Russell Investments Limited, Kolkata V. DCIT, Circle - 1, Kolkata, Kolkata

ITA 1750/KOL/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 3114 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-06-2013
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Next Hearing Date: 05-06-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 20-12-2011
• Court: TRIBUNAL
• Department Lawyers: K N JANA
• Keywords: Earning of tax free income; Retrospective amendment
• Section: 14A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH C , KOLKATA [ () . .. . . .. . , ,, , , ! ' #!' ' #!' ' #!' ' #!', ,, , ] ]] ] [BEFORE HONBLE SRI N.S.SAINI AM & HONBLE SRI M AHAVIR SINGH, JM] !% !% !% !% /ITA NO.1750/KOL/2011 #& '(/ ASSESSMENT YEAR : 2006-07 (*+ / APPELLANT ) - - ( -.*+ /RESPONDENT) RUSSELL INVESTMENTS LIMITED . D.C.I.T, CIRCLE-1, KOLKATA -VERSUS- KOLKATA (PAN:AABCR 4631 C) !% !% !% !% /ITA NO.267/KOL/2012 #& '(/ ASSESSMENT YEAR : 2006-07 (*+ / APPELLANT ) - - ( -.*+ /RESPONDENT) D.C.I.T., CIRCLE-1, . RUSSELL INVESTMENTS LIMIT ED KOLKATA -VERSUS- KOLKATA (PAN:AABCR 4631 C) *+ / 0 / FOR THE ASSESSEE NONE -.*+ / 0 / FOR THE DEPARTMENT SHRI K.N.JANA, SR.DR 1 2 / 3 /DATE OF HEARING : 05.06.2013 4' / 3 /DATE OF PRONOUNCEMENT : 07.06.2013. 5 / ORDER PER SHRI N.S.SAINI, AM THESE ARE CROSS APPEALS FILED BY THE ASSESSES AND T HE REVENUE AGAINST THE ORDERS OF LD. CIT(A)-I, KOLKATA DATED 11.11.2011. 2. THE APPEAL FILED BY THE REVENUE IS BARRED BY LIM ITATION OF 5 DAYS. THE REVENUE HAS FILED A CONDONATION PETITION AND WE FIND THAT T HE REASON GIVEN FOR DELAY IN FILING THE APPEAL IS A PLAUSIBLE ONE AND HENCE WE CONDONE THE DELAY IN FILING THE APPEAL BY THE REVENUE AND ADMIT THE APPEAL OF THE REVENUE FOR HEARING. ITA NOS.1750/KOL/2011& 267 /KOL/2012 RUSSELL INVESTMENTS LTD. VS DCIT CIRC LE-1, KOL A.YR.2006-07 2 3. IN THE APPEAL OF THE ASSESSEE THE ISSUE INVOLV ED IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF INTEREST AND ADMINIS TRATIVE EXPENDITURE OF RS.9,95,907/- U/S 14A OF THE INCOME TAX ACT, 1961. 3.1. IN THE APPEAL OF THE REVENUE THE ISSUE INVOLV ED IS THAT THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE OF INTEREST AND ADMINI STRATIVE EXPENDITURE TO RS.9,95,907/- IN PLACE OF RS.23,71,642/- 4. THE BRIEF FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD SHOWN INCOME FROM LONG TERM CAPITAL GA IN OF RS.4,93,03,123/-AND DIVIDEND INCOME OF RS.30,68,670/- WHICH WAS CLAIMED AS EXEMPT U/S 10(38) AND SECTION 10(34) OF THE I.T.ACT RESPECTIVELY. THE AO BY INVOKING THE PROVISION OF SECTION 14A OF THE ACT AND APPLYING RULE 8D OF THE IT RULES DISALLOWED RS.14,65,689/- ON ACCOUNT OF INTEREST EXPENDITURE A ND RS.9,05,953/- ON ACCOUNT OF OPERATING AND ADMINISTRATIVE EXPENSES BY TREATING T HEM AS ATTRIBUTABLE TO EARNING OF EXEMPT INCOME AND THEREBY MADE A TOTAL DISALLOWANCE OF RS.23,71,642/-. 