ITO, Ward - 9(4), Kolkata, Kolkata V. M/s. Kali Kripa Agro Investment Pvt. Limited, Kolkata

ITA 1678/KOL/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3180 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 6 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2013
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 08-12-2011
• Court: TRIBUNAL
• Department Lawyers: K N JANA SR DR
• Keywords: Depreciation; Reason to believe
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.1678-1679/KOL/2011 ASSESSMENT YEARS:2005-06 & 2006 - 07 INCOME TAX OFFICER WARD-9(4), AAYKAR BHAWAN, 5 TH FLOOR, P-7, CHOWRINGHEE SQ., KOLKATA 700 069 / V/S . M/S. KALI KRIPA AGRO INVESTMENT PVT. LTD., 177, M.G. ROAD, KOLKATA 700 007 [ PAN NO.AABCK 1211 D ] /APPELLANT .. /RESPONDENT /BY ASSESSEE SHRI RAVI TULSIYAN, FCA /BY REVENUE SHRI K.N. JANA, SR-DR /DATE OF HEARING 11-06-2013 ! /DATE OF PRONOUNCEMENT 21-06-2013 ' ' ' ' /O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THESE ARE TWO APPEALS FILED BY REVENUE ARE ARISING OUT OF DIFFERENT ORDERS OF COMMISSIONER OF INCOME-TAX (APPEALS)-VIII, KOLKATA (CIT(A) FOR SHORT) IN APPEAL NO.101-1--/CIT(A)-VIII/KOL/08-09 DATED14-10-2011 AN D 12-10-2011. THE ASSESSMENT WAS FRAMED BY ACIT, CIRCLE-9, KOLKATA U/S 143(3)/14 8 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) ALL DATED 11 -08-2008 FOR THE ASSESSMENT YEARS (AY) 2005-06 AND 2006-07 RESPECTIVELY. BOTH THE APP EALS ARE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WAY OF COMMON ORDER FOR THE SA KE OF CONVENIENCE. ITA NO.1678-79/KOL/2011 A.YS. 05-06 & 06-07 ITO WD-9(4) KOL V. M/S. KALI KRIPA AGRO INVST. P. LTD. PAGE 2 2. FIRST COMMON ISSUE IN THESE TWO APPEALS OF REVEN UE IS AGAINST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE OF EXPENDITURE MAD E BY ASSESSING OFFICER (AO) U/S. 14A OF THE ACT. FOR THIS, REVENUE HAS RAISED COMMON GROUND AND THE GROUND AS RAISED IN ITA NO. 1678/KOL/2011 FOR AY 2005-06 READS AS UN DER:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE LD. C.I.T.(A) ERRED IN DELETING THE DISALLOWANCE OF ENTIRE EXPENDITURE MAD E U/S. 14A. 2. THE LD. C.I.T.(A) WHILE DECIDING THE APPEAL IN F AVOUR OF THE ASSESSEE OVERLOOKED THE FACT THAT THE DEPRECIATION ON THE AS SETS USED IN DERIVING THE AGRICULTURAL INCOME WAS NOT CLAIMED AS INDIRECT EXP ENDITURE IN RELATION TO AGRICULTURAL INCOME. 3. BRIEFLY STATED FACTS ARE THAT ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDINGS NOTED THAT ASSESSEES PRINCIPAL BUSINES S IS THAT AGRICULTURE BUT NO AGRICULTURAL ACTIVITIES ARE CARRIED OUT FROM MUMBAI AND KOLKATA OFFICES, HENCE, COMMON EXPENDITURE INCURRED FOR EARNING AGRICULTURA L INCOME BE DISALLOWED BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. THE AO COMPUTED THE DISALLOWANCE FOR AY 2005-06 AS UNDER:- 5. ON GOING