M/s Aarkay Investments Pvt. Ltd., Kolkata V. A.C.I.T., Circle-4(1), Kolkata

ITA 2091/KOL/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6257 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 09-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RANU BISWAS
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A; 201

Judgement Text

1 IT A NO . 2091/KOL/2019 A.Y 2016 - 17 M/S. AARKAY INVESTMENTS P.LTD , B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOLKATA [BEFORE HONBLE SHRI J.SUDHAKAR REDDY, AM AND HONBLE SHRI A. T. VARKEY, JM ITA NO. 2091/KOL /2019 ASSESSMENT YEAR: 201 6 - 17 M/S. AARKAY INVESTMENTS PVT. LTD. PAN: AACCA 2455N V S. A.C.I.T, CIR - 4(1), KOLKATA APPELLANT RESPONDENT DATE OF HEARING (VIRTUAL) 14. 09 .2020 DATE OF PRONOUNCEMENT 23 .09.2020 FOR THE APPELLANT SHRI A.K. TULS Y AN, FCA, LD. AR FOR THE RESPONDENT S MT. RANU BISWAS, ADDL. CIT/LD. DR ORDER SHRI A. T. VARKEY, JM THIS IS AN APPEAL PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT (A) , 2, KOLKATA D ATED 06 - 08 - 2019 FOR THE ASSESSMENT YEAR 2016 - 17. 2. SOLE GROUND OF APPEAL OF ASSESSEE IS AGAINST THE ACTION OF TH E LD. CIT(A) IN CONFIRMING THE IMPUGNED ADDITION OF RS. 5,48,977/ - MADE U/S. 14A OF THE INCOME - TAX ACT, 1961 (IN SHORT, HEREINAFTER REFERRED TO AS THE ACT ) / READ WITH RULE 8D (2) (II) OF THE INCOME - TAX RULES, 1962 ( IN SHORT, HEREINAFTER REFERRED TO AS TH E RULES ) . 3. BRIEF FACTS OF THE CASE AS NOTED BY THE AO ARE THAT THE ASSESSEE COMPANY HAS DECLARED IT S TOTAL INCOME OF RS.6 , 1 3, 67,670/ - . LATER ON THE CASE WAS SELECTED FOR SCRUTINY THROUGH CASS . THE AO NOTES THAT THE ASSESSEE IS A NBFC (NON - B ANKING FIANC COMPANY) REGISTERED BY THE RESERVE BANK OF INDIA . .THE ASSESSEE COMPANY HAS INCOME BY WAY OF INTEREST ON LOANS, DIVIDEND, PROFIT ON SALE OF INVESTMENT ETC. THE AO ALSO NOTED THAT THE ASSESSE E HAD SHOWN EXEMPT INCOME. HOWEVER, ASSESS EE COMPAN Y HAS SUO MOTU DISALLOWED ONLY AT RS. 3,17,748/ - . SO THE AO APPLIED RULE 8D AND MADE ADDITION OF RS.5,48,997/ - U/S. 14 OF THE ACT/READ WITH RULE 8D(2)(II) OF THE RULES . AGGRIEVED, THE 2 IT A NO . 2091/KOL/2019 A.Y 2016 - 17 M/S. AARKAY INVESTMENTS P.LTD ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) , WHO WAS PLEASED TO CONFIRM THE SAID ACTION OF THE AO. AGGRIEVED, THE ASSESSEE IS BEFORE US. 4 . W E HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. WE NOTE THAT ASSESSEE COMPANY HA D SHARE CAPITAL OF RS.57,52,000/ - AND RESERVE & SURPLUS OF RS . 147, 21,76,110/ - AS O N 31 - 03 - 2016. THUS, ASSESSEES TOTAL OWN FU N DS COMES TO RS.147,79,28,110/ - AND TOTAL INVESTMENT MADE BY THE ASSESSEE IS ONLY TO THE TUNE OF RS. 34,42,94,0 3 9/ - . FROM THE AFORESAID FACT THE ASSESSEE CLAIMED THAT SINCE ITS TOTAL OWN FUNDS IS MUCH HIGHER THAN THE INVESTMENT MADE BY IT , RULE 8D(2) (II) READ WITH SECTION 14 OF THE ACT DOES NOT ARISE . A CCORDING TO ASSESSEE , FROM THE ABOVE FACTS DISCUSSED, THE QUESTION OF INVESTMENT BEING MADE OUT OF BORROWED FUND DOES NOT ARISE. IT WAS ALSO POINTED OUT BY SHRI A.K. TULS Y AN, FCA, THE L EARNED AUTHORISED REPRESENTATIVE ( IN SHORT, THE LD . AR ) OF THE ASSESSEE THAT NO FRESH INVESTMENT HAS BEEN MADE BY THE ASSESSEE DURING THE ASSESSMENT YEAR UNDER CONSIDERATION AND SINCE THE INVESTMENT MADE IN SHARES IS FULLY COVERE D BY THE ASSESSEES OWN FUND , DISALLOWANCE OF INTEREST MADE BY THE AO BY APPLYING RULE 8D(2) (II) IS UN - WARRANTED . AND CITED THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD. V. DCIT (2014) 366 ITR 505(BOM HC) HAS HELD WH ERE ASSESSEES OWN FUND S AND OTHER NON - INTEREST BEARING FUND S WERE MORE THAN INVESTMENT IN TAX FREE SECURITIES , IMPUGNED ORDER PASSED BY THE ASSESSING OFFICER DISALLOWING A PART OF INTEREST PAYMENTS UNDER SECTION 14A OF THE ACT ( READ WITH RULE 8D(2)(II) OF I.T RULES, 1962 ) NEEDS TO BE SET ASIDE . WE NOTE THAT HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340(BOM HC) AND IN THE CASE S OF EAST INDIA PHARMACEUTICAL WORKS 224 ITR 627 (SC) & WOOLCOMBERS 134 IT R 219 (CAL) HAVE LAID THE PROPOSITION OF LAW THAT WHEN THERE ARE BOTH INTEREST FREE FUNDS AND INTEREST BEARING FUNDS , THE PRESUMPTION IS THAT INTEREST FREE FUNDS WERE UTILIZED FOR INTEREST FREE INVESTMENT AND ADVANCES. THUS, WE NOTE THAT FACTUAL MATRIX DIS CUSSED SUPRA, THE ASSESSEE HAD TOTAL OWN FUNDS MORE THAN RS 1 4 7 C R ORE S AND THE TOTAL INVESTMENT MADE ONLY TO THE TUNE OF RS. 34 CRORES , T HEREFORE, THE PRESUMPTION IN THE CASE S OF RELIANCE UTILITIES & POWER LTD SUPRA IS CLEARLY APPLICABLE AND THE LD. DR COULD NOT DEMONSTRATE THAT THIS PRESUMPTION IS FACTUALLY INCORRECT , THEREFORE, THE DISALLOWANCE MADE UNDER SECTION 14A/ READ WITH RULE 3 IT A NO . 2091/KOL/2019 A.Y 2016 - 17 M/S. AARKAY INVESTMENTS P.LTD 8D(2)(II) OF THE RULES, WAS NOT WARRANTED. THEREFORE, IT IS DIRECTED TO BE DELETED. 5 . IN THE RESULT, THE APPEAL OF ASS ESSEE IS ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 23 SEPTEMBER 2020 SD/ - SD/ - ( J. SUDHAKAR REDDY) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 23 SEPTEMBER 2020 **PP(SR.P.S.) COPY OF THE ORDER F ORWARDED TO: 1. APPELLANT M/S. AARKAY INVESTMENTS PVT. LTD P - 46A, RADHA BAZAR LANE, KOLKATA - 700 001. 2 RESPONDENT THE ACIT, CIR - 4(1), AAYKAR BHAWAN, P - 7 CHOWRINGHEE SQ., KOLKATA - 700 001. 3. 4. 5. CIT(A) - , KOLKATA (SENT THROUGH E - MAIL) CIT - , KOLKATA. DR, ITAT, KOLKATA. (SENT THROUGH E - MAIL) BY ORDER, / TRUE COPY, ASSISTANT REGISTRAR