A.C.I.T Cir - 35,kolkata, Kolkata V. Kishan gopal Mohta, Kolkata

ITA 2472/KOL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1746 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2017
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 09-03-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 22-10-2013
• Court: TRIBUNAL
• Keywords: Business income; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

I.T.A. NO. 2472/KOL./2013 ASSESSMENT YEAR: 2008-2009 PAGE 1 OF 7 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA A BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 2472/KOL/ 2013 ASSESSMENT YEAR: 2008-2009 ASSISTANT COMMISSIONER OF INCOME TAX,.............. ................APPELLANT CIRCLE-35, KOLKATA, 110, SHANTI PALLY, AAYAKAR BHAWAN POORVA, 8 TH FLOOR, R. NO. 802, KOLKATA-700 107 -VS.- KISHAN GOPAL MOHTA,................................ .............................RESPONDENT 7, LYONS RANGE, 2 ND FLOOR, KOLKATA-700 001 [PAN: ADQPM 0469 E] APPEARANCES BY: SHRI SALLONG YADEN, ADDITIONAL CIT, SR. D.R., FOR T HE DEPARTMENT SHRI HEMAL MEHTA, FCA, FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : MAY 02, 2017 DATE OF PRONOUNCING THE ORDER : MAY 12, 2017 O R D E R PER SHRI P.M. JAGTAP, A.M. .: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-XX, KOLKATA DA TED 04.07.2013, WHEREBY HE RESTRICTED THE DISALLOWANCE OF RS.92,04, 274/- MADE BY THE ASSESSING OFFICER UNDER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 TO RS.11,42,428/-. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUA L, WHO IS ENGAGED IN THE BUSINESS OF INVESTMENT AND TRADING IN SHARES. T HE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED BY HIM O N 29.09.2008 DECLARING TOTAL INCOME OF RS.2,15,71,714/-. IN THE SAID RETURN, INCOME EARNED BY THE ASSESSEE IN THE FORM OF LONG-TERM CAP ITAL GAIN AMOUNTING TO RS.7,23,41,305/-, DIVIDEND AMOUNTING TO RS.91,79,07 8/- AND INTEREST FROM I.T.A. NO. 2472/KOL./2013 ASSESSMENT YEAR: 2008-2009 PAGE 2 OF 7 PPF AMOUNTING TO RS.58,152/- WAS CLAIMED TO BE EXEM PT BY THE ASSESSEE. IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) VI DE AN ORDER DATED 31.12.2010, EXPENDITURE INCURRED IN RELATION TO THE SAID EXEMPT INCOME WAS WORKED OUT BY THE ASSESSING OFFICER AT RS.92,04 ,274/- BY APPLYING RULE 8D OF THE INCOME TAX RULES AND DISALLOWANCE TO THAT EXTENT WAS MADE BY HIM UNDER SECTION 14A OF THE ACT. 3. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U NDER SECTION 14A READ WITH RULE 8D WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(APPEALS) AND THE FOLLOWING SUBMI SSIONS WERE MADE ON BEHALF OF THE ASSESSEE BEFORE THE LD. CIT(APPEALS) IN SUPPORT OF HIS CASE ON THE ISSUE:- BEING AGGRIEVED BY THE ASSESSMENT ORDER, PASSED BY THE ADDL. CIT, RANGE 35, KOLKATA ON 31.12.2010 DETERMINING TOTAL I NCOME OF THE APPELLANT AT RS. 3,07,77,086/ AS AGAINST RETURNED INCOME OF RS.2,15,71,7J4/-, THE APPELLANT HAS PREFERRED THIS APPEAL. THE APPELLANT IS AN INDIVIDUAL. THE APPELLANT IS BO TH, AN INVESTOR AND A DEALER IN SHARES AND SECURITIES. REGULAR BOOKS OF ACCOUNT ARE MAINTAINED BY THE APPELLANT AND THE SAME ARE DULY A UDITED A COPY OF THE ACCOUNTS TOGETHER WITH TAR, IS ENCLOSED AND MAR KED. THE APPELLANT MAINTAINS TWO SEPARATE DEMAT ACCOUNTS IN RESPECT OF SHARES & SECURITIES HELD BY WAY OF INVESTMENT AND S HARES & SECURITIES IN WHICH THE APPELLANT CARRIES ON BUSINESS AS DEALE R. FOR THE ASSESSMENT YEAR UND.ER APPEAL, THE APPELLAN T ON 29.09.2008, SUBMITTED HIS RETURN DECLARING TOTAL INCOME OF RS.2 ,15,71,714/-. A COPY OF INCOME SO RETURNED, IS ENCLOSED AND MARKED B. IT WILL BE SEEN FROM THE COMPUTATION OF TOTAL INCOM E, AS ASSESSED BY TILE AO VIDE THE ASSESSMENT ORDER THAT IN DETERMINI NG THE BUSINESS INCOME, THE AO HAS DISALLOWED A SUM OF RS.92,04,274 /- AS AGAINST NIL BY THE APPELLANT U/S 14A, READ WITH RULE 8D OF THE IT RUNE, 1962. THIS IS THE ONLY DISPUTE IN THIS APPEAL. IN CONNECTION WITH THE ABOVE DISPUTE, A STATEMENT S HOWING COMPUTATION OF DISALLOWANCE AS PER THE AO AND AS PE R APPELLANT'S CLAIM NOW MADE, UNDER RULE 8D READ WITH SEC. 14A, I S ENCLOSED AND MARKED 'C. REFERENCE TO THE SCHEDULE P&L A/C WILL SHOW THAT AS PER SCHEDULE HAS BEEN, THE APPELLANT PAID DURING THE YEAR INTEREST O F RS I.T.A. NO. 2472/KOL./2013 ASSESSMENT YEAR: 2008-2009 PAGE 3 OF 7 1,05,38,108.48. THE SAME INCLUDES INTEREST OF RS. 1 ,47,400/- BY WAY OF INTEREST FOR CAR LOAN. THE SAME WAS NOT INCURRED FO R EARNING ANY EXEMPTED INCOME. THE BALANCE OF THE INTEREST AMOUNT ED TO RS. 1,03,90,708/- PAID AS FOLLOWS: 1. KOTAK SECURITIES RS.1,18,759/- 2. KOTAK MAHINDRA RS.52,27,502/- 3. CD EQUI FINANCE RS.11,61,286/- 4. KOTAK MAHINDRA PRIME RS.2,82,853/- 5. CITI CROP FINANCE RS.32,55,644/- 6. BANK LOAN RS.2,11,684/- 7. UNSECURED LOAN RS.1,32,981/- THE ABOVE LOANS ARE AS PER SCHEDULE B OF THE BALANC E SHEET. THESE LOANS HAVE BEEN TAKEN ONLY FOR BUSINESS PURPOSES AG AINST PLEDGE OF SHARES. THEREFORE, THE INTEREST PAID THEREOF, CANNO T BE CONSIDERED AS EXPENDITURE FOR EARNING EXEMPTED INCOME. SUCH EXPEN DITURE WAS INCURRED ON CARRYING ON THE BUSINESS IN TRADING IN SHARES. AS PER THE BALANCE SHEET OF THE APPELLANT AS ON 31. 