THROUGH THE RECORDS, IT IS HAS BEEN OB SERVED THAT ASSESSEES MAIN SOURCE OF INCOME IS AGRICULTURAL INCOME, HENCE CONT ENTION OF THE ASSESSEE THAT NO AGRICULTURAL ACTIVITIES ARE CARRIED OUT FROM MUM BAI AND KOLKATA OFFICES WAS NOT ACCEPTABLE. MOREOVER, ASSESSEES OTHER INCOME A RE INTEREST, CAPITAL GAIN & HIRE CHARGES AND ALL THESE ARE THOSE INCOME WHICH D OES NOT REQUIRE ANY ESTABLISHMENT, HENCE, THERE IS NO REASON TO BELIEVE THAT EXPENSES INCURRED AT KOLKATA & MUMBAI OFFICES HAVE NO CONNECTION WITH AG RICULTURAL ACTIVITIES. AS WELL CONTENTION OF THE ASSESSEE THAT SECTION 14A IS NOT APPLICABLE IS ALSO NOT ACCEPTABLE IN THE INSTANT CASE DUE TO THE REASON ME NTIONED ABOVE. TOTAL TURNOVER OF THE BUSINESS 42,22,386/- LESS:- SHORT TERM CAPITAL GAIN 16,24,115/- NET TURNOVER 25,98,271/ - OUT OF WHICH AGRICULTURAL INCOME I.E., 67.58% OF RS.25,98,271/- 17,55,887/- EXPENSES CONSIDERED FOR AGRO. PRODUCTS 4,72,232/- LESS: - INDIRECT EXPENSES 24,939/ - DIRECT EXPENSES OF AGRO PRODUCTS 4,47,293/- TOTAL EXPENSES 27,34,263/- LESS:- DIRECT EXPENSES OF AGRO PRODUCTS 4,47,293/- 22,86,970/ - LESS:- LTCG DEBITED IN P.L A/C. 7,10,392/- ITA NO.1678-79/KOL/2011 A.YS. 05-06 & 06-07 ITO WD-9(4) KOL V. M/S. KALI KRIPA AGRO INVST. P. LTD. PAGE 3 TOTAL INDIRECT EXPENSES 15,76,578/- INDIRECT EXPENSES WHICH CAN BE APPORTIONED TOWARDS AGRO PRODUCTS (67.58% OF RS.15,76,578/-) IE. RS.10,65,45 1/- 4. THEREBY MADE DISALLOWANCE U/S.14A OF THE ACT AT RS.10,40,512/-. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE DELETED THE DISALLOWANC E VIDE PARA-5.2 AS UNDER:- 5.2 GROUND NO. 2.3 & 4: THESE GROUNDS OF APPEAL RELATE TO DISALLOWANCE OF EXPENSES UNDER SEC. 14A OF THE IT A CT, 1961 PURPORTED TO HAVE BEEN CLAIMED AGAINST EXEMPTED INCOME, I.E., AGRICULTURAL INCOME. I HAVE CAREFULLY GONE THROUGH THE FACTS OF THE CASE, THE GROUNDS OF APPEAL AND THE SUBMISSIONS PUT FORTH ON BEHALF O F THE APPELLANT. THE BRIEF FACTS ARE RECAPITULATED FOR THE SAKE OF CLARI TY. THE APPELLANT COMPANY HAS AN AGRICULTURAL FARM UNIT AT SARDARSHAH R, RAJASTHAN. IT HAS ALSO ITS OFFICES AT MUMBAI AND KOLKATA. THE CLAIM O F THE APPELLANT HAS BEEN THAT THE RAJASTHAN FARM UNIT IS AN INDEPENDENT UNIT AND THOSE IN MUMBAI AND KOLKATA WERE ENTIRELY SEPARATE DOING SEP ARATE BUSINESS OF FINANCING AND INVESTMENT. THE AO DID NOT ACCEPT THE SUBMISSIONS. HE HELD THAT THE MUMBAI AND KOLKATA OFFICES OF THE COM PANY WERE ONLY EXTENSIONS OF ITS ACTIVITIES AND THERE WAS NO BUSIN ESS EXPEDIENCY IN THE DIRECT AND EXPENDITURE INCURRED FOR THE TWO OFFICES FOR EARNING THE NATURE OF INCOME IT HAD DISCLOSED. THE ASSESSING O FFICER WORKED OUT THE TOTAL CLAIM OF DIRECT AND INDIRECT EXPENSES ATTRIBU TED TO AGRICULTURAL ACTIVITIES AT RS.15,12,744/- AND AFTER SET OFF OF A GRICULTURAL EXPENSES WORKED OUT BY HIM AT RS.4,72,232/-, THE REMAINING A MOUNT OF RS.10,39,251- HAS BEEN ADDED TO THE TOTAL INCOME AS EXPENDITURE CLAIMED AGAINST EXEMPTED INCOME UNDER SEC.14A OF TH E INCOME-TAX ACT, 1961. FOR ATTRACTING SECTION 14A, THERE HAS TO BE A PROXI MATE CAUSE FOR DISALLOWANCE, WHICH IS IN RELATIONSHIP WITH THE EXE MPT INCOME. THE SCHEME OF SECTION 14A IS GIVEN BELOW FOR THE SAKE O F CLARITY. 