Income Tax Officer Ward-36(3), Kolkata, Kolkata V. Smt Samta Jain, Kolkata

ITA 2454/KOL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4724 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 10-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DEBASISH BANERJEE J
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO. 2454 / KOL / 2013 ASSESSMENT YEAR :2008-09 INCOME TAX OFFICER, WARD-36(3), AAYAKAR BHAWAN, PORVA, 10, SHANTI PALLY, 8 TH FLOOR, R. NO 812 KOLKATA-700 107 V/S . SMT. SAMTA JAIN FE, 285, SALT LAKE, SECTOR-3, KOLKATA-700 016 [ PAN NO.ACOPJ 3258 P ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI DEBASISH BANERJEE, JCIT-DR /BY RESPONDENT SHRI SUBASH AGARWAL, ADVOCATE /DATE OF HEARING 19-05-2016 /DATE OF PRONOUNCEMENT 01-06-2016 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY REVENUE IS AGAINST THE ORDER OF COM MISSIONER OF INCOME TAX (APPEALS)-XX, KOLKATA DATED 15.07.2013. ASSESSMENT WAS FRAMED BY DCIT, CIRCLE-36, KOLKATA U/S 143(3) OF TH E INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORD ER DATED 20.12.2010 FOR ASSESSMENT YEAR 2008-09. ITA NO.2454/KOL/2013 A.Y.2008-09 ITO, WD-36(3), KOL. V. SMT. SAMTA JAIN. PAGE 2 SHRI SUBASH AGARWAL, LD. AUTHORIZED REPRESENTATIVE APPEARING ON BEHALF OF ASSESSEE AND SHRI DEBASISH BANERJEE, LD. DEPARTMENT AL REPRESENTATIVE APPEARING ON BEHALF OF REVENUE. 2. COMMON GROUNDS RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE MADE BY ASSES SING OFFICER FROM 41,67,630/- TO 7.51 LAKHS U/S 14A R.W.S. RULE 8D OF THE IT RULES, 1962. 3. FACTS OF THE PRESENT CASE ARE THAT ASSESSEE IS A N INDIVIDUAL AND ENGAGED IN THE BUSINESS OF DEALING IN SHARES AND SE CURITIES. DURING THE YEAR UNDER CONSIDERATION ASSESSEE HAS EARNED DIVIDEND IN COME OF 57,163/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO OBS ERVED THAT ASSESSEE FAILED TO MAKE ANY DISALLOWANCE IN ACCORDANCE WITH PROVISION OF SEC. 14A R.W.S. RULE 8D OF THE IT RULES. ACCORDINGLY, HE SOU GHT THE CLARIFICATION FROM ASSESSEE FOR THE APPLICABILITY OF RULE 8D OF THE IT RULES. IN COMPLIANCE NOTICE THERETO ASSESSEE SUBMITTED THAT SOME DISALLOWANCE C AN BE MADE IN TERMS OF PROVISION OF RULE 8D OF THE IT RULES BUT AO DISALLO WED THE SAME IN TERMS OF THE RULE 8D AS THE FOLLOWING EXPENSES:- I) DIRECT CHARGES OF RS.29,14,124/- II) INTEREST RS.12,19,509/- III) .5% OF AVERAGE INVESTMENT RS. 33,997/- TOTAL RS.41,67,630/- 4. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHERE IT WAS SUBMITTED THAT ASSESSEE MAINTAINS TWO PORTFOLIO FOR MAKING THE INVESTMENT IN THE SHARES & SECURITIES AS STOCK-IN-T RADE AND INVESTMENT. DURING THE YEAR, THE DIVIDEND INCOME OUT OF SHARE & SECURI TIES HELD AS STOCK-IN-TRADE WAS INCIDENTAL TO THE SHARE TRADING ACTIVITY. THERE FORE, NO SPECIFIC EXPENDITURE IS INCURRED IN RELATION TO EARNING OF DIVIDEND INCO ME OUT OF SHARES & SECURITIES HELD AS STOCK-IN-TRADE. BEFORE LD. CIT(A) ASSESSEE PLEADED THAT DISALLOWANCE U/S 14A R.W.S. RULE 8D OF THE IT RULES OUT TO BE RE STRICTED TO THE SHARES HELD BY WAY OF INVESTMENT AND ASSESSEE SUBMITTED THE WOR KING OF THE DISALLOWANCE UNDER RULE 8D OF THE IT RULES AS UNDER:- ITA NO.2454/KOL/2013 A.Y.2008-09 ITO, WD-36(3), KOL. V. SMT. SAMTA JAIN. PAGE 3 RULE PARTICULARS AMOUNT 8D(2)(I) EXPENDITURE INCURRED DIRECTLY IN RELATION TO EARNING DIVIDEND INCOME 31,40 5/- 8D(2)(II) INTEREST IN RELATION TO DIVIDEND INCOME 6,99,850/- INTEREST X AVERAGE OF INVESTMENTS AVERA GE VALUE OF TOTAL ASSETS = 2,15,69,464 X (38 ,45,935 + 40,52,148)/2 12,17,09,924 8D(2)(III) ADMINISTRATIVE EXPENDITURE 19,745/ - 0.5% OF THE AVERAGE OF DIVIDEND YIELDING INVESTMENTS = 0.5% OF 39,49,042/- TOTAL DISALLOWANCE UNDER SECTION 14A 7,51,000/- AFTER CONSIDERING THE SAME, LD. CIT(A) HAS PARTLY D ELETED THE ADDITION MADE BY AO BY OBSERVING AS UNDER:- 4.2 I HAVE PERUSED THE ASSESSMENT ORDER AND CONSID ERED THE SUBMISSION OF THE APPELLANT. THE CASE LAWS RELIED U PON BY THE APPELLANT WERE ALSO PERUSED. THE FACT OF THE CASE IS THAT THE AO FOUND THAT THE APPELLANT EARNED EXEMPT INCOME, THEREFORE, HE INVOK ED RULE 8D OF THE IT ACT AND ACCORDINGLY, CALCULATED DISALLOWANCE AT RS.41,67,630/-. HOWEVER, THE APPELLANT ARGUED THAT THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D OUGHT TO BE RESTRICTED TO THE SHA RES HELD BY WAY OF INVESTMENTS . RULE 8D(2)(I) DISALLOWS THE EXPENDITURE WHICH IS INCURRED IN DIRECT RELATION TO THE TAX FREE INCOME EARNED. IN THE FATS & CIRCUMSTANCES OF THE CASE, IT IS EVIDENTLY CLEAR TH AT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO EARNING OF EXEMPT INCO ME AND THEREFORE NO DISALLOWANCE SHOULD BE MADE UNDER CLAUSE (I) OF RUL E 8D(2). AS REGARDS DISALLOWANCE SHOULD B MADE UNDER CLAUSE (I) OF RULE 8D(2). AS REGARDS DISALLOWANCE WITH REFERENCE TO RULE 8D(2)(II) & (II I), THE COMPUTATION WITH REFERENCE TO INVESTMENTS CAPABLE OF EARNING TAX FREE INCOME IS AS FOLLOWS: RULE PARTICULARS AMOUNT 8D(2)(I) EXPENDITURE INCURRED DIRECTLY IN RELATION TO EARNING DIVIDEND INCOME 31,40 5/- 8D(2)(II) INTEREST IN RELATION TO DIVIDEND INCOME 6,99,850/- INTEREST X AVERAGE OF INVESTMENTS AVERA GE VALUE OF TOTAL ASSETS = 2,15,69,464 X (38 ,45,935 + 40,52,148)/2 ITA NO.2454/KOL/2013 A.Y.2008-09 ITO, WD-36(3), KOL. V. SMT. SAMTA JAIN. PAGE 