ITO, Ward - 4(1), Kolkata, Kolkata V. M/s. Twenty First Century Securities Ltd., Kolkata

ITA 1835/KOL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48161 (ITAT-KOLKATA)
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-05-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 27-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SINGH
• Keywords: Proportionate interest
• Section: 143(3); 14A

Judgement Text

, A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA ( ) BEFORE , /AND , . . !' ) [BEFORE HONBLE SRI MAHAVIR SINGH, JM & HONBLE SHR I C. D. RAO, AM] # # # # / I.T.A NO. 1835KOL/2010 $% &' $% &' $% &' $% &'/ // / ASSESSMENT YEAR: 2001-02 INCOME-TAX OFFICER, WD-4(1), KOLKATA. ()* /APPELLANT ) VS M/S. TWENTY FIRST CENTURY SECURITIES LTD. (PAN-AAACT 9761 A) (+,)*/ RESPONDENT ) FOR THE APPELLANT: SHRI A. SINGH FOR THE RESPONDENT: SHRI RAVI TULSIYAN !- / ORDER PER MAHAVIR SINGH, JM/ , : THIS APPEAL BY REVENUE IS ARISING OUT OF THE ORDER OF CIT(A), CENTRAL-IV, KOLKATA IN APPEAL NO. 116/CIT(A)-IV/06-07 DATED 26.03.2010. THE ASSESSMENT WAS FRAMED BY ITO, WARD-4(1), KOLKATA U/S.263/143(3) OF THE INCOM E TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR ASSESSMENT YEAR 2001- 02 VIDE HIS ORDER DATED 12.12.2006. 2. THE ONLY ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF CIT(A) RESTRICTING THE ADDITION AT RS.10,29,716/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF INTEREST PAID ON BORROWED FUNDS BY INVOKING THE PRO VISIONS OF SECTION 14A. FOR THIS, THE REVENUE HAS RAISED THE FOLLOWING FOUR EFFECTIVE GRO UNDS: 1.THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FA CTS OF THE CASE IN DELETING THE ADDITION ON ACCOUNT OF INTEREST PAID ON BORROWE D FUND U/S. 14A BY HOLDING THAT THE DISALLOWANCE BE RESTRICTED TO RS.10,29,716 /- ON ACCOUNT OF INTEREST PAID FOR DIVIDEND YIELDING INVESTMENT. 2. THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FA CTS OF THE CASE IN ADMITTING FRESH FACTS/ EVIDENCE WHICH WAS NEVER PRODUCED BEFO RE THE A.O, BY THE ASSESSEE WHICH IS THE DIVIDEND YIELDING INVESTMENT IS CALCU LATED AT 17% OF THE INVESTMENT, WHEN THE SAME WAS NOT DETERMINABLE WHE N THE ASSESSEE HAD SWITCHED OVER THE STOCK-IN-TRADE INTO INVESTMENT AN D VICE VERSA. BY ADMITTING THE FRESH EVIDENCE, THE LD. CIT(A) HAD VIOLATED RUL E 46A OF THE I.T. RULES, 1962. ITA NO.1835/K/2010 M/S. TWENTY FIRST CENTURY SECURITIES LTD. A.Y 01-02 2 3. THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FA CTS OF THE CASE IN PUTTING THE SAME RATE IN THIS CASE ALSO I.E., 17% OF RS.60,52,L 52/- AS THE INTEREST RELATABLE TO EARNING THE DIVIDEND INCOME, WHICH