New India Retailing & Investment Limited , Kolkata V. D.C.I.T.,Circle-6(1), Kolkata

ITA 2092/KOL/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 8261 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-01-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2015-2016
• Appeal Filed On: 09-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

ITA NO. 2092/KOL/2019 ASSESSMENT YEAR: 2015-2016 NEW INDIA RETAILING & INVESTMENT LIMITED 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA C(SMC) BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, VICE-PRESIDENT I.T.A. NO. 2092/KOL/2019 ASSESSMENT YEAR: 2015-2016 NEW INDIA RETAILING & INVESTMENT LIMITED,.......... .........................APPELLANT BIRLA BUILDING, 5 TH FLOOR, 9/1, R.N. MUKHERJEE ROAD, KOLKATA-700001 [PAN: AAACN9970F] -VS.- DEPUTY COMMISSIONER OF INCOME TAX,................. .........................RESPONDENT CIRCLE-6(1), KOLKATA, AAYAKAR BHAWAN,6 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA-700069 APPEARANCES BY: SHRI ASIM CHOUDHURY, ADVOCATE, FOR THE APPELLANT SHRI JAYANTA KHANRA, JCIT, SR. D.R., FOR THE RESPON DEN T DATE OF CONCLUDING THE HEARING : JANUARY 02, 2020 DATE OF PRONOUNCING THE ORDER : JANUARY 23, 2020 O R D E R THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-2, KOLKATA DAT ED 02.08.2019 AND THE SOLITARY ISSUE INVOLVED THEREIN RELATES TO THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE LD. CIT( APPEALS) ON ACCOUNT OF INTEREST EXPENDITURE UNDER SECTION 14A OF THE ACT R EAD WITH RULE 8D(2)(II) OF THE INCOME TAX RULES, 1962. 2. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF TRADING OF READYMADE GARMENTS AND O THER MATERIALS AND ITA NO. 2092/KOL/2019 ASSESSMENT YEAR: 2015-2016 NEW INDIA RETAILING & INVESTMENT LIMITED 2 INVESTMENTS ETC. THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 30.09.2015 DECLARING A LOSS OF R S.4,24,127/- IN THE SAID RETURN, DIVIDEND INCOME OF RS.1,62,44,179/- EARNED DURING THE YEAR UNDER CONSIDERATION WAS CLAIMED TO BE EXEMPT BY THE ASSES SEE-COMPANY. A DISALLOWANCE OF RS.14,75,743/- ON ACCOUNT OF INTERE ST AND OTHER EXPENSES INCURRED IN RELATION TO THE SAID EXEMPT INCOME WAS ALSO OFFERED BY THE ASSESSEE-COMPANY UNDER SECTION 14A OF THE ACT AS CO MPUTED BY APPLYING RULE 8D(2)(II) AND 8D(2)(III). DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICE R THAT WHILE COMPUTING THE DISALLOWANCE UNDER SECTION 14A ON ACCOUNT OF IN TEREST AND OTHER EXPENSES BY APPLYING RULE 8D(2)(II) AND 8D(2)(III), THE ASSESSEE-COMPANY HAS CONSIDERED ONLY THE INVESTMENTS FROM WHICH DIVI DEND INCOME WAS RECEIVED DURING THE YEAR UNDER CONSIDERATION. ALTHO UGH THE ASSESSEE- COMPANY RELIED ON THE DECISION OF THE TRIBUNAL IN T HE CASE OF REI AGRO LIMITED (144 ITD 141) TO SUPPORT AND SUBSTANTIATE T HE SAID COMPUTATION, THE ASSESSING OFFICER HELD BY RELYING ON THE CBDT C IRCULAR NO. 5/2014 DATED 11.02.2014 THAT FOR INVOKING DISALLOWANCE UND ER SECTION 14A, IT WAS NOT MATERIAL THAT THE ASSESSEE SHOULD HAVE EARN ED SUCH EXEMPT INCOME DURING THE RELEVANT YEAR. HE ACCORDINGLY REC OMPUTED THE DISALLOWANCE TO BE MADE UNDER SECTION 14A BY APPLYI NG RULE 8D(2)(II) AND 8D(2)(III) TALKING INTO CONSIDERATION THE ENTIR E INVESTMENT MADE BY THE ASSESSEE IN THE SHARES AT RS.34,02,923/- ON ACC OUNT OF INTEREST AND RS.17,04,892/- ON ACCOUNT OF OTHER EXPENSES AGGREGA TING TO RS.51,07,815/-, SINCE THE ASSESSEE-COMPANY HAD OFFE RED THE DISALLOWANCE OF RS.14,75,743/- ONLY UNDER SECTION 14A, A FURTHER DISALLOWANCE OF RS.36,32,072/- WAS MADE BY THE ASSESSING OFFICER UN DER SECTION 14A IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) VIDE AN ORDER DATED 31.07.2017. 