M/s Khimjee Hunsraj, Kolkata V. Addl C.I.T Rg - 37,kolkata, Kolkata

ITA 1661/KOL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 5072 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-04-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 12-04-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 30-05-2013
• Court: TRIBUNAL
• Department Lawyers: AMITAVA BHATTACHARYA
• Assessee Lawyers: A K CHANDRA; P B MUKHERJEE LLB
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

ITA NOS.1661 & 1662/K/2013-B-AM M/S. KHIMJEE HUNSRAJ 1 IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, K OLKATA BEFORE : SHRI N.V.VASUDEVAN, JUDICIAL MEMBER , AND SHRI M. BALAGANESH, ACCOUNTAN T MEMBER ITA NO. 1661/KOL/2013 A.Y : 2008-09 M/S. KHIMJEE HUNSRAJ VS. ADDL.C.I.T, RANGE-37, K OLKATA PAN:AADFK 3396G (APPELLANT/ASSESSEE) (RESPONDENT/DEPARTME NT) ITA NO. 1662/KOL/2013 A.Y : 2009-10 M/S. KHIMJEE HUNSRAJ VS. J.C.I.T, RANGE-37, KOLK ATA (APPELLANT/ASSESSEE) (RESPONDENT/DEPARTME NT FOR THE APPELLANT/ASSESSEE: S/SHRI P .B MUKHERJEE, LLB & A.K.CHANDRA, ADVOCATE FOR THE RESPONDENT/DEPARTMENT: S HRI AMITAVA BHATTACHARYA, JCIT, LD.SR.DR DATE OF HEARING: 12-04-2016 DATE OF PRONOUNCEMENT: 15 - 4 - 2016 ORDER SHRI M.BALAGANESH, AM THESE APPEALS OF THE ASSESSEE ARISE OUT OF THE SEPA RATE ORDERS OF LEARNED CIT(A)-XXIV, KOLKATA IN APPEAL NO. 768/CIT(A)-XXIV /C-37/10-11 DATED 1.3.2013 FOR THE ASST YEAR 2008-09 AND APPEAL NO. 983/CIT(A) -XXIV/C-37/11-12 DATED 28.2.2013 FOR THE ASST YEAR 2009-10 AGAINST THE SEP ARATE ORDERS OF ASSESSMENT FRAMED U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE ONLY ISSUE TO BE DECIDED IN BOTH THE AP PEALS IS AS TO WHETHER THE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE IT RULE S, COULD BE MADE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE HAD RAISED THE FOLLOWING GROUNDS BEFORE US :- ITA NOS.1661 & 1662/K/2013-B-AM M/S. KHIMJEE HUNSRAJ 2 ITA NO. 1661/KOL/2013 A.Y 2008-09 (BY THE ASSESSEE) : 1. THAT THE CIT(A) ERRED IN UPHOLDING THE ACTION OF THE AO THAT THE APPELLANTS INVESTMENT IN SHARES AND IN MUTUAL FUND HAVE BEEN MADE OUT OF THE BORROWED FUNDS AND CONFIRMED T HE DISALLOWANCE OF RS. 7,17,219/- MADE BY THE AO U/S. 14A READ WITH RULE 8D(2)(II). 2. THAT THE CIT(A) ERRED IN LAW IN CONFIRMING THE D ISALLOWANCE OF RS.3,38,207/- U/S. 14A READ WITH RULE 8D(2)(III) WITHOUT CONSIDERING THE ARGUMENT ADVANCED THAT THE SAID CLA USE DOES NOT HOLD THE CHARACTER OF AN EXPENDITURE AND THE IN VESTMENT IN SHARES AND IN MUTUAL FUND REPRESENTS ASSETS AND N OT THE EXPENDITURE AS MENTIONED IN SUB-RULE (2). 3. THAT THE PROVISIONS OF RULE 8D(2)(III) READ WITH SEC 14A OF THE ACT ARE ILLEGAL LEVY OF WEALTH TAX UNDER GUISE OF INCOME- TAX AS EXPENDITURE. ITA NO. 1662/KOL/2013 A.Y 2008-09 (BY THE ASSESSEE) : 1. THAT THE CIT(A) ERRED IN LAW IN CONFIRMING THE D ISALLOWANCE OF RS.3,68,466/- U/S. 14A READ WITH RULE 8D (2)(III ) WITHOUT CONSIDERING THE ARGUMENT ADVANCED THAT THE SAID CLA USE DOES NOT HOLD THE CHARACTER OF AN EXPENDITURE AND THE IN VESTMENT IN SHARES AND IN MUTUAL FUND REPRESENTS ASSETS AND N OT THE EXPENDITURE AS MENTIONED IN SUB-RULE (2). 