Appeal Details
Counselvise Citation
[2017] 128 COUNSELVISE.COM (IT) 1667 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
2 year(s) 6 month(s) 21 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
02-06-2017
Appeal Filed By
Department
Bench Allotted
A
Next Hearing Date
30-05-2017
Assessment Year
2011-2012
Appeal Filed On
11-11-2014
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM & SHRI M.BA LAGANESH, AM] I.T.A NO. 2070/KOL/20 14 ASSESSMENT YEAR : 2011-1 2 D.C.I.T., CIRCLE-6, -VS.- M/S. KREDENT B ROKERAGE SERVICES KOLKATA PVT. LTD., KOLKATA. [PAN : AAACI 8269 C] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI SALLONG YADEN, ADL. CIT FOR THE RESPONDENT : SHRI K.K.CHHAPARIA, FCA & SHRI NIRAV SHETH, ACA DATE OF HEARING : 30.05.2017. DATE OF PRONOUNCEMENT : 02.06.2017. ORDER PER N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 20.08.2014 OF CIT- (A)-VI, KOLKATA RELATING TO A.Y.2011-12. 2. GROUNDS OF APPEAL RAISED BY THE REVENUE READS AS FOLLOWS :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE CIT(A) ERRED AS ON FACTS AS WELL AS IN LAW IN HOLDING THAT DISALLOWANCE U/S 14A OF RS. 43,24,843/- WAS NOT WARRANTED AS DIVIDEND INCOME ACCRUED ONLY FROM SHAR ES KEPT AS STOCK IN TRADE NOT FROM SHARES KEPT AS INVESTMENT, IGNORING THE DECISI ON OF ITO VS CHEMINVEST LTD AS WELL AS CBDT CIRCULAR NO- 5/2014 IN THIS REGARD WHI CH PROVIDES THAT DISALLOWANCE U/S 14A READ WITH RULE 8D CAN BE INVOKED EVEN WHEN SHARES DID NOT YIELD EXEMPT INCOME IN A PARTICULAR FINANCIAL YEAR. 3. THE ASSESSEE IS A STOCK BROKER. THE ASSESSEE EARNED DIVIDEND INCOME OF RS.5,99,321/- WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE INCOME TAX ACT, 1961 (ACT). UNDER SECTION 14 A OF THE ACT, ANY EX PENDITURE INCURRED FOR THE PURPOSE OF EARNING INCOME WHICH DOES NOT FORM PART OF THE T OTAL INCOME UNDER THE ACT WILL NOT BE ALLOWED AS DEDUCTION WHILE COMPUTING TOTAL INCOM E. THE QUESTION BEFORE AO WAS THE QUANTUM OF EXPENSES THAT HAS TO BE DISALLOWED I N TERMS OF SECTION 14A OF THE ACT. 2 ITA NO.2070/KOL/2014 M/S. KREDENT BROKERAGE SERVICES PVT. LTD. A.YR.2011-12 2 THE AO APPLIED THE PROVISION OF RULE 8D OF THE INCO ME TAX RULES 1962 (RULES). THIS IS A METHOD PRESCRIBED U/S 14A OF THE ACT TO DETERM INE THE EXPENDITURE INCURRED IN EARNING THE EXEMPT INCOME AND BY APPLYING THE SAME, THE AO ARRIVED AT A SUM OF RS.43,24,843/- AS THE AMOUNT DISALLOWABLE U/S 14A OF THE ACT. THE FOLLOWI NG WAS THE CALCULATION DONE BY THE AO :- THE CALCULATION OF DISALLOWANCE U/S 14A IS MADE A S BELOW A) RULE D(2)(I) DIRECT EXPENSES : NIL B) RULE 8D(2)(II) INTEREST PAID RS 1,83,46,317/- AVG INVESTMENTS: RS (16,48,71,168+ 18,82,67, 120)/2 = RS 17,65,69,144/- (INCLUDING INVENTORIES) AVG ASSETS : RS ( 98,57,53,698+89,65,21, 752)/2 = RS 94,11,37,725/- AMT OF DISALLOWANCE IS RS 1,83,46,317X17,65,69,144/ 94,11,37.725 = RS 34,41,997/- C) RULE 8D(2)(III): 0.5%) OF AVERAGE INVESTMENTS OF RS 17.65,69,144/- EQUALS TO RS 8,82,846/- HENCE TOTAL DISALLOWANCE IS (RS 34,41,9971-+8,82,84 6/-) = RS 43,24,843/-. 4. ON APPEAL BY THE ASSESSEE THE CIT(A) DELETED THE ADDITION MADE BY THE AO BY FOLLOWING THE ORDER IN ASSESEES OWN CASE FOR A.Y.2 010-11 BY CIT(A) WHEREIN IT WAS HELD THAT A) WHILE COMPUTING EXPENSES DISALLOWABLE U/S 14A OF TH E ACT ONLY SHARES WHICH YIELDED DIVIDEND INCOME HAS TO BE CONSIDERED IN ARR IVING AT THE AVERAGE VALUE OF INVESTMENTS, B) WHEREVER DIVIDEND WAS EARNED ON SHARE HELD AS STOCK IN TRADE BY THE ASSESSEE THERE CAN BE NO DISALLOWANCE U/S 14A OF THE ACT. FOLLOWING THE AFORESAID ORDER OF CIT(A) FOR A.Y.201 0-11, THE CIT(A) DELETED THE DISALLOWANCE U/S 14A OF THE ACT. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE CIT(A) : 3 ITA NO.2070/KOL/2014 M/S. KREDENT BROKERAGE SERVICES PVT. LTD. A.YR.2011-12 3 6.THE MATERIAL FACTS DURING THE YEAR ARE PRACTICAL LY IDENTICAL. THE ENTIRE DIVIDEND INCOME HAS BEEN EARNED BY THE APPELLANT FROM SHARES HELD AS STOCK-IN-TRADE. NO DIVIDEND HAS BEEN EARNED ON THE SHARE HELD AS INVES TMENT. IT IS ALSO BEEN BROUGHT TO NOTICE BY THE APPELLANT THAT THE DECISION OF SPECIA L BENCH ITAT, DELHI IN THE CASE OF CHEMINVEST LTD. (SUPRA) HAS BEEN SPECIFICALLY OV ER- RULED BY THREE DIFFERENT HIGH COURTS NAMELY ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. SHIVAM MOTORS (P)LTD., GUJARAT HIGH COURT IN THE CASE OF CIT VS. CORTECH ENERGY PVT. LTD. AND PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. LAKHANI MARKETING. THE APPELLANT HAS ALSO POINTED OUT THAT INVESTMENT MADE BY IT WAS MUCH SMALLER THAN OWN FUND AVAILABLE VIZ. SHARE CAPITAL AND RESERVE A ND SURPLUS. IT MAY ALSO BE MENTIONED, THAT THOUGH IT HAS BEEN STATED IN THE AS SESSMENT ORDER, THAT THE A.R. OF THE ASSESSEE ADMITTED (NEED FOR) DISALLOWANCE U/S 1 4A, ON PERUSAL OF ASSESSMENT RECORDS, NO SUCH ADMISSION IS FOUND. CONSIDERING TH E ABOVE FACTS AND RATIO GIVEN BY VARIOUS JUDICIAL AUTHORITIES INCLUDING JURISDICTION AL BENCH OF ITAT, AS DISCUSSED IN THE APPELLATE ORDER FOR A.Y.2010-11, THE DISALLOWAN CE MADE U/S 14A READ WITH RULE8D IS DELETED. 5. AGGRIEVED BY THE ORDER OF CIT(A) THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. DR RELIED ON THE ORDER OF AO. THE LD. COUNSEL FOR THE ASSESSEE BROUGHT TO OUR NOTICE THAT IN A.Y.2008-09 IN ASSESSEES OWN CASE THIS TRIBUNAL IN ITA NO.806/KOL/2012 BY ORDER DATED 11.09.2010 ON AN IDENTICAL ISSUE WAS PLEASED TO UPHOLD SIMILAR ORDER OF CIT(A) . THE LD. COUNSEL ALSO BROUGHT TO OUR NOTICE THAT THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS GKK CAPITAL MARKETS (P)LTD 392 ITR 196 (CALCUTTA) HAS TAKEN A V IEW THAT THE SHARES HELD AS STOCK IN TRADE AND THE EXPENSES IN RELATION TO SHARES SO HEL D CANNOT BE DISALLOWED U/S 14A OF THE ACT. IN VIEW OF THE AFORESAID DECISION AND THE DECI SION OF THE ITAT IN ASSESSEES OWN CASE, WE ARE OF THE VIEW THAT ORDER OF CIT(A) ON TH IS ISSUE DOES NOT CALL FOR ANY INTERFERENCE. WE ALSO NOTICE THAT DISALLOWANCE OF I NTEREST EXPENSES UNDER RULE 8D (2)(II) CANNOT BE SUSTAINED FOR THE REASON THAT THE ASSESSE E HAD ENOUGH OWN FUNDS WHICH CAN BE ATTRIBUTABLE TO THE INVESTMENTS IN SHARES WHICH ARE LIKELY TO YIELD TAX FREE INCOME. IN SUCH A SCENARIO INTEREST EXPENSES HAVE TO BE CONSID ERED AS NOT ATTRIBUTABLE TO EARN 4 ITA NO.2070/KOL/2014 M/S. KREDENT BROKERAGE SERVICES PVT. LTD. A.YR.2011-12 4 EXEMPT DIVIDEND INCOME. WE FIND NO GROUNDS WITH THE ORDER OF CIT(A) . ACCORDINGLY THE APPEAL OF THE REVENUE IS DISMISSED. 7. IN THE RESULT THE APPEAL BY THE REVENUE IS DI SMISSED. ORDER PRONOUNCED IN THE COURT ON 02.06.2017. SD/- SD/- [M.BALAGANESH] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 02.06.2017. [RG PS] COPY OF THE ORDER FORWARDED TO: 1. M/S. KREDENT BROKERAGE SERVICES PVT. LTD., 4 TH FLOOR, 4, BRABOURNE ROAD, KOLKATA- 700001. 2. D.C.I.T., CIRCLE-6, KOLKATA. 3. CIT(A)-VI, KOLKATA 4. CIT- II, KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVA TE SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S 5 ITA NO.2070/KOL/2014 M/S. KREDENT BROKERAGE SERVICES PVT. LTD. A.YR.2011-12 5
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