The Scottish Assam (India) Limited, Kolkata V. DCIT, Circle - 4(2), Kolkata, Kolkata

ITA 1896/KOL/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5327 (ITAT-KOLKATA)
• Duration Of Justice: 8 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-05-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 03-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ROBIN CHOUDHURY ACIT
• Assessee Lawyers: S SINGHI
• Keywords: Depreciation; Earning of tax free income; Rule 8D
• Section: 14A; 144

Judgement Text

1 ITA NO.1896/KOL/2018 THE SCOTTISH ASSAM (INDIA) LTD. AY- 2013-14 IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH, SMC AT KOLKATA ( ) . . , ) [BEFORE SHRI A. T. VARKEY, JM] I.T.A. NO. 1896/KOL/2018 ASSESSMENT YEAR: 2013-14 THE SCOTTISH ASSAM (INDIA) LIMITED [PAN: AAACT 9788 P] VS. DCIT, CIRCLE 4(2), KOLKATA APPELLANT RESPONDENT DATE OF HEARING 20.02.2019 DATE OF PRONOUNCEMENT 15.05.2019 FOR THE APPELLANT SHRI S. SINGHI, FCA FOR THE RESPONDENT SHRI ROBIN CHOUDHURY, ACIT, SR. DR ORDER THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE CIT(A)-2, KOLKATA DATED 14.08.2018 FOR ASSESSMENT YEAR 2013-14. 2. GROUND NO. 1 AND 2 ARE AGAINST THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS. 1,85,903/- BEING 20% OF THE TOTAL MISCELLANEOUS EXPENSES OF RS. 9,25,516/-. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS IN THE MAIN BUSINESS ACTIVITY OF GROWING AND MANUFACTURING OF TEA IN THE DISTRICT OF JORHAT, ASSAM. THE AO NOTED THAT THE ASSESSEE HAS DEBITED RS. 9,29,516/- AS MISCELLANEOUS EXPENSES, SO HE CALLED UPON THE ASSESSEE TO PROVIDE THE DETAILS OF SUCH EXPENSES. ACCORDING TO THE AO, THE ASSESSEE FAILED TO SUBSTANTIATE THAT ALL EXPENSES WERE INCURRED WHOLLY AND EXCLUSIVELY FOR THE BUSINESS PURPOSES AND, THEREFORE, THE AO TAKING NOTE OF THE EXPLANATION, VOLUME AND NATURE OF BUSINESS OF AS WELL AS NUMBER OF ENTRIES, ESTIMATED THE DISALLOWANCE OF 20% OF CLAIM WHICH COMES TO RS. 1,85,903/- AND ADDED TO THE INCOME OF THE ASSESSEE COMPANY. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO WAS PLEASED TO CONFIRM THE SAME. AGGRIEVED THE ASSESSEE IS BEFORE US. 4. I HAVE HEARD BOTH THE SIDES AND PERUSED THE RECORDS. THE AO HAS DISALLOWED 20% OF THE MISCELLANEOUS EXPENSES CLAIMED BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE FAILED 2 ITA NO.1896/KOL/2018 THE SCOTTISH ASSAM (INDIA) LTD. AY- 2013-14 TO SUBSTANTIATE SUCH CLAIM BY PRODUCING VERIFIABLE DETAILS, THEREFORE, HE RESORTED TO ADHOC DISALLOWANCE OF 20% OF THE CLAIM. IT HAS TO BE KEPT IN MIND THAT IF THERE IS ANY DEFICIENCY IN THE VOUCHERS OR THE BILLS SUPPORTING THE INCURRENCE OF EXPENDITURE, THEN AT THE MOST THE EXPENSES TO THE EXTENT THAT WHICH ARE NOT SUPPORTED BY THE VOUCHERS CAN BE REGARDED TO BE NON-GENUINE AND CAN BE DISALLOWED BY THE AO WHILE COMPUTING THE INCOME OF THE ASSESSEE. HOWEVER, THE AO HAS RESORTED TO ESTIMATING THE DISALLOWANCE OF THE CLAIM WITHOUT RESORTING TO THE PROCEDURE PRESCRIBED IN SECTION 145(3) READ WITH SECTION 144 OF THE ACT. THEREFORE, THE ACTION OF THE AO IS ARBITRARY IN NATURE AND THEREFORE, ADHOC DISALLOWANCE CANNOT BE ALLOWED TO SUSTAIN, THEREFORE, I DIRECT THE DELETION OF THE ADDITION OF RS. 1,85,903/-. 