4 12,17,09,924 8D(2)(III) ADMINISTRATIVE EXPENDITURE 19,745/ - 0.5% OF THE AVERAGE OF DIVIDEND YIELDING INVESTMENTS = 0.5% OF 39,49,042/- TOTAL DISALLOWANCE UNDER SECTION 14A 7,51,000/- IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE AS DISCUSSED (SUPRA), I FIND MERIT IN THE ARGUMENT OF THE APPELLANT AND T HEREFORE, THE CALCULATION FOR DISALLOWANCE GIVEN (SUPRA) IS FOUND TO BE SUSTAINABLE. HENCE, THE AO IS DIRECTED TO TAKE THE FIGURES OF DI SALLOWANCE UNDER RULE 8D AT RS.7,51,000/- AND THE BALANCE DISALLOWANCE BE REDUCED FROM THE TOTAL ASSESSED INCOME. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE CAME IN APPEAL BEFORE US FOR AGAINST THE PARTLY RELIEF ALLOWED TO ASSESSE E. 5. BEFORE US LD. DR SUBMITTED THAT LD. CIT(A) ERRED IN TAKING THE ONLY INVESTMENT MADE IN SHARES AND SECURITIES FOR THE PU RPOSE OF DISALLOWANCE OF THE EXPENSES IN TERMS OF THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE IT RULES BUT LD. CIT(A) ERRED IN NOT CONSIDERING THE SHARES RELYING AS STOCK-IN-TRADE AS THEY ARE ALSO YIELDING DIVIDEND INCOME. THEREFORE, DISALLOWANCE SHOULD BE MADE FOR ALL THE SHARES AND SECURITIES WHETHER HELD AS INVESTMENT OR STOCK-IN-TRADE AND HE VEHEMENTLY RELI ED ON THE ORDER OF AO. ON THE OTHER HAND, LD AR SUBMITTED THAT ASSESSEE IS MAINTAINING TWO PORTFOLIO (I) FOR INVESTMENT IN SHARES & SECURITIES AND (II) FOR STOCK-IN-TRADE IN SHARES & SECURITIES. THE DIVIDEND INCOME EARNED DURING THE Y EAR UNDER CONSIDERATION FROM SHARES HELD AS STOCK-IN-TRADE IS INCIDENTAL AN D HE VEHEMENTLY RELIED ON THE ORDER OF LD. CIT(A). 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE AFORESAID DISCUSSION, WE FIND THAT AO HAS INVOKED THE PROVISION OF SEC. 14A R.W.S. RULE 8D OF THE IT RULES WITHOUT ITA NO.2454/KOL/2013 A.Y.2008-09 ITO, WD-36(3), KOL. V. SMT. SAMTA JAIN. PAGE 5 RECORDING ANY SATISFACTION AS REQUIRED UNDER THE AC T. AO HAS DISALLOWED THE EXPENSE AS PER PROVISION OF RULE 8D OF THE IT RULES BY TAKING THE SHARES & SECURITIES HELD AS STOCK-IN-TRADE AND INVESTMENT. H OWEVER, LD. CIT(A) HAS WORKED OUT THE DISALLOWANCE ONLY ON THE BASIS OF SH ARES & SECURITIES HELD AS INVESTMENT. BEFORE US REVENUE IS IN APPEAL FOR GIVI NG PARTLY RELIEF BY LD. CIT(A). NOW, THE ISSUE BEFORE US IS AS TO WHETHER F OR MAKING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT AND RULE 8D OF THE IT RULES SHARES HELD AS INVESTMENT IS ONLY TO BE CONSIDERED. WE FIND THAT S EVERAL COURTS HAVE HELD THAT FOR MAKING THE DISALLOWANCE AS PER RULE 8D OF THE I T RULES WITH REFERENCE TO EXEMPT INCOME SHOULD CONSIDER ONLY ASSET HELD BY WA Y OF INVESTMENT AND NOT STOCK-IN-TRADE. IN THIS CONNECTION WE ARE RELYING O N THE ORDER OF DCIT V. GULSHAN INVESTMENT CO LTD. (11 TAXMANN.COM 113) WHE REIN THE TRIBUNAL HELD THAT DISALLOWANCE AS PER RULE 8D CAN BE MADE ONLY W ITH REFERENCE TO EXEMPT INCOME YIELDING ASSETS HELD BY WAY OF INVESTMENTS AND NOT STOCK-IN-TRADE. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION O F CHANDIGARH BENCH OF HONBLE ITAT IN THE CASE OF ACIT V. PUNJAB STATE CO OPERATIVE & MARKETING FED LTD. IN ITA NO. 548/CHD/201 WHEREIN IT HAS BEEN HELD THAT THE DISALLOWANCE UNDER SECTION 14A CANNOT EXCEED THE TA X FREE INCOME EARNED I.E. RS.57,133/-. ATTENTION IS FURTHER INVITED TO T HE DECISION OF THE THIS BENCH IN THE CASE OF REI AGRO LTD. V. DCIT IN ITA NO.1331/KOL/2011 DATED 19.06.2013, WHEREIN THE TRIBUNAL HELD THAT THE WORDS USED IN RU LE 8D(2(II) & (III) ARE THE AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DO NOT FORM OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE B ALANCE-SHEET AS ON THE FIRST DAY AND IN THE LAST DAY OF THE PREVIOUS YEAR . THE BENCH OBSERVED THAT THE ASSESSING OFFICER ERRED IN CONSIDERING THOSE INVEST MENTS WHICH HAS NOT EARNED ANY DIVIDEND OR EXEMPT INCOME. THE TRIBUNAL HELD ONLY THE AVERAGE OF THE VALUE OF THE INVESTMENT FROM WHICH THE INCOME H AS BEEN EARNED WHICH IS NOT FALLING WITHIN THE PART OF THE TOTAL INCOME THA T IS TO BE CONSIDERED. FOLLOWING THE RATIO LAID DOWN IN THE AFORESAID DECISION, THE DISALLOWANCE U/S 14A READ WITH RULE 8D SHOULD BE COMPUTED ONLY WITH REFERENCE TO INVESTMENTS. ITA NO.2454/KOL/2013 A.Y.2008-09 ITO, WD-36(3), KOL. V. SMT. SAMTA JAIN. PAGE 6 6.1 THE FACTS AS DECIDED IN THE AFORESAID CASE ARE IDENTICAL IN THE PRESENT CASE. THEREFORE, IN OUR CONSIDERED VIEW, THE SHARES AND SECURITIES HELD AS STOCK-IN-TRADE WILL NOT BE TAKEN INTO CONSIDERATION FOR MAKING THE DISALLOWANCE U/S. 14A R.W.S. RULE 8D OF THE IT RULES. TAKING A C ONSISTENT VIEW OF THE AFORESAID ORDERS WE HAVE NO HESITATION IN UPHOLDING THE ORDER OF LD. CIT(A). HENCE, THIS GROUND OF REVENUES APPEAL IS DISMISSED . 7. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 01/ 06/2016 SD/- SD/- (S.S.VISHWANETHRA RAVI) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP !- 01 / 06 /201 6 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-ITO, WARD-36(3), AAYAKAR BAWAN POORVA, 1 10, SHANTI PALLY, 8 TH FLOOR, ROOM NO.812, K OLKATA-107 2. /RESPONDENT-SMT. SAMTA JAIN, FE-285, SALT LAKE, SEC TOR-3, KOLKATA-700 016 3. ) *+ , , - / CONCERNED CIT KOLKATA 4. , , -- / CIT (A) KOLKATA 5. 012 33*+, , *+ , / DR, ITAT, KOLKATA 6. 267 89 / GUARD FILE. BY ORDER/ , , /TRUE COPY/ / , *+ ,