I.T.O Wd - 6(2),kolkata., V. Linear Commercial Pvt Ltd., Kolkata

ITA 158/KOL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100009 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 18-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHR P K CHAKRABORTY JCITSRDR
• Assessee Lawyers: GIRISH SHARMA
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 158 / KOL / 2013 ASSESSMENT YEAR : 2009-10 INCOME TAX OFFICER, WARD-6[2], P-7, CHOWRINGHEE SQUARE, 6 TH FLOOR, KOLKATA 69 V/S . LINEAR COMMERCIAL PVT. LTD., 16, N.S.ROAD, 4 TH FLOOR, KOLKATA-700 001 /APPELLANT .. / RESPONDENT /BY APPELLANT SHR P.K.CHAKRABORTY, JCIT-SR-DR /BY RESPONDENT SHRI GIRISH SHARMA, FCA /DATE OF HEARING 28-10-2015 /DATE OF PRONOUNCEMENT 13-11-2015 / 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)-VI, KOLKATA IN APPEAL NO.163/C IT(A)-VI/WD-6(2)/09- 10/KOL DATED 15.10.2012. ASSESSMENT WAS FRAMED BY I TO WARD-6(2), KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 22.11.2011 FOR ASSESSMENT YEAR 2009-10. 2. ISSUE IS TO BE DECIDED IN THIS APPEAL IS THAT WH ETHER LD. CIT(A) HAS ERRED IN COMPUTING INTEREST PERTAINING TO TAX FREE INCOME AS PER RULE 8D(2)(II) OF THE IT RULES 1962. 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS A PRIV ATE LIMITED COMPANY AND HAVING VALID LICENCE OF NON BANKING FINANCE COMPANY (NBFC FOR SHORT) FROM RESERVE BANK OF INDIA AND ENGAGED IN THE BUSINESS O F SHARE TRADING, ITA NO.158/KOL/2013 A.Y.2009-10 ITO WD-6(2), KOL. V. LINEAR COMMERCIAL PVT. LTD . PAGE 2 INVESTMENT, FINANCING AND SPECULATION BUSINESS. DUR ING THE YEAR UNDER CONSIDERATION ASSESSEE HAS DECLARED DIVIDEND INCOME OF 12,73,545/- OUT OF SAID DIVIDEND INCOME A SUM OF RS.12,44,545/- WAS RE PRESENTED OUT OF SHARES LYING IN INVENTORY AND A SUM OF 29,000/- WAS REPRESENTED FROM THE SHARE / MUTUAL FUNDS LYING AS INVESTMENT IN THE BOOKS OF AC COUNT OF ASSESSEE. ASSESSEE HAS DISALLOWED THE INTEREST EXPENSES FROM ITS COMPUTATION OF INCOME BY VIRTUE OF THE PROVISIONS SPECIFIED U/S 14 A OF THE ACT. HOWEVER THE AO WAS NOT SATISFIED WITH THE WORKING OF THE DISALL OWANCE OF THE INTEREST EXPENSES AND REJECTED THE SAME. THE AO HAS WORKED O UT THE DISALLOWANCE OF INTEREST UNDER THE PROVISIONS OF SECTION 14A OF THE ACT AS UNDER: INTEREST CLAIMED BY ASSESSEE INTO AVERAGE VALUE OF INVESTMENT DIVIDED BY AVERAGE VALUE OF ASSETS ( INTEREST 1,91,03,318 - 2754678/- = 1,6348640/- X 11,14,86,862 32,06,90,063/- = INTEREST EARNING 56,83,551/- NOTE THE AO HAS DEDUCTED BY MISTAKE A SUM OF RS. 2754678.00 THE CORRECT FIGURES AS PER THE AO CALCULATION SHOULD BE RS. 2061185.00. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A) WHO HELD THAT THE ACTION OF THE AO WAS RIGHT FOR THE WORKING OF THE D ISALLOWANCE UNDER THE PROVISIONS OF SECTION 14A OF THE ACT AS THE ASSESSE E HAS NOT PROVIDED THE MANNER OF WORKING FOR THE DISALLOWANCE OF INTEREST. HOWEVER, THE LD. CIT(A) HAS DISREGARDED THE WORKING OF DISALLOWANCE OF THE INTEREST AS MADE BY THE AO AND RESTORED THE FILE TO THE AO WITH THE DIRECTI ON TO RE-COMPUTE THE DISALLOWANCE AS PER LAW. THE RELEVANT PORTION OF LD . CIT(A) ORDER IN RELATION TO THE WORKING OF INTEREST UNDER THE PROVISIONS OF SEC TION 14A OF THE ACT IS REPRODUCED BELOW : I) THE DISALLOWANCE UNDER RULE 8D WILL BE CALCULATE D ON THE FIGURE OF INVESTMENTS ONLY WITHOUT TAKING STOCK IN TRADE IN T HE FIGURE AS INVESTMENT II) THE AMOUNT OF INTEREST SHOULD BE TAKEN AT AN AM OUNT OF RS.1,16,79,274/- AFTER DEDUCTING RS.20,61,185/- AND RS.53,62,859/- FOR THE PURPOSES OF RULE 8D(2)(II). ITA NO.158/KOL/2013 A.Y.2009-10 ITO WD-6(2), KOL. V. LINEAR COMMERCIAL PVT. LTD . PAGE 3 III) THE DISALLOWANCE IS TO BE CALCULATED BY TAKING DENO MINATOR OF RS.37,02,71,649/- AS TOTAL ASSETS AND NOT AS RS.32, 06,90,060/- OF NET ASSETS. NOW, BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A), R EVENUE IS IN APPEAL BEFORE US. SHRI GIRISH SHARMA, LD. AUTHORIZED REPRESENTATIVE A PPEARING ON BEHALF OF ASSESSEE AND SHRI P.K. CHAKRABORTY, LD. DEPARTMENTA L REPRESENTATIVE APPEARING ON BEHALF OF REVENUE. 