5. ON APPEAL THE LD.CIT(A) RESTRICTED THE DISALLOWA NCE TO RS.9,95,907/- WHICH WAS 4.03% OF THE TOTAL INTEREST AND OTHER EXPENDITURE O F RS.2,47,12,343/-. WHILE DOING SO HE HELD AS UNDER :- 7. I HAVE CAREFULLY GONE THROUGH THE SUBMISS ION OF THE APPELLANT. THE ARGUMENT OF THE APPELLANT FOR NON APPLICABILITY OF THE PROVISIO NS OF SECTION 14A IS NOT CORRECT AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF ISG TRADERS LTD. VS CIT, WB-II, KOLKATA (ITA NO.264 OF 2003 2011 TIOL-621-HC-KOL-IT). I T HAS BEEN HELD THAT : ON APPEAL BEFORE THE HC APPELLANT COUNSEL CONTENDE D THAT THE ENTIRE INTEREST EXPENDITURE WAS INCURRED BY THE ASSESSEE FOR THE PU RPOSE OF ITS ONE AND INDIVISIBLE BUSINESS AND WAS ALLOWABLE AS DEDUCTION U/S 36(1)(I II) IN ITS ENTIRELY AND NO PART OF THE INTEREST EXPENDITURE COULD BE APPORTIONED AS INCURR ED IN RELATION TO THE DIVIDEND INCOME. THE COUNSEL FURTHER CONTENDS THAT AT THE TI ME OF PASSING THE ASSESSMENT ORDER BY THE AO, THERE BEING ON EXISTENCE OF SECTION 14A. IN THE CASE BEFORE US, THE ORIGINAL PROCEEDINGS B EING TAKEN IN APPEAL BEFORE THE TRIBUNAL AND THE SECTION 14A HAVING BEEN GIVEN RETR OSPECTIVE OPERATION IN CASE OF PENDING ASSESSMENT PROCEEDINGS, THE SAME WOULD BE A PPLICABLE TO THE APPEAL BEFORE THE TRIBUNAL AND ALSO IN THIS APPEAL BEFORE US AND THUS , THE TRIBUNAL BELOW DID NOT COMMIT ANY ILLEGALITY IN APPLYING THE SAID PROVISIONS TO T HE PENDING PROCEEDINGS. THUS, THE APPROACH OF THE ASSESSING OFFICER TO WORK OUT THE PRO-RATA INTEREST EXPENDITURE AS RELATABLE TO EARNING OF DIVIDEND WAS QUITE IN CONFORMITY WITH THE PROVISIONS OF SECTION 14A OF THE ACT AND WE DO NOT FIND ANY REASON TO DISTURB THE SAID ORDER IN THE LIGHT OF THE AMENDED PROVISIONS OF SEC TION 14A OF THE ACT. ITA NOS.1750/KOL/2011& 267 /KOL/2012 RUSSELL INVESTMENTS LTD. VS DCIT CIRC LE-1, KOL A.YR.2006-07 3 WE, THEREFORE, FIND NO SUBSTANCE IN THE AFORESAID C ONTENTION OF MR.KHAITAN THAT THE REVENUE CANNOT GET THE BENEFIT OF SECTION 14A OF TH E ACT AND CONSEQUENTLY DISMISS THIS APPEAL BY ANSWERING THE FORMULATED QUESTION IN THE NEGATIVE AND AGAINST THE ASSESSEE. 