M/s. Patrex Vyapar Ltd., Kolkata V. ITO, Ward-5(2), Kolkata, Kolkata

ITA 1921/KOL/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 8478 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 28-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SOUMYAJIT DASGUPTA
• Assessee Lawyers: S JHAJHARIA
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

ITA NO. 1921/KOL/2017 A.Y. 2008-2 009 M/S. PATREX VYAPAR LIMITED 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT (KZ) AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 1921/KOL/2017 ASSESSMENT YEAR: 2008-2009 M/S. PATREX VYAPAR LIMITED,........................ .................................APPELLANT 23B, N.S. ROAD, 1 ST FLOOR, ROOM NO. 112, KOLKATA-700 001 [PAN: AABCP 9991 P] -VS.- INCOME TAX OFFICER,................................ ........................................RESPONDENT WARD-5(2), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 APPEARANCES BY: SHRI S. JHAJHARIA, FCA, FOR THE APPELLANT SHRI SOUMYAJIT DASGUPTA, ADDL. CIT, SR. D.R , FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : JANUARY 02, 2019 DATE OF PRONOUNCING THE ORDER : JANUARY 02, 2019 O R D E R PER SHRI P.M. JAGTAP, VICE-PRESIDENT (KZ):- THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, KOLKATA DAT ED 05.06.2017 AND THE GROUNDS RAISED BY THE ASSESSEE THEREIN READ AS UNDER:- 1. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN NOT DELETING THE ARBITRARY AND BASELESS DISALLOWANCE OF EXPENSES OF RS.8,81,839/- U/S. 14A OF THE ACT/ RULE 8D(2)(I)(II ) & (III) OF THE I. TAX RULES MADE IN THE ASSESSMENT AGAINST THE SMALL DIVIDEND INCOME OF RS.72,000/- EARNED ON SHARES ENT IRELY HELD AS STOCK-IN-TRADE IN BUSINESS IN RESPECT OF WHICH R ULE 8D(2) IS NOT APPLICABLE. 2. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN ISSUING A DIRECTION TO THE AO, BASED ON A JUDGMENT OF THE HON 'BLE ITAT, KOLKATA IN THE CASE OF TEENLOK ADVISORY SERVICES (P ) LTD. TO ITA NO. 1921/KOL/2017 A.Y. 2008-2 009 M/S. PATREX VYAPAR LIMITED 2 RECALCULATE THE DISALLOWANCE OF EXPENSES BY CONSIDE RING ONLY THOSE SHARES WHETHER HELD AS 'INVESTMENT' OR AS 'ST OCK-IN- TRADE' WHICH HAVE YIELDED THE EXEMPT DIVIDEND INCOM E, WITHOUT AT ALL CONSIDERING THE ASSESSEE'S WRITTEN SUBMISSIO N CITING VARIOUS COURT AND TRIBUNAL DECISIONS APPLICABLE IN THE CASE. 3. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN NOT CONSIDERING THE FACTS THAT (I) THERE WAS NO SHARE H ELD BY THE ASSESSEE UNDER THE PRO-FOLIO OF INVESTMENT' RENDER ING RULE 8D(2)(I)(II) & (III) INAPPLICABLE AND (II) SUCH RUL ES CANNOT ALSO BE APPLIED FOR DISALLOWANCE OF EXPENSE IN RESPECT O F THE EXEMPT DIVIDEND INCOME INCIDENTALLY EARNED ON TRADING SHAR ES HELD AS 'STOCK-IN-TRADE' AS THE SHARES WERE TRADED ONLY FOR EARNING BUSINESS PROFIT WITH LEAST INTENTION TO EARN DIVIDE ND INCOME COMING AS A WINDFALL. 4. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN NOT CONSIDERING THE FACTS EMERGING FROM THE AUDITED A/C S THAT THE SHARES HELD AS 'STOCK-IN-TRADE' WERE ACQUIRED/PURCH ASED BY THE ASSESSEE EXCLUSIVELY OUT OF ITS OWN FUNDS COMPR ISED OF SHARE CAPITAL AND RESERVE & SURPLUS AND NOT OUT OF ANY LO AN (THE LOANS BORROWED UTILIZED IN ADVANCING LOAN) AND AS SUCH NO INTEREST EXPENSE CAN BE DISALLOWED UNDER RULE 8D(2)(I) & (II ) OF THE I. TAX RULES AND RULE 8D(2)(III), WHICH IS LINKED WITH INVESTMENT IN SHARES, IS ALSO NOT APPLICABLE AS THE ASSESSEE H AD NO SUCH SHARE HELD AS 'INVESTMENT' . 5. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN NOT CONSIDERING THE FACTS THAT NO SATISFACTORY NOTE WAS RECORDED BY THE AO TO JUSTIFY THE APPLICABILITY OF SECTION 14A/ RULE 8D(2) FOR DISALLOWING ANY EXPENSE AGAINST THE EXEMPT DIVIDEND INCOME INCIDENTALLY RECEIVED ON TRADING SHARES. 6. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN UPHOLDING THE AO'S DECISION THAT THE LOSS OF RS.19,02,678/- S UFFERED IN THE SHARE TRADING BUSINESS WAS A DEEMED SPECULATION LOS S IN TERMS OF THE EXPLANATION TO SECTION 73 OF THE ACT WITHOUT CONSIDERING THE FACTS THAT THE ASSESSEE BEING A RBI REGISTERED NBFC CARRYING ON THE BUSINESS OF GRANTING LOANS AND ADVA NCES AND EARNING SUBSTANTIAL INTEREST INCOME THE EXPLANATION TO SECTION 73 DOES NOT AT ALL APPLY IN THE CASE. 7. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN NOT CONSIDERING THE FACTS THAT THE AMENDMENT MADE W.E.F A.Y 2015- 16 IN THE EXPLANATION TO SECTION 73 BY FINANCE (NO. 2) ACT, 2014, SPECIFICALLY EXCLUDING THE APPLICATION OF EXP LANATION TO SECTION 73 IN A CASE WHERE THE PRINCIPAL BUSINESS O F A COMPANY ITA NO. 1921/KOL/2017 A.Y. 2008-2 009 M/S. PATREX VYAPAR LIMITED 3 IS TRADING IN SHARES, IS CURATIVE AND CLASSIFICATOR Y IN NATURE AND AS SUCH THE AMENDMENT CAN BE APPLIED RETROSPECTIVEL Y FROM THE ORIGINAL DATE OF INSERTION OF THE EXPLANATION TO SE CTION 13 ON 01.04.1977 IN KEEPING WITH THE HON 'BLE APEX COURT JUDGMENT IN THE CASE OF CIT V. ALOM EXTRUSIONS LTD. (2009) 319 ITR 306 (SC) AND ALSO ITAT, A-BENCH, KOL'S JUDGMENT DT 24.8.2016 IN THE CASE OF JALAN CEMENT WORKS V. CIT ( ITA NO. 1112/KOL/201 3). 2. AT THE TIME OF HEARING BEFORE THE TRIBUNAL, THE LD. COUNSEL FOR THE ASSESSEE HAS NOT PRESSED GROUNDS NO. 6 & 7 RAISED B Y THE ASSESSEE IN THIS APPEAL. THE SAME ARE ACCORDINGLY DISMISSED AS NOT P RESSED. 3. AS REGARDS THE COMMON ISSUE INVOLVED IN GROUNDS NO. 1 TO 5 RELATING TO THE DISALLOWANCE OF RS.8,81,839/- MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT(APPEALS) UNDER SECTION 14A READ WITH RULE 8D, THE LIMITED RELIEF SOUGHT BY THE LD. COUNSEL FOR THE ASSESSEE IS THAT THE EXEMPT DIVIDEND INCOME ACTUALLY EARNED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION BEING ONLY RS.7 2,000/-, THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D ON ACCOUNT OF EXPENSES INCURRED IN RELATION TO THE SAID EXEMPT INCOME CANN OT EXCEED RS.72,000/- BEING THE AMOUNT OF DIVIDEND INCOME ACTUALLY EARNED . SINCE THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HONBLE DEL HI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT. LIMITED VS.- CIT (3 72 ITR 694), WHEREIN IT WAS HELD THAT THE DISALLOWANCE UNDER SECTION 14A CA NNOT EXCEED THE ACTUAL AMOUNT OF EXEMPT INCOME EARNED BY THE ASSESS EE, WE ALLOW THE LIMITED RELIEF CLAIMED ON BEHALF OF THE ASSESSEE AN D RESTRICT THE DISALLOWANCE OF RS.8,81,839/- MADE UNDER SECTION 14 A READ WITH RULE 8D TO RS.72,000/-. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON JANUARY 02, 2019. SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAGTAP) JUDICIAL MEMBER VICE -PRESIDENT (KZ) KOLKATA, THE 2 ND DAY OF JANUARY, 2019 ITA NO. 1921/KOL/2017 A.Y. 2008-2 009 M/S. PATREX VYAPAR LIMITED 4 COPIES TO : (1) M/S. PATREX VYAPAR LIMITED, 23B, N.S. ROAD, 1 ST FLOOR, ROOM NO. 112, KOLKATA-700 001 (2) INCOME TAX OFFICER, WARD-5(2), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (3) COMMISSIONER OF INCOME TAX (APPEALS)-2, KOLKAT A, (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.