ITO, Ward-3(1), Kolkata, Kolkata V. M/S. Nagreeka Foils Pvt. Ltd., Kolkata

ITA 2073/KOL/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4577 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 11-11-2014
• Court: TRIBUNAL
• Assessee Lawyers: ATIN DAS; RABINDRANATH DAS
• Keywords: Business income; Earning of tax free income
• Section: 14A; 80IB

Judgement Text

I.T.A. NO. 2073/KOL./2014 ASSESSMENT YEAR: 2006-2007 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A(SMC) BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER I.T.A. NO. 2073 /KOL/ 2014 ASSESSMENT YEAR: 2006-2007 INCOME TAX OFFICER,................................ ...........................APPELLANT WARD-3(1), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 -VS.- M/S. NAGREEKA FOILS PVT. LIMITED,.................. .................RESPONDENT 18, R.N. MUKHERJEE ROAD, 6 TH FLOOR, KOLKATA-700 001 [PAN : AAACN 8548 H] APPEARANCES BY: SHRI RABINDRANATH DAS AND SHRI ATIN DAS, ADVOCATE, FOR THE ASSESSEE SHRI PRABAL CHOUDHURY, JCIT, SR. D.R., FOR THE DEPARTMENT DATE OF CONCLUDING THE HEARING : JUNE 08, 2016 DATE OF PRONOUNCING THE ORDER : JULY 8, 2016 O R D E R THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX-(APPEALS)-1, KOLKATA DAT ED 10.07.2014 FOR THE ASSESSMENT YEAR 2006-07 ON THE FOLLOWING GROUND S:- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) HAS ERRED IN ALLOWING DEDUCTION OF RS.29,62,628/- U /S 80IB OF THE I.T. ACT, 1961 ON INTEREST EARNED FROM FIXED DE POSITS, WHICH IS NORMALLY TREATED AS INCOME FROM OTHER SOUR CES AND NOT BUSINESS INCOME. (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN RESTRICTING DISALLOWANCE TO RS.24,996/ - U/S 14A OF THE I.T. ACT, 1961, AS AGAINST DISALLOWANCE OF R S.5,00,000/- MADE BY THE AO WITHOUT APPORTIONING EXPENDITURE BET WEEN TAXABLE INCOME AND EXEMPT INCOME, WHICH WAS REQUIRE D TO BE MADE FOR TOTAL INTEREST AND FINANCE CHARGE OF RS.66 .76 LACS, A PORTION OF WHICH IS ATTRIBUTABLE TO TOTAL INVESTMEN TS MADE FOR WHICH EXEMPT INCOME HAVE BEEN EARNED. I.T.A. NO. 2073/KOL./2014 ASSESSMENT YEAR: 2006-2007 PAGE 2 OF 4 2. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS REGARDS G ROUND NO.1, THE LD. REPRESENTATIVES OF BOTH THE SIDES HAVE AGREED THAT THE ISSUE INVOLVED THEREIN RELATING TO THE ASSESSEES CLAIM FOR DEDUCT ION UNDER SECTION 80IB IN RESPECT OF INTEREST EARNED FROM FIXED DEPOSITS K EPT WITH BANK AS MARGIN MONEY IS SQUARELY COVERED IN FAVOUR OF THE A SSESSEE BY THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN ASSE SSEES OWN CASE FOR A.Y. 2003-04 RENDERED VIDE ITS ORDER DATED 21.07.2014 IN ITA NO. 99 OF 2007, WHEREIN A SIMILAR CLAIM OF THE ASSESSEE FOR DEDUCTI ON UNDER SECTION 80IB IN RESPECT OF INTEREST INCOME HAS BEEN ALLOWED BY T HE HONBLE CALCUTTA HIGH COURT FOR THE FOLLOWING REASONS:- BOTH, IN THE CASE OF CIT VS. STERLING FOODS (SUPRA ) AND IN THE CASE OF LIBERTY INDIA VS. CIT (SUPRA), THEIR LORDSH IPS HAVE LED EMPHASIS TO FIND OUT WHETHER THERE IS A DIRECT NEXU S BETWEEN THE MONEY EARNED AND THE ACTIVITY PURSUED BY THE AS SESSEE. IN THE CASE OF PANDIAN CHEMICALS (SUPRA), INTEREST WAS EARNED BY THE ASSESSEE FROM OUT OF DEPOSITS MADE WITH THE ELE CTRICITY BOARD. IT COULD, THEREFORE, BE SAID THAT THE INCOME ARISING OUT OF INTEREST DID NOT HAVE ANY DIRECT NEXUS WITH THE INDUSTRIAL UNDERTAKING OF THE ASSESSEE. IN THE CASE OF CIT VS. STERLING FOODS (SUPRA), THE ASSESSEE WAS ENGAGED IN THE BUSI NESS OF SEA FOODS. THE INCOME IN QUESTION WAS DERIVED FROM OUT OF SALE OF THE IMPORT ENTITLEMENTS. IT WAS, THEREFORE, POSSIBL E TO SAY THAT THE INCOME WAS NOT OR DID NOT HAVE ANY DIRECT NEXUS WITH THE ACTIVITY OF THE ASSESSEE. SIMILARLY, IN THE CASE OF LIBERTY INDIA (SUPRA) THE INCOME IN QUESTION WAS THE AMOUNT OF DR AWBACK INCENTIVES RECEIVED BY THE ASSESSEE WHICH DID NOT H AVE ANY DIRECT NEXUS WITH THE EXPORT MADE BY THE A:SSESSEE. BUT, IN THE PRESENT CASE IT IS DIFFICULT TO SAY THAT THE INTERE ST EARNED BY THE ASSESSEE FROM THE BUYERS OF THE GOODS ON ACCOUNT OF DELAYED PAYMENT OF THE SALE PROCEEDS DOES NOT HAVE ANY DIRE CT NEXUS WITH THE BUSINESS OF THE' ASSESSEE. SIMILARLY, THE INTEREST RECEIVED BY THE ASSESSEE ON ACCOUNT OF FIXED DEPOSI TS MADE FOR THE PURPOSE OF PROVIDING MARGIN MONEY TO THE LENDIN G BANK ALSO HAS A DIRECT NEXUS BECAUSE THE FINDING OF THE CIT (A) IS, WHICH IS NOT DISPUTED BEFORE US, THAT FOR THE PURPO SE OF MAKING SUCH DEPOSIT THE ASSESSEE HAD ALSO BORROWED MONEY F ROM THE BANK. THE RESULTANT EFFECT IS THAT IF A DEPOSIT OF RS.10/- IS TO BE MADE BY WAY OF MARGIN MONEY FOR BORROWING RS.100/-, THE ASSESSEE HAS TO BORROW RS.110/- OUT OF WHICH RS.100 /- CAN BE USED FOR HIS BUSINESS AND RS.10/- CAN BE INVESTED B Y WAY OF MARGIN MONEY. WHEN HE IS PAYING INTEREST FOR RS.I10 /- AND RECEIVING INTEREST ON THE AMOUNT OFRS.10/-, IT CAN ONLY BE SAID THAT HE IS REALLY PAYING INTEREST FOR RS.I00/- WHIC H HE ORIGINALLY NEEDED FOR THE BUSINESS. THE INCOME ARISING OUT OF THE DEPOSIT MADE BY HIM IS, THEREFORE, HIS BUSINESS INCOME. I.T.A. NO. 2073/KOL./2014 ASSESSMENT YEAR: 2006-2007 PAGE 3 OF 4 AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATI ON AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO A.Y. 2003-04, WE RESPECTFULLY FOLLOW THE DECISION OF THE HONBLE JUR ISDICTIONAL HIGH COURT FOR A.Y. 2003-04 AND UPHOLD THE IMPUGNED ORDER OF T HE LD. CIT(APPEALS) ALLOWING THE CLAIM OF THE ASSESSEE FOR DEDUCTION UN DER SECTION 80IB IN RESPECT OF INTEREST INCOME. GROUND NO. 1 IS ACCORDI NGLY DISMISSED. 3. AS REGARDS THE ISSUE INVOLVED IN GROUND NO.2 REL ATING TO DISALLOWANCE UNDER SECTION 14A, IT IS OBSERVED THAT THE DISALLOWANCE OF RS.5,00,000/- MADE BY THE ASSESSING OFFICER UNDER S ECTION 14A ON ACCOUNT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE EARNING OF EXEMPT INCOME IS SUSTAINED BY THE LD. CIT(APPEAL S) TO THE EXTENT OF RS.24,996/- BEING 1% OF THE EXEMPT DIVIDEND INCOME. THE DISALLOWANCE UNDER SECTION 14A PRIOR TO THE INTRODUCTION OF RULE 8D W.E.F. 2008-09 HAS TO BE DONE ON SOME REASONABLE BASIS AND AS AGREED B Y THE LD. REPRESENTATIVES OF BOTH THE SIDES, THIS TRIBUNAL HA S TAKEN A CONSISTENT VIEW THAT THE DISALLOWANCE UNDER SECTION 14A TO THE EXTENT OF 1% OF THE EXEMPT DIVIDEND INCOME IS FAIR AND REASONABLE. WE, THEREFORE, FIND NO INFIRMITY IN THE IMPUGNED ORDER OF THE LD. CIT(APPE ALS) RESTRICTING THE DISALLOWANCE OF RS.5,00,000/- MADE BY THE ASSESSING OFFICER UNDER SECTION 14A TO RS.24,996/- BEING 1% OF THE EXEMPT D IVIDEND INCOME AND UPHOLDING THE SAME, WE DISMISS GROUND NO. 2 OF THE REVENUES APPEAL. 4. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON JULY 8, 2016. SD/- (P.M. JAGTAP) ACCOUNTANT MEMBER KOLKATA, THE 8 TH DAY OF JULY, 2016 COPIES TO : (1) INCOME TAX OFFICER, WARD-3(1), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 I.T.A. NO. 2073/KOL./2014 ASSESSMENT YEAR: 2006-2007 PAGE 4 OF 4 (2) M/S. NAGREEKA FOILS PVT. LIMITED, 18, R.N. MUKHERJEE ROAD, 6 TH FLOOR, KOLKATA-700 001 (3) COMMISSIONER OF INCOME TAX (APPEALS)-1, KOLKA TA, (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.