Shree Capital Services Limited, Kolkata V. DCIT, CIR-5, KOLKATA, Kolkata

ITA 1808/KOL/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6278 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2010-2011
• Appeal Filed On: 09-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUN AL C BENCH : KOLKATA [BEFORE HONBLE SHRI A.T.VARKEY, JM & SHRI M.BALA GANESH, AM ] I.T.A NO.1835/KOL/201 6 ASSESSMENT YEAR : 2010-1 1 D.C.I.T., CIRCLE-5 (1) . -VS.- SHREE CAPIT AL SERVICES LTD. KOLKATA KOLKATA [PAN : AAGCS 5082 D] (APPELLANT) (RESPONDENT) I.T.A NO.1808/KOL/2016 ASSESSMENT YEAR : 2010-1 1 SHREE CAPITAL SERVICES LTD. -VS- D.C.I.T., CIRCL E-5(1), KOLKATA KOLKATA [PAN : AAGCS 5082 D] (APPELLANT) (RESPONDENT) FOR THE DEPARTMENT : SHRI SAURABH KUM AR, ADDL. CIT, FOR THE ASSESSEE : SHRI NAVIN VERMA, A R DATE OF HEARING : 07.05.2018 DATE OF PRONOUNCEMENT : 15 .05.2018 ORDER PER SHRI M.BALAGANESH, AM 1. THESE APPEALS OF THE REVENUE AND ASSESSEE ARISE OUT OF THE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) -2, KOLKATA [ IN SHORT THE LD CITA] IN APPEAL NO. 739/CIT(A)-2/14-15 DATED 20.06.2016 AGAINST THE ORDERS PASSED BY THE D.C.I.T- CIRCLE-5, KOLKATA [ IN SHORT THE LD AO] UNDER SECTI ON 143(3) OF THE ACT DATED 19.02.2013 FOR THE ASST YEAR 2010-11. LET US TAKE ASSESSEES APPEAL FIRST. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS W ITH REGARD TO DISALLOWANCE U/S 14A R.W.R.8D OF THE RULES. 2 ITA NO.1835 AND 1808/KOL/2017 SHREE CAPITAL SERVICES LTD. A.YR.2010-11 2 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSES SEE IS A NON BANKING FINANCE COMPANY (NBFC) ENGAGED IN THE BUSINESS OF TRUCK HIRING, REN TING, FINANCING AND INVESTMENT IN SHARES AND SECURITIES. THE ASSESSEE EARNED DIVIDEND INCOME OF RS.14,70,96,573/- AND CLAIMED THE SAME AS EXEMPT. THE LD. AO OBSERVED THA T THE ASSESSEE HAD MADE HUGE INVESTMENTS AS ON 31.03.2010 AND THE AVERAGE INVEST MENTS WAS WORKED OUT AT RS.113,90,02,815/-. THE ASSESSEE MADE DISALLOWANCE OF RS.5,13,033/- ON ACCOUNT OF EXPENSES LINKED TO EXEMPT INCOME U/S 14A OF THE ACT IN THE RETURN OF INCOME. THE LD. AO PROCEEDED TO COMPUTE THE DISALLOWANCE UNDER FIRS T AND THIRD LIMB OF RULE 8D(2) OF THE RULES AS UNDER :- UNDER RULE 8 (2) (I) : RS. 1,05,692/- UNDER RULE 8D(2)(III) : RS.56,95,014/- RS.58,00,706/- THE LD.AO ADDED THE SAID DISALLOWANCE AMOUNT OF RS. 58,00,706/- U/S 14A OF THE ACT WHILE COMPUTING THE BOOK PROFITS U/S 115JB OF THE A CT AND A SUM OF RS 51,81,981/- UNDER NORMAL PROVISIONS OF THE ACT. THE LD CITA UP HELD THE ACTION OF THE LD AO OF DISALLOWANCE U/S 14A OF THE ACT IN THE SUM OF RS 51 ,81,981/- UNDER NORMAL PROVISIONS OF THE ACT. HOWEVER, THE LD CITA DELETED THE DISAL LOWANCE OF RS 58,00,706/- U/S 14A OF THE ACT WHILE COMPUTING THE BOOK PROFITS U/S 115 JB OF THE ACT, BY PLACING RELIANCE ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF INTEGR ATED COAL MINING LTD VS DCIT IN ITA NO.1146/KOL/2012 DATED 30.11.2015; AMONG OTHER DECI SIONS. AGGRIEVED BOTH ASSESSEE AS WELL AS THE REVENUE ARE IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS :- ASSESSEES GROUNDS OF APPEAL 1.0 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD CIT (APPEALS) WAS NOT JUSTIFIED AND ERRED IN UPHOLDING THE DISALL OWANCE OF RS. 51,81,981/- BEING NOTIONAL EXPENSES INCURRED TOWARDS EARNING EXEMPT I NCOME U/ S 14A AS COMPUTED BY APPLYING RULE 8D, WITHOUT APPRECIATING THE FACT THAT ACTUAL EXPENDITURE INCURRED TOWARDS EARNING EXEMPT INCOME HAS ALREADY BEEN ADDED BACK BY APPELLANT WHILE COMPUTING TOTAL INCOME. 3 ITA NO.1835 AND 1808/KOL/2017 SHREE CAPITAL SERVICES LTD. A.YR.2010-11 3 2.0 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LD. CIT(APPEALS) WAS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE AO IN APPLYING RULE 8D ON THE BASIS OF WRONG FINDING OF FACT THAT APPELLANT HAS O FFERED DISALLOWANCE U/ S 14A ON ADHOC BASIS. 3.0 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND WITHOUT PREJUDICE TO GROUND NO. 1.0 & 2.0 TAKEN HERE-IN-ABOVE, NECESSARY DIRECTIONS MAY BE GIVEN TO AO. TO COMPUTE DISALLOWANCE U/S 14A AS PER RULE 8D BY EXCLUDING INVESTMENTS IN GROUP COMPANIES WHICH HAVE BEEN MADE FOR THE PURPOS E OF ACQUIRING CONTROLLING STAKE AND FOR BUSINESS EXPEDIENCY AND NOT FOR THE P URPOSE OF EARNING EXEMPT INCOME. 4.0 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND WITHOUT PREJUDICE TO GROUND NO. 1.0 & 2.0 TAKEN HERE-IN-ABOVE, NECESSARY DIRECTIONS MAY BE GIVEN TO AO. TO COMPUTE DISALLOWANCE U/S 14A READ WITH RULE 8D(2)(III) BY EXCLUDING THE INVESTMENT MADE IN BONDS THE INCOME FROM WHICH FORM S PART OF TOTAL INCOME. 5.0 THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, MODIFY, RESCIND, SUPPLEMENT OR ALTER ANY OF THE GROUNDS STATED HERE-IN-ABOVE EITHE R BEFORE OR AT THE TIME OF HEARING OF THE APPEAL. REVENUES GROUNDS OF APPEAL 1. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD.CLT(A) ERRED IN CONSIDERING DISALLOWANCE U/S.14A OF THE I.T.ACT. READ WITH RULE 80 WHILE COMPUTING BOOK PROFIT U/S. 115JB ON THE BASIS OF SO ME JUDICIAL DECISIONS FAVOURING THE ASSESSEE'S CASE.' 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD.CLT(A) ERRED IN NOT CONSIDERING THE JUDICIAL DECISIONS IN FAVOUR OF REVENUE OF DISALLOWANCE U/S. 14A WHILE COMPUTING BOOK PROFIT U/S.115JB. 3. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LD.CLT(A) ERRED IN ALLOWING THE CONTENTION OF THE ASSESSEE REGARDIN G THE TAXABILITY OF BOOK PROFIT U/S.115JB.. 4. 'THAT THE APPELLANT CRAVES FOR LEAVE TO ADD, DEL ETE AMEND OR MODIFY ANY GROUND BEFORE OR AT THE TIME OF APPELLATE PROCEEDINGS.' 4. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS NOT I N DISPUTE THAT DISALLOWANCE U/S 14A OF THE ACT R.W.R. 8D OF THE RULES IS TO BE MADE UNDER NORMAL PROVISIONS OF THE ACT 4 ITA NO.1835 AND 1808/KOL/2017 SHREE CAPITAL SERVICES LTD. A.YR.2010-11 4 IN THE INSTANT CASE. WE FIND THAT THE ASSESSEE HAD ALREADY DISALLOWED A SUM OF RS.5,13,033/- U/S 14A OF THE ACT UNDER NORMAL PROVI SIONS OF THE ACT. THE ASSESSEE HAS ALSO DISALLOWED THE DIRECT EXPENSES OF RS.1,05,692/ - REPRESENTING SECURITY TRANSACTION TAX (STT) SEPARATELY IN THE RETURN OF INCOME. HENC E THERE IS NO NEED TO AGAIN DISALLOW THE SAME U/S 14A R.W.R. 8D(2)(I) OF THE RULES. WE DIRECT THE LD. AO TO DELETE THE SAME ACCORDINGLY. WE FIND THAT THE TOTAL COMMON INDIRECT EXPENSES OF THE ASSESSEE ARE AS UNDER :- A) STAFF COST : RS.22,94,975/- B) ADMINISTRATIVE EXPENSES : RS.29,96,994/- RS.52,91,969/- THE ASSESSEE HAD GIVEN THE WORKINGS FOR DISALLOWING RS.5,13,033/- U/S 14A OF THE ACT BY IDENTIFYING THE STAFF COST PAID TO MR.S.K.RATHI AND TAKING 25% OF PRINTING AND STATIONERY AS COMMON EXPENSES. THIS, IN OUR CONSIDE RED OPINION, DOES NOT SUIT THE PURPOSE BEHIND INTRODUCTION OF SECTION 14A OF THE A CT AND COMPUTATION MECHANISM PROVIDED UNDER RULE 8D IS TO BE INVOKED IN THE INST ANT CASE, IN AS MUCH AS THE WORKINGS OF DISALLOWANCE OF 14A OF THE ASSESSEE ARE IMPROPER AND INCOMPLETE. WE HOLD THAT ONLY INVESTMENTS THAT HAD YIELDED DIVIDEND INCOME ARE TO BE CONSIDERED FOR THE PURPOSE OF COMPUTING DISALLOWANCE UNDER THE THIRD LIMB OF RULE 8D(2) OF THE RULES IN CONSONANCE WITH THE DECISION OF THIS TRIBUNAL IN THE CASE OF R EI AGRO LTD VS DCIT 144 ITD 141 (KOL). HOWEVER, WHILE COMPUTING SUCH DISALLOWANCE, THE AMOUNT ALREADY DISALLOWED BY THE ASSESSEE IN THE SUM OF RS.5,13,033/- SHOULD BE REDUCED. WE ALSO HOLD THAT THE DISALLOWANCE OF INDIRECT EXPENSES UNDER THE THIRD L IMB, CANNOT BY ANY STRETCH OF IMAGINATION EXCEED THE TOTAL INDIRECT EXPENSES DEBI TED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT. THE TOTAL INDIRECT EXPENSES DEBITED B Y THE ASSESSEE IN THE PROFIT AND LOSS ACCOUNT IS RS.52,91,969/-. IN VIEW OF THIS WE HEREB Y DIRECT THE LD. AO TO RE-COMPUTE THE DISALLOWANCE UNDER THE THIRD LIMB OF RULE 8D(2) BY CONSIDERING 0.5% OF THE DIVIDEND BEARING INVESTMENTS AS REDUCED BY RS.5,13,033/- SUB JECT TO MAXIMUM OF TOTAL INDIRECT 5 ITA NO.1835 AND 1808/KOL/2017 SHREE CAPITAL SERVICES LTD. A.YR.2010-11 5 EXPENSES OF RS.52,91,969/- UNDER THE NORMAL PROVISI ONS OF THE ACT. ACCORDINGLY GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STAT ISTICAL PURPOSES. NOW LET US TAKE UP THE REVENUES APPEAL. 5. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS A S TO WHETHER DISALLOWANCE U/S 14A OF THE ACT CAN BE MADE WHILE COMPUTING THE BOOK PRO FITS U/S 115JB OF THE ACT. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THA T THE LD. AO HAD DISALLOWED A SUM OF RS.58,00,706/- U/S 14A OF THE ACT R.W.R. 8D OF THE RULES BY COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT. THIS ISSUE IS NOW SETT LED BY THE RECENT SPECIAL BENCH DECISION OF DELHI TRIBUNAL IN THE CASE OF ACIT VS VIREET INVESTMENT PVT. LTD. 165 ITD 27 DATED 16.06.2017 WHEREIN IT WAS HELD THAT NO DIS ALLOWANCE U/S 14A OF THE ACT COULD BE MADE BY RESORTING TO COMPUTATION MECHANISM PROVI DED UNDER RULE 8D OF THE RULES. THE LD. AO SHOULD MAKE DISALLOWANCE U/S 14A OF THE ACT HAVING REGARD TO THE BOOKS OF ACCOUNT ON SOME RATIONAL BASIS AS EXPENDITURE INCUR RED FOR EARNING EXEMPT INCOME IN TERMS OF CLAUSE (F) OF SECTION 115JB OF THE ACT. IN VIEW OF THIS, THE DISALLOWANCE ALREADY MADE BY THE ASSESSEE IN THE SUM OF RS.5,13, 033/- SHOULD BE MADE U/S 14A OF THE ACT WHILE COMPUTING BOOK PROFITS U/S 115JB OF THE A CT. WE DIRECT THE AO ACCORDINGLY. GROUNDS RAISED BY THE REVENUE ARE PARTLY ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES AND APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE COUR T ON 15.05.2018 SD/- SD/- [A.T.VARKEY] [ M.BA LAGANESH] JUDICIAL MEMBER ACCOUNTA NT MEMBER DATED : 15.05.2018 [RG SPS] 6 ITA NO.1835 AND 1808/KOL/2017 SHREE CAPITAL SERVICES LTD. A.YR.2010-11 6 COPY OF THE ORDER FORWARDED TO: 1.M/S SHREE CAPITAL SERVICES LTD., 21, STRAND ROAD, KOLKATA-700001. 2. D.C.I.T., CIRCLE-5(1), KOLKATA. 3. C.I.T.(A)- 2, KOLKATA. 4. C.I.T.-2, KOLKA TA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVATE SECRET ARY HEAD OF OFFICE/D.D.O.. ITAT, KOLKATA BENCHES 7 ITA NO.1835 AND 1808/KOL/2017 SHREE CAPITAL SERVICES LTD. A.YR.2010-11 7