WAS DECIDED B Y HONBLE ITAT IN SOME OTHER CASE, WITHOUT APPRECIATING THE FACT THAT THE FACTS AND FIGURES ARE TOTALLY DIFFERENT IN THIS CASE. 4. THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FA CTS OF THE CASE IN NOT CONSIDERING THE OTHER EXPENSES VIZ., SHARE TRANSFER EXPENSES AND DEPOSITORY CHARGES WHICH ALSO FORMS THE PART OF EXPENSES FOR E ARNING THE EXEMPT DIVIDEND WHILE PASSING THE APPELLATE ORDER. 3. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. THE BRIEF FACTS LEADING TO THE ABOVE ISS UE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF SHARE TRADING AND IT HAD HELD SHARES AS INVESTMENT AS WELL AS STOCK-IN-TRADE FROM WHICH IT IS EARNED DIVIDEND INC OME DURING THE YEAR UNDER CONSIDERATION AT RS.1,43,280/-. ACCORDING TO THE A SSESSING OFFICER, THIS DIVIDEND INCOME WAS CLAIMED EXEMPT U/S. 10(33) OF THE ACT. IN THE ORIGINAL ASSESSMENT ORDER PASSED BY ACIT, CENTRAL CIRCLE-XIII, KOLKATA U/S. 1 43(3) DATED 24.3.2004, THE ASSESSING OFFICER ALLOWED INTEREST CLAIMED IN RELAT ION TO EXEMPTED INCOME IN TERMS OF SECTION 14A OF THE ACT. THE CIT, CENTRAL-II, KOLKA TA ISSUED SHOW CAUSE NOTICE U/S. 263 OF THE ACT FOR REVISING THE ASSESSMENT STATING THE REASON THAT WHY INTEREST, SHARE TRANSACTION EXPENSES AND SHARE DEPOSITORY CHARGES R ELATING TO ASSESSEES SHARE TRADING BUSINESS BE DISALLOWED. THE CIT SET ASIDE THE ASSE SSMENT ORDER AND DIRECTED THE ASSESSING OFFICER TO REDO THE ASSESSMENT. THE ASSE SSING OFFICER IN TERMS OF THE REVISION ORDER PASSED BY CIT U/S. 263 OF THE ACT FR AMED ASSESSMENT U/S. 263 R.W.S. 143(3) OF THE ACT VIDE ORDER DATED 12.12.2006. THE ASSESSING OFFICER FOLLOWING THE DIRECTIONS OF THE CIT PASSED U/S. 263 OF THE ACT DA TED 6.4.2005AS UNDER: DURING THE RELEVANT FINANCIAL YEAR ASSESSEE EARNE D DIVIDEND BY INVESTING A LUMP SUM AMOUNT OF RS. 16,80,33,508/- IN SHARES DEB ENTURES ETC. UTILIZING THE COMPANYS CAPITAL AND BORROWED FUNDS. UTILIZATION O F BORROWED FUND FORCED THE COMPANY TO PAY INTEREST OF RS. 3,40.59,469/- AS REFLECTED/DEBITED IN THE PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31.03.2001 . THIS WAS RELEVANT EXPENDITURES FOR EARNING THE DIVIDEND. FURTHER EXPE NDITURE TOWARDS SHARE TRANSFER AND SHARE DEPOSITORY CHARGES OF RS. 2,32,6 20/- AND RS. 22,505/- RESPECTIVELY WERE ALSO RELATED TO DIVIDEND INCOME. SINCE THE DIVIDEND INCOME WAS ALLOWED TO BE EXEMPT AND TAKEN OUT OF THE TOTAL INCOME, THE RELATED EXPENDITURE AS MENTIONED ABOVE TOTALING RS. 3,43,14 ,594/- WAS REQUIRED TO BE DISALLOWED AND ADDED BACK WITH THE TOTAL INCOME OF THE ASSESSEE AND FINALLY MADE ADDITION BY DISALLOWING SHARE DEPO SITORY