Ivory Finvest Ltd., Kolkata V. ITO, Ward - 1(2), Kolkata, Kolkata

ITA 179/KOL/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62109 (ITAT-KOLKATA)
• Duration Of Justice: 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2005-2006
• Appeal Filed On: 06-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K PRAMANIK PER SHRI P
• Assessee Lawyers: ARVIND AGARWAL
• Keywords: Business income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA [BEFORE SHRI PRAMOD KUMAR, A.M. & SHRI GEORGE MATH AN, J.M. ] I.T.A. NOS.179/KOL/2012 ASSESSMENT YEAR :2005-2006 IVORY FINVEST LTD. VS- ITO, WARD-1(2),KOLKATA 2, COOPER LANE, KOLKATA 700 001 (PAN:AABCI 0347N) ( APPELLANT ) ( RESPONDENT ) DATE OF CONCLUDING THE HEARING : 28.05.2012 DATE OF PRONOUNCING THE ORDER : 28.05.2012 APPEARANCES : FOR THE APPELLANT : SHRI ARVIN D AGARWAL : FOR THE RESPONDENT : SHRI A.K.PRAMANIK O R D E R PER SHRI PRAMOD KUMAR 1. BY WAY OF THIS APPEAL, THE ASSESSEE HAS CHALLENG ED CORRECTNESS OF CIT(A)S ORDER DATED 30 TH NOVEMBER 2011, IN THE MATTER OF ASSESSMENT U/S.143 (3) OF THE INCOME TAX ACT, 1961 FOR THE ASSESSMENT YEAR 2005-0 6. 2. GRIEVANCE RAISED BY THE ASSESSEE IS AS FOLLOWS: 1. THE LEARNED COMMISSIONER (APPEALS) HAS ERRED IN CONFIRMING THE ADDITION MADE UNDER SECTION 14A BY THE ASSESSING OF FICER IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. WITHOUT PREJUDICE TO ABOVE, THE LEARNED COMMISSI ONER (APPEALS) IS INCORRECT IN CONFIRMING THE AMOUNT OF ADDITION UNDE R SECTION 14A AT RS.1,37,590/- IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. BRIEFLY STATED, THE MATERIAL FACTS OF THE CASE A RE LIKE THIS. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF FINANCE AND INVESTMENT. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT WHILE THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.2,58,681/- AND PAID IN TEREST OF RS.3,66,314/- TO FUND INVESTMENT IN SHARES, THE ASSESSEE HAS NOT OFFERED ANY DISALLOWANCE OF INTEREST U/S. 14A. IT WAS EXPLAINED BY THE ASSESSEE THAT BORROWIN GS, ON WHICH INTEREST IS PAID, 2 ITA NO.179/KOL/2012 IVORY FINVEST LTD. ASSESSMENT YEAR: 2005-06 WERE USED TO EARN DIVIDEND AS ALSO CAPITAL GAINS, A ND THAT THERE IS NO SPECIFIC FUNDING BY THE ASSESSING OFFICER TO THE EFFECT THAT BORROWED AMOUNTS HAVE BEEN USED FOR EARNING THE DIVIDENDS. THE ASSESSING OFFIC ER WAS, HOWEVER, OF THE VIEW THAT AS FUNDS HAVE BEEN USED FOR EARNING EXEMPT AS ALSO NON-EXEMPT INCOME. THE INTEREST EXPENDITURE IS REQUIRED TO BE ALLOCATED TO THESE TWO STREAMS OF INCOME. HE ALLOCATED THE INTEREST EXPENDITURE IN THE RATIO OF DIVIDEND INCOME AND BUSINESS PROFITS. ACCORDINGLY, INTEREST ALLOCABLE TO DIVIDEN D INCOME WAS COMPUTED AT RS.1,37,590/- WHICH WAS DISALLOWED U/S 14A. AGGRIEV ED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. LEARNED CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER AND O BSERVED AS FOLLOWS:- 5.4 I HAVE CAREFULLY GONE THROUGH THE SUBMISSION OF THE APPELLANT. THE ARGUMENT OF THE APPELLANT FOR NON APPLICABILITY OF THE PROVISIONS OF SECTION 14A IS NOT CORRECT AS HELD BY THE JURISDICTIONAL HI GH COURT IN THE CASE OF ISG TRADERS LTD. VS. CIT, WB-II, KOLKATA (I,T.A NO. 264 OF 2003-2011- TIOL-621-HC-KOL-IT). IT HAS BEEN HELD THAT: ON APPEAL BEFORE THE HC APPELLANT COUNSEL CONTENDE D THAT THE ENTIRE INTEREST EXPENDITURE WAS INCURRED BY THE ASS ESSEE FOR THE PURPOSE OF ITS ONE AND INDIVISIBLE BUSINESS AND WAS ALLOWABLE AS DEDUCTION U/S 36(1)(III) IN ITS ENTIRETY AND NO PAR T OF THE INTEREST EXPENDITURE COULD BE APPORTIONED AS INCURRED IN REL ATION TO THE DIVIDEND INCOME. THE COUNSEL FURTHER CONTENDS THAT AT THE TIME 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 HAVI NG BEEN GIVEN RETROSPECTIVE OPERATION IN CASE OF PENDING ASSESSME NT PROCEEDINGS, THE SAME WOULD BE APPLICABLE TO THE APPEAL BEFORE T HE TRIBUNAL AND ALSO IN