DCIT, CC-1(3), Kolkata V. M/s Rungta Mines Ltd., Kolkata

ITA 2199/KOL/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2756 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 25-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Question of law; Rule 8D
• Section: 37; 143(3); 14A; 37(1); 201; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C (VIRTUAL COURT HEARING), BENCH KOLKATA BEFORE SHRI J. SUDHAKAR REDDY, AM & MS. MADHUMITA R OY, JM ./I.T.A NO.2199/KOL/2019 ( / ASSESSMENT YEAR: 2015-16) ACIT, CC-1(3), KOLKATA VS. M/S RUNGTA MINES PVT. LTD. 8A, EXPRESS TOWER, 42A, SHAKESPEARE SARANI, KOLKATA. ./ ./PAN/GIR NO.: AABCR6463N (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI SUBASH AGARWAL, ADVOCATE RESPONDENT BY : SHRI SUPRIYO PAUL, ADDL. CIT / DATE OF HEARING : 17/11/2020 /DATE OF PRONOUNCEMENT : 20/11/2020 / O R D E R PER MS. MADHUMITA ROY: THE INSTANT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER DATED 18.07.2019 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-20, KOLKATA ARISING OUT OF THE ORDER DATED 28.12.2017 PASSED BY THE DCIT, CENTRAL CIRCLE-1(3), KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HER EINAFTER REFERRED TO AS THE ACT) FOR THE ASSESSMENT YEARS 2015-16 WITH THE FOL LOWING GROUNDS: 1. WHETHER ON THE FACTS & CIRCUMSTANCES OF THE CAS E STATED ABOVE, LTD. CIT(A)-20, KOLKATA IS CORRECT BY DELETING THE ADDITION UNDER T HE HEAD RAILWAYS PUNITIVE CHARGES OF RS. 5,26,28,266/-TREATING AS COMPENSATORY IN NATURE AND ALLOWABLE U/S 37 OF THE IT ACT DISREGARDING THE OBSERVATION OF THE A.O THAT PUNITI VE CHARGES FOR OVERLOADING WAS PENAL IN NATURE. 2. WHETHER ON THE FACTS & CIRCUMSTANCES OF THE CASE STATED ABOVE, LT. CIT(A) IS CORRECT BY DELETING THE ADDITION UNDER SECTION 14A READ WITH R ULE 8D IF RS. 69,66,774/- OUT OF TOTAL ADDITION OF RS. 70,35,166/- BY RESTRICTING PROVISIO NS OF RULE 8D(2) (II) LIMITED TO DIVIDEND YIELDING INVESTMENT IGNORING PROVISIONS OF CIRCULAR OF CBDT NO.5/2014 WHICH CLARIFIES THAT RULE 8D READ WITH SECTION 14A OF THE ACT PROVI DES FOR DISALLOWANCE OF THE EXPENDITURE EVEN WHERE TAXPAYER IN A PARTICULAR YEA R HAS NOT EARNED ANY EXEMPT INCOME. I.T.A NO.2199/KOL/2019 M/S RUNGTA MINES PVT. LTD. ASSESSMENT YEAR: 2015-16 P PP PA AA AG GG GE EE E | || | 2 22 2 3. THAT THE DEPARTMENT CRAVES THE LEAVE TO ADDITION , ALTER OR MODIFY OR RESCIND THE GROUNDS HEREINABOVE BEFORE OR HEARING OF THIS APPEA L. 2. GROUND NO.1 RELATES TO DELETION OF ADDITION UNDE R THE HEAD OF RAILWAYS PUNITIVE TO THE TUNE OF RS.5,26,28,266/- TREATING THE SAME AS COMPENSATORY IN NATURE AND ALLOWABLE U/S 37 OF THE ACT. AT THE TIME OF HEARING OF THE MATTER THE LD COUNSEL APPEARING FOR THE ASSESSEE SUBMITTED BEFORE US THAT THIS ISSUE IS COVERED IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2013-14, A COPY OF THE SAID ORDER PASSED BY THE COORDINATE BENCH IN ITA NO.1531/KOL/2017 FOR ASSESSMENT YEAR 2014-15 DATED 05.10.2018 HAS ALSO BEEN SUBMITTED BEFORE US. ON THE OTHER HAND, THE LD. DR RELIED UPON THE OR DER PASSED BY THE LD. A.O. 3. HEARD THE SUBMISSIONS MADE BY THE RESPECTIVE PAR TIES, WE HAVE ALSO PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. WE HAVE FURTHER CONSIDERED THE ORDER DATED 05.102018 PASSED BY THE COORDINATE BENCH IN I TA NO.1531/KOL/2017 FOR ASSESSMENT YEAR 2014-15 IN ASSESSEES OWN CASE ; TH E RELEVANT PORTION WHEREOF IS AS FOLLOWS: 4. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL O F RECORD INCLUDING THE ORDER DT. 10-01- 2018 AS RELIED ON BY THE LD. AR OF ASSESSE, WE FIND THAT THE FACTS AND CIRCUMSTANCES OF THE CASE FOR A.Y 2013-14 ARE SIMILAR AND IDENTICAL WITH THE FACTS AND CIRCUMSTANCES OF THE CASE IN HAND. WE ALSO FIND THAT THE CO-ORDINATE BEN CH, ITAT, D BENCH, KOLKATA IN THE CASE OF SUPRA DISCUSSED THE ISSUE THOROUGHLY WITH V ARIOUS FACTS OF VARIOUS CASE LAWS. RELEVANT PORTION OF SAID ORDER DT. 10-01-2018 IS RE PRODUCED HEREIN BELOW FOR THE SAKE OF CLARITY:- 16. AS FAR AS THE DECISION OF THE HON'BLE DELHI HI GH COURT IN THE CASE OF TIME INCORPORATED (SUPRA) CITED BY THE LD. DR BEFORE US IS CONCERNED THAT WAS THE CASE OF A SUIT FOR PERMANENT INJUNCTION AND DAMAGES, FIL ED AGAINST THE DEFENDANT FOR A PASSING OFF ACTION AND IN THE COURSE OF IT'S JUDGEM ENT THE HON'BLE COURT MADE A REFERENCE REGARDING PURPOSE OF AWARDING PUNITIVE DA MAGES. THE SAID DECISION IS NOT OF ANY APPLICATION WHATSOEVER BE THE PRESENT CA SE. THE DECISION OF THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF MAMTA E NTERPRISES(SUPRA) IS AGAIN A CASE WHERE THE CRIMINAL OFFENCE WAS COMPOUNDED AN D THE COMPOUNDING FEES WAS CLAIMED AS DEDUCTION. IN THE PRESENT CASE THERE IS NO OFFENCE WHATSOEVER AND THERE IS NO COMPOUNDING FEE PAID AND CLAIMED AS DED UCTION. AS FAR AS THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF HAJI AZ IZ BROTHERS (SUPRA) IS CONCERNED IT WAS AGAIN THE CASE OF BREACH OF PENAL PROVISIONS OF CUSTOMS ACT FOR WHICH FINE WAS PAID. UNDER THESE CIRCUMSTANCES, THE EXPENSES WERE NOT ALLOWED AS DEDUCTION. WE ARE OF THE VIEW THAT IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT I.T.A NO.2199/KOL/2019 M/S RUNGTA MINES PVT. LTD. ASSESSMENT YEAR: 2015-16 P PP PA AA AG GG GE EE E | || | 3 33 3 CASE THE CLAIM OF THE ASSESSE FOR DEDUCTION WAS RIG HTLY ALLOWED BY CIT(A). WE THEREFORE UPHOLD THE ORDER OF CIT(A) AND DISMISS GR OUND NO. 1 RAISED BY THE REVENUE. 5. IN VIEW OF ABOVE, WE FIND THAT THE CIT-A WAS COR RECT IN DELETING THE SAME. THE CIT-A IN THE IMPUGNED ORDER HAS RELIED ON AN ORDER/DECISION OF ITAT MUMBAI IN THE CASE OF TAURIAN IRION & STEEL CO. PVT. LTD VS. ACIT, ITA NO . 847 & 1613/M/2010, WHICH HELD PUNITIVE CHARGES PAID BY THE ASSESSE TO RAILWAYS FO R OVERLOADING OF WAGON IS COMPENSATORY IN NATURE AND THE SAME CANNOT BE DISAL LOWED BY INVOKING THE PROVISIONS OF EXPLANATION TO SECTION 37(1) OF THE ACT. RELEVANT P ORTION OF HIS ORDER IS REPRODUCED HEREIN BELOW:- I HAVE CONSIDERED THE FINDING OF THE AO ON THIS I SSUE IN THE ASSESSMENT ORDER AND THE SUBMISSION MADE BY THE AR DURING THE APPELL ATE PROCEEDINGS. I FIND THAT MY PREDECESSOR HAS GIVEN A DETAILED FINDING ON THIS ISSUE IN ASSESSEE'S GROUP CASE FOR ASSESSMENT YEAR 2008-09 VIDE HIS ORDER IN APPEA L NO.249/CC-1(3)/CIT(A)- 20/13- 14.DATED 1 1-12-2014 WHICH IS REPRODUCED AS UNDER: I FIND FROM THE IMPUGNED ORDER THAT THE ASSESSEE HAD EXPLAINED AT T HE ASSESSMENT STAGE THAT THE RAILWAYS PUNITIVE CHARGES WERE NOT PAID FOR ANY PUR POSE WHICH WAS AN OFFENCE OR WHICH WAS PROHIBITED BY LAW BUT IT WAS ONLY IN THE TERMINOLOGY, OF THE RAILWAYS THAT IT WAS CALLED PUNITIVE CHARGES. IT APPEARS FRO M THE MATERIAL PLACED ON RECORD THAT DUE ' TO THE ABSENCE OF WEIGHTMENT BRIDGE AT T HE LOADING POINT, THE GOODS ARE LOADED IN RAILWAY WAGON ON THE BASIS OF SOME ESTIMA TE AND THE EXACT WEIGHT IS MEASURED ENROUTE BY THE RAILWAYS WHEN THE LOADED WA GON ACTUALLY GOES TO THE WEIGHTMENT BRIDGE. IN CASE THE LOAD IS FOUND IN EXC ESS OF THE PERMISSIBLE CARRYING CAPACITY, THEN THE RAILWAYS RECOVER ADDITIONAL FREI GHT WHICH IN ITS TERMINOLOGY IS CALLED PUNITIVE CHARGES. IT APPEARS FROM THE NOTIFI CATION ISSUED BY THE MINISTRY OF RAILWAYS THAT THE PUNITIVE CHARGES FOR OVERLOADING ARE ACTUALLY IN THE NATURE OF ADDITIONAL FREIGHT PERMISSIBLE CARRYING CAPACITY WH ICH CANNOT BE CATEGORISED AS PUNISHMENT FOR ANY OFFENCE OR INFRINGEMENT OF LAW. IN CASE