ACIT,Circle-6(2), Kolkata, Kolkata V. M/s Hiltop Holdings India Limited, Kolkata

ITA 1893/KOL/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6628 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 28-09-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHARJEE
• Assessee Lawyers: D S DAMLE
• Section: 14A

Judgement Text

1 ITA NO1893/KOL/2016 RAINBOW INVESTMENTS LIMITED (SUCCESSOR TO HILLTOP HOLDINGS INDIA LTD.) , AY- 2006-07 , D , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: KOL KATA ( ) BEFORE . . , /AND . , ) [BEFORE SHRI A. T. VARKEY, JM & SHRI M. BALAGANESH , AM] I.T.A. NO. 1893/KOL/2016 ASSESSMENT YEAR: 2006-07 ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-6(2), KOLKATA. VS. RAINBOW INVESTMENTS LIMITED (SUCCESSOR TO HILLTOP HOLDINGS INDIA LTD.) (PAN: AAACH6631H) APPELLANT RESPONDENT DATE OF HEARING 20.06.2018 DATE OF PRONOUNCEMENT 27.06.2018 FOR THE APPELLANT SHRI A. BHATTACHARJEE, ADDL. CIT FOR THE RESPONDENT SHRI D. S. DAMLE, FCA ORDER PER SHRI A.T.VARKEY, JM THE APPEAL FILED BY THE REVENUE IS AGAINST THE ORDE R OF LD. CIT(A)-2, KOLKATA DATED 16.06.2016 FOR AY 2006-07. 2. GROUND NOS. 1 AND 2 OF REVENUES APPEAL ARE AS U NDER: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN ACCEPTING THE CALCULATION MADE BY THE AR WITHOUT VE RIFYING THE FACTS AND ALLOWED THE ASSESSEES GROUND FOR STATISTICAL PURPOSES. 2. WHETHER BY DOING SO, THE LD. CIT(A) ERRED IN MIS LEADING THE AO INTO ACCEPTING THE ASSESSEES MISCONCEIVED POSITION REGARDING THE CLAI M OF ALLOWANCE OF INTEREST FOR NON BUSINESS PURPOSES. 3. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE AO IN THE ASSESSMENT ORDER DISALLOWED INTEREST OF RS.1,46,98,905/- AGAINST THE CLAIM OF A SSESSEE OF RS.1,68,95,293/- AS A DEDUCTION FILED IN THE RETURN OF INCOME, U/S. 14A OF THE INCO ME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) AS HE FOUND THAT BORROWED FUNDS WERE UTILIZED FOR INVESTING IN SHARES, DIVIDEND WHICH WERE EXEMPT U/S. 10(33) OF THE ACT. ON APPEAL, THE LD. CIT(A) GAVE PARTIAL RELIEF TO THE ASSESSEE BY DIRECTING THE AO TO RECALCULATE THE DISALLOWANCE AS PER THE 2 ITA NO1893/KOL/2016 RAINBOW INVESTMENTS LIMITED (SUCCESSOR TO HILLTOP HOLDINGS INDIA LTD.) , AY- 2006-07 CALCULATION MADE BY THE AR WHICH COMES TO RS.67,00, 535/-. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE ISSUE IS SQUARELY COVER ED BY THE DECISION ITAT IN ASSESSEES OWN CASE IN ITA NO. 318/KOL/2006 FOR AY 2002-03 DAT ED 10.08.2007 WHEREIN THE TRIBUNAL VIDE PARA 15 OF ITS ORDER HAS HELD AS UNDER: WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE ORDERS OF AUTHORITIES BELOW. SEC 14A PROVIDES THAT ANY EXPENDITURE RELATING TO EARNING O F INCOME WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME; CANNOT BE ALLOWED IN COMPUTING THE TOTAL IN COME. LANGUAGE OF SEC 14A INDICATES THAT ON EXPENDITURE INCURRED IN RELATION TO EARNING OF E XEMPTED INCOME IS NOT PERMISSIBLE AND THEREFORE THE NEXUS OF THE EXPENDITURE SHOULD