3. AGAINST THE ORDER PASSED BY THE ASSESSING OFFICE R UNDER SECTION 143(3), AN APPEAL WAS PREFERRED BY THE ASSESSEE BEF ORE THE LD. CIT(APPEALS) AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE ITA NO. 2092/KOL/2019 ASSESSMENT YEAR: 2015-2016 NEW INDIA RETAILING & INVESTMENT LIMITED 3 AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD . CIT(APPEALS) ACCEPTED THE COMPUTATION OF DISALLOWANCE UNDER SECTION 14A A S MADE BY THE ASSESSEE-COMPANY ON ACCOUNT OF OTHER EXPENSES BY TA KING INTO CONSIDERATION ONLY THE INVESTMENTS FROM WHICH DIVID END INCOME HAD BEEN ACTUALLY EARNED BY THE ASSESSEE DURING THE YEAR UND ER CONSIDERATION BY RELYING ON THE DECISION OF THE TRIBUNAL IN THE CASE OF REI AGRO LIMITED (SUPRA). AS REGARDS THE DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES UNDER SECTION 14A, THE LD. CIT(APPEALS), HOWEVER, AGREED WITH THE VIEW TAKEN BY THE ASSESSING OFFICER THAT THE SAME WAS RE QUIRED TO BE COMPUTED AS PER RULE 8D(2)(II) BY TAKING INTO CONSIDERATION THE ENTIRE INVESTMENT MADE BY THE ASSESSEE-COMPANY IN THE SHARES. AGGRIEV ED BY THE ORDER OF THE LD. CIT(APPEALS), THE ASSESSEE HAS PREFERRED TH IS APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING GROUNDS:- (1) THAT THE LD. COMMISSIONER OF INCOME TAX (APPEA LS)-2 [(CIT(A)] ERRED ON FACTS AND IN LAW IN CONFIRMING THE WORKING OF DISALLOWANCE IN RESPECT OF INDIRECT INTEREST EXPENDITURE COMPUTED B Y THE AO UNDER SUB-PART (II) OF SUB-CLAUSE (2) OF RULE 8D OF THE I NCOME TAX RULES, 1962 READ WITH SECTION 14A OF THE INCOME TAX ACT, 1 961 BY TAKING INTO CONSIDERATION THE AVERAGE VALUE OF THE TOTAL I NVESTMENTS AS APPEARING IN THE BALANCE SHEET OF THE APPELLANT ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. (2) THAT THE LD. CIT (A) ERRED ON FACTS AND IN LAW IN NOT APPRECIATING THE JUDGEMENT OF THE HON'BLE JURISDICTIONAL ITAT, ' A' BENCH, KOLKATA IN CASE OF THE COMMISSIONER OF INCOME TAX, CENTRAL- II, KOLKATA VS REI AGRO LIMITED [(144 ITO 141 (2013)] AS WELL AS THE O THER JUDICIAL PRONOUNCEMENTS HOLDING THAT FOR THE PURPOSE OF COMP UTING THE DISALLOWANCE OF INDIRECT INTEREST EXPENDITURE UNDER RULE 8D(2)(II), THE AVERAGE VALUE OF ONLY THOSE INVESTMENTS HAVE TO BE CONSIDERED ON WHICH THE ASSESSEE HAS RECEIVED EXEMPT DIVIDEND INC OME DURING THE YEAR. (3) THAT THE LD. CIT(A) ERRED ON FACTS AND IN LAW I N NOT APPRECIATING THAT ON PERUSAL OF RULE 8D IT IS CLEAR THAT WHILE C OMPUTING THE DISALLOWANCE UNDER RULE 8D(2), THE AMOUNT OF AVERAG E VALUE OF INVESTMENTS COMPUTED UNDER SECOND PART AND THIRD PA RT OF RULE 8D(2) SHALL BE THE SAME SINCE THE WORDINGS NARRATED IN RU LE 8D(2)(II) & (III), IN RESPECT OF AVERAGE VALUE OF INVESTMENTS, IS EXACTLY THE SAME AND THEREFORE, THERE SHALL NOT BE ANY DIFFERENCE IN THE AMOUNT OF AVERAGE VALUE OF INVESTMENT CONSIDERED FOR DISALLOW ANCE UNDER THE SECOND PART AND THIRD PART OF RULE 8D(2). ITA NO. 2092/KOL/2019 ASSESSMENT YEAR: 2015-2016 NEW INDIA RETAILING & INVESTMENT LIMITED 4 4. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS AGREED BY THE LD. REPRESENTATIVES OF BOTH THE SIDES, THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL RENDERED IN THE CASE OF REI AGRO LIMI TED (SUPRA) IS APPLICABLE EVEN TO THE DISALLOWANCE TO BE MADE ON A CCOUNT OF INTEREST UNDER SECTION 14A BY APPLYING RULE 8D(2)(II) AS IS CLEARLY EVIDENT IN PARA NO. 7.1 OF THE ORDER OF THE TRIBUNAL, WHICH IS REPR ODUCED BELOW:- 7.1. IN ANY CASE, THE WORKING OF THE DISALLOWANCE UNDER SUB- PART (II) OF SUB-CLAUSE (2) OF RULE 8D AS MADE BY T HE AO ALSO SUFFERS FROM A SUBSTANTIAL ERROR IN SO FAR AS IN THE SAID R ULE IN REGARD TO THE NUMERATOR B, THE WORDS USED ARE THE AVERAGE VAL UE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT FORM OR SHAL L NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE-SHE ET AS ON THE FIRST DAY AND IN THE LAST DAY OF THE PREVIOUS YEAR. HERE THE AO HAS TAKEN INTO CONSIDERATION THE INVESTMENT OF RS.103 CRORES MADE THIS YEAR, WHICH HAS NOT EARNED ANY DIVIDEND OR EXEMPT INCOME. IT IS ONLY THE AVERAGE OF THE VALUE OF THE INVESTMENT FROM WHICH T HE INCOME HAS BEEN EARNED WHICH IS NOT FALLING WITHIN THE PART OF THE TOTAL INCOME THAT IS TO BE CONSIDERED. THIS IS WHY THE QUESTION OF SATISFACTION IS PROVIDED IN SECTION 14A AND RULE 8D(1), THAT RELATE S TO THE ACCOUNTS OF THE ASSESSEE. THUS, IT IS NOT THE TOTAL INVESTME NT AT THE BEGINNING OF THE YEAR AND AT THE END OF THE YEAR, WHICH IS TO BE CONSIDERED BUT IT IS THE AVERAGE OF THE VALUE OF INVESTMENTS WHICH HAS GIVEN RISE TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL IN COME WHICH IS TO BE CONSIDERED. A QUESTION MAY ARISE AS TO WHY THE T ERM 'AVERAGE OF THE VALUE OF INVESTMENT' IS THEN USED. THE TERM AVE RAGE OF THE VALUE OF INVESTMENT WOULD BE TO TAKE CARE OF CASES WHERE THERE IS THE ISSUE OF DIVIDEND STRIPING. IN ANY CASE, AS WE HAVE ALREADY HELD THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE BY WA Y OF INTEREST DURING THE PREVIOUS YEAR, WHICH IS NOT DIRECTLY ATT RIBUTABLE TO ANY PARTICULAR INCOME, THE FINDINGS OF THE ID. CIT(A) O N THE ISSUE STAND CONFIRMED AND CONSEQUENTLY THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. 5. AS HELD BY THE TRIBUNAL IN THE CASE OF REI AGRO LIMITED (SUPRA), FOR COMPUTING THE DISALLOWANCE TO BE MADE UNDER SECTION 14A ON ACCOUNT OF INTEREST BY APPLYING RULE 8D(2)(II), ONLY THE AVERA GE VALUE OF INVESTMENTS, WHICH HAS GIVEN RISE TO THE EXEMPT INC OME DURING THE RELEVANT YEAR, IS REQUIRED TO BE CONSIDERED AS RIGH TLY CLAIMED BY THE ASSESESE AND NOT THE ENTIRE INVESTMENT AS HELD BY T HE ASSESSING OFFICER AS WELL AS BY THE LD. CIT(APPEALS). I ACCORDINGLY DIRE CT THE ASSESSING OFFICER ITA NO. 2092/KOL/2019 ASSESSMENT YEAR: 2015-2016 NEW INDIA RETAILING & INVESTMENT LIMITED 5 TO DELETE THE DISALLOWANCE MADE UNDER SECTION 14A O N ACCOUNT OF INTEREST EXPENDITURE AND ALLOW THIS APPEAL OF THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON JANUARY 23, 2 020. SD/- (P.M. JAGTAP) VICE-PR ESIDENT) KOLKATA, THE 23 RD DAY OF JANUARY, 2020 COPIES TO : (1) NEW INDIA RETAILING & INVESTMENT LIMITED, BIRLA BUILDING, 5 TH FLOOR, 9/1, R.N. MUKHERJEE ROAD, KOLKATA-700001 (2) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-6(1), KOLKATA, AAYAKAR BHAWAN,6 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA-700069 (3) COMMISSIONER OF INCOME TAX (APPEALS)-2, KO LKATA; (4) COMMISSIONER OF INCOME TAX- , KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.