Tantia Financial Services Ltd, Kolkata V. ITO, Ward-4(1), Kolkata, Kolkata

ITA 1624/KOL/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9536 (ITAT-KOLKATA)
• Duration Of Justice: 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2017
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2012-2013
• Appeal Filed On: 11-08-2016
• Court: TRIBUNAL
• Assessee Lawyers: MANISH TIWARI
• Keywords: Earning of tax free income
• Section: 14A; 115JB; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: KOL KATA [BEFORE SHRI S. S. VISWANETHRA RAVI, JM & DR. A. L . SAINI, AM] I.T.A NO.1624/KOL/2016 ASSESSMENT YEAR: 2012-13 TANTIA FINANCIAL SERVICES LTD. VS. INCOME-TAX OF FICER, WD-4(1), KOLKATA (PAN: AABCT0007E) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 06.01.2017 DATE OF PRONOUNCEMENT: 13.01.2017 FOR THE APPELLANT: SHRI MANISH TIWARI, FCA FOR THE RESPONDENT: SHRI SALLONGYADEN, ADDL.CIT ORDER PER DR. A. L. SAINI, AM THE CAPTIONED APPEAL FILED BY THE ASSESSEE PERTAINI NG TO ASSESSMENT YEAR 2012-13, IS DIRECTED AGAINST THE ORDER PASSED BY THE LD. CIT(A) -6, KOLKATA IN APPEAL NO. 407/CIT(A)- 6/KOL/2015-16 DATED 26.05.2016, WHICH IN TURN ARISE S OUT OF ASSESSMENT ORDER PASSED BY THE ITO, WD-4(1), KOLKATA U/S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT), DATED 27.02.2015. 2. THE FACTS OF THE CASE QUA THE ASSESSEE ARE THAT THE ASSESSEE FILED RETURN OF INCOME FOR A.Y. 2012-13 ON 04.02.2013 SHOWING TOTAL INCOME OF RS. NIL. LATER ON, THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY THROUGH CASS AND ASSESSIN G OFFICER HAS COMPUTED THE ADDITION BY MAKING THE DISALLOWANCE U/S. 14A OF THE ACT READ WITH RULE 8D OF THE I. T. RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES) AT RS.53,0 8,614/-. 3. AGGRIEVED FROM THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A), WHO HAS CONFIRMED THE ADDITION MADE BY THE AO OBSERVING THE FOLLOWING: FOR ISSUE U/S. 14A READ WITH RULE 8D OF THE RULES ( GROUND NO. 1 AND 2) 3.2. I HAVE CONSIDERED THE FACTS OF THE CASE AND T HE APPELLANT'S SUBMISSION. THE DISPUTE IS REGARDING COMPUTATION OF DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2)(II) BY THE AO ON THE BASIS OF GROSS INTEREST INCURRED BY THE APPE LLANT WHEREAS ACCORDING TO THE APPELLANT, ONLY NET INTEREST SHOULD BE CONSIDERED. ON THIS ISS UE, THE HON'BLE ITAT, KOLKATA HAS HELD IN ITS ORDER DATED 30.03.2012 IN ITA NO. 1277/KOL/2011 IN THE CASE OF DCIT V TRADE APARTMENT LTD. THAT WHERE NET INTEREST AFTER SETTING OF INTEREST I NCOME IS NIL, THERE CAN BE NO DISALLOWANCE. THE SAME VIEW HAS BEEN TAKEN BY THE JURISDICTIONAL TRIB UNAL ALSO IN ITS ORDER DATED 06.03.2013 IN ITA NO. 1682/KOL/2011 IN BISWANATHPASARI V ACIT, CI RCLE-34, KOLKATA AFTER REFERRING TO THE ABOVE DECISION AND THE JUDGEMENT OF HON'BLE CALCUTT A HIGH COURT IN THE CASE OF ISG TRADERS LTD. V CIT(2011-TIOL-621-HC-KOL). CONSIDERING