ITO, W-12(1), Kolkata, Kolkata V. M/s Bonanza Trading Company Pvt. Ltd., Kolkata

ITA 2299/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1541 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 05-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARINDAM BHATTACHARJEE
• Assessee Lawyers: ASIM CHOUD HURY
• Keywords: Earning of tax free income; Source of fund
• Section: 14A; 144

Judgement Text

1 ITA NO.2299/KOL/2016 BONANZA TRADING CO. PVT. .LTD. A.Y.2011-12 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH D KOL KATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI WAS EEM AHMED AM ] ITA NO.2299KOL/2016 ASSESSMENT YEAR : 2011-12 I.T.O., WARD-12(1) -VERSUS- M/S BONANZA TRADING C O.(P) LTD. KOLKATA KOLKATA (PAN:AABCB 0175 D) (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI ARINDAM BHATTACHARJEE, ADDL. CIT FOR THE RESPONDENT: SHRI ASIM CHOUDHURY, ADVOCATE DATE OF HEARING : 08.02.2018. DATE OF PRONOUNCEMENT : 14.02.2018 ORDER PER N.V.VASUDEVAN, JM: THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 06.09.2016 OF C.I.T- (A)-4, KOLKATA RELATING TO A.Y.2011-12. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF RENDERING CONSULTANCY SERVICES AND INVESTMENTS. THE ASSESSEE EARNED DIVID END INCOME OF RS.10,82,405/- AND LONG TERM CAPITAL GAIN ON SALE OF SHARES OF RS.68,3 8,930/-. BOTH THE AFORESAID ITEMS OF INCOME WERE EXEMPT UNDER CHAPTER-III OF THE ACT. UN DER SECTION 14A OF THE INCOME TAX ACT, 1961 (ACT) ANY EXPENDITURE INCURRED IN EAR NING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT CANNOT BE CL AIMED AS A DEDUCTION. 3. THE ASSESSEE COMPUTED DISALLOWANCE OF EXPENSES O F A SUM OF RS.2,06,890/- U/S 14A OF THE ACT. THE AO PROCEEDED TO DETERMINE THE E XPENSES THAT HAVE TO BE DISALLOWED U/S 14A OF THE ACT AS HE WAS NOT SATISFI ED WITH THE QUANTUM OF EXPENSES DISALLOWED BY THE ASSESSEE U/S 144 OF THE ACT. TH E AO FOUND THAT THERE WAS INTEREST EXPENSES DEBITED IN THE PROFIT AND LOSS ACCOUNT OF RS.2,61,58,696/-. BESIDES THE ABOVE THE EXPENSES UNDER THE HEAD ADMINISTRATIVE AND OT HER EXPENSES DEBITED IN THE PROFIT 2 ITA NO.2299/KOL/2016 BONANZA TRADING CO. PVT. .LTD. A.Y.2011-12 AND LOSS ACCOUNT WAS A SUM OF RS.1,71,96,889/-. THE AO WAS OF THE VIEW THAT THERE WAS A FAILURE ON THE PART OF THE ASSESSEE TO SHOW T HAT BORROWED FUNDS ON WHICH INTEREST WAS PAID AND CLAIMED AS DEDUCTION WERE NOT USED FOR THE PURPOSE OF MAKING INVESTMENTS THAT YIELDED TAX FREE INCOME. THE AO WA S ALSO OF THE VIEW THAT THE MANAGERIAL SKILLS OF THE PERSONNEL, DIRECTORS AND STAFF WAS ALSO USED FOR MANAGING INVESTMENTS. HE WAS OF THE VIEW THAT