3.2008, THE POSITION OF ASSETS & LIABILITIES IS AS FOLLOWS: OPENING BALANCE (RS.) CLOSING BALANCE (RS.) AVERAGE (RS.) CAPITAL 28,26,20,238/- 36,43,11,594/- 32,34,65,916/ - SECURED LOAN 45,99,678/- 57,85,589/- 51,92,634/- UNSECURED LOAN 39,35,000/- 19,67,500/- BOOK VALUE OF FIXED ASSETS 4,86,187/- 18,87,214/- 11,86,701/- INVESTMENT IN SHARES 23,14,99,339/- 28,98,29,729/- 26,06,64,534/- IMMOVABLE PROPERTY I.E. LAND & FLAT 58,42,445/- 82,18,409/- 70,30,427/- IT WILL BE SEEN FROM THE ABOVE THAT THE AVERAGE CRE DIT BALANCE IN THE CAPITAL ACCOUNT HAS BEEN EXCEEDED THE AVERAGE INVES TMENTS IN SHARES, LAND & FLAT, INCOME FROM WHICH WAS EXEMPTED. THEREF ORE, IT CAN BE REASONABLE ASSUMED THAT THE APPELLANT HAD UTILIZED THE BORROWED FUND ONLY FOR THE PURPOSE OF BUSINESS OF DEALING IN SHARES AND SECURITIES. SUCH BUSINESS INCIDENTALLY EARNED DIVID END INCOME WHICH WAS EXEMPTED U/S 10(38) OF THE ACT. THE EXPENDITURE BY WAY OF INTEREST WAS THUS INCURRE D FOR THE PURPOSE OF BUSINESS IN DEALING IN SHARES AND SECURITIES AND NOT FOR INVESTMENT IN SHARES. HENCE, INTEREST EXPENDITURE CANNOT BE CO NSIDERED FOR DISALLOWANCE UNDER RULE 8D(2)(II) AT ALL. WITHOUT P REJUDICE TO THE ABOVE, IT IS SUBMITTED THAT SUCH DISALLOWANCE UNDER THE ABOVE CLAUSE, HAS TO BE RESTRICTED TO THE AVERAGE VALUE OF INVEST MENT WHICH HAVE YIELDED EXEMPTED INCOME BY WAY OF DIVIDEND. SUCH VA LUE, AS PER I.T.A. NO. 2472/KOL./2013 ASSESSMENT YEAR: 2008-2009 PAGE 4 OF 7 APPELLANT'S COMPUTATION WAS RS.18,78,392/-. THEREFO RE, THE AMOUNT DISALLOWABLE UNDER CLAUSE 8D(2)(II) WORKS OUT TO ON LY RS.1,87,566/- AS AGAINST RS.8,41,540/- WORKED OUT BY THE AO. SIMILARLY, THE DISALLOWANCE UNDER CLAUSE (III ) OF THE ABOVE RULE, AT 0.5% OF THE AVERAGE VALUE OF THE INVESTMENT, SHOULD HAVE BEEN RESTRICTED ONLY TO THE VALUE OF SUCH INVESTMENT, WH ICH HAS YIELDED EXEMPTED INCOME BY WAY OF DIVIDEND. IT CANNOT BE OT HER INVESTMENT WHICH DID NOT YIELD ANY DIVIDEND. ACCORDING TO THE APPELLANT, THEREFORE, SUCH DISALLO WANCE HAS TO BE RESTRICTED TO 0.5% OF RS.18,78,34,292/-, I.E. RS.9, 39,171/-, AS AGAINST RS.13,47,043/-, WORKED OUT BY THE AO. THE APPELLANT, THEREFORE, SUBMITS THAT THE DISALLOW ANCE U/S 14A SHOULD HAVE BEEN RESTRICTED TO RS.11,42,428/- AS P ER COMPUTATION, ENCLOSED AS REFERRED ABOVE. THE AR OF THE APPELLANT ALSO SUBMITTED A CHART OF C OMPARISON SHOWING CALCULATION OF DISALLOWANCE OF EXPENSE U/S 14A READ WITH RULE 8D AS UNDER:- AS PER AO APPELLANTS CLAIM 1. DIRECT EXPENSE 15691 15691 2. EXPENDITURE BY WAY OF INTEREST, NOT DIRECTLY ATTRIBUTABLE COMPUTED BY A X B/C AMOUNT OF INTEREST AVERAGE VALUE OF INVESTMENT AVERAGE OF TOTAL ASSETS A X B/C 10046044 240844148 + 2979731972 = 269408672 388157360 + 30213844332 = 345147896 7841540 X 7841540 0.5% X 269408672 344665 180568413 + 1951001702 = 187834292 = 345147896 187566 0.5% Z 187834292 3. 0.5% OF AVERAGE INVESTMENT 1347043 939171 AMOUNT DISALLOWED 9204274 1142428 4. KEEPING IN VIEW THE SUBMISSIONS MADE BY THE ASSE SSEE AS ABOVE, THE LD. CIT(APPEALS) PROCEEDED TO RESTRICT THE DISALLOW ANCE OF RS.92,04,274/- MADE BY THE ASSESSING OFFICER UNDER SECTION 14A TO RS.11,42,428/- FOR THE FOLLOWING REASONS GIVEN IN PARAGRAPH NO. 3.2 OF HIS IMPUGNED ORDER:- 3.2. I HAVE PERUSED THE ASSESSMENT ORDER AND CONSIDERED THE SUBMISSION OF THE APPELLANT. THE APPELLANT FILED COMPARATIVE CHART SHOWING CALCULATION OF DISALLOWANCE MADE BY THE AO AND THE APPELLANTS CLAIM. AFTER GOING THROUGH THE FACTS AN D I.T.A. NO. 2472/KOL./2013 ASSESSMENT YEAR: 2008-2009 PAGE 5 OF 7 CIRCUMSTANCES OF THE CASE, FOLLOWING THE DECISION O F ITAT, KOLKATA 'B' BENCH, KOLKATA DELIVERED IN ITA N O. 666/KOL/2012 A.Y. 2008-09 IN THE CASE OF DCIT, CIR- 6, KOLKATA VS. GULSHAN INVESTMENT CO. L.TD. IN WHICH I T WAS HELD IN VIEW OF THE ABOVE DISCUSSIONS, WHILE UPHOLD THE CONCLUSIONS ARRIVED AT BY THE LD. CIT(A).WE ALSO MAKE IT CLEAR THAT, IN OUR HUMBLE UNDERSTANDING, THE PROVISIONS OF SECTION 14A ARE INDEED ATTRACTED WHETHER OR NOT THE SHARES ARE HELD AS STOCK IN TRADE OR AS INVESTMENTS, EVEN THOUGH TH E PROVISIONS OF RULE 8D(2)(II) AND (III) CANNOT BE INVOKED IN SUCH A CASE, AND EVEN THOUGH THE PROVISIONS OF RULE 8D(2)(I) ARE MUCH NARROWER IN SCOPE THAN THE SCOPE OF SECTION 14A SIMPLICITOR. WI TH THESE OBSERVATIONS, WE CONFIRM THE CONCLUSIONS OF T HE LD. CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. FOLLOWING THE ABOVE DECISION, THE CALCULATION GIVEN BY THE APPELLANT (SUPRA) FOR DISALLOWANCE TO BE MAD E UNDER RULE 8D IS ACCEPTED AND ACCORDINGLY, THE APPELLANT GETS RELIEF OF RS.80,61,846/-. THEREBY, T HE APPEAL IS PARTLY ALLOWED. AGGRIEVED BY THE ORDER OF THE LD. CIT(APPEALS), THE REVENUE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS SUBMITTED BY THE LD. D.R., NO FINDING WHATSOEVER HAS BEEN RECORDED BY THE LD. CIT (APPEALS) IN HIS IMPUGNED ORDER WHILE GIVING SUBSTANTIAL RELIEF TO T HE ASSESSEE OF RS.80,61,846/- IN RESPECT OF DISALLOWANCE MADE BY T HE ASSESSING OFFICER UNDER SECTION 14A READ WITH RULE 8D. HE HAS INVITED OUR ATTENTION TO THE CONCLUDING PORTION OF THE LD. CIT(APPEALS)S IMPUGN ED ORDER AS CONTAINED IN PARAGRAPH NO. 3.2 AND POINTED OUT THAT THE WORKI NG FURNISHED BY THE ASSESSEE SHOWING THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D AT RS.11,42,428/- HAS BEEN ACCEPTED BY THE LD. CIT( APPEALS) WITHOUT GIVING ANY FINDING WHATSOEVER ON THE VARIOUS FACTS AND FIGURES FURNISHED BY THE ASSESSEE IN SUPPORT OF THE SAID WORKING. AS SUBMITTED BY THE LD. D.R., THE LD. CIT(APPEALS) HAS SIMPLY RELIED ON THE DECISION OF THE TRIBUNAL IN THE CASE OF DCIT VS.