THE S AME, THE DISALLOWANCE UNDER RULE 2 ITA NO.1624/KOL/2016 TANTIA FINANCIAL SERVICES LTD. AY. 2012-13 8D(2)(II) HAS TO BE DONE ON THE BASIS OF NET INTERE ST. THE APPELLANT HAS CLAIMED THAT THE NET INTERESTIS RS. 39,42,331/ - AFTER DEDUCTING INTERES T RECEIVABLE OF RS. 29,15,450/- FROM GROSS INTEREST OF RS. 68,57,787/-. HOWEVER, IT IS SEEN TH AT WHILE INTEREST RECEIVABLE DEBITED UNDER 'OTHER CURRENT ASSETS' IN THE BALANCE SHEET STANDS AT RS. 29,15,456/-, THERE IS NO CORRESPONDING INTEREST CREDITED IN THE PROFIT AND LOSS ACCOUNT, M EANING THEREBY THAT THE AMOUNT OF RS.68,57,787/- DEBITED IN THE P& L ACCOUNT REFLECTS THE NET INTEREST AND NOT THE GROSS INTEREST AS CLAIMED BY THE APPELLANT. THE AR WAS GIVEN AN OP PORTUNITY DURING THE HEARING HELD ON 12.05.2016 TO FURNISH SPECIFIC DETAILS SHOWING INTE REST RECEIPTS CREDITED IN THE P & L ACCOUNT ON 13.05.2016 SO AS TO VERIFY THAT THE NET INTEREST PAID WAS AS CLAIMED BY THE APPELLANT. HOWEVER, NO DETAILS HAVE BEEN FURNISHED TILL DATE T O ESTABLISH THAT INTEREST RECEIPTS OF RS.29,15,450/- HAVE BEEN CREDITED TO THE P & L ACCO UNT. HENCE, IT IS CONCLUDED THAT NET INTEREST AMOUNTED TO RS.68,57,787/- ONLY. THIS AMOU NT OF RS. 68,57,787/- HAS BEEN RIGHTLY CONSIDERED BY THE AO IN COMPUTING DISALLOWANCE UNDE R RULE 8D(II) AND NO REDUCTION OF THIS FIGURE IS WARRANTED ON THE BASIS OF THE MATERIAL ON RECORD. AS REGARDS THE CONTENTION THAT DISALLOWANCE UNDER RULE 8D CANNOT EXCEED EXEMPT INC OME, THE HON'BLE DELHI COURT IN THE CASE OF JOINT INVESTMENTS PVT. LTD.(SUPRA) RELIED U PON BY THE APPELLANT HAD HELD THAT THE DISALLOWANCE U/S. 14A CAN BE ONLY OF EXPENDITURE 'I NCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXEMPT INCOME' AND SET ASIDE THE MATTER TO THE AO FOR FRESH CONSIDERATION IN ACCORDANCE WITH ITS DIRECTION. THUS, THE JUDGEMENT DOES NOT LA Y DOWN ANY PRECEDENT THAT DISALLOWANCE UNDER RULE 8D CANNOT EXCEED EXEMPT INCOME. HENCE, THE DISALLOWANCE OF RS.53,08,614/- U/S. 14A IS CONFIRMED. FOR ISSUE U/S. 115JB OF THE ACT (GROUND NO.3) 4.2. I HAVE CONSIDERED THE FACTS OF THE CASE AND T HE APPELLANT'S SUBMISSION. AS REGARDS THE APPELLANT'S CONTENTION THAT THE DIVIDEND INCOME OF RS. 18,29,640/- EXEMPT U/S. 10 SHOULD HAVE BEEN REDUCED WHILE COMPUTING THE BOOK PROFIT, IT IS IN ACCORDANCE WITH THE PLAIN LANGUAGE OF CLAUSE (II) OF EXPLANATION 1 TO SECTION 115JB WHICH LAYS DOWN, INTER-ALIA, THAT AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIONS OF SECTION 10 [OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF] APPLY, IF ANY AMOUNT IS CREDIT ED TO THE PROFIT AND LOSS ACCOUNT, SHALL BE REDUCED WHILE COMPUTING THE 'BOOK PROFIT'. HENCE, T HE AO IS DIRECTED TO REDUCE THE DIVIDEND INCOME FROM THE BOOK PROFIT COMPUTED IN THE ASSESSM ENT ORDER. THE APPELLANT HAS ALSO CONTENDED THAT THE DISALLOWANCE MADE U/S.14A CANNOT BE ADDED TO THE NET PROFIT FOR COMPUTING BOOK PROFIT U/S. 115JB. FOR THIS PURPOSE, THE APPEL LANT RELIED UPON THE TWO DECISIONS OF ITAT. IT IS SEEN THAT THE HON'BLE ITAT IN ITS DECISION IN THE CASE OF SPARK FINWIZ LTD.(SUPRA) HAD DECIDED THAT SUCH AN ADDITION COULD NOT BE MADE U/S .115JB HAVING REGARD TO THE FACT THAT THE ASSESSMENT YEAR CONCERNED(A.Y. 2006-07) IN THAT CAS E WAS BEFORE THE 'CURATIVE' AMENDMENT WAS BROUGHT ABOUT. IT ALSO STATED THAT AS DISALLOWA NCE U/S. 14A HAD BEEN DELETED, THE QUESTION WHETHER THE SAME DISALLOWANCE COULD BE MADE U/S.115 JB WAS ONLY ACADEMIC IN NATURE. ON THE OTHER HAND, THE HON'BLE ITAT, MUMBAI HAS HELD IN IT O V RBK SHARE BROKING (P)LTD.(2013) 60 SOT 61, GODREJ CONSUMER PRODUCTS LTD. V ADDL. CI T(2014) 159 TTJ 21 AND TIME TECHNOPLAST LTD. V ADDL. CIT(ITA NO. 8126, 7576/M/2 011 DATED 02/01/2014) THAT AMOUNT OF EXPENDITURE DISALLOWABLE U/S. 14A IS TO BE ADDED BA CK WHILE COMPUTING BOOK PROFIT UNDER CLAUSE (F) OF EXPLANATION (L) TO SECTION 115JB.RES PECTFULLY FOLLOWING THESE DECISIONS, IT IS HELD THAT THE AO WAS RIGHT IN ADDINGTHE AMOUNT DISALLOWE D U/S.14A OF THE ACT WHILE COMPUTING BOOK PROFIT U/S. 115JB . 4. NOT BEING SATISFIED WITH THE ORDER OF THE LD. CI T(A), THE ASSESSEEPREFERRED APPEAL BEFORE US AND HAS TAKEN THE FOLLOWING GROUNDS OF AP PEAL: 3 ITA NO.1624/KOL/2016 TANTIA FINANCIAL SERVICES LTD. AY. 2012-13 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT (APPEALS) IS WRONG AND UNJUSTIFIED IN CONFIRMING THE ACTION OF ASSESSING O FFICER WHO CONSIDERED INTEREST PAYMENT OF RS.68,57,787/- FOR THE PURPOSE OF WORKING DISALLOWA NCE UNDER RULE 8D(II) OF IT RULES 1962. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CIT (APPEALS) HAS ERRED IN HOLDING THE JUDGEMENT OF DELHI HIGH COURT IN THE CASE OF JO INT INVESTMENTS PVT. LTD. (SUPRA) DOES NOT LAY ANY PRECEDENT AS THE MATTER WAS RESTORED TO LOW ER AUTHORITIES FOR FRESH ADJUDICATION AND THEREBY REJECTING THE ASSESSEE'S CONTENTION THAT DI SALLOWANCE U/S 14A READ WITH RULE 8D SHOULD BE CONFINED TO EXEMPT INCOME ONLY. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CIT (APPEALS) IS WRONG AND UNJUSTIFIED IN UPHOLDING THE ACTION OF ASSESSING OF FICER WHO ADDED AMOUNT OF DISALLOWANCE U/S. 14A WHILE COMPUTING BOOK PROFIT U/S. 115JB OF INCOM E TAX ACT,1961. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A DDUCE OR AMEND ANY GROUND OR GROUNDS ON OR BEFORE THE DATE OF HEARING. 5. GROUND NOS. 1 AND 2 RELATE TO DISALLOWANCE U/S. 14A READ WITH RULE 8D(2)(II) OF THE I.T.RULES AT RS.68,57,787/-. 