BE ES TABLISHED WITH THE TAX FREE INCOME. WHERE AN ASSESSEE INCURS COMPOSITE EXPENDITURE WHICH PROD UCES INCOME WHICH IS PARTLY CHARGEABLE AND PARTLY NON CHARGEABLE THEN IN WORKING OUT THE D ISALLOWABLE EXPENDITURE U/S 14A; APPORTIONMENT SHOULD BE MADE BY APPLYING INCOME CRI TERION. IN OUR CONSIDERED OPINION APPORTIONMENT OF EXPENDITURE ON INCOME CRITERIA WOU LD BE REASONABLE AND APPROPRIATE HAVING REGARDED TO THE LANGUAGE USED IN SEC 14A. MOREOVER, WE FIND THAT THE SAME AO IN THE ASSESSMENT OF BRABOURNE INVESTMENTS LTD APPLIED THE INCOME CRITERIA FOR QUANTIFYING INTEREST DISALLOWABLE U/S. 14A OF THE ACT. IN THE CIRCUMSTAN CES, WE DO NOT FIND ANY REASONS FOR AO TO ADOPT ENTIRELY DIFFERENT FORMULA FOR QUANTIFYING T HE AMOUNT DISALLOWABLE U/S. 14A OF THE ACT. FOR THESE REASONS THEREFORE WE DO NOT FIND ANY INFI RMITY IN THE CIT(A)S ORDER DIRECTING AO TO COMPUTE THE DISALLOWANCE U/S. 14A ON THE BASIS OF DIVIDEND RECEIVED WHICH WAS EXEMPT U/S. 10(33) OF THE ACT. GROUND NO. 3 OF THE REVENUES A PPEAL IS THEREFORE REJECTED. AGAINST THE AFORESAID ORDER, REVENUE PREFERRED APPE AL BEFORE THE HONBLE JURISDICTIONAL HIGH COURT. HONBLE HIGH COURT VIDE ITA NO. 308 OF 2006 IN GA NO. 1444 OF 2008 DATED 06.08.2008 CONFIRMED THE ACTION OF THE ITAT AND DIS MISSED THE REVENUES APPEAL. SINCE LD. DR COULD NOT BRING OUT ANY CHANGE IN FACTS AND IN LAW, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 5. GROUND NO. 3 OF REVENUES APPEAL IS AS UNDER: 3. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN ALLOWING THE ASSESSEES CONTENTION OF NON-RECOGNITI ON OF INTEREST INCOME OF RS.3.03 CRORES AS HAD BEEN COMPUTED BY THE AO FOR THE AY 2006-07. 6. GROUND NO. 3 IS AGAINST THE RELIEF OF RS.3.03 CR . BEING NON-RECOGNITION OF ACCRUED INTEREST. ON PERUSAL OF RECORDS THE AO FOUND THAT T HE ASSESSEE HAS NOT RECOGNIZED INTEREST INCOME AS THE LOANS GIVEN TO PARTIES. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE WAS ASKED TO EXPLAIN WHY INTEREST WAS NOT CHARGED AS LOAN GIVEN TO PARTIES AND ALSO 3 ITA NO1893/KOL/2016 RAINBOW INVESTMENTS LIMITED (SUCCESSOR TO HILLTOP HOLDINGS INDIA LTD.) , AY- 2006-07 ASKED TO SHOW CAUSE WHY INTEREST ON ACCRUAL BASIS S HOULD NOT BE RECOGNIZED AND BE TAKEN IN COMPUTING TOTAL INCOME OF THE ASSESSEE. THE ASSESS EE FILED ITS REPLY VIDE ITS LETTER DATED 14.11.2008 AND 24.11.2008, WHICH THE AO REPRODUCED IN THE ASSESSMENT ORDER AT PAGE 4 TO 6. AFTER CONSIDERING THE REPLY OF THE ASSESSEE, THE AO OBSERVED THAT INTEREST ON THE LOANS GIVEN BY THE ASSESSEE SHOULD BE RECOGNIZED ON ACCRU AL BASIS. HE ALSO OPINED THAT EVEN THE CONTENTION OF ASSESSEE IS ACCEPTED THAT IT IS WORKI NG AS NBFC AND HENCE NON-ACCRUAL OF INTEREST INCOME IS ALLOWED AS PER RBI GUIDELINES CA NNOT BE ACCEPTED, AFTER THE CLARIFICATION ISSUED BY THE RBI THAT THE ASSESSEE COMPANY CANNOT FUNCTION AS NBFC, NEITHER CAN CARRY OUT ANY FUNCTION OF NBFC. THEREFORE, THE AO COMPUTED T HE ACCRUED INTEREST OF RS.3.03 CR. TO THE ASSESSEE AND ACCORDINGLY ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. ON APPEAL, THE LD. CIT(A) FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2002-03, 2004-05 AND 2005-06 DELETED THE ADDITION AS MADE BY THE AO AND ALLOWED THIS GROUND OF APPEAL OF ASSESSEE. AGGRIEVED, REVENUE IS BEFORE U S. 7. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT THE ISSUE IS SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF ITAT IN ASSESSEES OWN CASE IN ITA NO. 318/KOL/2006 FOR AY 2002-03 DATED 10.08.2007 WHEREIN THE TRIBUNAL VIDE PARA 11 OF ITS ORDER HAS HELD AS UNDER: 11. WE THEREFORE, FIND THAT IN THE ASSESSEES OWN CASE THE TRIBUNAL HAS HELD THAT IN ASSESSING THE TOTAL INCOME OF THE ASSESSEE RBI PRUDENTIAL NOR MS WERE RELEVANT & HAD TO BE TAKEN INTO A/C. AS PER CLAUSE 3(2) OF THE SAID GUIDELINES THE ASSESSEE COULD NOT RECOGNIZE INTEREST ON THE LOANS CONSIDERED AS NPA. IN THESE CIRCUMSTANCES, I NTEREST ON SUCH LOANS COULD NOT BE ASSESSED TO TAX MERELY BECAUSE THE ASSESSEE FOLLOWE D MERCANTILE SYSTEM OF ACCOUNTING. IT IS NOT DISPUTE BY THE REVENUE THAT THE LOANS IN RESPEC T OF WHICH THE ASSESSEE DID NOT RECOGNIZE INTEREST, WERE NOT NPA OR THAT CLAUSE 3(2) OF THE S AID PRUDENTIAL GUIDELINES WAS NOT PROPERLY FOLLOWED. IN ABSENCE OF ANY SUCH MATERIAL BEFORE U S WE HAVE NO HESITATION IN HOLDING THAT THERE WAS NO INFIRMITY IN THE ORDER OF THE CIT(A) DELETING THE ADDITION OF RS.1,68,34,053/-. WE ALSO FIND THAT ON IDENTICAL FACTS AND ON THE IDE NTICAL REASONING THE CIT(A) HAD ALLOWED RELIEF TO M/S. BRABOURNE INVESTMENT LTD. IN HIS ORD ER DATED 09.12.2005 AND THE COORDINATE BENCH OF THE TRIBUNAL IN ITA NO. 369/K/06 HAD UPHEL D THE RELIEF ALLOWED. FOR THE REASONS DISCUSSED IN THE FOREGOING AND FOLLOWING THE APPELL ATE ORDER DATED 5.1.2007, WE REJECT THE GROUND NO. 2 OF THE REVENUES APPEAL. AGAINST THE AFORESAID ORDER, REVENUE PREFERRED APPE AL BEFORE THE HONBLE JURISDICTIONAL HIGH COURT. HONBLE HIGH COURT VIDE ITA NO. 308 OF 2006 IN GA NO. 1444 OF 2008 DATED 06.08.2008 CONFIRMED THE ACTION OF THE ITAT AND DIS MISSED THE REVENUES APPEAL. SINCE LD. DR COULD NOT BRING OUT ANY CHANGE IN FACTS AND IN LAW, WE DO NOT FIND ANY INFIRMITY IN 4 ITA NO1893/KOL/2016 RAINBOW INVESTMENTS LIMITED (SUCCESSOR TO HILLTOP HOLDINGS INDIA LTD.) , AY- 2006-07 THE ORDER OF THE LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THIS GROUND OF APPEAL OF REVENUE IS DISMISSED. 8. IN THE RESULT, APPEAL OF REVENUE IS DISMISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 27.06.2018 SD/- SD/- (M. BALAGANESH) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 27TH JUNE, 2018 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT ACIT, CIRCLE-6(2), KOLKATA. 2 RESPONDENT RAINBOW INVESTMENTS LIMITED (SUCCESS OR TO HILLTOP HOLDINGS INDIA LTD.) 31, N. S. ROAD, KOLKATA-700 00 1. 3. THE CIT(A) -2, KOLKATA. (SENT THROUGH E-MAIL) 4. 5. CIT KOLKATA DR, ITAT, KOLKATA. (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, SR. PVT. SECRETARY