THERE WAS ABSENCE OF WEIGHTMENT BRIDGE AT THE LOADING STATION AND THE GO ODS WERE LOADED BY ESTIMATE, THEN OVERLOADING OF WAGONS CANNOT POSSIBLY BY AVOID ED AND SUCH OVERLOADING BEING APPARENTLY COMMON IS ACTUALLY PERMITTED BY TH E RAILWAYS ON OVERLOADING CHARGES TERMED IN ITS TERMINOLOGY AS 'PUNITIVE CHAR GES. I THEREFORE FIND MERIT IN THE CONTENTION OF THE LD AR THAT THE PUNITIVE CHARG ES ARE COMPENSATORY IN NATURE FOR TRANSPORTING GOODS BEYOND .PERMISSIBLE CARRYING CAPACITY AND SUCH CHARGES MAY IN THE TERMINOLOGY OF THE RAILWAYS BE CALLED PU NITIVE CHARGES BUT IN COMMERCIAL PARLANCE IT IS NOT IN THE NATURE OF PENA LTY FOR INFRACTION OF ]AW. THE OVERLOADING CHARGES PAID TO THE RAILWAYS MAY IN ITS TERMINOLOGY BE TERMED AS PUNITIVE CHARGES BUT SUCH PAYMENTS APPEAL TO BE ROU TINE PAYMENTS IN THE NATURE OF ADDITIONAL FREIGHT CHARGES FOR OVERLOADING OF WA GONS AND SUCH PAYMENTS ARE MADE IN ACCORDANCE WITH ]AW AS PROVIDED IN THE NOTI FICATION DATED THE 23RD DECEMBER 2005 ISSUED BY THE MINISTRY OF RAILWAYS. I T ALSO APPEARS FROM THE NOTIFICATION OF THE MINISTRY OF RAILWAYS THAT THERE IS NO PROVISION FOR CRIMINAL ACTION OR PROSECUTION OR CON6LSCATION OF GOODS FOR OVERLOADING OF WAGONS. I AM OF THE CONSIDERED VIEW THAT THE ACTIVITIES OF THE RAIL WAYS ARE COMMERCIAL NATURE AND FREIGHTS ARE AWED ON COMMERCIAL BASIS AND MERELY BE CAUSE THE RAILWAYS IS A GOVERNMENT OWNED INSTITUTION, THE NATURE OF OVER LO ADING CHARGES WHICH ARE ESSENTIALLY OF COMMERCIAL NATURE CANNOT BE CHARACTE RIZED AS PENALTY IRRESPECTIVE OF THE NOMENCLATURE GIVEN TO SUCH CHARGES BY THE RA ILWAYS. IT ALSO APPEARS THAT OVERLOADING OF WAGONS IS NOT A DELIBERATE ACT ON TH E PART OF THE ASSESSEE BUT DUE I.T.A NO.2199/KOL/2019 M/S RUNGTA MINES PVT. LTD. ASSESSMENT YEAR: 2015-16 P PP PA AA AG GG GE EE E | || | 4 44 4 TO LACK OF INFRASTRUCTURE AT THE LOADING STATION. I ALSO HTND THAT THE ISSUE IS SQUARELY COVERED BY THE VARIOUS JUDICIAL DECISIONS PLACED ON RECORD BY THE LD AR IN COURSE OF THE APPELLATE PROCEEDINGS. THE HONBLE SUPREME COURT HAS IN THE CASE OF MAHALAXMI SUGAR MILLS CO (1980) 123 ITR 429 LAID DOWN THE BASIC PRINCIPLE FOR DECIDING AS TO WHETHER A CLAIM OF DAM AGES OR PENALTY WAS ALLOWABLE U/S. 37(1) : WHENEVER ANY STATUTORY IMPOST PAID BY AN ASSESSEE BY WAY OF DAMAGES OR PENALTY OR INTEREST IS CLAIMED AS AN ALLOWABLE E XPENDITURE U/S. 37(1) OF THE INCOME TAX ACT, THE ASSESSING AUTHORITY IS REQUIRED TO EXAMINE THE SCHEME OF THE PROVISIONS OF THE RELEVANT STATUTE PROVIDING FOR PA YMENT OF SUCH IMPOST NOTWITHSTANDING THE NOMENCLATURE OF THE IMPOST AS G IVEN BY THE STATUTE, TO FIND WHETHER IT IS COMPENSATORY OR PENAL IN NATURE. THE AUTHORITY HAS TO ALLOW DEDUCTION U/S. 37(1) OF THE INCOME TAX ACT WHENEVER SUCH EXAMINATION REVEALS THE CONCERNED IMPOST TO BE PURELY COMPENSATORY IN N ATURE. THE HONBLE SUPREME COURT REITERATED THE SAME LEGAL POSITION IN THE CASE OF PRAKASH COTTON MILLS PVT. LTD (1993) 201 ITR 684. IN THE CASE OF H ERO CYCLES LTD 178 TAXMAN 484, THE HONBLE PUNJAB & HARYANA HIGH COURT ALLOWE D THE DEDUCTION OF THE AMOUNT PAID TO THE ELECTRICITY BOARD AS PENALTY FOR VIOLATION OF POWER REGULATIONS, IE. EXTRA CHARGES PAID FOR DRAWING EXT RA LOAD IN PEAK HOURS. IN THE CASE OF WESTERN COALFIELDS LTD (2009) 124 TTJ (NAG) 659, THE HONBLE ITAT, NAGPUR BENCH UNDER IDENTICAL FACTS AND CIRCUMSTANCE S HELD THAT THE OVERLOADING CHARGES WERE ESSENTIALLY COMMERCIAL IN NATURE AND C ANNOT BE CHARACTERIZED AS PENALTY IRRESPECTIVE OF THE NOMENCLATURE GIVEN TO S UCH CHARGES BY THE RAILWAYS. THE HONBLE ITAT HAS HELD THAT AS REGARDS OVERLOA DING CHARGES, WE HAVE TO TAKE INTO CONSIDERATION THE ENVIRONMENT IN WHICH TH E COMPANIES