1. THE TAXPAYER GENERATES AN INCOME WHICH IS EXEMPT FR OM TAX. 2. FOR EARNING SUCH INCOME SOME EXPENDITURE HAS BEEN I NCURRED. IF NO EXPENDITURE IS INCURRED FOR EARNING INCOME EXEMPT F ROM TAX, THEN SECTION 14A IS APPLICABLE. 3. HAVING REGARD TO THE ACCOUNTS OF THE APPELLANT, THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE INCOME OF THE TAX PAYER IN RESPECT OF THE AFORESAID EXPENDITURE WHICH IS INCUR RED IN RELATION INCOME EXEMPT FROM TAX. ITA NO.1678-79/KOL/2011 A.YS. 05-06 & 06-07 ITO WD-9(4) KOL V. M/S. KALI KRIPA AGRO INVST. P. LTD. PAGE 4 4. THE ASSESSING OFFICER SHALL DETERMINE THE QUANTUM O F SUCH EXPENDITURE IN ACCORDANCE WITH THE METHOD PRESCRIBE D BY THE BOARD WHICH IS GIVEN BELOW - EXPENDITURE PERTAINING TO INCOME NOT CHARGEABLE TO TAX PRESCRIBED MODE: THE EXPENDITURE IN RELATION TO INCOME WHICH DOES NO T FORM PART OF TOTAL INCOME SHALL BE THE AGGREGATE OF THE FOLLOWING 1. EXPENDITURE DIRECTLY RELATING TO SUCH INCOME 2. EXPENDITURE BY WAY OF INTEREST NOT ATTRIBUTABL E TO ANY PARTICULAR INCOME OR RECEIPT (PROPORTIONATE AMOUNT TO BE CALCULATED AS FOLLOWS A X B/C , WHERE A IS EXPENDITURE BY WAY OF INTEREST NOT INCLUDED IN (1) (SUPRA); B IS AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT FORM PART OF TOTAL INCOME ON THE BASIS OF VALUE APPEARING IN BALANCE S HEET ON THE FIRST AND LAST DAY OF THE PREVIOUS YEAR. C IS AVERA GE TOTAL ASSETS IN THE BALANCE SHEET ON THE BASIS OF FIRST AND LAST DA Y OF THE PREVIOUS YEAR (IGNORING INCREASE ON ACCOUNT OF REVALUATION B UT INCLUDING DECREASE ON ACCOUNT OF REVALUATION) 3. HALF PER CENT OF THE AVERAGE VALUE OF INVESTMENT WHICH APPEARS IN B (SUPRA). IN THE FIRST PLACE, I DO NOT FIND THA T THE AO HAS FOLLOWED THE PRESCRIBED MODE FOR COMPUTING THE DISA LLOWANCE OF EXPENSES UNDER SEC. 14A OF THE ACT. SECONDLY, THIS IS NOT A CASE WHERE THE APPELLANT HAS SHOWN EXEMPTED INCOME AGAIN ST WHICH NO EXPENDITURE HAS BEEN INCURRED. THIS IS A CASE WH ERE THE APPELLANT COMPANY HAD SEPARATE BUSINESS UNITS, ONE FOR EARNING INCOME FROM AGRICULTURAL OPERATIONS AS INDEPENDENT UNIT, WHERE SEPARATE SET OF ACCOUNTS ARE MAINTAINED, AND THE OT HER UNITS ENGAGED IN OTHER FINANCE AND INVESTMENT ACTIVITIES. HAVING REGARD TO THE FACT OF THE CASE, AND THE RATIO LAID DOWN IN THE R3EPORTED CASES CITED SUPRA, I HOLD THAT THE ASSESSING OFFICE R IS NOT JUSTIFIED IN DISALLOWING PART OF THE EXPENSES RELATABLE TO TH E FINANCE AND INVESTMENT UNITS ATTRIBUTING THE SAME TO AGRICULTUR AL INCOME. THE ADDITION OF RS.10,39,251/- IS HEREBY DELETED. AGGRIEVED, NOW REVENUE FILED APPEAL BEFORE THE TRIB UNAL. SIMILAR ARE THE FACTS IN AY 2006-07. 