3. THAT THE PROVISIONS OF RULE 8D(2)(III) READ WITH SEC 14A OF THE ACT ARE ILLEGAL LEVY OF WEALTH TAX UNDER GUISE OF INCOME- TAX AS EXPENDITURE. 3. WE FIND THAT THE ASSESSEE HAD ALSO RAISED THE FO LLOWING ADDITIONAL GROUND BEFORE US :- ITA NO. 1661/KOL/2013 ASST YEAR 2008-09 THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DIS ALLOWANCE OF RS. 3,38,207/- U/S 14A READ WITH RULE 8D(2) (III) WITHOUT CONSIDERING THE 0.5% OF THE AVERAGE VALUE OF INVESTMENT CALCULATED ONLY ON THE INVESTMENT RELATE D TO GENERATING EXEMPT INCOME. ITA NOS.1661 & 1662/K/2013-B-AM M/S. KHIMJEE HUNSRAJ 3 ITA NO. 1662/KOL/2013 ASST YEAR 2009-10 THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE DIS ALLOWANCE OF RS. 3,68,466/- U/S 14A READ WITH RULE 8D(2) (III) WITHOUT CONSIDERING THE 0.5% OF THE AVERAGE VALUE OF INVESTMENT CALCULATED ONLY ON THE INVESTMENT RELATE D TO GENERATING EXEMPT INCOME. 4. WE FEEL THAT THE ADDITIONAL GROUNDS RAISED BY THE ASSESSEE ARE PART AND PARCEL OF THE MAIN GROUND RAISED BY THE ASSESSEE WITH REGARD TO T HE DISALLOWANCE U/S 14A OF THE ACT AND HENCE THE SAME ARE ADMITTED FOR BOTH THE ASST Y EARS AND TAKEN UP FOR ADJUDICATION. 5. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE ASSE SEE EARNED DIVIDEND ON SHARES OF RS. 57,887/- AND DIVIDEND ON MUTUAL FUNDS OF RS. 17,11, 308/- AND CLAIMED THE SAME AS EXEMPT U/S 10(34) OF THE ACT IN THE RETURN OF INCOM E FOR THE ASST YEAR 2008-09. SIMILARLY , HE DERIVED DIVIDEND INCOME FROM MUTUAL FUNDS OF RS. 13,22,184/- AND DIVIDEND ON SHARES OF RS. 39,118/- AND CLAIMED EXEM PTION U/S 10(34) OF THE ACT FOR THE SAME IN THE RETURN OF INCOME FOR THE ASST YEAR 2009 -10. THE LEARNED AO OBSERVED THAT THE ASSESSEE HAD MADE INVESTMENT IN SHARES AND MUTUAL FUNDS AND ALSO FOUND THAT HE HAD UNSECURED LOANS IN HIS BALANCE SHEET ON WHIC H INTEREST WAS PAID. THE LEARNED AO ALSO RECORDED HIS SATISFACTION IN TERMS OF RULE 8D(1) OF THE IT RULES THAT THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURR ED FOR THE PURPOSE OF EARNING EXEMPT INCOME IS INCORRECT AS THE BIFURCATION OF FU NDS IS NOT POSSIBLE IN RESPECT OF UTILIZATION OF BORROWED FUNDS WHICH FORM THE COMMON KITTY OF USAGE IN LEATHER BUSINESS AND PART UTILIZATION FOR INVESTMENT IN SHA RES. ACCORDINGLY, HE REJECTED THE CLAIM OF THE ASSESSEE AND RESORTED TO MAKE DISALLOW ANCE U/S 14A OF THE ACT BY APPLYING RULE 8D(2)(II) AND 8D(2)(III) OF THE IT R ULES. ACCORDINGLY, THE LEARNED AO MADE DISALLOWANCE U/S 14A READ WITH RULE 8D(2)(II) AMOUNTING TO RS. 7,17,219/- FOR THE ASST YEAR 2008-09 AND UNDER RULE 8D(2)(III) AMO UNTING TO RS. 3,38,027/- AND RS. 3,68,466/- FOR THE ASST YEARS 2008-09 AND 2009-10 R ESPECTIVELY. THE DISALLOWANCE U/S ITA NOS.1661 & 1662/K/2013-B-AM M/S. KHIMJEE HUNSRAJ 4 14A WAS UPHELD BY THE LEARNED CIT(A) ON FIRST APPEA L FOR BOTH THE ASST YEARS. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US FOR BOTH THE YEARS. 