ARE OPERATING. RAILWAY IS THE ONLY MODE OF TRANSPORTATION IF THE P ERSON WISHES TO TRANSPORT ITS PRODUCT THROUGH RAILWAY. THIS FACT IS IMPORTANT BEC AUSE SUCH ACTIVITIES OF RAILWAYS ARE OF COMMERCIAL IN NATURE AND FREIGHTS A RE FIXED ON COMMERCIAL BASIS. IF WE LOOK THE ISSUE IN ITS PERSPECTIVE, THEN, WHAT EMERGES IS THAT IF THERE WERE PRIVATE CARRIERS ALSO AND IF THE ASSESSE WOULD HAVE PAID IDENTICAL CHARGES TO THEM, THE SAME WOULD HAVE BEEN ALLOWED AS A NORMAL BUSINE SS EXPENDITURE ESPECIALLY WHEN THERE IS NO DISPUTE THAT THESE EXPENSES HAVE B EEN INCURRED IN THE COURSE OF BUSINESS OPERATIONS AND, THEREFORE, MERELY BECAUSE THE RAILWAYS IS A GOVERNMENT OWNED INSTITUTION AND WORKS UNDER AN ACT OF PARLIAM ENT, AND NATURE OF OVERLOADING CHARGES WHICH ARE ESSENTIALLY OF COMMER CIAL NATURE CANNOT BE CHARACTERIZED AS OF PENAL NATURE IRRESPECTIVE OF NO MENCLATURE GIVEN TO SUCH CHARGES BY THE RAILWAYS. FURTHER, IT IS NOT IN DISP UTE THAT THE QUANTITY TREATED AS OVERLOADING HAS BEEN UNLOADED BY THE RAILWAYS NOR I T HAS BEEN A CASE OF VIOLATION OF SAFETY RULES/NORMS, HENCE, THE OVERLOADING SO IN CURRED CANNOT BE EQUATED WITH TRAVELLING WITHOUT TICKET, HENCE, THE SAID CONTENTI ONS OF THE LD DR ARE REJECTED. IT IS ALSO NOTED THAT SUCH OVERLOADING IS NOT CORRECT DUE TO A DELIBERATE ACT ON THE PART OF THE ASSESSE BUT DUE TO LACK OF INFRASTRUCTU RE AND NATURE OF COMMODITY, HENCE, THE RATIO OF THE DECISION OF THE HONBLE PUN JAB & HARYANA HIGH COURT IN THE CASE OF HERO CYCLES LTD (SUPRA) IS SQUARELY APP LICABLE. IT IS ALSO A SETTLED JUDICIAL PRINCIPAL THAT SUBSTANCE OF THE MATTER SHO ULD BE LOOKED INTO AND BE GIVEN TO THE NOMENCLATURE GIVEN BY THE RAILWAY TO SUCH CH ARGES. THE OBJECT OF EXPLANATION 1 ALSO SUPPORTS THE CLAIM OF THE ASSESS E AS THESE EXPENSES ARE NOT OF THE NATURE OF ANY ILLEGAL/UNLAWFUL EXPENDITURE. IN THE CASE OF M/S. TAURIAN IRON & STEEL CO (P) LTD (ITA NO. 847 & 1613/M/2010), THE H ONBLE ITAT D BENCH, MUMBAI HAS HELD THAT THE PUNITIVE CHARGES PAID TO T HE RAILWAYS FOR OVERLOADING OF WAGONS IS COMPENSATORY IN NATURE AND THEREFORE THE PROVISIONS CONTAINED IN EXPLANATION TO SECTION 37(1) ARE NOT ATTRACTED. THE HONBLE ITAT HAS HELD THAT I.T.A NO.2199/KOL/2019 M/S RUNGTA MINES PVT. LTD. ASSESSMENT YEAR: 2015-16 P PP PA AA AG GG GE EE E | || | 5 55 5 IN THE INSTANT CASE AS WE HAVE ALREADY HELD EARLIER THAT THE PUNITIVE CHARGES PAID BY THE ASSESSE TO RAILWAYS FOR OVERLOADING OF THE W AGONS IS COMPENSATORY IN NATURE, THEREFORE, THE SAME CANNOT BE DISALLOWED BY INVOKING THE PROVISIONS OF EXPLANATION TO SECTION 37(1) OF THE ACT. IN VIEW O F THE ABOVE, I AM OF THE CONSIDERED OPINION THAT OVERLOADING CHARGES IRRESPE CTIVE OF THE NOMENCLATURE GIVEN BY THE RAILWAYS ARE ESSENTIALLY OF COMMERCIAL NATURE WHICH CANNOT BE CHARACTERIZED AS PENALTY AND THAT SUCH CHARGES ARE COMPENSATORY IN THE NATURE OF ADDITIONAL FREIGHT FOR OVERLOADING OF WAGONS WHICH IS EXPLICITLY PERMITTED BY THE RAILWAYS AND THE PAYMENTS ARE MADE IN ACCORDANCE WI TH LAW AS PROVIDED BY THE NOTIFICATION OF THE MINISTRY OF RAILWAYS. THE PUNIT IVE CHARGES PAID TO THE RAILWAYS CANNOT BE CHARACTERIZED AS EXPENDITURE INC URRED FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW AND THE REFORE THE EXPLANATION TO SECTION 37(1) IS NOT ATTRACTED. IN VIEW OF THE ABOV E, IT IS TO BE HELD THAT THE DISALLOWANCE OF RS.6,55,30,392/- AS MADE BY THE AO IN THE IMPUGNED ORDER IS NOT SUSTAINABLE IN LAW THEREFORE ON THE FACTS OF THE CA SE THE ADDITION OF RS.6,55,30,392/- IS DELETED. 6. IN VIEW OF ABOVE, WE FIND NO INFIRMITY IN THE IM PUGNED ORDER OF THE CIT-A AND IT IS JUSTIFIED. THUS, GROUND NO. 1 RAISED BY THE REVENUE IS DISMISSED. 