Kamal Packaging Private Limited, Kolkata V. The ITO, W-6(3), Kolkata, Kolkata

ITA 1838/KOL/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9406 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 19-09-2016
• Court: TRIBUNAL
• Assessee Lawyers: ASIM CHOWDHURY
• Keywords: Depreciation; Earning of tax free income
• Section: 14A

Judgement Text

I.T.A. NO. 1838/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA SMC BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER I.T.A. NO. 1838/KOL/2016 ASSESSMENT YEAR: 2010-2011 KAMAL PACKAGING (P) LIMITED,....................... ..........................APPELLANT 204, EASTERN BUILDING, 19, R.N. MUKHERJEE ROAD, 2 ND FLOOR, KOLKATA-700 001 [PAN: AABCK 2531 J] -VS.- INCOME TAX OFFICER,................................ ...................................RESPONDENT WARD-6(3), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 APPEARANCES BY: SHRI ASIM CHOWDHURY, ADVOCATE, FOR THE ASSESSEE SHRI DULAL CHANDRA MONDAL, JCIT, SR. D.R., FOR THE DEPARTMENT DATE OF CONCLUDING THE HEARING : DECEMBER 20, 2016 DATE OF PRONOUNCING THE ORDER : FEBRUARY 03, 2017 O R D E R THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, KOLKATA DAT ED 19.07.2016. 2. THE ISSUE RAISED IN GROUND NO. 1 RELATES TO THE DISALLOWANCE OF 20% MADE BY THE ASSESSING OFFICER OUT OF TRAVELLING AND CONVEYANCE EXPENSES, WHICH IS SUSTAINED BY THE LD. CIT(APPEALS) TO THE E XTENT OF 10%. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PAPER TUBES. THE R ETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 29. 09.2010 DECLARING TOTAL INCOME OF RS.17,55,413/-. IN THE PROFIT & LOSS ACCO UNT FILED ALONG WITH THE SAID RETURN, THE SUMS OF RS.2,15,681/- AND RS.3 ,66,687/- WERE DEBITED I.T.A. NO. 1838/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 2 OF 7 BY THE ASSESSEE ON ACCOUNT OF VEHICLE EXPENSES AND DEPRECIATION ON CAR RESPECTIVELY UNDER THE HEAD MARKETING EXPENSES. S INCE NO LOG BOOK WAS MAINTAINED BY THE ASSESSEE TO SHOW THAT THE VEHICLE S WERE USED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSINESS AND THE PERSONAL USE OF VEHICLES BY THE DIRECTORS OF THE COMPANY AS WELL AS THEIR FAMILY MEMBERS COULD NOT BE RULED OUT, THE ASSESSING OFFICER MADE THE DISALLOWANCE OF 20% OUT OF VEHICLE EXPENSES AND DEPRECIATION ON CAR FOR THE INVOLVEMENT OF PERSONAL ELEMENT. ON APPEAL, THE LD. CIT(APPEALS ) FOUND THE DISALLOWANCE OF 20% MADE BY THE ASSESSING OFFICER T O BE EXCESSIVE AND RESTRICTED THE SAME TO 10%. 4. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE, THE QUESTION O F INVOLVEMENT OF PERSONAL ELEMENT DOES NOT ARISE IN THE CASE OF THE ASSESSEE BEING A COMPANY AND, THEREFORE, NO DISALLOWANCE ON ACCOUNT OF PERSONAL USE OF VEHICLES BY THE DIRECTORS CAN BE MADE IN THE CASE O F A COMPANY. I, THEREFORE, DELETE THE DISALLOWANCE MADE BY THE ASSE SSING OFFICER OUT OF VEHICLES EXPENSES AND DEPRECIATION ON CAR AS SUSTAI NED BY THE LD. CIT(APPEALS) FOR PERSONAL USE AND ALLOW GROUND NO. 1 OF THE ASSESSEES APPEAL. 5. THE ISSUE INVOLVED IN GROUND NO. 2 RELATES TO TH E DISALLOWANCE OF 25% MADE BY THE ASSESSING OFFICER OUT OF FESTIVAL E XPENSES, WHICH IS RESTRICTED BY THE LD. CIT(APPEALS) TO 12.5%. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSES SING OFFICER THAT THE ASSESSEE HAS CLAIMED FESTIVAL EXPENSES OF RS.1,38,0 21/- AND GENERAL EXPENSES OF RS.1,16,313/- UNDER THE HEAD MISCELLAN EOUS EXPENSES. IN THE ABSENCE OF FULL DETAILS AND SUPPORTING DOCUMENT ARY EVIDENCE, THE ASSESSING OFFICER HELD THAT THE SAID EXPENSES CLAIM ED BY THE ASSESSEE WERE NOT FULLY VERIFIABLE. ACCORDINGLY, THE DISALLO WANCE OF 25% WAS MADE BY HIM OUT OF THE SAID EXPENSES. ON APPEAL, THE LD. CIT(APPEALS) RESTRICTED THE SAME TO 12.5%. I.T.A. NO. 1838/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 3 OF 7 6. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS OBSERVED THAT THE DISALLOWANCE OF 25% OUT OF FESTIVAL AND GENERAL EXP ENSES WAS MADE BY THE ASSESSING OFFICER AS THE SAID EXPENSES WERE NOT FULLY SUPPORTED BY THE RELEVANT DETAILS AND DOCUMENTARY EVIDENCE AND ALTHO UGH THE LD. CIT(APPEALS) AGREED WITH THE FINDINGS OF THE ASSESS ING OFFICER THAT THE RELEVANT EXPENSES CLAIMED BY THE ASSESSEE WERE NOT FULLY VERIFIABLE, HE HELD THAT THE DISALLOWANCE OF 25% MADE BY THE ASSES SING OFFICER WAS EXCESSIVE OR UNREASONABLE AND RESTRICTED THE SAME T O 12.5%. AT THE TIME OF HEARING BEFORE ME, THE LD. COUNSEL FOR THE ASSES SEE HAS NOT BEEN ABLE TO BRING ANYTHING ON RECORD TO REBUT OR CONTROVERT THE FINDING OF THE AUTHORITIES BELOW THAT THE FESTIVAL EXPENSES AND GE NERAL EXPENSES CLAIMED BY THE ASSESSEE WERE NOT FULLY SUPPORTED BY THE REL EVANT DETAILS AND DOCUMENTARY EVIDENCES. THE UNVERIFIABLE ELEMENT THU S WAS INVOLVED IN THE SAID EXPENSES CLAIMED BY THE ASSESSEE AND IN MY OPINION, THE DISALLOWANCE AS SUSTAINED BY THE LD. CIT(APPEALS) A T 12.5% FOR SUCH UNVERIFIABLE ELEMENT BEING FAIR AND REASONABLE, NO FURTHER RELIEF TO THE ASSESSEE IS WARRANTED ON THIS ISSUE IN THE FACTS AN D CIRCUMSTANCES OF THE CASE. I, THEREFORE, FIND NO MERIT IN GROUND NO. 2 A ND DISMISS THE SAME. 7. AS REGARDS THE ISSUE INVOLVED IN GROUND NO. 3 RE LATING TO THE DISALLOWANCE OF 20% MADE BY THE ASSESSING OFFICER O UT OF TRAVELLING EXPENSES, WHICH IS RESTRICTED BY THE LD. CIT(APPEAL S) TO 10%, I FIND THAT THE FACTS AND CIRCUMSTANCES RELEVANT TO THIS ISSUE ARE SIMILAR TO THE ISSUE INVOLVED IN GROUND NO. 2 OF THE ASSESSEES APPEAL A ND SINCE I FIND THAT THE DISALLOWANCE OF 10% AS FINALLY SUSTAINED BY THE LD. CIT(APPEALS) FOR THE INVOLVEMENT OF UNVERIFIABLE ELEMENT BEING FAIR AND REASONABLE IN THE FACTS AND CIRCUMSTANCES OF THE CASE, NO FURTHER RELIEF TO THE ASSESSEE IS WARRANTED ON THIS ISSUE. I ACCORDINGLY DISMISS GROU ND NO. 3 OF THE ASSESSEES APPEAL. I.T.A. NO. 1838/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 4 OF 7 8. THE COMMON ISSUE INVOLVED IN GROUNDS NO. 4 TO 7 RELATES TO THE DISALLOWANCE OF RS.11,50,538/- MADE BY THE ASSESSIN G OFFICER UNDER SECTION 14A READ WITH RULE 8D AND CONFIRMED BY THE LD. CIT(APPEALS). 9. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E HAD RECEIVED DIVIDEND INCOME OF RS.2.42.973/- ON SHARES AND THE SAME WAS CLAIMED TO BE EXEMPT FROM TAX UNDER SECTION 10(34) OF THE ACT. NO DISALLOWANCE ON ACCOUNT OF EXPENSES INCURRED IN RELATION TO THE SAI D EXEMPT INCOME, HOWEVER, WAS OFFERED BY THE ASSESSEE AS REQUIRED BY THE PROVISIONS OF SECTION 14A. ACCORDING TO THE ASSESSING OFFICER, TH E EARNING OF DIVIDEND INCOME REQUIRED MAKING OF PROPER INVESTMENT FOR WHI CH CERTAIN MANAGERIAL AND ADMINISTRATIVE EXERCISE WAS REQUIRED . HE HELD THAT THE EARNING OF EXEMPT DIVIDEND INCOME THUS REQUIRED INC URRING OF CERTAIN EXPENDITURE BY THE ASSESSEE AND HE WORKED OUT SUCH EXPENDITURE AT RS.11,50,538/- BY APPLYING RULE 8D AS UNDER:- [IN RS.] [IN RS.] (I) EXPENDITURE DIRECTLY RELATING TO EXEMPT INCOME 33 39 (II) PART OF INTEREST EXPENSES (A) INTEREST EXPENSES (B) AVERAGE VALUE OF INVESTMENT INCOME FROM WHICH SHALL NOT FORM PART OF TOTAL INCOME, AS ON THE FIRST AND LAST DAY OF THE RELEVANT PREVIOUS YEAR INCOME: AS ON 01.04.2009- RS.18087953 AS ON 03.03.2010- RS.18657695 TOTAL: RS.36745648 (C) AVERAGE OF THE TOTAL ASSETS AS APPEARING IN TH E BALANCE SHEET OF THE ASSESSEE AS ON THE FIRST AND L AST DAY OF THE RELEVANT YEAR: AS ON 01.4.2009 AS ON 31.3.2010 FIXED ASSETS RS.12203604 RS.11930423 INVESTMENT RS.18087953 RS.18657695 CURRENT ASSETSRS.30056873 RS.29255707 TOTAL: RS.60348430 RS.59843825 A X B/C = 3451923 X 18372824/60096128 1055335 (III) 0.5% OF AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME I.E. 0.5% OF (B) 18372824 91864 THEREFORE, DISALLOWABLE AMOUNT U/S 14A READ WITH RULE 8D = (I) + (II) + (III) 1150538 I.T.A. NO. 1838/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 5 OF 7 ACCORDINGLY, THE DISALLOWANCE OF RS.11,50,538/- WAS MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. 10. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(APPEALS) AND SINCE THE SUBMISSIONS MADE BY THE ASSESSEE IN SUPPORT OF ITS CASE ON THIS ISSUE WAS NOT FOUND ACCEPTABLE BY HIM, THE LD. CIT(APPEALS) CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF T HE INCOME TAX RULES. 11. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES ON THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS DEMONSTRATED BY THE LD. COUNSEL FOR THE ASSESSEE FROM THE COPY OF R ELEVANT BALANCE-SHEET OF THE ASSESSEE AS ON 31.03.2010 PLACED AT PAGE NO. 4 OF THE PAPER BOOK, THE ASSESSEE-COMPANY HAD OWN FUNDS IN THE FORM OF SHARE CAPITAL AMOUNTING TO RS.99,50,000/- AND RESERVES AND SURPLUS AMOUNTIN G TO RS.97,51,502/-, WHICH WERE MORE THAN THE INVESTMENT OF RS.180.88 LA KHS MADE IN THESE SHARES. IT IS THUS CLEAR THAT THE ASSESSEE AT THE R ELEVANT TIME HAD SUFFICIENT OWN FUNDS TO MAKE INVESTMENT IN SHARES A ND THERE IS NOTHING TO SHOW THAT THE SAID INVESTMENT WAS MADE BY THE ASSES SEE OUT OF THE INTEREST BEARING BORROWED FUNDS. AS HELD BY THE DIV ISION BENCH OF THIS TRIBUNAL IN THE CASE OF HINDUSTAN MOTORS LIMITED V S.- DCIT IITA NO. 171/KOL/2012 DATED NOVEMBER 20, 2015) CITED BY THE LD. COUNSEL FOR THE ASSESSEE, ONCE IT IS FOUND THAT THE INVESTMENT IN S HARES IS MADE BY THE ASSESSEE OUT OF ITS OWN FUNDS AND THERE IS NO UTILI ZATION OF BORROWED FUNDS FOR MAKING SUCH INVESTMENT, NO DISALLOWANCE O N ACCOUNT OF INTEREST UNDER SECTION 14A CAN BE MADE EVEN BY APPLYING RULE 8D AS THE SAID RULE 8D WILL HAVE APPLICATION ONLY IN SUCH CASES WHERE T HERE IS ANY NEXUS BETWEEN THE INTEREST BEARING BORROWED FUNDS AND INV ESTMENT MADE IN SHARES. RESPECTFULLY FOLLOWING THE SAID DECISION OF THIS TRIBUNAL, I HOLD THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF I.T.A. NO. 1838/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 6 OF 7 INTEREST UNDER SECTION 14A READ WITH RULE 8D AND CO NFIRMED BY THE LD. CIT(APPEALS) IS NOT JUSTIFIED AND THE SAME IS LIABL E TO BE DELETED. 12. AS REGARDS THE DISALLOWANCE MADE UNDER SECTION 14A AS PER RULE 8D(2)(III) ON ACCOUNT OF OTHER EXPENSES TO THE EXTE NT OF 0.5% OF AVERAGE VALUE OF INVESTMENT, THE LD. COUNSEL FOR THE ASSESS EE HAS CONTENDED THAT THE SAME HAS BEEN WORKED OUT BY THE ASSESSING OFFIC ER BY TAKING INTO ACCOUNT THE ENTIRE INVESTMENT INSTEAD OF ONLY THE I NVESTMENT IN SHARES, WHICH ACTUALLY EARNED DIVIDEND INCOME DURING THE YE AR UNDER CONSIDERATION. IN THIS REGARD, HE HAS RELIED ON THE DECISION OF THE DIVISION BENCH OF THIS TRIBUNAL IN THE CASE OF REI AGRO LIMI TED VS.- DCIT (ITA NO. 1331/KOL/2011 DATED 19.06.2013), AS AFFIRMED BY THE HONBLE CALCUTTA HIGH COURT, WHEREIN IT WAS HELD THAT THE DISALLOWAN CE AS PER RULE 8D(2)(III) IS REQUIRED TO BE WORKED OUT BY TAKING I NTO ACCOUNT ONLY THAT INVESTMENT, WHICH HAS ACTUALLY EARNED EXEMPT DIVIDE ND INCOME DURING THE RELEVANT YEAR AND NOT THE ENTIRE INVESTMENT MAD E BY THE ASSESSEE IN SHARES. I ACCORDINGLY DIRECT THE ASSESSING OFFICER TO RE-COMPUTE THE DISALLOWANCE UNDER SECTION 14A AS PER RULE 8D(2)(II I) BY TAKING INTO ACCOUNT ONLY THAT INVESTMENT, WHICH HAS FETCHED EXE MPT DIVIDEND INCOME TO THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION . THE RELEVANT GROUNDS OF THE ASSESSEES APPEAL ON THIS ISSUE ARE THUS PARTLY ALLOWED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 03, 2017. SD/- (P.M. JAGTAP) ACCOUNTANT MEMBER KOLKATA, THE 3 RD DAY OF FEBRUARY, 2017 COPIES TO : (1) KAMAL PACKAGING (P) LIMITED, 204, EASTERN BUILDING, 19, R.N. MUKHERJEE ROAD, 2 ND FLOOR, KOLKATA-700 001 (2) INCOME TAX OFFICER, WARD-6(3), KOLKATA, I.T.A. NO. 1838/KOL./2016 ASSESSMENT YEAR: 2010-2011 PAGE 7 OF 7 AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (3) COMMISSIONER OF INCOME TAX(APPEALS)-2, KOLKATA ; (4) COMMISSIONER OF INCOME TAX- , (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.