7.1.THUS THE AO HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 14A OF THE IT ACT. BUT THE BASIS OF THE DISALLOWANCES HAS TO BE WORKED OU T AS PER THE PRO-RATA INTEREST EXPENDITURE AS RELATABLE TO EARNING OF DIVIDEND INC OME AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF ISG TRADERS LTD. VS CIT, WB-II , KOLKATA (ITA NO.264 OF 2003 2011 TIOL-621-HC-KOL-IT). THE APPELLANT HAS BEEN ASKED TO GIVE THE PRO-RATA INTEREST EXPENDITURE AS RELATABLE TO EARNING OF DIV IDEND. THE APPELLANT HAS SUBMITTED THE PRO-RATA DISALLOWANCES AS BELOW :- 1. I) TOTAL TURNOVER RS.76,007,449 II) DIVIDEND INCOME RS. 3,068,670 III)PERCENTAGE OF DIVIDEND INCOME TO TOTAL TURNOVER RS.3,068,670 RS.76,007,449 4.03% TOTAL INTEREST EXPENDITURE RS.23,778,954 INTEREST EXPENDITURE RELATABLE TO EARNING OF EXEMPT DIVIDEND INCOME RS.23,778,954 X 4.03% RS.9,58,292 2. I) TOTAL TURNOVER RS.76,007,449 II) DIVIDEND INCOME RS. 3,068,670 III)PERCENTAGE OF DIVIDEND INCOME TO TOTAL TURNOVER RS. 3,068,670 RS.76,007,449 4.03% TOTAL INTEREST AND OTHER EXPENDITURE RS.24,712,343 INTEREST EXPENDITURE RELATABLE TO EARNING OF EXEMPT DIVIDEND INCOME RS.23,712,343 X 4.03% RS.9,95,907 7.2 THE CALCULATION OF THE DISALLOWANCES IN THE FIR ST CASE IS ONLY DUE TO THE INTEREST EXPENDITURE AMOUNTING TO RS.9,58,292/- AND THE 2 ND CALCULATION IS DISALLOWANCE OF INTEREST AND OTHER EXPENDITURE RELATABLE TO EARNING OF EXEMPT DIVIDEND INCOME AMOUNTING TO RS.9,95,907/- 7.3. RESPECTFULLY, FOLLOWING THE JUDGMENT OF THE JU RISDICTIONAL HIGH COURT IN THE CASE OF ISG TRADERS LTD. VS CIT, WB-II, KOLKATA (SUPRA), TH E DISALLOWANCES MADE BY THE A.O. TO THE EXTENT OF RS.9,95,907/- IS UPHELD. BOTH THE GROUNDS ARE CLUBBED TOGETHER AND DISALLOWANCES MADE BY THE A.O. FOR BOTH THE EXPENSE S I.E. INTEREST EXPENDITURE AND OTHER EXPENSES ARE CONSIDERED TOGETHER AND HELD TO THE EX TENT OF RS.9,95,907/-. 6. BEING AGGRIEVED BY THE SAID ORDER OF THE LD. CIT (A) BOTH ASSESSEE AND THE REVENUE ARE IN APPEAL BEFORE US. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF THE LD. CIT(A) SUSTAINING THE DISALLOWANCE TO RS.9,95,907/- ON ACCOUNT OF INTEREST AND OTHER EXPENDITURE U/S 14A OF THE ACT WHEREAS THE REVENUE IS IN APPEAL AGAINST THE ORDER OF THE LD. CIT(A) IN RESTRICTING THE DISALLOWANCE TO R S.9,95,907/- IN PLACE OF RS.23,71,642/-. ITA NOS.1750/KOL/2011& 267 /KOL/2012 RUSSELL INVESTMENTS LTD. VS DCIT CIRC LE-1, KOL A.YR.2006-07 4 7. NONE APPEARED ON BEHALF OF THE ASSESSEE WHEN THE CASE WAS CALLED FOR HEARING. NOTICE FOR HEARING WAS SENT TO THE ASSESSEE ON 17.1 2.2012 BY REGISTERED POST WITH AD. THE SAME HAS NOT BEEN RETURNED UNSERVED BY THE POST AL AUTHORITIES. NO ADJOURNMENT APPLICATION HAS ALSO BEEN FILED. THEREFORE THE APPE ALS WERE HEARD AND DISPOSED OFF AFTER CONSIDERING THE MATERIALS ON RECORD AND SUBMI SSIONS OF THE LD. DR. 8. THE LD. DR SUPPORTED THE ORDER OF THE AO. 9. WE HAVE HEARD THE LD. DR AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND MATERIALS AVAILABLE ON RECORD. THE UNDISPUTED FACTS IN THE PRESENT APPEALS BEFORE US ARE THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESS EE HAD SHOWN LONG TERM CAPITAL GAIN OF RS.4,93,03,123/- AND DIVIDEND INCOME OF RS.30,68 ,67-/- WHICH WAS CLAIMED AS EXEMPT U/S 10(38) AND 10(34) OF THE IT ACT RESPECTI VELY. THEREFORE THE AO BY INVOKING SECTION 14A OF THE ACT AND APPLYING RULE 8 D OF IT RULES MADE DISALLOWANCE OF INTEREST OF RS.14,65,689/- AND OPERATING AND ADM INISTRATIVE EXPENSES OF RS.9,05,953/- AS RELATED TO THE EARNING OF EXEMPTED INCOME. 9.1. ON APPEAL THE LD. CIT(A) RESTRICTED THE DISALL OWANCE AT 4.03% OF THE TOTAL EXPENDITURE ON ACCOUNT OF INTEREST AND OTHER EXPEND ITURE OF RS.2,47,12,343/-. BEING AGGRIEVED BOTH THE PARTIES ARE IN APPEAL BEFORE US. THE LD. DR SUPPORTED THE ORDER OF THE AO. WE FIND THAT THE ASSESSMENT YEAR INVOLVED I N THE PRESENT APPEALS IS THE A.YR. 2006-07. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF M/S. GODREJ BOYCE MANUFACTURING CO.LTD. VS DCIT 328 ITR 81 (BOM) FOUN D THAT THE AMENDMENT HAD NOT BEEN MADE WITH RETROSPECTIVE EFFECT AND THAT THEREF ORE, RULE 8D NOT TO BE USED WITH RETROSPECTIVE EFFECT AND THAT THEREFORE, RULE 8D CA NNOT BE USED IN CASES PRIOR TO THE ASSESSMENT YEAR 2007-08. FURTHER, WE FIND THAT THE KOLKATA BENCH OF THE TRIBUNAL IN THE CASE OF DCIT, CIRCLE-1, KOLKATA VS M/S.EXIDE IN DUSTRIES LTD. IN ITA NO.1640/KOL/2012 FOR A.YR.2006-07 VIDE ORDER DATED 19.04.2013 FOLLOWING THE DECISION OF THE KOLKATA TRIBUNAL IN THE CASE OF SAG ARIKA GOODS AND SERVICES PVT. LTD. VS ITO VIDE ITA NO.1278/KOL/2010 DATED 24.09.2010 A ND DCIT VS EIH ASSOCIATED HOTELS LTD 126 TTJ 246 (KOL) HAS RESTRICTED THE DIS ALLOWANCE U/S 14A OF THE IT ACT AT ITA NOS.1750/KOL/2011& 267 /KOL/2012 RUSSELL INVESTMENTS LTD. VS DCIT CIRC LE-1, KOL A.YR.2006-07 5 1% OF THE EXEMPT INCOME FOR YEARS PRIOR TO THE A.YR .2008-09. WE THEREFORE, RESPECTFULLY FOLLOWING THE SAME DIRECTING THE AO TO RECOMPUTED THE DISALLOWANCE OF EXPENDITURE RELATING TO THE EXEMPT INCOME AT 1% OF THE EXEMPT INCOME BEING LONG TERM CAPITAL GAIN AND DIVIDEND INCOME. THUS THE APP EAL OF THE ASSESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. 10. IN THE RESULT THE APPEAL OF THE ASSESSES IS PAR TLY ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COURT ON 07.06.2013. SD/- SD/- [ .' #!' , ] [ .., ,, , ] [MAHAVIR SINGH ] [N.S.SAINI] JUDICIAL MEMBER ACCOUNTANT MEMBER ( (( (3 3 3 3) )) ) DATE: 07.06.2013. R.G.(.P.S.) 5 / -##6 76'8- COPY OF THE ORDER FORWARDED TO: 1. RUSSELL INVESTMENTS LIMITED, 21, PRAFULLA SARKAR ST REET, 2 ND FLOOR, KOLKATA- 700072. 2 D.C.I.T., CIRCLE-1, KOLKATA. 3 . CIT KOLKATA 4. CIT(A)-I, KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. .6 -#/ TRUE COPY, 51/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES