Dhunseri Petrochem & Tea Ltd.(formerly known as Dhunseri Tea & Industries Ltd.), Kolkata V. DCIT, Central Circle - XVI, Kolkata, Kolkata

ITA 1832/KOL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54595 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 16-06-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 27-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K PARAMANIK
• Assessee Lawyers: D S DAMLE
• Keywords: Business expenditure; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () BEFORE , /AND , ! . '# . ) [BEFORE SRI MAHAVIR SINGH, JM & SHRI C. D. RAO, AM] $ $ $ $ / I.T.A NO. 1832/KOL/2010 %& '( %& '( %& '( %& '(/ // / ASSESSMENT YEAR : 2007-08 DHUNSERI PETROCHEM & TEA LTD. VS. DEPUTY COMMISS IONER OF INCOME-TAX, (PAN : AABCD 1597 K) CENTRAL CIRCLE-XVI, KOLKATA . (*+ /APPELLANT ) (,-*+/ RESPONDENT ) DATE OF HEARING: 19.10.2011 DATE OF PRONOUNCEMENT: 21.10.2011 FOR THE APPELLANT : SHRI D. S. DAMLE FOR THE RESPONDENT: SHRI A. K. PARAMANIK . / ORDER PER MAHAVIR SINGH, JM ( , , , , ) THIS APPEAL BY ASSESSEE IS ARISING OUT OF ORDER OF CIT(A)-CENTRAL-II, KOLKATA IN APPEAL NO 214/CC-XVI/CIT(A)-C-II/KOL/09-10 DATED 29 .06.2010. ASSESSMENT WAS FRAMED BY DCIT, CENTRAL CIRCLE-XVI, KOLKATA U/S. 14 3(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSME NT YEAR 2007-08 VIDE DATED 31.12.2009. 2. THE ONLY ISSUE IN THIS APPEAL OF ASSESSEE IS AG AINST THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE MADE BY ASSESSING OFFICER ON ACCOU NT OF INTEREST PAID AND BUSINESS ADMINISTRATION EXPENSES BY ASSESSING OFFICER BY INV OKING PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULES 8D OF THE INCOME TAX RULES, 1962(HEREINAFTER REFERRED TO AS THE RULES) IN RESPECT TO EXEMPT INCOME CLAIMED BY ASSE SSEE. FOR THIS, ASSESSEE HAS RAISED FOLLOWING FIVE EFFECTIVE GROUNDS: 1) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT (A) ERRED IN UPHOLDING THE DISALLOWANCE OUT OF INTEREST PAID AND BUSINESS ADMINISTRATIVE EXPENSES, AS MADE BY THE AO U/S L4A OF THE ACT READ WITH RULE 8D. 2) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE AUTHORITIES BELOW WERE UNJUSTIFIED IN LAW IN MAKING DISALLOWANCE IN C ONFORMITY WITH RULE 8D OF THE INCOME TAX RULES EVEN THOUGH THE SAID RULE WAS NOTI FIED ON 24.03.2008 WITHOUT MENTIONING THAT THE RULE WAS APPLICABLE RETROSPECTI VELY AND THEREFORE ERRED IN MAKING DISALLOWANCE IN CONFORMITY WITH A RULE WHICH HAD NO APPLICATION TO A.Y.2007-08. 2 ITA 1832/K/2010 DHUNSERI PETROCHEM & TEA.., A.Y.2007-08 3) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE AUTHORITIES BELOW WERE UNJUSTIFIED IN DISALLOWING PART OF THE INTERES T PAID EVEN THOUGH THE AO HAD NOT PROVED PROXIMATE CAUSE WHICH SHOWED THAT THE APPELL ANT HAD USED BORROWED FUNDS FOR MAKING INVESTMENTS WHICH PRODUCED TAX-FREE DIVI DEND INCOME. 4) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE APPELLANTS OWN CAPITAL AND RESERVES BEING SUBSTANTIALLY MORE THAN INVESTMENTS IN SHARES WHICH PRODUCED TAX-FREE DIVIDEND, THE AUTHORITIES BELOW W ERE UNJUSTIFIED IN DISALLOWING PART OF THE INTEREST PAID. 5) FOR THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE AUTHORITIES BELOW WERE UNJUSTIFIED IN DISALLOWING RS.28,92,428/- OUT OF BUSINESS ADMINISTRATIVE EXPENSES EVEN WITHOUT THERE BEING ANY CORRELATION B ETWEEN EXPENSES AND EARNING OF DIVIDEND INCOME. 3. BRIEF FACTS ARE THAT THE ASSESSING OFFICER WHILE FRAMING ASSESSMENT U/S. 143(3) OF THE ACT HAS MADE DISALLOWANCE IN RESPECT TO FOLLOWI NG TWO COMPONENTS: A) INTEREST DISALLOWED AS PER RULE 8D(2)(II) RS.1 ,71,42,261 B) BUSINESS EXPENSES & OVERHEADS AS PER RULE 8D(2)( III) RS. 28,92,428 AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALSO CONFIRMED THE ACTION OF ASSESSING OFFICER BY HOLDING THAT RULE 8D OF THE RU LES IS APPLICABLE FOR THE RELEVANT ASSESSMENT YEAR 2007-08, BEING RETROSPECTIVE IN VIE W OF THE DECISION OF SPECIAL BENCH OF ITAT, MUMBAI IN ITO VS. DAGA CAPITAL MANAGEMENT PVT . LTD. (2009) 312 ITR (AT) 1 (MUM, S.B.). ACCORDINGLY, CIT(A) CONFIRMED THE ACT ION OF ASSESSING OFFICER BY HOLDING THAT ASSESSING OFFICER HAS CORRECTLY DETERMINED THE DISALLOWANCE OF EXPENDITURE CLAIMED U/S. 14A OF THE ACT READ WITH RULES 8D OF THE RULES . AGGRIEVED, NOW ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF CASE. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SHRI D. S. DAMLE STATED THAT AUTHORITIES BELOW WERE UNJUSTIFIED IN LAW IN MAKING DISALLOWANCE IN C ONFORMITY WITH RULE 8D OF THE RULES EVEN THOUGH SAID RULE WAS NOTIFIED ON 24 TH MARCH, 2008 WITHOUT MENTIONING THAT THE RULE WAS APPLICABLE RETROSPECTIVELY AND ACCORDING TO HIM , THEREFORE, THEY ERRED IN MAKING DISALLOWANCE, WHICH HAS NO APPLICATION TO ASSESSMEN T YEAR 2007-08. HE ALSO STATED THAT NOW HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCEE MANUFACTURING CO. LTD. VS. DCIT [2010] 328 ITR 81 (BOM.) HAS ALREADY HELD THAT APPLICABILITY OF RULE 8D OF THE RULES AS PROSPECTIVE AND NOT RETROSPECTIVE, W.E.F. ASSESSMENT YEAR 2008-09, WHEREIN HONBLE HIGH COURT HAS ALSO DIRECTED TO RECOMPUTE T HE DISALLOWANCE IN CASE THERE IS A NEXUS FOR EXPENSES WITH EXEMPT INCOME BY LAYING DOW N THE PRINCIPLE AS UNDER: 3 ITA 1832/K/2010 DHUNSERI PETROCHEM & TEA.., A.Y.2007-08 (V) THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RU LES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, SHALL APP LY WITH EFFECT FROM THE ASSESSMENT YEAR 2008-09; (VI) EVEN PRIOR TO THE ASSESSMENT YEAR 2008-09, WHE N RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE TH E PROVISIONS OF SUB- SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE A SSESSING OFFICER IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN I NCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSING OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURN ISHING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PLACE ALL GERMANE MA TERIAL ON THE RECORD; (VII) THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2002 -03 