5. WE FIND FROM THE ABOVE FACTS OF THE CASE THAT AS SESSEE IS INVOLVED IN THE BUSINESS OF AGRICULTURE, FINANCE AND INVESTMENT. FR OM THE ACCOUNTS OF THE ITA NO.1678-79/KOL/2011 A.YS. 05-06 & 06-07 ITO WD-9(4) KOL V. M/S. KALI KRIPA AGRO INVST. P. LTD. PAGE 5 ASSESSEE, IT IS CLEAR THAT ASSESSEE HAS CONSIDERABL E INCOME FROM SHORT TERM CAPITAL GAINS (STCG FOR SHORT) AT RS.76,01,293/- SP ECULATION PROFIT, DIVIDEND, INCOME OF LONG TERM CAPITAL GAINS (LTCG FOR SHORT) AS WELL AS AGRICULTURAL INCOME. THE ASSESSEES AGRO FIRM IS SITUATED AT SAR DARSHAHR, RAJASTHAN EXCLUSIVELY, WHEREAS FINANCE AND INVESTMENT ACTIVIT IES ARE CARRIED OUT BY ASSESSEE IN KOLKATA AND MUMBAI. THE ASSESSEE FOR TH ESE TWO AYS FILED RETURN OF INCOME DECLARING TOTAL INCOME OF RS.7,57,800/- AND RS.41,42,506/- RESPECTIVELY. THE ASSESSEE HAS DEBITED AGRICULTURAL EXPENSES IN T HE PROFIT AND LOSS ACCOUNT FOR THESE TWO AYS AS UNDER:- ASSESSMENT YEAR AGRICULTURAL EXPENSES A.Y. 2005-06 RS.4,72,232/- A.Y. 2006-07 RS.4,31,686/- IN COMPLIANCE TO NOTICE U/S. 143(2) OF THE ACT ASSE SSEE FILED DETAILS AND ALSO DETAILS OF AGRICULTURAL INCOME AND OTHER INVESTMENT S DETAILS AND ALSO EXPLAINED THAT SINCE ITS AGRICULTURAL ACTIVITY ARE EXCLUSIVEL Y CARRIED OUT AT SARDARSHAHR, RAJASTHAN. ACCORDINGLY, IT IS MAINTAINING ITS SEPAR ATE INCOME AND EXPENDITURE ACCOUNT. THE ASSESSEE IS MAINTAINING SEPARATE INCOM E AND EXPENDITURE ACCOUNT FOR INVESTMENT AND FINANCE BUSINESS CARRIED OUT BY IT AT KOLKATA AND MUMBAI. ALTHOUGH THE ASSESSEE IS MAINTAINING SEPARATE ACCOU NTS FOR AGRICULTURAL INCOME AND INVESTMENT BUSINESS, BUT IT IS CLUBBING THE INC OME AND EXPENDITURE AT THE END OF THE YEAR FOR THE PURPOSE OF PREPARING ITS AN NUAL ACCOUNT. FROM THE ABOVE, IT IS CLEAR THAT THERE ARE SEPARATE ACCOUNT AND EXP ENDITURE OF AGRICULTURE IS DIRECTLY RELATED TO AGRICULTURAL INCOME AND EXPENDI TURE PERTAINING TO INVESTMENT BUSINESS IS DIRECTLY RELATABLE TO INVESTMENT BUSINE SS PROFIT. FROM THE ABOVE, IT IS CLEAR THAT ASSESSEES BUSINESS ACTIVITY BEING OF AG RICULTURE, FINANCE AND INVESTMENT ARE DISTINCT FROM EACH OTHER AND HENCE F UNCTIONING OF IN THEIR OWN INDEPENDENT CAPACITY AND THUS UNITS AT SARDARSHAHR, RAJASTHAN AGRICULTURAL FARM UNIT AND UNIT AT KOLKATA AND MUMBAI I.E., INVESTMEN T AND FINANCE BUSINESS HAVE ITA NO.1678-79/KOL/2011 A.YS. 05-06 & 06-07 ITO WD-9(4) KOL V. M/S. KALI KRIPA AGRO INVST. P. LTD. PAGE 6 OF EACH OTHER AND EACH UNIT CARRIES OUT ITS OWN STI PULATED BUSINESS ACTIVITY. SINCE ITS UNITS ARE INDEPENDENT FROM EACH OTHER THE ASSES SEE HAS BEEN MAINTAINING SEPARATE SET OF INCOME AND ACCOUNTS FOR ITS RESPECT IVE BUSINESS