5.1. THE LD. AR FOR THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE COMPANY UNDER CONSIDERATION IS A NON-BANKING FINANCIAL COMPANY (N BFC) RECOGNIZED BY THE RBI NORMS. THE COMPANYS MAIN BUSINESS IS TAKING LOAN AND GIVI NG LOAN, THE AO HAS WORKED OUT THE DISALLOWANCE UNDER RULE 8D (2) (II) BY COMPUTING PR OPORTIONATE INTEREST PAID IN RELATION TO EXEMPTED INCOME, (DIVIDEND RECEIVED). THE LD. AR F OR THE ASSESSEE HAS STATED BEFORE US CLEARLY, THAT THE ASSESSEE HAS CREDITED THE INTERES T OF RS.29,15,456/- IN HIS P&L ACCOUNT AND DEBITED THE INTEREST OF RS.68,57,787/- IN HIS PROFI T AND LOSS ACCOUNT. THEREFORE, THE NET DIFFERENCE OF RS.39,42,331/- CAN BE USED FOR THE PU RPOSE OF DISALLOWANCE U/S. 14A READ WITH RULE 8D(2)(II) OF THE ACT BUT THE AO HAS CONSIDERED THE ENTIRE INTEREST DEBITED TO THE P&L ACCOUNT FOR THE PURPOSE OF DISALLOWANCE U/S. 14A,RE AD WITH RULE 8D(2)(II) OF THE I.T. RULES. IN ADDITION TO THIS, THE LD. AR ALSO SUBMITTED THAT THE DISALLOWANCE SHOULD NOT EXCEED THE EXEMPTED INCOME. THE LD. AR RELIED ON THE DECISION OF COORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE (TANTIA FINANCIAL SERVICES L TD. VS. DCIT, IT(SS)A NO.46/KOL/2014, AY 2009-10) DATED 05.12.2016, WHEREIN IT HAS BEEN H ELD AS UNDER: 5.3. HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE SUBMISSIONS OF THE ASSESSEE, AS THE PROPOSITIONS CANVASSED 4 ITA NO.1624/KOL/2016 TANTIA FINANCIAL SERVICES LTD. AY. 2012-13 BY THE LD. AR FOR THE ASSESSEE ARE SUPPORTED BY THE ORDER OF THE ITAT MUMBAI BENCH IN THE CASE OF M/S. DAGA CHEMICALS PVT. LTD., (SUPRA) AND THE FACTS RELIED ON BY HIM. LD. AR HAS SUBMITTED THAT DISALLOWANCE U/S.14A R.W.RULE 8D CAN NOT EXCEED THE EXEMPT INCOME. CONSIDERING THE FACTUAL POSITION AND THE CASE LAW R ELIED ON BY THE ID. AR OF THE ASSESSEE, WE ARE OF THE VIEW THAT THE ADDITION MADE BY THE AO AN D CONFIRMED BY THE ID CIT(A) SHOULD BE DELETED. ACCORDINGLY, WE DELETE THE ADDITION. 5.2. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER, WHICH WE HAVE ALREADY NOT ED IN OUR EARLIER PARA AND IS NOT BEING REPEATED AGAIN FOR THE SAKE OF BREVITY. 5.3. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE SUBMISSI ON OF THE ASSESSEE, AS THE PROPOSITION CANVASSED BY THE LD. AR FOR THE ASSESSEE ARE SUPPOR TED BY THE JUDGMENT OF HONBLE ITAT, KOLKATA, IN ASSESSEES OWN CASE (SUPRA) AND THE FAC TS NARRATED BY HIM ABOVE. AS THE LD. AR FOR THE ASSESSEE HAS POINTED OUT THAT NET INTEREST IS TO BE TAKEN INTO ACCOUNT FOR DISALLOWANCE PURPOSE, AS THE ASSESSEE COMPANY UNDER CONSIDERATIO N IS A NBFC COMPANY WHICH RECEIVED INTEREST AND PAID INTEREST DURING THE ASSESSMENT YE AR UNDER CONSIDERATION. THEREFORE, THE DIFFERENTIAL AMOUNT OF RS.39,42,331/- SHOULD BE CON SIDERED FOR THE PURPOSE OF COMPUTATION OF DISALLOWANCE U/S. 14A READ WITH RULE 8D(2)(II) O F THE RULES. IN ADDITION TO THIS, THE LD. AR FOR THE ASSESSEE ALSO ARGUED THAT THE DISALLOWAN CE U/S. 14A OF THE ACT SHOULD NOT EXCEED THE EXEMPT INCOME. THEREFORE, CONSIDERING THE FACT UAL POSITION AND THE PRECEDENCE CITED BY THE LD. AR FOR THE ASSESSEE, WE DIRECT THE AO TO CO NSIDER THE NET INTEREST AMOUNT FOR THE PURPOSE OF DISALLOWANCE U/S. 14A READ WITH RULE 8D( 2)(II) OF THE I.T. RULES AND ALSO SHOULD NOT DISALLOW THE AMOUNT BEYOND THE EXEMPT INCOME. 