6. THE LEARNED AR ARGUED THAT THE ASSESSEE HAS GOT SUFFICIENT OWN FUNDS UNDER HIS KITTY AND THE INVESTMENTS WERE MADE OUT OF OWN FUND S OF THE ASSESSEE AND HENCE THE PROVISIONS OF RULE 8D(2)(II) ARE NOT APPLICABLE TO THE FACTS OF THE INSTANT CASE. IN SUPPORT OF THIS, HE FILED A STATEMENT CONTAINING TH E DETAILS OF INVESTMENT IN SHARES, MUTUAL FUNDS & BONDS ; UNSECURED LOANS AND CAPITAL ACCOUNT BALANCES FROM 31.3.2001 TO 31.3.2008. HE FURTHER ARGUED THAT ONLY INVESTM ENTS BEARING EXEMPT INCOME SHOULD BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE U/S 1 4A OF THE ACT. HE PLACED RELIANCE ON THE DECISION OF THE CO-ORDINATE BENCH OF THIS TR IBUNAL IN THE CASE OF REI AGRO LTD VS DCIT IN ITA NO. 1331 / KOL / 2011 DATED 19.6.2013. IN RESPONSE TO THIS, THE LEARNED DR ARGUED THAT THE STATEMENT PRODUCED BY THE ASSESS EE IS FILED BEFORE THIS TRIBUNAL FOR THE FIRST TIME AND THE LEARNED AO DID NOT HAVE AN O CCASION TO LOOK INTO THE SAME AND VEHEMENTLY RELIED ON THE ORDER OF THE LEARNED AO. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE LEARNED AR HAD PRODUCED A STATEMEN T CONTAINING THE AVAILABILITY OF OWN FUNDS TOGETHER WITH THE DETAILS OF UNSECURED LO ANS AND INVESTMENTS MADE IN VARIOUS YEARS COMMENCING FROM 31.3.2001 ONWARDS. F ROM THE BARE PERUSAL OF THE SAME, WE FIND THAT THE ASSESSEE SEEMS TO BE HAVING SUFFICIENT OWN FUNDS FOR MAKING INVESTMENT IN SHARES AND MUTUAL FUNDS. HOWEVER, WE FIND THAT THERE IS NO FINDING IN THE ORDERS OF THE LOWER AUTHORITIES WITH REGARD TO THIS FACT AND HENCE WE DEEM IT FIT AND APPROPRIATE , IN THE INTEREST OF JUSTICE AND FAIR P LAY , TO SET ASIDE THIS ISSUE TO THE FILE OF THE LEARNED AO TO DECIDE IN ACCORDANCE WITH LAW WIT H THE FOLLOWING DIRECTIONS :- (I) IF IT IS PROVED BY THE ASSESSEE THAT SUFFICIENT OWN FUNDS ARE AVAILABLE FOR MAKING INVESTMENTS IN SHARES AND MUTUAL FUNDS, THEN THE PR OVISIONS OF RULE 8D(2)(II) SHOULD NOT BE INVOKED FOR MAKING DISALLOWANCE U/S 14A OF T HE ACT ; ITA NOS.1661 & 1662/K/2013-B-AM M/S. KHIMJEE HUNSRAJ 5 (II) ONLY THE INVESTMENTS BEARING EXEMPT INCOME SHO ULD BE CONSIDERED FOR MAKING DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D( 2)(II) OF THE RULES (RELIANCE PLACED ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF REI AGRO LTD VS DCIT IN ITA NO. 1331/KOL/2011 DATED 19.6.2013 IN PARA 6 & 7 OF THE SAID JUDGEMENT) ; (III) ONLY THE INVESTMENTS BEARING EXEMPT INCOME SH OULD BE CONSIDERED FOR MAKING DISALLOWANCE U/S 14A READ WITH RULE 8D(2)(III) OF T HE RULES. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE INC LUDING THE ADDITIONAL GROUNDS FOR BOTH THE ASST YEARS ARE ALLOWED FOR STATISTICAL PUR POSES. 8. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 15-4-2016. 1.. THE APPELLANT/ASSESSEE: M/S. KHIMJEE HUNSRAJ S URAYA HOUSE 9 RABINDRA SARANI, KOL-73. 2 THE RESPONDENT/DEPARTMENT: THE JCIT/ADDL.CIT, RAN GE-37, 8 TH FL., PODDAR COURT, 18 RABINDRA SARANI, KOL-1. 3 /THE CIT, 4.THE CIT(A ). 5. DR, KOLKATA BENCH 6. GUARD FILE. SD/- (N.V.VASUDEVAN, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE: DATE 15 -4 -2016 COPY OF THE ORDER FORWARDED TO:- ITA NOS.1661 & 1662/K/2013-B-AM M/S. KHIMJEE HUNSRAJ 6 TRUE COPY, BY ORDER, ASSTT REGISTRAR **PRADIP SPS