- GULSHAN INVESTME NT CO. LIMITED (ITA NO. 666/KOL/2012 FOR A.Y. 2008-09) TO GIVE RELIEF T O THE ASSESSEE I.T.A. NO. 2472/KOL./2013 ASSESSMENT YEAR: 2008-2009 PAGE 6 OF 7 WITHOUT DISCUSSING THE FACTS INVOLVED IN THE SAID C ASE, VIS-A-VIS THE FACTS INVOLVED IN THE CASE OF THE ASSESSEE AND WITHOUT PO INTING OUT HOW THE SAID DECISION IS APPLICABLE IN THE FACTS OF THE ASS ESSEES CASE. HE HAS ALSO POINTED OUT FROM PARAGRAPH NO. 5 OF THE ASSESSMENT ORDER THAT THE EXPENDITURE IN RELATION TO THE EXEMPT INCOME WAS WO RKED OUT BY THE ASSESSEE HIMSELF AT RS.13,73,272/- IN THE COMPUTATI ON OF INCOME, BUT THE SAME WAS ALSO COMPLETELY IGNORED/OVERLOOKED BY THE LD. CIT(APPEALS) WHILE SUSTAINING THE DISALLOWANCE UNDER SECTION 14A ONLY TO THE EXTENT OF RS.11,42,428/- ON THE BASIS OF WORKING FURNISHED BY THE ASSESSEE BEFORE HIM. AS RIGHTLY CONTENDED BY THE LD. D.R., THE ISSU E INVOLVED IN THE CASE OF THE ASSESSEE RELATING TO DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D THUS HAS BEEN DECIDED BY THE LD. CIT(APPEALS) VI DE HIS IMPUGNED ORDER WITHOUT CONSIDERING AND VERIFYING THE RELEVANT FACT S AND FIGURES AND THE IMPUGNED ORDER PASSED BY THE LD. CIT(APPEALS) GIVIN G RELIEF TO THE ASSESSEE ON THE ISSUE OF DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D THUS IS NEITHER WELL DISCUSSED NOR WELL REASONED . EVEN THE LD. COUNSEL FOR THE ASSESSEE HAS NOT BEEN ABLE TO REBUT OR CONT ROVERT THIS POSITION, WHICH IS CLEARLY EVIDENT FROM RECORD. WE, THEREFORE , SET ASIDE THE IMPUGNED ORDER PASSED BY THE LD. CIT(APPEALS) AND R EMIT THE MATTER BACK TO HIM FOR DECIDING THE ISSUE INVOLVED IN THE CASE OF THE ASSESSEE RELATING TO DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D AFRESH BY PASSING A WELL REASONED AND WELL DISCUSSED ORDER AFTER TAKING INTO CONSIDERATION ALL THE RELEVANT FACTS AND FIGURES OF THE CASE. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS TREA TED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON MAY 12, 2017. SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER KOLKATA, THE 12 TH DAY OF MAY, 2017 I.T.A. NO. 2472/KOL./2013 ASSESSMENT YEAR: 2008-2009 PAGE 7 OF 7 COPIES TO : (1) ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-35, KOLKATA, 110, SHANTI PALLY, AAYAKAR BHAWAN POORVA, 8 TH FLOOR, R. NO. 802, KOLKATA-700 107 (2) SHRI KISHAN GOPAL MOHTA, 7, LYONS RANGE, 2 ND FLOOR, KOLKATA-700 001 (3) COMMISSIONER OF INCOME TAX (APPEALS)-XX, KOLK ATA; (4) COMMISSIONER OF INCOME TAX ,KOLKAT A (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, HEAD OF OFFICE/DDO INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.