CHARGES OF RS.22,505/-, SHARE TRANSACTION EXPENSES OF RS.2,32,620/- AND INTEREST PAID ON BORROWED FUNDS OF ITA NO.1835/K/2010 M/S. TWENTY FIRST CENTURY SECURITIES LTD. A.Y 01-02 3 RS.3,40,59,469/-. AGGRIEVED, ASSESSEE PREFERRED AP PEAL BEFORE CIT(A), WHO RESTRICTED THE DISALLOWANCE BY GIVING FOLLOWING FINDING: THE A.R. ALSO FILED COPY OF THE ITATS ORDER DATED 24-08-2005 IN APPELLANTS OWN CASE FOR THE ASST. YEAR : 2000-01, WHEREIN SIMILAR ISSUE WAS INVOLVED AND IT WAS DECIDED BY THE LD. TRIBUNAL THAT PROPORTIONATE INTEREST ON DIVIDEND YIELDING INVESTMENT BE DISALLO WED. THE A.O. WHILE GIVING APPEAL EFFECT VIDE HIS ORDER DATED 24-11-200 6, DISALLOWED INTEREST 17% (RS. 1,18,086/-) ON THE AMOUNT (RS.6,94,585/-) INVESTED IN SHARES WHICH YIELDED DIVIDEND (RS.67,060/-) DURING FOR THE ASST . YEAR : 2000-01. IT WAS THEREFORE STATED BY THE A.R. THAT DISALLOWAN CE OF PROPORTIONATE INTEREST FOR THE YEAR UNDER APPEAL BE RESTRICTED TO RS.10,29,716/- BEING L7% ON COST OF SHARES (RS.60,57,152/-) HELD AS INVESTME NT AS WELL AS STOCK-IN TRADE WHICH YIELDED DIVIDEND OF RS.1,43,280/- DURIN G THE YEAR UNDER APPEAL. THE ARGUMENTS PLACED BY THE A/R TOGETHER WITH LD. I TAT DECISION HAS FORCE. THE STATEMENT FURNISHED SHOWING CALCULATION OF INTEREST BE DISALLOWED WAS EXAMINED AND FOUND TO BE GENUINE IN ACCORDANCE WITH THE DIRECTION GIVEN BY THE CIT WITH REGARD TO DISALLOWANCE OF EXP ENSES UNDER SECTION 14A OF THE ACT. THUS DISALLOWANCE OF INTEREST TO THE TUNE OF RS.10, 29,716/- IS SUSTAINED AGAINST THE DISALLOWANCE OF RS.3,40,59,469/- MADE B Y THE A.O. HENCE, THE APPELLANT IS ALLOWED A RELIEF OF RS.3,30,29,753/-. 4. WE FIND FROM THE ABOVE THAT A SIMILAR ISSUE WAS INVOLVED IN CASE OF THE ASSESSEE IN THE ASSESSMENT YEAR JUST PRECEDING THE RELEVANT ASSESSMENT YEAR. THIS MATTER OF THE ASSESSEE PERTAINING TO ASSESSMENT YEAR 2001-02 WAS TAKEN TO THE INCOME TAX APPELLATE TRIBUNAL, WHEREIN THE TRIBUNAL PASSED AN ORDER IN F AVOUR OF THE ASSESSEE. THE RELEVANT PORTION OF THE ORDER IS AS UNDER: 6. WE HAVE CONSIDERED THE SUBMISSIONS AND FACTS OF THE CASE. THE ISSUE RAISED IN GROUNDS NO.1 AND 2 RELATE TO CLAIM OF THE ASSESS EE THAT THE DISALLOWANCE OF INTEREST PAID OR PAYABLE SHOULD BE RESTRICTED TO TH E INVESTMENT IN SHARES WHICH HAVE YIELDED DIVIDEND INCOME, WHICH IS EXEMPTED U/S . 10(33). IN THE PRESENT CASE WE FIND FROM ANNEXURE A-I FILED ALONGWITH TH E PAPER BOOK THAT ONLY IN FEW CASES THE ASSESSEE HAS EARNED DIVIDEND INCOME. AFTER GOING THROUGH THE VARIOUS DECISIONS OF THE ISSUE, WE ARE OF THE VIEW THAT IN COMPUTING TOTAL INCOME DEDUCTION SHOULD NOT BE ALLOWED IN RESPECT O F EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT F ORM PART OF THE TOTAL INCOME. IN THE PRESENT CASE, WE FIND THAT THE ASSES SEE HAS MADE INVESTMENT TO THE TUNE OF RS.9,22,50,715/- IN PURCHASE OF SHARES BUT DIVIDEND INCOME HAS BEEN RECEIVED IN FEW CASES OF INVESTMENT. THEREFORE , IN OUR CONSIDERED OPINION THE DISALLOWANCE OF INTEREST IS TO BE RESTRICTED TO THE AMOUNT OF INVESTMENT FROM WHICH DIVIDEND HAS BEEN EARNED DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE CASE IS SET ASIDE AND RESTORE TO T HE FILE OF THE ASSESSING OFFICER FOR FRESH DECISION. THE ASSESSING OFFICER W ILL CALL FOR THE DETAILS OF INVESTMENT AND FIND OUT THE INVESTMENT MADE ON WHIC H DIVIDEND INCOME HAS BEEN EARNED. FURTHER, THE ASSESSING OFFICER WILL AL SO EXAMINE WHETHER THOSE ITA NO.1835/K/2010 M/S. TWENTY FIRST CENTURY SECURITIES LTD. A.Y 01-02 4 INVESTMENTS ARE MADE OUT OF BORROWINGS OR THE ASSES SEES OWN FUND. IF THE ASSESSEE HAS MADE INVESTMENTS OUT OF BORROWINGS THE DISALLOWANCE OF INTEREST SHOULD BE COMPUTED ON THOSE INVESTMENTS. ACCORDINGL Y, THE CASE IS SET ASIDE TO BE COMPLETED DE NOVO. FROM THE PERUSAL OF THE ABOVE IT IS EVIDENT THAT TH E TRIBUNAL HAS DECIDED THIS ISSUE IN PRECEDING YEAR AND THE SAME ISSUE ARISES IN THIS YE AR, THEN THE JUDGMENT GIVEN IN THAT YEAR SHALL BE CONSIDERED AND APPLIED IN THE EVENTUA LITY OF FACTS REMAINS THE SAME. THE REVENUE COULD NOT DISTINGUISH THE FACTS IN THE PRES ENT YEAR FROM THE ASSESSMENT YEAR 2000-01. WE FURTHER FIND FROM THE RECORDS THAT THE AO FOLLOWING THE DIRECTIONS OF THE TRIBUNAL DISALLOWED PROPORTIONATE INTEREST ON INVES TMENT MADE ON ACCOUNT OF DIVIDEND YIELDING SHARES. THE AO GIVING EFFECT TO THE TRIBU NALS ORDER DATED 24.11.2006 HAS APPLIED THE RATE OF INTEREST AT 17% AND SINCE IN TH IS YEAR ALSO THE ISSUE ON FACTS IS SAME, THE SAME RATE SHOULD BE APPLIED. IN VIEW OF THE ABO VE AND FOLLOWING THE AFORESAID DECISION, WE CONFIRM THE ORDER OF CIT(A) RESTRICTIN G THE DISALLOWANCE AT RS. 10,29,716/-. THE APPEAL OF THE REVENUE IS DISMISSE D. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER IS PRONOUNCED IN THE OPEN COURT. SD/- SD/- . ., ,, , !' , , , , (C. D. RAO) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER ( (( ( ' ' ' ') )) ) DATED : 24 TH MAY, 2011 /0 $12 3 JD.(SR.P.S.) !- 4 +5 6!5&7- COPY OF THE ORDER FORWARDED TO: 1 . )* /APPELLANT - ITO, WARD-4(1), KOLKATA 2 +,)* / RESPONDENT M/S. TWENTY FIRST CENTURY SECURITIES LTD., 5, CLIVE GHAT STREET, KOLKATA-700 001. 3 . -$ / THE CIT, KOLKATA 4 . -$ ( )/ THE CIT(A), KOLKATA. 5 . >? +$ / DR, KOLKATA BENCHES, KOLKATA ,5 +/ TRUE COPY, !-$@/ BY ORDER, 2 /ASSTT. REGISTRAR .