THIS APPEAL IN THIS APPEAL BEFORE US AND TH US, THE TRIBUNAL BELOW DID NOT COMMIT ANY ILLEGALITY IN APPLYING THE SAID PROVISIONS TO THE PENDING PROCEEDINGS. THUS, THE APPROACH OF THE ASSESSING OFFICER TO WORK OUT THE PRO RATA INTEREST EXPENDITURE AS RELATABLE TO EARNING OF DIV IDEND WAS QUITE IN CONFORMITY WITH THE PROVISIONS OF SECTION 14A OF TH E ACT AND WE DO NOT FIND ANY REASON TO DISTURB THE SAID ORDER IN TH E LIGHT OF THE AMENDED PROVISIONS OF SECTION 14A OF THE ACT. WE, THEREFORE, FIND NO SUBSTANCE IN THE AFORESAID C ONTENTION OF MR. KHAITAN THAT THE REVENUE CANNOT GET THE BENEFIT OF SECTION 14A OF THE 3 ITA NO.179/KOL/2012 IVORY FINVEST LTD. ASSESSMENT YEAR: 2005-06 ACT AND CONSEQUENTLY, DISMISS THIS APPEAL BY ANSWER ING THE FORMULATED QUESTION IN THE NEGATIVE AND AGAINST THE ASSESSEE. 5.5 THUS THE A.O HAS RIGHTLY INVOKED THE PROVISIONS OF SECTION 14A OF THE IT ACT. THE BASIS OF THE DISALLOWANCES HAS TO B E WORKED OUT AS PER THE PRO-RATA INTEREST EXPENDITURE AS RELATABLE TO E ARNING OF DIVIDEND INCOME AS HELD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF ISG TRADERS LTD. VS. CIT, WB-II, KOLKATA (I.T,A NO.264 OF 2003-2011- TIOL-621-HC-KOL-IT). 4. THE ASSESSEE IS NOT SATISFIED BY THE STAND SO TA KEN BY THE CIT(A) AND IS IN FURTHER APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIALS ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 6. LEARNED COUNSEL SUBMITS THAT HE HAS NO GRIEVANCE WITH THE FACT THAT THE CIT(A) HAS APPLIED HONBLE CALCUTTA HIGH COURTS DE CISION IN THE CASE OF ISG TRADERS LTD. VS- CIT (2011-TIOL-621-HC) AND HOLDIN G THAT MATERIAL FACTS OF THE CASE ARE SIMILAR, BUT THEN THE CIT(A) OUGHT TO HAVE APPLIED THE SAME FORMULA FOR MAKING THE DISALLOWANCE AS WAS ADOPTED IN THE CASE. LEARNED COUNSEL TAKES US THROUGH THE SAID JUDGMENT AND POINTS OUT THAT ALLOC ATION OF INTEREST EXPENSE IS TO BE DONE IN THE RATIO OF DIVIDEND AND TURNOVER OF THE B USINESS. HE SUBMITS THAT THE CIT(A) FELL IN ERROR IN ADOPTING THE FIGURE OF PROF IT OF BUSINESS WHEREAS HE OUGHT TO HAVE TAKEN THE FIGURE OF TURNOVER OF BUSINESS. LEAR NED COUNSEL THEN INVITES OUR ATTENTION TO HIS CALCULATION SHEET POINTING OUT THA T, ON THE BASIS OF ALLOCATION OF DIVIDEND TO TURNOVER, THE DISALLOWANCE WILL DULY BE RS.3,315/-. LEARNED DEPARTMENTAL REPRESENTATIVE DOES NOT POINT OUT ANY INFIRMITY IN THESE SUBMISSIONS AND PLACES RATHER BLAND RELIANCE ON THE ORDER OF TH E CIT(A). 7. WE FIND THAT ONCE IT IS NOT IN DISPUTE THAT THE FACTS OF THE CASE ARE MATERIALLY SIMILAR TO THE FACTS OF ISG TRADERS LTD. ( SUPRA ) AND THAT THE SAID DECISION APPLIES IN THIS CASE, THE COMPUTATION OF DISALLOWANCE HAS TO B E DONE ON THE SAME BASIS AS WAS ACCEPTED BY THEIR LORDSHIPS IN ISG TRADERS LTD.S C ASE ( SUPRA ). AS LEARNED 4 ITA NO.179/KOL/2012 IVORY FINVEST LTD. ASSESSMENT YEAR: 2005-06 COUNSEL RIGHTLY POINTS OUT, THE RATIO OF ALLOCATION ACCEPTED BY THEIR LORDSHIPS IS OF DIVIDEND INCOME TO TOTAL TURNOVER. IN VIEW OF THIS POSITION, WE DEEM IT FIT AND PROPER TO UPHOLD THE GRIEVANCE OF THE ASSESSEE AND TO REMIT THE MATTER TO THE FILE OF THE ASSESSING OFFICER FOR RECOMPUTATION OF DISALLOW ANCE U/S.14A IN THE LIGHT OF ABOVE DIRECTIONS. THE ASSESSEE GETS THE RELIEF ACCO RDINGLY. 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED, IN THE TERM INDICATED ABOVE. THIS ORDER IS PRONOUNCED IN THE OPEN COURT TODAY ON 28 TH MAY, 2012 IMMEDIATELY AFTER THE COMPLETION OF THE HEARING . SD/- SD/- (GEORGE MATHAN) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 28 TH MAY, 2012 COPY OF THE ORDER FORWARDED TO: 1. IVORY FINVEST LTD., 2, COOPER LANE, KOLKATA 700 0 01 2 ITO, WARD-1(2),KOLKATA 3. THE CIT(A), KOLKATA 4. CIT, KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, ASSTT. REGISTRAR , ITAT, KOLKATA TALUKDAR(SR.P.S.) 5 ITA NO.179/KOL/2012 IVORY FINVEST LTD. ASSESSMENT YEAR: 2005-06