JKS Infrastructure Pvt. Ltd., Kolkata V. ITO, Ward - 1(2), Kolkata,

ITA 241/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1918 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 18-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Assessee Lawyers: MIRAJ D. SHAH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

1 ITA NO.241/KOL/2016 JKS INFRASTRUCTURE, AYS- 2010-11 , B , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA () .., . ' # $% % , '() [BEFORE SHRI A. T. VARKEY, JM & DR. A. L. SAINI, A M] I.T.A. NO. 241/KOL/2016 ASSESSMENT YEAR: 2010-11 JKS INFRASTRUCTURE PVT. LTD. (PAN: AABCJ3408M) VS. INCOME-TAX OFFICER, WD-1(2), KOLKATA APPELLANT RESPONDENT DATE OF HEARING 16.11.2017 DATE OF PRONOUNCEMENT 05.01.2017 FOR THE APPELLANT SHRI MIRAJ D. SHAH, AR FOR THE RESPONDENT SHRI SAURABH KUMAR, ADDL. CIT, D R ORDER PER SHRI A.T.VARKEY, JM THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A)-1, KOLKATA DATED 04.02.2016 FOR AY 2010-11. 2. THE ONLY ISSUE IN DISPUTE IS AGAINST THE ACTION OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE MADE U/S. 14A OF THE INCOME-TAX ACT, 1 961 (HEREINAFTER REFERRED TO AS THE ACT). THE LD. COUNSEL AT THE OUTSET ITSELF SUBMI TTED THAT HE IS AGAINST THE ACTION OF THE LD. CIT(A) IN UPHOLDING THE WORKING OF RULE 8D(2)(II) O F THE INCOME TAX RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES) AND IS RES TRICTING HIS ARGUMENT ONLY IN RESPECT OF THE DISALLOWANCE MADE BY THE AO IN RESPECT TO WORKING O F RULE 8D(2)(II) OF THE RULES WHICH HAS BEEN UPHELD BY THE LD. CIT(A) IGNORING THE FACT THAT THE INTEREST EXPENDITURE OF THE ASSESSEE WAS ENTIRELY FOR THE PROJECT AT PANVEL. T HE LD. COUNSEL IN ORDER TO BUTTRESS HIS ARGUMENT DREW OUR ATTENTION TO THE AUDITED ACCOUNTS IN SCHEDULE 16 POINT NO VII OF THE AUDITED ACCOUNTS. FROM A PERUSAL OF THE SAME, WE N OTE THAT THE ASSESSEE HAS INVESTED A SUM OF RS.64,82,03,535/- AS ON 31.03.2010 AND RS.45,43, 06,704/- AS ON 31.03.2009 UNDER FIXED ASSETS. WE NOTE THAT THE SAID ASSET IS A BUSINESS ASSET FROM WHICH THE ASSESSEE HAD EARNED RENTAL INCOME OF RS.6,15,41,073/-. WE NOTE THAT TH E ENTIRE INTEREST EXPENDITURE WAS ON THE 2 ITA NO.241/KOL/2016 JKS INFRASTRUCTURE, AYS- 2010-11 SECURED LOAN TAKEN BY THE ASSESSEE FOR THE PROJECT AT PANVEL AND THE INTEREST EXPENDITURE WAS NOT USED FOR ACQUIRING THE INVESTMENT WHICH EARNED EXEMPT INCOME AND THEREFORE NO DISALLOWANCE IS CALLED FOR INVOKING RULE 8D(2)(II) . HE RELIED ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF ACIT VS. CHAMPION C OMMERCIAL CO. LTD. ITA NO. 644/KOL/2012 FOR AY 2008-09 WHEREIN IT HAS BEEN HEL D THAT THE COMMON INTEREST EXPENSES WHICH ARE TO BE ALLOCATED IN TERMS OF THE FORMULA U NDER RULE 8D(2)(II) OF THE RULES WILL ONLY BE SUCH INTEREST EXPENSES AS ARE NEITHER DIRECTLY A TTRIBUTABLE TO BORROWINGS SPECIFICALLY USED FOR TAX EXEMPT INCOME OR RECEIPT, NOR ARE DIRECTLY ATTRIBUTABLE TO BORROWINGS SPECIFICALLY USED FOR TAXABLE INCOMES OR RECEIPTS. THE FOLLOWIN G ILLUSTRATION WAS PROVIDED BY THE TRIBUNAL IN CHAMPION COMMERCIAL (SUPRA), WHICH DEM ONSTRATES THE INCONGRUITY: IN THE CASE OF A & CO. LTD., TOTAL INTEREST EXPEND ITURE IS RS.1,00,000, OUT OF WHICH INTEREST EXPENDITURE IN RESPECT OF ACQUIRING SHARES FROM WHI CH TAX FREE DIVIDEND EARNED IS RS.10,000. OUT OF THE BALANCE RS.90,000, THE ASSESSEE HAS PAID INTERE ST OF RS.80,000 FOR FACTORY BUILDING CONSTRUCTION WHICH CLEARLY RELATES TO THE TAXABLE INCOME. THE I NTEREST EXPENDITURE WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR RECEIPT OR INCOME I S THUS ONLY RS.10,000. HOWEVER, IN TERMS OF THE FORMULA IN RULE 8D(2)(2), ALLOCATION OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT WI LL BE FOR RS. 90, 000 BECAUSE, AS PER FORMULA THE VALUE OF A(I. E. SUCH INTEREST EXPENSES TO BE ALLOC ATED BETWEEN TAX EXEMPT AND TAXABLE INCOME) WILL BE 'A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OT HER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) [I. E. DIRECT INTEREST EXPENSES FOR TAX EXEMPT INCOME] INCURRED DURING THE PREVIOUS YEAR. LET US SAY THE ASSETS RELATING TO TAXABLE INCOME AN D TAX EXEMPT INCOME ARE IN THE RATIO OF 4: 1. IN SUCH A CASE, THE INTEREST DISALLOWABLE UNDER RULE 8 D(2) (II) WILL BE RS.18,000 WHEREAS ENTIRE COMMON INTEREST EXPENDITURE WILL ONLY BE RS.10,000. 3. WE NOTE THAT THE DECISION IN CHAMPION COMME RCIAL (SUPRA) WAS TESTED BY THE HONBLE DELHI HIGH COURT IN CIT VS. BHARATI OVERSEA S PVT. LTD. ITA NO. 812 OF 2015 DATED 17.12.2015 WHEREIN THE PLEA OF THE REVENUE WAS THAT THE TRIBUNAL BEING THE CREATURE OF STATUTE (INCOME TAX ACT) CANNOT READ DOWN THE RULES FRAMED THEREIN I.E. IN THIS CASE RULE 8D(2)(II), AND THEREFORE, THE TRIBUNAL TRAVELLED BE YOND THE SCOPE OF ITS JURISDICTION AND POWERS, WAS REPELLED BY HONBLE HIGH COURT TAKING N OTE OF THE AFFIDAVIT FILED BY THE REVENUE BEFORE THE HONBLE BOMBAY HIGH COURT IN GOD REJ & BOYCEE MFG. CO. LTD. VS. DCIT (2010) 328 ITR 81 (BOM) WHEREIN THE CONSTITUTI ONALITY OF RULE 8D(2)(II) OF THE RULES WAS EXAMINED BY THE HONBLE HIGH COURT AND THE VIEW OF THE TRIBUNAL WAS THE STAND TAKEN IN CONSONANCE WITH THE AFFIDAVIT FILED BY THE REVEN UE. WE, THEREFORE, FIND FORCE IN THE SUBMISSION OF THE LD. COUNSEL THAT THE SECURED FUND S TAKEN BY THE ASSESSEE WERE IN FACT UTILIZED IN THE WAREHOUSING PROJECT AT PANVEL AND T HE ASSESSEE HAS EARNED RENTAL INCOME OF 3 ITA NO.241/KOL/2016 JKS INFRASTRUCTURE, AYS- 2010-11 MORE THAN RS. 6 CR. AND THE ENTIRE INTEREST EXPENDI TURE WAS FOR THE SECURED LOAN AND NOT FOR ACQUIRING INVESTMENTS WHICH HAS EARNED EXEMPT INCOM E. FROM A PERUSAL OF THE NOTES TO ACCOUNTS IT IS DISCERNED THAT THE LOAN WAS A SECURE D BANK LOAN FOR WAREHOUSE PROJECT IN PANVEL. THUS THE CIT(A) TOTALLY IGNORED THE RELEVAN T FACTS AND THE ACTION OF HIS IS THUS ERRONEOUS. WE NOTE THAT THE AO OR CIT (A) DID NOT BRING ON RECORD ANY EVIDENCE TO SUGGEST THAT THE LOANS WERE USED FOR PURCHASE OF SHARES/MUT UAL FUNDS, HENCE THE INTEREST COULD NOT BE DISALLOWED INVOKING RULE 8D(2)(II) OF THE RULES. 4. MOREOVER, WE NOTE THAT THE ASSESSEE WAS HAVING O WN FUND OF RS. 35CR. AS ON 31.03.2010 AND RS.29.27 CR. AS ON 31.03.2009 WHEREA S THE INVESTMENT WAS OF RS.12,34,04,364/- AS ON 31.03.2010 AND RS.7,34,04,3 64/- AS ON 31.03.2009, THUS, THE ASSESSEES OWN FUNDS FAR EXCEEDED THE INVESTMENT MA DE TO EARN EXEMPT INCOME. THUS APPLYING THE PRINCIPLES LAID DOWN BY THE HONBLE BO MBAY HIGH COURT IN RELIANCE UTILITY & POWERS LTD. VS. (2009) CIT 313 ITR 340 (BOM) WHEREI N THE HONBLE HIGH COURT HAS HELD THAT WHERE THE ASSESSEE IS POSSESSED OF MIXED FUNDS WHICH INCLUDE ITS OWN FUND IN SUFFICIENT QUANTITY, THEN A PRESUMPTION THAT ITS OWN FUNDS WER E UTILIZED FOR THE ADVANCES IS TO BE DRAWN. THEREFORE, LOOKING FROM ANY OF THESE ANGLES , WE FIND FORCE IN THE CONTENTION OF THE ASSESSEE THAT NO DISALLOWANCE APPLYING RULE 8D(2)(I I) OF THE RULES OUGHT TO HAVE BEEN MADE AGAINST THE ASSESSEE WHEN CALCULATING THE DISALLOWA NCE UNDER RULE 8D OF THE RULES. THEREFORE, WE ARE INCLINED TO RESTRICT THE DISALLOW ANCE U/S. 14A OF THE ACT TO ONLY IN RESPECT OF RULE 8D(2)(III) OF THE RULES AND DIRECT THE AO T O DELETE THE DISALLOWANCE MADE UNDER RULE 8D(2)(II) OF THE RULES TO THE TUNE OF RS.37,30,951/ -. THUS, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. 4. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER IS PRONOUNCED IN THE OPEN COURT ON 05.01.201 8 SD/- SD/- (DR.A. L. SAINI) (ABY. T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 5 TH JANUARY, 2018 JD.(SR.P.S.) 4 ITA NO.241/KOL/2016 JKS INFRASTRUCTURE, AYS- 2010-11 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT JKS INFRASTRUCTURE PVT. LTD., C/O D. J. SHAH & CO. KALYAN BHAVAN, 2, ELGIN ROAD, KOLKATA-700 020. 2 RESPONDENT ITO, WARD-1(2), KOLKATA. 3. THE CIT(A) KOLKATA. 4. 5. CIT KOLKATA DR, ITAT, KOLKATA. / TRUE COPY, BY ORDER, SR. PVT. SECRETARY