4. SINCE THE IDENTICAL ISSUE HAS BEEN DECIDED BY T HE COORDINATE BENCH IN FAVOUR OF THE ASSESSEE BY ALLOWING THE CLAIM OF DAMAGES AS ABOVE, RESPECTFULLY RELYING UPON THE SAME WE FIND NO INFIRMITY IN THE ORDER PAS SED BY THE LD CIT(A) SO AS TO WARRANT INTERFERENCE. HENCE IN THE ABSENCE OF ANY M ERIT FOUND IN THE APPEAL PREFERRED BY THE REVENUE, THE SAME IS HEREBY DISMIS SED. 5. THE GROUND NO.2 RELATES TO ADDITION U/S 14A R.W. R 8D TO THE TUNE OF RS.69,66,774/- OUT OF TOTAL ADDITIONS OF RS.70,35,1 66/-. THE SAID ISSUE IS ALSO COVERED IN ASSESSEES OWN CASE IN ITA NO.1531/KOL/2 017 AS SUBMITTED BY THE LD. AR. HE FURTHER RELIED UPON THE JUDGMENT PASSED BY H ONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. M/S ASHIKA GLOBAL SECU RITIES LTD. IN GA 2122 OF 2014 WHICH IS IN FAVOUR OF THE ASSESSEES CONTENTION THA T THE ONLY THOSE INVESTMENTS NEEDS TO BE CONSIDERED FROM WHICH DIVIDEND HAS BEEN RECEIVED DURING THE YEAR. IN FACT IN THE CASE IN HAND, THE ASSESSEE EARNED DIVIDEND WHICH DOES NOT FORM PART OF THE TOTAL INCOME; THE ASSESSEE HAS NOT OFFERED ANY LOAN AS EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN THE TOTAL I NCOME. HOWEVER, THE INDIRECT I.T.A NO.2199/KOL/2019 M/S RUNGTA MINES PVT. LTD. ASSESSMENT YEAR: 2015-16 P PP PA AA AG GG GE EE E | || | 6 66 6 EXPENSES DISALLOWANCE TO THE TUNE OF RS.70,35,166/- WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE BY THE LD. A.O U/S 14A R.W.R 8D(III ). RELYING UPON THE RATIO LAID DOWN BY THE JURISDICTIONAL HIGH COURT AND ALSO THE MUMBAI HIGH COURT IN THE CASE OF HDFC BANK LTD. CONSIDERING THE FACT THAT THE ASS ESSEE HAS VERY HIGH SHARE CAPITAL AND RESERVE COMPARED TO SECURITY, INCOME WH ICH IS EXEMPT, NO DISALLOWANCE HAS BEEN ALLOWED TO BE MADE IN RULE 8D(II) OF THE R ULES AS WAS THE ULTIMATE SUBMISSIONS OF THE LD AR. THE LD. DR, HOWEVER, REL IES UPON THE ORDER PASSED BY THE LD. A.O. 6. HEARD THE SUBMISSIONS MADE BY THE RESPECTIVE PAR TIES, WE HAVE ALSO PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD. WE FIND THAT THIS CASE IS ENTIRELY COVERED BY ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2014-15 IN ITA NO.1531/KOL/2017; THE RELEVANT PORTION WHEREOF IS AS FOLLOWS: 16. GROUND NO. 5 IS RELATING TO DELETION OF ADDITI ON MADE ON ACCOUNT OF DISALLOWANCE MADE U/S. 14A R.W. RULE 8D(2)(III) OF RS. 63,31,460 /-. WHETHER THE CIT-A IS JUSTIFIED IN DIRECTING THE AO TO RE-COMPUTE THE EXPENSES/DISALLO WANCES U/R 8D(2)(III) IN TERMS OF INVESTMENT, WHICH YIELDED EXEMPT INCOME IN THE FACT S AND CIRCUMSTANCES OF THE CASE. 17. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL O F RECORD INCLUDING THE MATERIAL AS AVAILABLE BEFORE US, WE FIND THAT THE ASSESSEE HAS NOT OFFERED ANY AMOUNT TOWARDS DIVIDEND INCOME EARNED BY THE ASSESSEE AND AS SUCH SUBSECTION(3) OF SECTION 14A R.W.R 8D(3) OF THE IT RULES, 1962 THE AO MADE DISALLOWANC E OF RS. 63,31,460/- AND ADDED THE SAME TO THE TOTAL INCOME OF ASSESSEE. THE ASSESSEE CHALLENGED THE SAME BEFORE THE CIT-A. THE CIT-A BY PLACING RELIANCE ON AN ORDER OF KOLKAT A BENCH (ITAT, KOLKATA) IN THE CASE OF REI AGRO LTD REPORTED IN (2013) 144 ITD 141 (KOL KATA-TRIB)/ITA NO. 1331/KOL/2011 DIRECTED THE AO TO VERIFY THE DETAILS OF INVESTMENT AND TO COMPUTE THE EXPENDITURE ACCORDINGLY IN TERMS OF INVESTMENT, WHICH YIELDED E XEMPT INCOME. 18. BEFORE US THE LD.AR PLACED ON RECORD THE ORDER OF HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF REI AGRO LTD AND ARGUED THAT THE HONBL E HIGH COURT OF CALCUTTA DISMISSED THE SUBSTANTIAL QUESTION OF LAW RAISED BY THE REVEN UE AND CONFIRMED THE FINDING OF TRIBUNAL IN ITAT 220 OF 2013 IN GA NO.3581 OF 2013 AND REFERRED TO PARA 8.1 OF THE SAID ORDER. ON THE OTHER HAND, THE LD. DR DID NOT CONTRO VERT THE SAME. 19. WE FIND THAT THE ISSUE IN QUESTION IS COVERED I N FAVOUR OF ASSESSE BY THE JUDGMENT OF THE HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF R EI AGRO LTD SUPRA. RELEVANT PORTION OF SUCH ORDER IS REPRODUCED HEREIN BELOW:- 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PER USAL OF THE PROVISIONS OF SECTION 14A, MORE SPECIFICALLY SUBSECTION (2), SHOW S THAT IF THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE, THEN THE AO SHALL DETERMINE THE I.T.A NO.2199/KOL/2019 M/S RUNGTA MINES PVT. LTD. ASSESSMENT YEAR: 2015-16 P PP PA AA AG GG GE EE E | || | 7 77 7 ITA NO.1331 & 1423/KOL/2011 ASSESSMENT YEAR: 2008-0 9 AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME, WHICH DOES NOT FORM PART OF TOTAL INCOME UNDER THE ACT. FOR THIS THE METHOD IS PRESCRIBED IN RULE 8D. THE PROVISION OF SECTION 14A, SUB-SECTION (3) SPECIFIES THE PROVISIO N OF 14A(2) WOULD ALSO APPLY WHERE THE ASSESSEE MAKES A CLAIM THAT THERE IS NO E XPENDITURE INCURRED. THIS IS BECAUSE IF THE ASSESSEE DOES NOT MAKE A DISALLOWANC E UNDER SECTION 14A IN ITS COMPUTATION OF TOTAL INCOME, WHEN FILING THE RETURN , THEN IF SUB- SECTION (3) WAS NOT AVAILABLE, THE AO MIGHT NOT BE ABLE TO MAKE A D ISALLOWANCE UNDER SECTION 14A. THUS, WHERE THE ASSESSEE MAKES A CLAIM THAT ON LY A PARTICULAR AMOUNT IS TO BE DISALLOWED UNDER SECTION 14A OR WHERE THE ASSESS EE DOES NOT MAKE A DISALLOWANCE UNDER SECTION 14A, IF THE AO PROPOSES TO INVOKE THE SECTION 14A, HE IS TO RECORD A SATISFACTION ON THAT ISSUE. THIS SAT ISFACTION CANNOT BE A PLAIN SATISFACTION OR A SIMPLE NOTE. IT IS TO BE DONE WIT H REGARD TO ACCOUNTS OF THE ASSESSEE. IN THE PRESENT CASE, THERE IS NO SATISFAC TION BY THE AO AND CONSEQUENTLY, IN VIEW OF THE DECISION OF THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF BALARAMPUR CHINI MILLS LTD. REFERRED TO SUPRA, NO D ISALLOWANCE UNDER SECTION 14A CAN BE MADE. 7. NOW COMING TO THE MERITS OF THE ISSUE. A PERUSAL OF THE PROVISION OF SECTION 14A(1) CLEARLY SHOWS THE WORDINGS, 'IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT'. IN T HE PRESENT CASE, THIS INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, IS THE DIVIDEND INCOME OF RS.1,32,638/-. THEREFORE, IF ANY DISALLOWANCE IS TO BE MADE IN RESPECT OF EXPENDITURE INCURRED, IT SHOULD BE IN RELATION TO T HIS DIVIDEND INCOME OF RS.1,32,638/-. IF AN ASSESSEE HAS INVESTED IN SHARE S, WHICH COULD GET DIVIDEND OR THERE IS INVESTMENT WHICH GENERATES DIVIDEND INCOME OR EXEMPT INCOME AS ALSO INVESTMENT WHICH DOES NOT GENERATE EXEMPT INCOME, I T IS ONLY SUCH INVESTMENTS IN RESPECT OF WHICH THE DIVIDEND INCOME OR EXEMPTED IN COME HAS BEEN EARNED WHICH CAN BE CONSIDERED WHEN COMPUTING THE DISALLOWANCE U NDER SECTION 14A READ WITH ITA NO.1331 & 1423/KOL/2011 ASSESSMENT YEAR: 2008-0 9 RULE 8D. A PERUSAL OF THE PROVISIONS OF RULE 8D ALSO TALKS OF SATISFACTIO N IN SUB-RULE (1). RULE 8D(2) HAS THREE SUB-PARTS. THE FIRST SUB-PART I.E. (I) DEALS WITH THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THAT ISSUE IS NOT IN DISPUTE HERE AND THEREFORE, WE DO N OT GO INTO IT IN THIS CASE. IN SECOND SUB-PART I.E.(II), IT IS A COMPUTATION PROVI DED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR R ECEIPT. THIS CLEARLY MEANS THAT IF THERE IS ANY INTEREST EXPENDITURE, WHICH IS DIRE CTLY RELATABLE TO ANY PARTICULAR INCOME OR RECEIPT, SUCH INTEREST EXPENDITURE IS NOT TO BE CONSIDERED UNDER RULE 8D(2)(II). IN THE ASSESSEE'S CASE HERE THE INTEREST HAS BEEN PAID BY THE ASSESSEE ON THE LOANS TAKEN FROM THE BANKS FOR ITS BUSINESS PUR POSE. THERE IS NO ALLEGATION FROM THE BANKS NOR THE AO THAT THE LOAN FUNDS HAVE BEEN DIVERTED FOR MAKING THE INVESTMENT IN SHARES OR FOR NON-BUSINESS PURPOSES. FURTHER RULE 8D(2)(II) CLEARLY IS WORDED IN THE NEGATIVE WITH THE WORDS 'NOT DIREC TLY ATTRIBUTABLE'. THUS FOR BRINGING ANY INTEREST EXPENDITURE, CLAIMED BY THE A SSESSEE, UNDER THE AMBIT OF RULE 8D(2)(II) IT WILL HAVE TO BE SHOWN BY THE AO T HAT THE SAID INTEREST IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR R ECEIPT. WHY WE SAY HERE THAT IT IS TO BE SHOWN BY THE AO IS ON ACCOUNT OF THE WORDS IN RULE 8D(1) BEING 'WHERE THE ASSESSING OFFICER, ...... IS NOT SATISFIED WITH . (A) ........ I.T.A NO.2199/KOL/2019 M/S RUNGTA MINES PVT. LTD. ASSESSMENT YEAR: 2015-16 P PP PA AA AG GG GE EE E | || | 8 88 8 (B) ........ IN RELATION TO INCOME......., HE SHALL DETERMINE TH E AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROV ISIONS OF SUB-RULE (2). IN THE ASSESSEE'S CASE, ADMITTEDLY, THE ASSESSEE HAS SUBST ANTIAL CAPITAL. THE INCREASE IN THE CAPITAL ITSELF IS TO AN EXTENT OF RS.4 CRORES A ND IN RESPECT OF RESERVES AND SURPLUS, THE INCREASE IS RS.112 CRORES. THE LOANS T AKEN DURING THE YEAR ADMITTEDLY ARE FOR THE LETTERS OF CREDIT AND THE ASSESSEE IS B OUND TO PROVIDE THE BANK STOCK ITA NO.1331 & 1423/KOL/2011 ASSESSMENT YEAR: 2008-0 9 STATEMENT AND OTHER DETAILS TO SHOW THE UTILIZATION OF THE LOANS. NO BA NK WOULD PERMIT THE LOAN GIVEN FOR ONE PURPOSE TO BE USED FOR MAKING ANY INVESTMEN T IN SHARES. THE LD. CIT(A), IT IS NOTICED THAT AFTER CONSIDERING THESE FACTS THAT THE ASSESSEE HAD NOT USED ANY OF ITS BORROWINGS FOR PURCHASING THE SHARES, HAS DELET ED THE DISALLOWANCE. ON THIS GROUND ITSELF, THE DELETION AS MADE BY THE LD. CIT( A) IS LIABLE TO BE CONFIRMED AND WE DO SO. 7.1 IN ANY CASE, THE WORKING OF THE DISALLOWANCE UN DER SUB-PART (II) OF SUB- CLAUSE (2) OF RULE 8D AS MADE BY THE AO ALSO SUFFERS FROM A SUBSTANTIAL ERROR IN SO FAR AS IN THE SAID RULE IN REGARD TO THE NUMERATOR B, THE WORDS USED ARE THE AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT FORM OR SHALL 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 TAKE N INTO CONSIDERATION THE INVESTMENT OF RS.103 CRORES MADE THIS YEAR, WHICH H AS NOT EARNED ANY DIVIDEND OR EXEMPT INCOME. IT IS ONLY THE AVERAGE OF THE VALUE OF THE INVESTMENT FROM WHICH THE INCOME HAS BEEN EARNED WHICH IS NOT FALLING WIT HIN 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 RELATES TO THE ACC OUNTS OF THE ASSESSEE. THUS, IT IS NOT THE TOTAL INVESTMENT AT THE BEGINNING OF THE YE AR 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 PA RT OF THE TOTAL INCOME WHICH IS TO BE CONSIDERED. A QUESTION MAY ARISE AS TO WHY TH E TERM 'AVERAGE OF THE VALUE OF INVESTMENT' IS THEN USED. THE TERM AVERAGE OF THE V ALUE OF INVESTMENT WOULD BE TO TAKE CARE OF CASES WHERE THERE IS THE ISSUE OF DIVI DEND STRIPING. IN ANY CASE, AS WE HAVE ALREADY HELD THAT THE ASSESSEE HAS NOT INCURRE D ANY EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR, WHICH IS NOT DIR ECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME, THE FINDINGS OF THE LD. CIT(A) O N THE ISSUE STAND CONFIRMED AND CONSEQUENTLY THE APPEAL FILED BY THE REVENUE STANDS DISMISSED. 