5. GROUND NO. 3 IS AGAINST THE ACTION OF THE LD. CIT(A) IN UPHOLDING THE DISALLOWANCE OF RS. 5,05,355/- MADE BY THE AO UNDER RULE 8D(2)(II) OF THE INCOME TAX RULES, 1962 (THE RULES) READ WITH SECTION 14A OF THE ACT. 6. BRIEF FACTS OF THE CASE IS THAT THE AO WHILE PERUSING THE BALANCE SHEET NOTED THAT THE ASSESSEE HAS MADE AN INVESTMENT OF RS. 1,36,06,041/- IN SECURITIES. THE AO NOTED THAT THE ASSESSEE HAS CLAIMED DIVIDEND INCOME OF RS. 12,65,532/- AND HAS ONLY DISALLOWED RS. 1,78,329/- AS EXPENDITURE INCURRED IN RELATION TO EARNING OF SUCH EXEMPT INCOME. ACCORDING TO THE AO, THE ASSESSEE FAILED TO APPLY THE PROVISION OF SECTION 14A READ WITH RULE 8D. THE AO NOTED THAT ASSESSEE HAS DEBITED RS. 54,43,796/- AS INTEREST EXPENSES. THEREAFTER, THE AO APPLIED RULE 8D AND AFTER CONSIDERING THE AMOUNT DISALLOWED BY THE ASSESSEE TO THE TUNE OF RS. 1,78,329/- DISALLOWED FURTHER AMOUNT OF RS. 5,63,170/-. AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A), WHO GIVE PARTIAL RELIEF TO THE ASSESSEE IN RESPECT OF DISALLOWANCE MADE BY THE AO UNDER RULE 8D(2)(III). AGGRIEVED THE ASSESSEE IS BEFORE US ONLY CHALLENGING THE ACTION OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF AO IN RESPECT OF DISALLOWANCE MADE UNDER RULE 8D(2)(II). 7. I HAVE HEARD BOTH THE SIDES AND PERUSED THE RECORDS. THE MAIN THRUST OF THE SUBMISSION MADE BY THE LEARNED AR IN RESPECT OF THE GROUND RAISED BEFORE US IS THAT THE ASSESSEE HAS MADE INVESTMENT FROM OWN FUNDS IN SECURITIES WHICH FETCHED EXEMPT INCOME AND NOT FROM THE INTEREST BEARING LOAN FUNDS AND THEREFORE NO DISALLOWANCE WAS WARRANTED U/S RULE 8D2(II). ACCORDING TO THE ASSESSEE SINCE THE ASSESSEE POSSESSED MIXED FUNDS WHICH INCLUDES ITS OWN FUNDS IN SUFFICIENT QUANTITY, A PRESUMPTION THAT ITS OWN FUNDS WERE UTILIZED 3 ITA NO.1896/KOL/2018 THE SCOTTISH ASSAM (INDIA) LTD. AY- 2013-14 FOR THE ADVANCES/INVESTMENT IS TO BE DRAWN AS HELD BY THE HONBLE BOMBAY HIGH COURT IN RELIANCE UTILITIES AND POWERS LTD. VS CIT 313 ITR 340 (BOM) AND WHICH PROPOSITION OF LAW HAS BEEN UPHELD BY THE HONBLE SUPREME COURT. THEREFORE, ACCORDING TO THE LEARNED AR SINCE THE ASSESSEE HAS OWN FUNDS WHICH ARE NON-INTEREST BEARING FUNDS TO THE TUNE OF RS. 19,28,91,165/- AND THE LEARNED AR DREW OUR ATTENTION TO REPRODUCE THE CHART WHICH IS AS UNDER: SL NO. SOURCES OF FUNDS AMOUNT (RS) UTILISATION 1. SHAREHOLDERS FUNDS 19,28,91,165/- FOR INVESTMENTS AND OTHER OPERATING ACTIVITIES 2. BOOK ENTRY FOR NON CASH ITEMS A. PROVISION FOR ACCUMULATED DEPRECIATION 5,81,72,466 ` B. PROVISION FOR DIMINUTION IN VALUE OF INVESTMENTS 93,00,000 TOTAL NON INTEREST BEARING FUNDS 26,03,63,631 3. SECURED LOANS A. FROM UNITED BANK OF INDIA 3,70,67,993 FOR WORKING CAPITAL REQUIREMENTS B. FROM TEA BOARD-SPECIAL PURPOSE TEA FUND SCHEME 44,88,603 REPLANTING IN HEELAKAH TEA ESTATE C. LONG TERM LOAN FROM BANK 34,04,400 FOR PURCHASE OF PLANT & MACHINERY 8. TAKING OUR ATTENTION TO THE ABOVE CHART, HE SUBMITTED THAT THE ASSESSEE HAD OWN FUNDS WHICH IS MORE THAN SUFFICIENT TO TAKE CARE OF THE INVESTMENTS MADE IN EQUITIES AND THE INTEREST BEARING FUND WERE UTILIZED FOR THE PURPOSES FOR WHICH THE LOANS WERE SANCTIONED AS CLEAR FROM THE TABLE ABOVE. THE LEARNED AR DREW OUR ATTENTION TO THE ASSESSEES OWN CASE DECIDED BY THE TRIBUNAL IN ITA NO. 2725/KOL/2013 FOR A.Y. 2009-10 WHEREIN A SIMILAR ISSUE AROSE AND THE TRIBUNAL HELD AS UNDER: 9. HEARD RIVAL SUBMISSIONS AND PERUSED THE EVIDENCE AVAILABLE ON RECORD. WE FIND FROM THE TABULAR FORM SCHEDULE AS REPRODUCED IN PARA NO-7 HEREIN ABOVE THAT THE ASSESSEE HAS SURPLUS NON-INTEREST FUNDS TO AN EXTENT OF RS. 17,40,98,002/- AND ALSO SHOWS THE ASSESSEE MADE 4 ITA NO.1896/KOL/2018 THE SCOTTISH ASSAM (INDIA) LTD. AY- 2013-14 INVESTMENTS TO AN EXTENT OF RS. 12,05,10,473/- ONLY AND WE HOLD THAT THE INVESTMENTS WERE MADE FROM ITS SURPLUS OWN FUNDS. IN THIS REGARD, THE DISCUSSION IN ORDER OF CIT-A AT PARA NO- 7, THE CIT-A EXAMINED THE EVIDENCE AVAILABLE BEFORE HIM AND FOUND THAT THE ASSESSEE PAID THE INTEREST ON THE LOANS TAKEN FROM THE UNITED BANK OF INDIA AND TEA B6ARD OF INDIA FOR ITS BUSINESS PURPOSE MORE SPECIFICALLY AS MENTIONED AT TABULAR FORM SCHEDULE IN PARA NO-7 AND HE POINTED OUT THAT THERE WAS NO ALLEGATION FROM EITHER THE UNITED BANK OF INDIA OR THE TEA BOARD NOR THE AO THAT THE LOAN FUNDS HAVE BEEN DIVERTED FOR MAKING THE INVESTMENT IN SHARES OR FOR NON- BUSINESS PURPOSES. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN THE ORDER OF CIT-A AND THE CIT- A IS JUSTIFIED IN DELETING THE ADDITION MADE ON ACCOUNT OF RULE 8D(2)(II) OF THE RULES AND THE GROUND NO-1 RAISED TO THAT EFFECT IS FAILS AND IT IS DISMISSED. 9. THEREAFTER, I NOTE THAT IN THAT CASE IN THE ASSESSEES OWN CASE FOR A.Y. 2009-10, THE TRIBUNAL HAS TAKEN INTO CONSIDERATION THE SIMILAR CHART WHICH IS GIVEN IN PAGE NO 3 AND 4 OF THE ORDER WHICH IS AS UNDER: SL NO. SOURCES OF FUNDS AMOUNT (RS) UTILISATION 1. SHARE CAPITAL AND RESERVS & SURPLUS 11,41,24,395 FOR INVESTMENTS AND OTHER OPERATING ACTIVITIES 2. BOOK ENTRY FOR NON CASH ITEMS A.PROVISION FOR ACCUMULATED DEPRECIATION 5,06,49,702 FOR FIXED ASSETS, INVESTMENTS AND OTHER B. PROVISION FOR DIMINUTION IN VALUE OF INVESTMENTS 93,00,000 INVESTMENTS IN SHARES AND MUTUAL FUNDS C. PROVISION FOR DOUBTFUL ADVANCE 23,905 FOR WORKING CAPITAL REQUIREMENTS 3. TOTAL NON-INTEREST BEARING FUNDS 17,40,98,002 4. SECURED LOANS A.FROM UNITED BANK OF INDIA 2,17,62,275 FOR WORKING CAPITAL REQUIREMENTS B. FROM TEA BOARD-SPECIAL PURPOSE TEA FUND SCHEME 27,78,081 REPLACING IN HEELAKSH TEA ESTATE 10. FROM THE AFORESAID CHART ONLY THE TRIBUNAL HAS COME TO A CONCLUSION THAT THE LOAN FUNDS HAVE NOT BEEN DIVERTED BY THE ASSESSEE FOR MAKING INVESTMENT IN THE SHARES FOR NON BUSINESS PURPOSES. SINCE THE FACTS ARE SIMILAR AND THERE IS NO ALLEGATION IN THE PRESENT CASE BEFORE US THAT THE LOAN FUNDS TAKEN BY THE ASSESSEE FROM UNITED BANK OF INDIA AND THE TEA BOARD OF INDIA HAS BEEN UTILIZED FOR ANY OTHER BUSINESS PURPOSE OTHER THAN FOR WHICH IT WAS 5 ITA NO.1896/KOL/2018 THE SCOTTISH ASSAM (INDIA) LTD. AY- 2013-14 SANCTIONED AND SINCE THE LOAN FUNDS HAS NOT BEEN DIVERTED FOR INVESTMENT IN SECURITIES, I FIND FORCE IN ARGUMENTS OF THE LEARNED AR THAT NO DISALLOWANCE ON ACCOUNT OF RULE 8D(2)(II) WAS WARRANTED AND THEREFORE, WE DIRECT DELETION OF ADDITION MADE BY APPLYING RULE 8D(2)(II). 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 15 MAY, 2019. SD/- (ABY. T. VARKEY) JUDICIAL MEMBER DATED : 15 MAY, 2019 BISWAJIT (SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT THE SCOTTISH ASSAM (INDIA) LTD., 1, CROOKED LANE, KOLKATA 700 069. 2 RESPONDENT DCIT CIRCLE 4(2), KOLKATA. 3 . THE CIT(A) - 2 4. 5. CIT , DR, / TRUE COPY, BY ORDER, ASSISTANT REGISTRAR/H.O.O ITAT, KOLKATA