DISALLOWANCE O F EXPENSES IN TERMS OF SECTION 14A R.W. RULE 8D OF THE ACT SHOULD BE MADE. THE AO ACCORDINGLY COMPUTED DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D OF THE IT RULES, 1962, AS FOLLOWS :- 4. BEFORE THE CIT(A) THE ASSESSEE CHALLENGED THE DI SALLOWANCE IN TERMS OF RULE 8D(2)(II) AND 8D(2)(III) OF THE IT RULES. WITH REGA RD TO DISALLOWANCE OF INTEREST EXPENSES UNDER RULE 8D(2)(II) THE ASSESSEE SUBMITTE D THAT ALL THE INVESTMENTS WERE MADE OUT OF THE ASSESSEES OWN FUNDS AND NOT OUT OF ANY BORROWED FUNDS ON WHICH INTEREST WAS PAID AND FILED THE FOLLOWING CHART BEF ORE CIT(A) : MONTH INVESTMENT IN SUBSIDIARY INVESTMEN T INVEST MENTS SOLD FUND RECEIVED SOURCE OF FUND AGGREGATE EXCESS OF SALE OVER PURCHASE OPENING 4,50,99,991 - APRIL NIL NIL - MAY10 NIL NIL 1,14,00,000 INTEREST FREE LOAN RECEIVED - 3 ITA NO.2299/KOL/2016 BONANZA TRADING CO. PVT. .LTD. A.Y.2011-12 FROM SHAREHOLDER S JUNE10 98,75,745 NIL 15,24,255 JULY10 2,00,000 NIL 13,24,255 AUGUST10 1,00,000 NIL NIL 13,24,255 SEPTEMBER 10 NIL NIL 13,24,255 OCTOBER10 5,26,71,5 06 NIL 7,00,00,000 ADVANCE AGAINST SALE OF PROPERTY 1,73,28,494 NOVEMBER1 0 3,91,06,1 56 1,32,8 5,372 5,50,00,000 ADVANCE AGAINST SALE OF PROPERTY 4,65,07,710 DECEMBER1 0 3,48,57,2 75 42,29, 824 1,58,80,259 JANUARY11 1,00,000 NIL NIL 1,58,80,259 FEBRUARY11 NIL NIL 1,58,80,259 MARCH11 38,00,000 2,18,3 5,666 3,39,15,295 TOTAL 14,05,10, 682 3,93,5 0,862 13,64,00,00 0 5. THE ASSESSEE SUBMITTED THAT ALL THE LOANS FUNDS REFLECTED IN THE BALANCE SHEET OF RS.25.02 CRORES WAS NOT INTEREST BEARING AND THAT L OAN AMOUNT TO THE EXTENT OF RS.4.43 CRORE DID NOT CARRY ANY INTEREST. THE ASSESSEE SUBM ITTED THAT THE ASSESSEE HAD INTEREST FREE OWN FUNDS AVAILABLE DURING THE PREVIOUS YEAR V IZ. RS.8.55 CRORES (SHARE CAPITAL) RS.4.43CRORES (NON INTEREST BEARING LOANS), BESIDES THE ADVANCE RECEIVED TOWARDS SALE OF THE ASSESSES PROPERTIES OF RS.12.50 CRORES. THE TOTAL INTEREST FREE FUNDS WHICH WAS AVAILABLE WITH THE ASSESSEE WAS RS.25.48 CRORES WHE REAS THE VALUE OF INVESTMENTS AS ON THE LAST DATE WAS ONLY RS.22.3 CRORES. THE ASSES SEE RELIED ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS ICI CI BANK 330 OF 2012 DATED 23.07.2014 WHEREIN IT WAS HELD THAT IF THERE IS INT EREST FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED LOANS IT CAN BE PRESUMED THAT THE INVESTMEN TS WERE FROM INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THE ASSESSEE THEREFORE PRAYED THAT DISALLOWANCE UNDER RULE 8D(2)(II) SHOULD BE DELETED. 