8. IN RESPECT OF PROVISIONS OF RULE 8D(2)(III), WHI CH IS THE SUBJECT-MATTER OF THE APPEAL IN THE ASSESSEE'S HAND, A PERUSAL OF THE SAI D PROVISION SHOWS THAT WHAT IS DISALLOWABLE UNDER RULE 8D(2)(III) IS THE AMOUNT EQ UAL TO PERCENTAGE OF THE AVERAGE VALUE OF INVESTMENT THE INCOME FROM WHICH D OES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. THUS, UNDER SUB-CLAUSE (I II), WHAT IS DISALLOWED IS PERCENTAGE OF THE NUMERATOR B IN RULE 8D(2)(II). AG AIN THIS IS TO BE CALCULATED IN THE SAME LINE AS MENTIONED EARLIER IN RESPECT OF NU MERATOR B IN RULE 8D(2)(II) OF THE ACT. 8.1 THUS, NOT ALL INVESTMENTS BECOME THE SUBJECT-MA TTER OF CONSIDERATION WHEN COMPUTING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D. THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D IS TO BE IN REL ATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE D ONE ONLY BY TAKING INTO I.T.A NO.2199/KOL/2019 M/S RUNGTA MINES PVT. LTD. ASSESSMENT YEAR: 2015-16 P PP PA AA AG GG GE EE E | || | 9 99 9 CONSIDERATION THE INVESTMENT WHICH HAS GIVEN RISE T O THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. UNDER THE CIRCUMSTAN CES, THE COMPUTATION OF THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2) (III), WHICH IS ISSUE IN THE ASSESSEE'S APPEAL, IS RESTORED TO THE FILE OF THE A O FOR RECOMPUTATION IN LINE WITH THE DIRECTION GIVEN ABOVE. NO DISALLOWANCE UNDER SE CTION 14AREAD WITH RULE 8D(2)(I) AND (II) CAN BE MADE IN THIS CASE. 20. RESPECTFULLY FOLLOWING THE ABOVE, WE FIND NO IN FIRMITY IN THE ORDER OF CIT-A AND IT IS JUSTIFIED. GROUND NO. 5 RAISED BY THE REVENUE IS DI SMISSED. 21. GROUND NO. 6 RAISED BY THE REVENUE IS GENERAL I N NATURE AND REQUIRES NO ADJUDICATION AND AS SUCH IT IS DISMISSED . 7. WE HAVE FURTHER CONSIDERED BY THE JUDGMENT PASSE D BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. M/ S ASHIKA GLOBAL SECURITIES LTD. IN GA 2122 OF 2014. WHILE DECIDING THE IDENTICAL IS SUE THE HONBLE COURT HAS BEEN PLEASED TO OBSERVE AS FOLLOWS: THE COURT : THIS IS ANOTHER USELESS APPEAL WITHOUT ANY SUBSTANCE. IN COURSE OF ASSESSMENT, A SUM OF ABOUT RS. 99 LAKH DEBITED AS I NTEREST PAID ON UNSECURED LOANS ANOTHER SUM OF ABOUT RS. 9 LAKH ENGAGED THE ATTENTI ON OF THE OFFICER. THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN WHY THE IN TEREST EXPENSE AND THE ADMINISTRATIVE EXPENSES SHOULD NOT BE DISALLOWED IN VIEW OF SECTION 14A OF THE INCOME TAX ACT, 1961. THE ASSESSEE REPLIED THAT SUCH INCOME WAS NOT EXEMP TED INCOME EARNED DURING THE YEAR AND THERE WAS NO QUESTION OF DISALLOWANCE UNDER RUL E 8D OF THE INCOME TAX RULES, 1962 READ WITH SECTION 14A OF THE ACT. BOTH THE COMMISSIONER AND THE APPELLATE TRIBUNAL FO UND AS A MATTER OF FACT THAT THERE WAS NO EXEMPT INCOME FOR THE OPERATION OF THE RELEV ANT RULE. IN THE LIGHT OF SUCH CONCURRENT FINDINGS AND, IN PARTICULAR, THE DEPARTM ENT FAILING TO DEMONSTRATE ANY ERROR THEREIN, NO QUESTION OF LAW ARISES IN THIS MATTER. ITAT 100 OF 2014 AND GA 2122 OF 2014 ARE DISMISSED. THERE WILL BE NO ORDER AS TO COSTS. 8. CONSIDERING THE RATIO LAID DOWN BY THE HONBLE J URISDICTIONAL HIGH COURT IN CIT VS. M/S ASHIKA GLOBAL SECURITIES LTD. IN GA 212 2 OF 2014 AND ALSO THE JUDGEMENT PASSED BY THE COORDINATE BENCH AND RESPE CTFULLY RELYING UPON THE SAME WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD CIT(A) IN DELETING THE ADDITION I.T.A NO.2199/KOL/2019 M/S RUNGTA MINES PVT. LTD. ASSESSMENT YEAR: 2015-16 P PP PA AA AG GG GE EE E | || | 1 11 10 00 0 MADE UNDER SECTION 14 A R.W.R.8D SO AS TO WARRANT I NTERFERENCE. HENCE IN THE ABSENCE OF ANY MERIT FOUND IN THE APPEAL PREFERRED BY THE REVENUE, THE SAME IS HEREBY DISMISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 20.11.2020 . SD/- ( J. SUDHAKAR REDDY ) SD/- (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER /KOLKATA; / DATE: 20/11/2020 RS / COPY OF THE ORDER FORWARDED TO : TRUE COPY BY ORDER ASSISTANT REGISTRAR, I.T.A.T, KOLKATA BENCHES, KOLKATA . 1. THE APPELLANT- ACIT, CC-1(3), KOLKATA 2. THE RESPONDENT- M/S RUNGTA MINES PVT. LTD. 3. ( ) / THE CIT(A), KOLKATA [SENT THROUGH EMAIL] 4. / CIT 5. #$$% , % , / DR, ITAT, KOLKATA [SENT THROUGH EMAIL] 6. ( / GUARD FILE. * #$