UNITS. THE ASSESSEE HAS FILED COMPLETE DETAILS OF AGRICULTURAL EXPENSES FOR BOTH THE YEARS BEFORE AUTHORITIES BELOW AND EVEN NOW BEFORE US IN ITS WRITTEN SUBMISSION. THE ASSESSEE HAS RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT V. WALFORT SHARE AND STOCK BROKERS P. LTD. (2010) 326 ITR 1(SC); DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYEE MGF. CO. LTD. V. DCIT (2010) 328 ITR 81 (BOM) AND DECISION OF HONBLE DE LHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT IN TAX APPEAL NO. 67 OF 2009. IN VIEW OF THE ABOVE DECISIONS CITED BY LD. COUNSEL FO R THE ASSESSEE, WE ARE OF THE VIEW THAT THE LEGISLATIVE INTENT BEHIND USING THE E XPRESSION INCURRED AS APPEARING IN SECTION 14A SIGNIFY ACTUAL EXPENDITURE INCURRED BY AN ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, WHEREAS THE EXPRESSION IN RELATION TO WAS TO CONTEMPLATE DIRE CT AND PROXIMATE CONNECTION / DOMINANT AND IMMEDIATE CONNECTION WITH THE SUBJECT- MATTER. THEREFORE, IT MEANS THAT DISALLOWANCE OF EXPENDITURE BY INVOKING OF PROVISIONS OF SECTION 14A OF THE ACT CAN BE MADE ONLY WHEN THERE IS DOMIN ANT AND IMMEDIATE CONNECTION BETWEEN THE EXPENDITURE INCURRED AND THE INCOME NOT FORMING PART OF THE TOTAL INCOME. IN THE PRESENT CASE BEFORE US,, T HERE IS NO CONNECTION WHATEVER WITH THE EXPENDITURE INCURRED AT KOLKATA AND MUMBAI OFFICES FOR INVESTMENT AND FINANCE BUSINESS WITH THAT OF AGRICULTURAL ACTIVITY CARRIED OUT BY ASSESSEE AT SARDARSHAHR, RAJASTHAN. 6. WE FIND THAT THE ANOTHER ISSUE RAISED BY REVENUE WH ICH IS INTER- CONNECTED WITH THE FIRST ISSUE IS THAT THE CIT(A) H AS OVERLOOKED THE FACT THAT DEPRECIATION ON ASSET USED IN DERIVING THE INCOME W AS NOT CLAIMED AS INDIRECT EXPENDITURE IN RELATION TO AGRICULTURAL INCOME. WE HERE ONLY SAY THAT DEPRECIATION IS NOT AN EXPENDITURE RATHER CHARGE ON ASSET AND THIS CHARGE IS TO BE ITA NO.1678-79/KOL/2011 A.YS. 05-06 & 06-07 ITO WD-9(4) KOL V. M/S. KALI KRIPA AGRO INVST. P. LTD. PAGE 7 ALLOWED ON THE CLAIM OF THE ASSESSEE IRRESPECTIVE O F THE FACT THAT WHETHER THE INCOME IS EXEMPT OR NOT. FURTHER, THERE IS NO SUCH ISSUE IN THE ASSESSMENT ORDER OR IN THE ORDER OF LD. CIT(A). HENCE, WE NEED NOT A NSWER BECAUSE WE HAVE ANSWERED THE MAIN ISSUE. ACCORDINGLY, THE DISALLOWA NCE MADE BY ASSESSING OFFICER IN BOTH YEARS HAS ALREADY BEEN DELETED BY C IT(A) AND WE CONFIRM THE SAME. 7. IN THE RESULT, BOTH THE APPEALS OF REVENUE ARE D ISMISSED. ORDER IS PRONOUNCED IN OPEN COURT ON 21 ST JUNE, 2013 SD/- SD/- (N.S.SAINI) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER KOLKATA, *DKP DATE: 21 ST JUNE, 2013 #$% - ' ' ' ' ''( ''( ''( ''( )( )( )( )( / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. $$'* + / CONCERNED CIT 4. + - / CIT (A) 5. (,- '''* , '*! / DR, ITAT, KOLKATA 6. -./ 01 / GUARD FILE. BY ORD ER/ ' , 2/4 $ '*!,