5. WE HAVE HEARD RIVAL SUBMISSIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE LD. DR RELIED ON THE ORDER OF ASSESSING OFFICER, ON THE OTHER HAND, THE LD. AR HAS FILED PA PER BOOK HAVING PAGES 1 TO 95 AND ALSO FILED WRITTEN SUBMISSION AND RELIED ON THE ORDER OF LD. CIT(A). THE LD. AR SUBMITTED THAT SHARES WHICH ARE LYING AS STO CK-IN-TRADE IN ITS BOOKS OF ACCOUNT ARE NOT THE PART OF INVESTMENT SO IT SHOULD NOT BE CONSIDERED WHILE WORKING OUT THE DISALLOWANCE OF INTEREST UNDER RULE 8D(2)(II) OF THE I.T. RULES, 1962. WE FIND FROM THE AFORESAID DISCUSSION THAT TH E AO HAS DISALLOWED THE INTEREST AFTER TAKING INTO ACCOUNT THE SHARES HELD AS INVESTMENT AND STOCK IN TRADE AND TOTAL VALUE OF THE BALANCE SHEET WAS TAKE N AFTER ADJUSTING THE CURRENT LIABILITIES. NOW LET US EXAMINE THE PROVISI ONS OF RULE 8D(2)(II) WHICH READS AS UNDER : B. SECONDLY THE CALCULATION AS RULE 8D(2)(II) SPECI FIES THE FOLLOWING COMPUTATION FORMULA:- A X B C WHERE A= AMOUNT OF EXPENDITURE BY WAY OF INTEREST O THER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (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 APPEARI NG IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAS T DAY OF THE 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; ITA NO.158/KOL/2013 A.Y.2009-10 ITO WD-6(2), KOL. V. LINEAR COMMERCIAL PVT. LTD . PAGE 4 FROM THE ABOVE WE SEE THAT B STANDS FOR AVERAGE V ALUE OF INVESTMENT AND INVESTMENT DOES NOT INCLUDE THE STOCK IN TRADE. SIMILARLY THE TOTAL ASSETS MEANS TOTAL OF THE BALANCE SHEET WITHOUT ADJ USTING THE CURRENT LIABILITY. NOW IN THE INSTANT CASE, THE FACTS CAN B E UNDERSTOOD IN THE FOLLOWING MANNER : AVERAGE OF TOTAL ASSETS AS PER AUDITED ACCOUNTS (MA RCH, 2008, MARCH 2009) = TOTAL ASSETS NOT NET ASSETS) MARCH, 2008 (RS) MARCH, 2009(RS) 1. INVESTMENTS 3,84,08,086 10,39,40,886 2. CURRENT ASSETS 19,77,40,328 28,36,06,763 3. PROFIT & LOSS ACCOUNT 4,36,13,542 27,97,61,956 7,32,33,692 46,07,81,341 THEREFORE THE RIGHT CALCULATION OF AVERAGE OF VALUE OF INVESTMENT AND TOTAL ASSETS SHOULD BE : AVERAGE VALUE OF INVESTMENT AS PER AUDITED ACCOUNTS (MARCH 2008 & MARCH 2009) = RS. (38408086+103940886)/2 = RS. 7117 4486/- (B) AVERAGE VALUE OF TOTAL ASSETS AS PER AUDITED ACCOUN TS (MARCH 2008 & MARCH 2009) = RS (27,97,61,956 + 46,07,81,341)/2 = RS 37,02,71,649/- (C). IN VIEW OF ABOVE, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A) THE GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 13/ 11/2015 SD/- SD/- (MAHAVIR SINGH) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP !- 13 /1 1 /2015 ITA NO.158/KOL/2013 A.Y.2009-10 ITO WD-6(2), KOL. V. LINEAR COMMERCIAL PVT. LTD . PAGE 5 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-ITO, WARD-6(2), P-7, CHOWRINGHEE SQUARE, 6 TH FL, KOL-69 2. /RESPONDENT-LINEAR COMMERCIAL PVT. LTD., 16, N.S.RD ., 4 TH FL, KOL-01 3. * +, - - . / CONCERNED CIT KOLKATA 4. - - .- / CIT (A) KOLKATA 5. 012 33+,, - +, , / DR, ITAT, KOLKATA 6. 267 89 / GUARD FILE. BY ORDER/ - , /TRUE COPY/ / - +, ,