4 ITA NO.2299/KOL/2016 BONANZA TRADING CO. PVT. .LTD. A.Y.2011-12 6. AS FAR AS DISALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES NAMELY OTHER EXPENSE WAS CONCERNED THE ASSESSEE SUBMITTED THAT IN COMPUT ING AVERAGE VALUE OF INVESTMENTS WHILE APPLYING THE FORMULA SPECIFIED UNDER RULE 8D( 2)(III), THE AO SHOULD TAKE INTO CONSIDERATION ONLY INVESTMENTS WHICH YIELDED DIVIDE ND INCOME AND NOT THE ENTIRE INVESTMENTS. THE ASSESSEE IN THIS REGARD PLACED REL IANCE ON THE DECISION OF ITAT IN THE CASE OF REI AGRO LTD IN ITA NO.1331/KOL/2011 DATED 19.06.2013. 7. THE CIT(A) AGREED WITH THE SUBMISSIONS OF THE AS SESSEE WITH REGARD TO DISALLOWANCE IN TERMS OF RULE 8D(2)(II) OF THE ACT AND HELD THAT THE ASSESSEE HAD ENOUGH OWN FUNDS MUCH IN EXCESS OF THE INVESTMENTS MADE WHICH YIELDED EXEMPT INCOME AND THEREFORE NO DISALLOWANCE UNDER RULE 8D( 2)(II) COULD BE MADE. WITH REGARD TO DISALLOWANCE UNDER RULE 8D(2)(III), THE C IT(A) HELD THAT THE SAID DISALLOWANCE SHOULD BE MADE BY TAKING INTO CONSIDER ATION ONLY THE INVESTMENTS THAT YIELDED EXEMPT INCOME. 8. AGGRIEVED BY THE ORDER OF THE REVENUE HAS PREFER RED THE PRESENT APPEAL BEFORE THE TRIBUNAL RAISING THE FOLLOWING GROUNDS OF APPEA L : 1. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE L D. CIT(A) HAD ERRED TO ALLOW RELIEF ON THIS GROUND ON THE VIEW THAT CONSIDERING THAT THE APPELLANT HAD ENOUGH FUNDS OF ITS OWN, MUCH IN EXCESS OF THE INVESTMENT' S MADE WHICH YIELDED EXEMPT INCOME AND AMPLY EVIDENCED BY ITS AUDITED ACCOUNTS, WITHOUT CONSIDERING THE FAILURE FROM THE PART OF THE ASSESSEE THE ASSESSEE DID NOT MAINTAIN ANY SEPARATE ACCOUNTS OR BANK A/C ETC. FOR BUSINESS AND INVESTME NT. MOREOVER THE ASSESSEE COMPANY HAD UTILIZED THE MANAGERIAL SKILLS OF THE P ERSONNEL, DIRECTORS, STAFF AND INFRASTRUCTURE OF THE OFFICE FOR MANAGING INVESTMEN TS ETC. THROUGH WHICH IS EARNED EXEMPTED INCOME. 2. ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE LD . CIT(A) HAD ERRED TO GIVE DIRECTION OF FRESH EXAMINATION REGARDING INVESTMENT MADE BY THE ASSESSEE WHICH YIELD EXEMPTED INCOME, WHICH IS NOT PERMISSIBLE AS PER SEC. 251 (1 )(A) OF THE IT ACT W.E.F. 01.06.2001 3. THE APPELLANT CRAVES LEAVE TO ADD./ALTER /MODIFY THE GROUNDS OF APPEAL. 5 ITA NO.2299/KOL/2016 BONANZA TRADING CO. PVT. .LTD. A.Y.2011-12 9. THE LD. DR, AT THE TIME OF HEARING, REITERATED T HE STAND OF THE REVENUE AS CONTAINED IN THE GROUNDS OF APPEAL. THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE AVAILABILITY OF OWN FUNDS BY DRAWING OUR ATT ENTION TO THE CHART SHOWING THE SOURCE OF INVESTMENTS AS THAT OF ASSESSEES OWN FUN DS. HE FURTHER PLACED RELIANCE ON THE DECISION OF THE HONBLE ITAT IN THE CASE OF REI AGRO VS DCIT IN ITA NO.1331/KOL/201 