SHALL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSI NG OFFICER SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED A NY EXPENDITURE (DIRECT OR INDIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLA TED UNDER SECTION 14A. THE ASSESSING OFFICER CAN ADOPT REASONABLE BASIS FO R EFFECTING THE APPORTIONMENT. WHILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSES SEE OF PRODUCING ITS ACCOUNTS AND RELEVANT AND GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE WE FURTHER FIND THAT THE TRIBUNAL, KOLKATA BENCH ON THE SELF SAME FACTS IN THE CASE OF SAGRIKA GOODS & SERVICES PVT. LTD. VS. INCOME-TAX O FFICER, I.T.A. NO 1278/KOL/2010, ASSESSMENT YEAR 2005-06 DATED 24 TH SEPTEMBER, 2010 HAS HELD AS UNDER: 5. HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL A VAILABLE ON RECORD AND THE DECISIONS RELIED ON BY THE LD. AUTHORISED R EPRESENTATIVE OF THE ASSESSEE CITED SUPRA. WE FIND THAT ON THE ISSUE OF DISALLOWANCE U/S. 14A, THIS BENCH OF THE TRIBUNAL HAS BEEN TAKING A CONSISTENT VIEW THAT THIS DISALLOWANCE SHOULD BE RESTRICTED TO 1% OF DIVIDEND INCOME. FOL LOWING THE SAME, IN THIS APPEAL ALSO WE HOLD THAT THE DISALLOWANCE U/S 14A F OR EARNING EXEMPT DIVIDEND INCOME SHOULD BE RESTRICTED TO 1% OF DIVIDEND INCOM E. THE ASSESSING OFFICER IS ACCORDINGLY DIRECTED TO DO SO AND WORK OUT THE Q UANTUM OF DISALLOWANCE. THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED AS DIRECTED ABOVE. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE AFORESAID DECISION OF JURISDICTION TRIBUNAL (CITED SUPRA), WE FIND THAT IN THE IMMEDIA TE PRECEDING ASSESSMENT YEAR 2006-07, THE AO HIMSELF HAS DISALLOWED EXPENSES RELATED TO E XEMPTED INCOME BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT AT RS.5,73,640 /- AS THE ASSESSEE HAS EARNED DIVIDEND INCOME AT RS.6,78,190/-. IN THE PRESENT YEAR THE A SSESSEE HIMSELF HAS COMPUTED DISALLOWANCE ON THE BASIS OF ASSESSMENT ORDER OF EA RLIER YEAR AT RS.8,40,448/- AS IT HAS EARNED DIVIDEND INCOME AT RS.26,18,142/-, LTCG AT R S.17,78,044/- AND ALSO RE-PLANTATION SUBSIDY AT RS.2,50,865/-, WHICH IS CLAIMED AS EXEMP T U/S. 10(34), 10(38) AND 10(30) RESPECTIVELY OF THE ACT. WE FIND THAT THE ASSESSEE SUO MOTO COMPUTED THE DISALLOWANCE OF 4 ITA 1832/K/2010 DHUNSERI PETROCHEM & TEA.., A.Y.2007-08 EXPENDITURE AT RS.8,40,448/-, WHICH IS QUITE FAIR A ND REASONABLE. ACCORDINGLY, THE APPEAL OF ASSESSEE IS ALLOWED. 5. IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. 6. ORDER PRONOUNCED IN OPEN COURT ON 21.10.2011. SD/- SD/- . '# '#'# '# . ! , (C. D. RAO) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( #! #! #! #!) )) ) DATED : 21ST OCTOBER, 2011 /0 %12 3 JD.(SR.P.S.) . 4 ,5 6 5'7- COPY OF THE ORDER FORWARDED TO: 1 . *+ / APPELLANT DHUNSERI PETROCHEM & TEA LTD., 4A, WOOD BURN PARK, KOLKATA-20. 2 ,-*+ / RESPONDENT, DCIT, CENTRAL CIRCLE-XVI, KOLKATA. 3 . .% ( )/ THE CIT(A), KOLKATA 4. .% / CIT, KOLKATA 5 . >? ,% / DR, KOLKATA BENCHES, KOLKATA -5 ,/ TRUE COPY, .%@/ BY ORDER, 2 /ASSTT. REGISTRAR .