5.4 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE ON GROUND NOS. 1 AND 2 ARE ALLOWED FOR STATISTICAL PURPOSES. 6. GROUND NO. 3 RELATES TO ADDITION OF AMOUNT OF DI SALLOWANCE U/S. 14A OF THE ACT FOR THE PURPOSE OF COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE ACT. 5 ITA NO.1624/KOL/2016 TANTIA FINANCIAL SERVICES LTD. AY. 2012-13 6.1. THE LD. AR FOR THE ASSESSEE HAS SUBMITTED THAT THE DIVIDEND INCOME OF RS.18,29,640/- WHICH IS EXEMPTED U/S. 10 SHOULD HAV E BEEN REDUCED WHILE COMPUTING THE BOOK PROFIT, IT IS IN ACCORDANCE WITH THE PLAIN LAN GUAGE OF CLAUSE (II) OF EXPLANATION (1) TO SECTION 115JB OF THE ACT WHICH LAYS DOWN, INTER ALI A, THE AMOUNT OF INCOME TO WHICH ANY OF THE PROVISIONS OF SECTION 10 (OTHER THAN THE PROVIS IONS CONTAINED IN CLAUSE (38) THEREOF WAS APPLIED, IF ANY AMOUNT IS CREDITED TO THE P&L ACCOU NT, SHALL BE REDUCED WHILE COMPUTING THE BOOK PROFIT. THE LD. AR FOR THE ASSESSEE ALSO S TATED THAT THE DISALLOWANCE MADE U/S. 14A OF THE ACT CANNOT BE ADDED TO THE NET PROFIT FOR CO MPUTING BOOK PROFIT U/S. 115JB OF THE ACT. FOR THIS PURPOSE, THE ASSESSEE RELIED ON FOLLOWING TWO DECISIONS: (I) ACIT VS. SPRAY ENGINEERING DEVICES LTD. 53 SOT 70 (CHD.) AND (II) ITA NO. 1741/KOL/2011 & 12/KOL/2012 IN THE CAS E OF SPARK FINWIZ LTD. DATED 19.10.2012. 6.2. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE AO, WHICH WE HAVE ALREADY NOTED IN EAR LIER PARA AND IS NOT BEING REPEATED AGAIN FOR THE SAKE OF BREVITY. 6.3. HAVING HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT IN THE SUBMISSION O F THE ASSESSEE AS THE PROPOSITION CANVASSED BY THE LD. AR FOR THE ASSESSEE ARE SUPPORTED BY THE JUDGMENT OF HONBLE ITAT, KOLKATA, SUPRA AND THE FACTS NARRATED BY HIM ABOVE. THE LD. AR FOR THE ASSESSEE HAS CLEARLY STATED BEFORE US THAT THE DISALLOWANCE MADE U/S. 14A OF TH E ACT CANNOT BE ADDED TO THE NET PROFIT FOR COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. T HEREFORE, CONSIDERING THE FACTUAL POSITION AND THE PRECEDENCE CITED BY THE LD. AR FOR THE ASSE SSEE, WE ARE OF THE VIEW THAT THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LD. CIT(A) NEED S TO BE DELETED. ACCORDINGLY, WE DELETE THE ADDITION. 6.4 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE ON THIS GROUND , IS ALLOWED. 6 ITA NO.1624/KOL/2016 TANTIA FINANCIAL SERVICES LTD. AY. 2012-13 ORDER PRONOUNCED IN THE OPEN COURT ON 13.01.2017 SD/- SD/- (S.S. VISHWANETHRA RAVI) (DR. A. L. SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 13 TH JANUARY, 2017 JD. SR. P.S COPY OF THE ORDER FORWARDED TO: 1. APPELLANT TANTIA FINANCIAL SERVICES LTD., 25-27, NETAJISUBHAS ROAD, 1 ST FLOOR, KOLKATA-700 001. 2. RESPONDENT ITO, WD-4(1), KOLKATA. 3. CIT(A), KOLKATA 4. CIT, KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .