DCIT, Circle-4(2), Kolkata, Kolkata V. M/s Trade Apartments Limited, Kolkata

ITA 1813/KOL/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6429 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 12-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Proportionate interest
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SRI S.S. GODARA, JM & SHRI M.BALA GANESH, AM] I.T.A NO. 1813/KOL/20 16 ASSESSMENT YEAR : 2009-1 0 D.C.I.T., CIRCLE-4 (2) . -VS.- M/S TRADE AP ARTMENTS LTD. KOLKATA KOLKATA [PAN : AABCT 2117 P] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI SALL ONG YADEN, ADDL. CIT FOR THE RESPONDENT : NONE DATE OF HEARING : 25.04.2018. DATE OF PRONOUNCEMENT : 02.05.2018. ORDER PER S.S. GODARA, JM THIS REVENUES APPEAL FOR A.Y.2009-10, ARISES AGA INST THE ORDER OF C.I.T.(A)- 6, KOLKATA DATED 17.06.2016 PASSED IN APPEAL NO.41 5/CIT(A)-6/KOL/2015-16 REVERSING AOS ACTION DISALLOWING PROPORTINATE INTE REST AND ADMINISTRATIVE EXPENDITURE OF RS.43,21,772/- AND RS.14,75,525/- RESPECTIVELY U /S 14A R.W.R.8D OF THE INCOME TAX RULES, 1962, IN PROCEEDINGS U/S 143(3) OF THE INCOM E TAX ACT, 1961 (ACT). 2. CASE CALLED TWICE. NONE APPEARS AT ASSESSEES B EHEST. IT IS ACCORDINGLY PROCEEDED EX PARTE. 3. THE LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMEN TLY CONTENDED DURING THE COURSE OF HEARING THAT THE CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS IN DELETING THE IMPUNGED DISALLOWANCE. HE TAKES TO THE CIT(A)S DET AILED DISCUSSION ON THE ISSUE READING AS UNDER :- 4. THE SECOND, THIRD, FOURTH AND FIFTH GROUNDS OF APPEAL ARE AGAINST THE DISALLOWANCE OF INTEREST OF RS. 43,21,772/ - AND EX PENSES OF RS. 14,75,525/- U/S 14A OF THE ACT READ WITH RULE 8D. THE AR OF THE APP ELLANT FURNISHED A WRITTEN 2 ITA NO.1813/KOL/2016 M/S TRADE APARTMENTS LTD. A.YR.2009-10 2 SUBMISSION IN WHICH IT WAS STATED THAT EXPENSES INC LUDING INTEREST OF ONLY RS.82,83,964/- HAD BEEN CLAIMED AS AGAINST WHICH, I NTEREST INCOME OF RS.66,44,110/ - WAS DECLARED. THE APPELLANT ON ITS OWN MADE A DISALLOWANCE OF RS.16,39,854/- U/S 14A INCLUSIVE OF NET INTEREST O F RS. 13,59,442/-. IT WAS FURTHER CONTENDED AS UNDER:- 'IT WILL THEREFORE APPEAR THAT THE APPELLANT HAD DI SALLOWED THE ENTIRE EXPENSES INCURRED DURING THE PREVIOUS YEAR. THE ACT ION OF THE AO IN DISALLOWING A SUM OF 14,75,525/- ARBITRARILY AND ME CHANICALLY WITHOUT SEEING THAT THE APPELLANT DID NOT EVEN CLAIM DEDUCT ION OF EXPENSES OF RS. 14,75,525/-. WHEN THERE WAS NO CLAIM MADE BY THE AP PELLANT OF EVEN A SINGLE RUPEE AS BUSINESS ESTABLISHMEN EXPENSES IN T HE RETURN FILED, THE AO WAS GROSSLY UNJUSTIFIED IN DISALLOWING A SUM OF RS. 14,75,525/- OVER AND ABOVE THE SUM OF RS. 2,80,412/-. THE DISALLOWANCE O F RS.14,75,525/- MAY THEREFORE BE DELETED. IN THE PRESENT CASE, AS STATED HEREINBEFORE, THE AP PELLANT DID NOT CLAIM ANY INTEREST EXPENDITURE OR OTHER EXPENSES IN ITS RETUR N FILED AND DISALLOWED THE ENTIRE EXPENSES DEBITED IN ITS PROFIT AND LOSS ACCOUNT. THE AO BY MECHANICALLY APPLYING THE FORMULA GIVEN IN RULE 8D (2}(II) AND RULE 8D(2}(III) DISALLOWED A SUM OF RS.57,97,297/- WHICH WAS ARBITRARY AND WRONG. THE APPELLANT ALSO SUBMIS THAT IN THE ASSESS MENT THE AO HAS COMPUTED UNDER RULE 8D A SUM OF RS. 57,97,297/- AND DISALLOWED THE SAME U/ S. 14A. THE SAID DISALLOWANCE WAS OVER AND ABOVE THE DISALLOWANCE OF RS. 16,39, 554/ - MADE SUO MOTO BY THE APPELLANT. IN EFFECT, THE ACTION OF THE AO RESULTS IN DOUBLE DISA LLOWANCE WHICH IS ALSO NOT PERMISSIBLE IN LAW. ON THESE FACTS ALSO THE APP ELLANT SUBMITS THAT THE DISALLOWANCE OF RS.57,97,297/ - BE DELETED. THE APPELLANT THEREFORE SUBMITS THAT THE DISALLOWAN CE MADE BY THE AO UNDER SECTION14A EX-FACIE IN EXCESS OF THE EXPENDIT URE ACTUALLY INCURRED AND CLAIMED AS DEDUCTION IN ARRIVING AT THE PROFITS OF THE BUSINESS. THE APPELLANT SUBMITS THAT THE DISALLOWANCE UNDER SEC. 14A CANNOT EXCEED THE ACTUAL CLAIM OF THE ASSESSEE FOR THE EXPENDITURE. T HE TERM 'DISALLOWANCE' IN ITSELF. MEANS TO DISALLOW SOMETHING WHAT IS CLA IMED TO BE ALLOWED. THE AO CANNOT NOTIONALLY ASSUME AND DISALLOW IMAGINARY EXPENDITURE WHICH HAS NEVER BEEN INCURRED BY THE ASSESSEE. SECTION 14 A OF THE INCOME-TAX ACT, 1961 READ AS FOLLOWS: FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UND ER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. ' 3 ITA NO.1813/KOL/2016 M/S TRADE APARTMENTS LTD. A.YR.2009-10 3 SECTION 14A THEREFORE PROVIDES FOR DISALLOWANCE OF EXPENDITURE INCURRED BY THE ASSESSEE. IT DOES NOT PROVIDE FOR ARTIFICIAL ENHANCEMENT OF INCOME BY ASSUMING INCURRENCE OF SOME PRESUMPTIVE EXPENDI TURE. IN THE PRESENT CASE THE COMMON ADMINISTRATIVE EXPENDITURE INCURRED BY THE ASSESSEE AND FOR WHICH DEDUCTION WAS CLAIMED, WAS RS. 2,80,412/- . THE DISALLOWANCE, IF ANY, UNDER SECTION 14A COULD NOT BY ANY STRETCH OF IMAGINATION EXCEED THE COMMON EXPENDITURE OF RS. 2,80,412/- INCURRED BY TH E APPELLANT. THE AO IN HIS IMPUGNED ORDER WITHOUT APPRECIATING THESE FA CTS ARBITRARILY COMPUTED DISALLOWANCE UNDER SECTION 14A BY MECHANIC AL APPLICATION OF RULE 8D(2)(III) THE APPELLANT FURTHER SUBMITS THAT IN THE APPELLANT 'S OWN CASE FOR AY 2008-09, THE JURISDICTIONAL KOLKATA TRIBUNAL IN ITA NO. 1277/KOL/2011 UPHOLDING THE ORDER OF THE LD. CIT(A) HELD THAT DIS ALLOWANCE UNDER SECTION 14A CAN COME INTO PLAY ONLY OUT OF EXPENSES CLAIMED FOR DEDUCTION AND NO FURTHER DISALLOWANCE CAN BE MADE. THE TRIBUN AL IN THIS ORDER HELD AS UNDER: 'WE HAVE ALSO NOTED THAT ENTIRE EXPENSES INCURRED B Y THE ASSESSEE HAVE BEEN OFFERED FOR DISALLOWANCE, AND ONCE THAT H APPENS, NOTHING REMAINS FOR FURTHER DISALLOWANCE U/ S. 14A. THE DIS ALLOWANCE UNDER SECTION 14A CAN COME INTO PLAY ONLY OUT OF EXPENSES CLAIMED FOR DEDUCTION AND EXPENSES HAVE BEEN CLAIMED FOR DEDUCT ION, THERE CANNOT BE ANY DISALLOWANCE EITHER. THE CONCLUSIONS ARRIVED AT BY THE CIT(A) ARE, THEREFORE CORRECT ALLD ADMIT NO INT ERFERENCE BY US. WE, APPROVE AND CONFIRM THE ORDER OF THE CIT(A). SIMILAR VIEW HAS ALSO BEEN EXPRESSED BY THE CO-ORDI NATE BENCHES OF INCOME-TAX APPELLATE TRIBUNAL AT DELHI & MUMBAI IN THE CASES OF GILLETTE GROUP INCOME PVT. LTD(ITA NO. 267/ DEL/2012) AND SE ARCH ENVIRO LTD(ITA NO. 3464/ MUM/2011) RESPECTIVELY. COPIES OF THESE JUDGEMENTS ARE ENCLOSED. IN VIEW OF THE FOREGOING THE APPELLANT SUBMITS THAT THE DISALLOWANCE COMPUTED BY THE AO UNDER SECTION 14A READ WITH RULE 8D WAS GROSSLY UNJUSTIFIED AND BAD IN LAW. THE VERY FACT THAT THE DISALLOWANCE COMPUTED UNDER RULE 8D RESULTED IN A FIGURE OF RS.57,97,297/ - FAR IN EXCESS OF RS. 16,39,854/- BEING THE ACTUAL EXPENDITURE INCURRED A ND CLAIMED AS DEDUCTION FOR THE PROFITS OF THE BUSINESS SHOWS THE ABSURDITY OF THE PRESCRIBED MODE OF COMPUTATION OF DISALLOWANCE UNDE R RULE 8D. THE APPELLANT THEREFORE PRAYS THAT THE DISALLOWANCE MAD E BY THE AO UNDER SECTION 14A READ WITH RULE 8D DESERVES TO BE DELETE D IN FULL. 4 ITA NO.1813/KOL/2016 M/S TRADE APARTMENTS LTD. A.YR.2009-10 4 THE APPELLANT THEEFORE SUBMITS THAT THE DISALLOWANC E OF THE SUM OF RS. 57,97,297/- MADE U/S. 14A IN THE ASSESSMENT IS ARBI TRARY AND HIGHLY EXCESSIVE AND THE SAME IS LIABLE TO BE DELETED IN F ULL. 4.1. I HAVE CONSIDERED THE FACTS AND THE APPELLANT' S SUBMISSIONS. I FIND THAT THE APPELLANT HAS CLAIMED TOTAL EXPENSES OF RS. 82,83,9 64/ - INCLUDING GROSS INTEREST OF RS. 80,03,552/ THUS, EXPENSES WHICH COULD HAVE BEEN CONSIDERED FOR DISALLOWANCE UNDER RULE 8D(2)(III) COULD NOT HAVE EXCEEDED RS. 2 ,80,412/-. THE APPELLANT HAS SUO-MOTO DISALLOWED THIS AMOUNT IN ITS RETURN OF IN COME BUT THE AO HAS DISALLOWED AN ADDITIONAL AMOUNT OF RS. 14,75,525/ - ALTHOUGH N O SUCH EXPENSES HAVE BEEN INCURRED. HENCE, THE DISALLOWANCE OF RS. 14,75,525/ - IS DELETED. AS REGARDS INTEREST EXPENSES, THE NET INTEREST EXPENDITURE AFTER REDUCI NG INTEREST INCOME OF RS. 66,44,110/- CLAIMED BY THE APPELLANT AMOUNTS TO RS. 13,59,412/-. THE APPELLANT HAS DISALLOWED THIS AMOUNT U/S 14A AS A PART OF THE TO TAL DISALLOWANCE OF RS. 16,39,854/-. HOWEVER, THE AO MADE A DISALLOWANCE OF RS. 43,21,772/- OUT OF INTEREST EXPENSES UNDER RULE 8D(2)(II) OVER AND ABO VE THE ISALLOWANCE MADE BY THE APPELLANT ON THE BASIS OF THE GROSS INTEREST CLAIM OF RS.80,03,552/-. IT IS THE STAND OF THE APPELLANT THAT ONLY NET INTEREST EXPENDITURE SH OULD BE THE BASIS OF THE DISALLOWANCE. IN THE APPELLANT'S OWN CASE IN ITA N O.1277 /KOL/2011 FOR THE A.Y. 2008-09, THE HON'BLE ITAT, KOLKATA HAS HELD IN ITS ORDER DATED 30.03.2012 THAT THERE CANNOT BE ANY DISALLOWANCE UNDER SECTION 14A. THE SAME VIEW HAS BEEN TAKEN BY HON'BLE ITAT, KOLKATA IN ITS ORDER DATED 0 6.03.2013 IN ITA NO. 1682/KOL/2011 IN THE CASE OF BISWANATH PASARI V ACI T, CIRCLE-34, KOLKATA AFTER REFERRING TO THE ABOVE DECISION ANDTHE JUDGEMENT OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF ISG TRADERS LTD. V CIT(2001-TIOL - 621- HC-KOL). RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE TRIBUNAL IN T HE APPELLANT'S OWN CASE FOR A.Y. 2008-09 AND THE OTHER JUDGEMENTS, IT IS HELD THAT O NLY NET INTEREST CAN BE CONSIDERED FOR DISALLOWANCE UNDER RULE 8D(2)(II). SINCE THE AP PELLANT HAS ALREADY DISALLOWED THE ENTIRE NET INTEREST OF RS.13,59,442/-, NO FURTH ER DISALLOWANCE OF INTEREST WAS CALLED FOR. HENCE, THE DISALLOWANCE OF INTEREST OF RS. 43,21,772/- MADE BY THE AO IS ALSO DELETED. 4. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO T HE REVENUES GRIEVANCE. CASE FILE PERUSED. THERE IS NO DISPUTE ABOUT THE ASSESSE E TO HAVE DERIVED EXEMPT INCOME FROM DIVIDENDS OF RS.14,07,853/- IN THE RELEVANT PREVIOU S YEAR. WE NOTICE THAT THERE ARE TWO COMPONENTS FORMING THE IMPUGNED DISALLOWANCE. THE F ORMER ONE IS THAT OF PROPORTIONATE INTEREST EXPENDITURE U/S 8D(2)(II) OF THE INCOME TAX RULES. IT HAS COME ON 5 ITA NO.1813/KOL/2016 M/S TRADE APARTMENTS LTD. A.YR.2009-10 5 RECORD THAT THE LD. COORDINATE BENCH (SUPRA) IN ASS ESSEES OWN CASE HAS HELD THAT SUCH A DISALLOWANCE IS TO BE MADE ON NETTING FORMULA. T HE ASSESSEE HAS ALREADY DISALLOWED ENTIRE NET INTEREST EXPENDITURE OF RS.13,59,442/- O N THE VERY LINES. THE SAID CO-ORDINATE BENCH FURTHER CONCLUDES REGARDING ADMINISTRATIVE EX PENDITURE THAT THE SAME WOULD BE EXIGIBLE TO DISALLOWANCE IF ONLY CLAIMED AS DEDUCT ION AND NOT OTHERWISE. LEARNED DR IS UNABLE TO REFER TO ANY MATERIAL INDICATING SUCH EXP ENDITURE ACTUALLY CLAIMED AS INCURRED. WE THEREFORE ADOPT JUDICIAL CONSISTENCY IN THE IMPU GNED ASSESSMENT YEAR AS WELL TO CONFIRM THE CIT(A)S FINDINGS UNDER CHALLENGE. REVE NUES SOLE SUBSTANTIVE GRIEVANCE IS DECLINED. 5. IN THE RESULT THE APPEAL BY THE REVENUE IS DISMI SSED. ORDER PRONOUNCED IN THE COURT ON 02.05.2018. SD/- SD/- [M.BALAGANESH] [ SATBE ER SINGH GODARA ] ACCOUNTANT MEMBER JUDICIA L MEMBER DATED : 02.05.2018. [RG SR.PS] COPY OF THE ORDER FORWARDED TO: 1. M/S TRADE APARTMENTS LIMITED, 31, N.S.ROAD, KOLK ATA-700001. 2. D.C.I.T., CIRCLE-4 (2), KOLKATA. 3. CIT(A)-6, KOLKATA 4. C.I.T.-2, KOLKA TA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVATE SECR ETARY HEAD OF OFFICE/ D.D.O., ITAT KOLKATA BENCHES 6 ITA NO.1813/KOL/2016 M/S TRADE APARTMENTS LTD. A.YR.2009-10 6