESTI MATE BASIS AND THEREFORE THE MATTER WAS RESTORED TO THE FILE OF THE ASSESSIN G OFFICER FOR EXAMINING THE EXPENDITURE ACTUALLY INCURRED BY THE ASSESSEE IN EA RNING THE EXEMPT INCOME . THE CASES WERE FIXED FOR HEARING AND T HE APPELLANT MADE WRITTEN SUBMISSIONS ON THE 9 TH AND 14 TH DECEMBER, 2009 BEFORE THE ASSESSING OFFICER DURING THE COURSE OF INCOME TAX PROCEEDINGS FOR ALL THE YEARS. HOWEVER, THE ASSESSING OFFICER DID NOT PROCEED FURTHER ON THE MATTER. HE ALSO DID NO I NTERFERE WITH THE ORDER OF THE LD. CIT(A). ACCORDINGLY, THE ORDER OF LD. CIT(A) CO NTINUES TO PERSIST IN RESPECT OF DISALLOWANCE OF INTEREST TO THE EXTENT OF 2% OF EXEMPT INCOME. 5.1 WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUG H FACTS AND CIRCUMSTANCES OF THE CASE. FROM THE FACTS OF THE CA SE WE UNDERSTAND THAT THE AO DISALLOWED THE INTEREST EXPENDITURE AS THE BORRO WED FUND WAS INVESTED IN THE INVESTMENT IN SHARES WHICH HAS GIVEN RISE TO TH E EXEMPTED INCOME FROM TAX OR CHARGEABLE AT CONCESSIONAL RATE OF TAX. THE SECTION 14A OF THE ACT PROVIDES FOR THE DISALLOWANCE OF THE EXPENSES INCUR RED IN RELATION TO EXEMPTED INCOME. THE PROVISIONS OF SECTION 14A READ AS UNDER :- 14A [(1)] FOR THE PURPOSES OF COMPUTING THE TOTAL INCO ME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT O F EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. FROM THE PLAIN READING OF THE PROVISIONS OF SECTION 14A, IT IS CLEAR THAT EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO EXEMPTED INCOME DESERVE DISALLOWANCE. HOWEVER THE LD. CIT A IN THE INSTANT CASE HAS ALLOWED THE INTEREST EXPENDITURE ON THE GROUND THAT IN THE EARL IER YEARS THE INTEREST EXPENSES WERE ALLOWED SO THESE SHOULD BE ALLOWED IN THIS YEAR AS WELL. THE LD. CIT(A) FURTHER OBSERVED THAT THE DISALLOWANCE U /S 14A WAS RESTRICTED TO 2% IN THE OWN CASE OF THE ASSESSEE IN THE EARLIER YEAR . SO THE DISALLOWANCE WAS RESTRICTED BY THE LD.CIT(A) @ 2% OF THE DIVIDEND IN COME. HOWEVER, WE DISAGREE THE VIEW TAKEN BY LD. CIT(A) THAT THE INTE REST EXPENSES SHOULD BE ITA NO.1558/K/2011 A.Y. 2007-08 DCIT CIR-8, KOL. V. M/S NEWDEAL FINANCE & IN VESTMENT LTD. PAGE 7 DISALLOWED TO THE EXTENT OF 2% OF DIVIDEND INCOME. AS SUCH, EACH YEAR IS A SEPARATE ASSESSMENT YEAR, THEREFORE THE ALLOWANCE O R DISALLOWANCE FOR EACH YEAR SHOULD BE MADE INDEPENDENTLY AND SEPARATELY, F OR EACH YEAR, DEPENDING ON THE FACTS & CIRCUMSTANCES. HOWEVER, WE OBSERVE FROM THE ORDER OF THE AO THAT T HE DISALLOWANCE OF THE INTEREST EXPENDITURE WAS MADE ON COMPARING THE BALA NCE SHEET OF THE LAST TWO FINANCIAL YEARS I.E. 31 ST MARCH 2007 AND 31 ST MARCH 2006. ACCORDINGLY, THE AO ASSUMED THAT ALL BORROWED FUND WAS UTILIZED FOR THE INVESTMENT IN SHARES. IN OUR CONSIDERED VIEW, THE BASE TAKEN BY THE AO FOR T HE DISALLOWANCE IS SKEPTICAL IN NATURE. WE RATHER FEEL THAT FUND FLOW STATEMENT WILL GIVE THE ACTUAL PICTURE FOR THE BASIS OF ALLOCATION OF INTEREST EXP ENDITURE. WE, THEREFORE, ARE INCLINED FOR RESTORING THE FILE TO THE A.O. FOR RE- EXAMINATION THE ISSUE OF INTEREST EXPENSE WITH THE DIRECTION TO CHECK WHETHER THE SOU RCE OF INVESTMENT WAS MADE OUT OF THE BORROWED FUND AND ADJUDICATE THE MA TTER ACCORDINGLY AS PER LAW. THIS GROUND OF REVENUES APPEAL IS ALLOWED FO R STATISTICAL PURPOSE. 6. THE ISSUE RAISED IN GROUND NO. 2 IN THIS APPEAL OF REVENUE IS THAT LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE U/S. 1 4A TO RS.2,80,090/- BEING 2% OF THE DIVIDEND INCOME, WHICH IS ARBITRARY AND CONT RARY TO THE FACTS OF THE CASE IN RELATION TO THE ASSESSMENT YEAR 2007-08. 7. THE AO DISALLOWED THE ENTIRE INTEREST EXPENDITUR E FOR AN AMOUNT OF RS. 3,52,12,792/- ON THE GROUND THAT THE BORROWED FUND WAS UTILIZED IN THE INVESTMENT OF SHARES WHICH RESULTED IN THE DIVIDEND INCOME TO THE ASSESSEE. HOWEVER, LD. CIT(A) ALLOWED THE INTEREST EXPENDITUR E HOLDING THAT IT WAS INCURRED FOR THE PURPOSE OF ASSESSEES BUSINESS. BU T THE LD. CIT(A) MADE THE DISALLOWANCE U/S. 14A OF THE ACT @ 2% OF THE DIVIDE ND INCOME ON THE GROUND THAT IN THE EARLIER YEARS, THE DISALLOWANCE WAS MAD E @ 2% ONLY. 8. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. ITA NO.1558/K/2011 A.Y. 2007-08 DCIT CIR-8, KOL. V. M/S NEWDEAL FINANCE & IN VESTMENT LTD. PAGE 8 9. FROM THE ABOVE DISCUSSION, WE UNDERSTAND THAT TH E DISALLOWANCE OF INTEREST WAS MADE BY AO AS THE ENTIRE BORROWED FUND WAS UTILIZED IN MAKING THE INVESTMENT IN THE SHARES. THE AO ASSUMED THAT T HE INVESTMENT WAS MADE OUT OF THE BORROWED FUND BY COMPARING THE BALANCE-S HEET OF LAST TWO FINANCIAL YEARS. THE AO DID NOT MAKE ANY OTHER DISALLOWANCE U NDER SECTION 14A OF THE ACT. HOWEVER THE LD. CIT(A) DELETED THE ADDITION OF THE DISALLOWANCE MADE BY THE AO AND DISALLOWED THE EXPENSES UNDER SECTION 14 A OF THE ACT @ 2% OF THE INCOME. NOW, IT IS CLEAR THAT THE ISSUE OF THE DISALLOWANCE U/S 14A OF THE ACT WAS NOT BEFORE THE AO AT THE TIME OF FRAMING AS SESSMENT ORDER. THEREFORE, WE ARE INCLINED TO RESTORE THIS MATTER T O THE FILE OF AO FOR ADJUDICATION AS PER LAW. ACCORDINGLY, THIS GROUND O F REVENUES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 10. IN THE RESULT, REVENUES APPEAL IS ALLOWED FOR STAT ISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT 11/ 03/2016 SD/- SD/- (MAHAVIR SINGH) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP !- 11 / 03 /201 6 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-DCIT, CIR-8, AAYAKAR BHAWAN, 5 TH FL, P7, CHOWRINGHEE SQ. KOL-69 2. /RESPONDENT- M/S NEWDEAL FINANCE & INVESTMENT LTD., 37, J.L.NEHRU ROAD, KOL-71 3. ) *+ , , - / CONCERNED CIT KOLKATA 4. , , -- / CIT (A) KOLKATA 5. 012 33*+, , *+ , / DR, ITAT, KOLKATA 6. 267 89 / GUARD FILE. BY ORDER/ , , /TRUE COPY/ / , *+ ,