DATED 19.06.2013 WITH REGARD TO DIS ALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES. WITH REGARD TO GROUND NO.2 RAISED BY THE REVENUE IT WAS SUBMITTED BY HIM THAT THE CIT(A) DID NOT SET ASIDE THE ORDER OF THE AO AND DIRECTED THE AO TO MAKE EXAMINATION AFRESH. THE DIRECTION WAS ONLY WITH REG ARD TO VERIFICATION OF FIGURES WITH REGARD TO CORRECT COMPUTATION OF VALUE OF AVERAGE V ALUE OF INVESTMENTS BY EXCLUDING INVESTMENTS THAT YIELDED TAX FREE INCOME AND THEREA FTER APPLYING FORMULA IN RULE 8D(2)(III) OF THE RULES. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. IN O UR VIEW THERE IS NO MERIT IN THIS APPEAL BY THE REVENUE. AS RIGHTLY CONTENDED BY THE LD. COUNSEL FOR THE ASSESSEE THE AVAILABILITY OF OWN FUNDS OF THE ASSESSEE TO THE TU NE OF RS.28.85 CRORES AND THE FACT THAT THE CLOSING VALUE OF INVESTMENT IN THE BALANCE SHEET AS ON THE LAST DATE OF THE PREVIOUS YEAR WAS RS.22.3 CRORES CLEARLY DEMONSTRAT ES THAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS WHICH WERE MORE THAN THE VALUE OF INVESTM ENTS. APART FROM THE ABOVE THE SOURCE OF INVESTMENTS ON EACH OF THE INVESTMENTS MA DE BY THE ASSESSEE DURING THE PREVIOUS YEAR HAS BEEN EXPLAINED BY THE ASSESSEE IN A CHART FILED BEFORE CIT(A). THE FACTUAL ACCURACY OF THIS CHART HAS NOT BEEN DISPUTE D BY THE REVENUE. IN SUCH CIRCUMSTANCES WE FIND NO MERITS IN THIS APPEAL BY T HE REVENUE CHALLENGING THE DELETION OF ADDITION IN TERMS OF RULE 8D(2)(II) OF THE RULES ,. IN SO FAR AS THE DISALLOWANCE OF OTHER EXPENSES UNDER RULE 8D(2)(III) OF THE RULES I S CONCERNED WE ARE OF THE VIEW THAT DIRECTION OF CIT(A) TO INCLUDE ONLY INVESTMENTS WHI CH YIELDED DIVIDEND INCOME WHILE COMPUTING AVERAGE VALUE OF INVESTMENTS BEFORE APPLY ING THE FORMULA OF RULE 8D(2)(III) OF THE RULES IS IN ACCORDANCE WITH THE DECISION OF THE TRIBUNAL IN THE CASE OF REI AGRO LTD (SUPRA). HENCE THERE CAN BE NO GRIEVAN CE TO THE REVENUE IN THIS REGARD. WE DO NOT FIND ANY MERIT IN THE APPEAL BY THE REVEN UE AND THE SAME IS DISMISSED. 6 ITA NO.2299/KOL/2016 BONANZA TRADING CO. PVT. .LTD. A.Y.2011-12 11. IN THE RESULT THE APPEAL BY THE REVENUE IS DISM ISSED. O RDER PRONOUNCED IN THE OPEN COURT ON 14.02.2018 SD/- SD/- [WASEEM AHMED] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 14.02.2018 [RG SR.PS] COPY OF THE ORDER FORWARDED TO: 1. M/S BONANZA TRADING CO. LTD., B 103, RAI ENCLAVE , 7/1A, SUNNY PARK, KOLKATA- 700019. 2. I.T.O., WARD-12 (1), KOLKATA. 3. C.I.T.(A)-4, KOLKATA 4. C.I.T.-4 , KOLKATA.. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER, SENIOR PRIVATE SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHES