DCIT, Cir-10, Kolkata, Kolkata V. M/s Neeraj Consultants Ltd., Kolkata

ITA 316/KOL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4375 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2016
• Appeal Filed By: Department
• Bench Allotted: C
• Next Hearing Date: 22-09-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 20-02-2014
• Court: TRIBUNAL
• Department Lawyers: RAJAT KUMAR KUREEL
• Assessee Lawyers: MANOJ KATARUKA
• Section: 143(3); 14A

Judgement Text

ITA NO.316/KOL/2014- M/S. NEERAJ CONSULTANTS LTD. A .Y.2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C, KOLKATA (BEFORE SHRI N. V. VASUDEVAN,J.M. & SHRI M. BALAGAN ESH, A.M.) ITA NO.316/KOL/2014 : ASSTT. YE AR :2006-07 DCIT ,CIRCLE-10, KOLKATA. VS M/S. NEERAJ CONSULTANTS LTD. HUDCO NIWAS,15N, NELI SENGUPTA, SARANI, LINDESAY STREET, KOLKATA-700087. PAN: AABCN1000D (APPELLANT) (RESPONDENT) ASSESSEE BY :SRI MANOJ KATARUKA. ADVOCATE REVENUE BY : SRI RAJAT KUMAR KUREEL, JCIT, SR.DR DATE OF HEARING : 22.09.2016 DATE OF PRONOUNCEMENT : 19-10-2016 ORDER PER SHRI N. V. VASUDEVAN, J.M . THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 25/11/2013 OF CIT(A)- XII,KOLKATA RELATING TO ASSESSMENT YEAR 2006-07. 2. GROUND NO.1 & 2 RAISED BY THE REVENUE READ AS UN DER: 1. THAT IS THE FACTS AND IN LAW OF THE CASE THE LD . CIT(A) ERRED IN DELETING THE ADDITON MADE THE AO U/S 14A READ WITH RULE 8D AMOUNGINT TO RS.12082774/- FOR EARNING EXEMPTED INCOME. 2. THAT IS THE FACTS AND IN LAW OF THE CASE THE LD. CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE U/S. 14A TO RS.8313550/- IN VIOLATION OF THE CALCULATION PRESCRIBED BY RULE 8D OF I. T. ACT. 3. THE ASSESSEE IS A COMPANY IT IS ENGAGED IN THE B USINESS OF MAKING INVESTMENTS EARNING COMMISSION INCOME AND DEALING IN SHARES. IN THE COURSE OF ASSESSMENT ITA NO.316/KOL/2014- M/S. NEERAJ CONSULTANTS LTD. A .Y.2006-07 2 PROCEEDINGS U/S.143(3)OF THE ACT. THE AO NOTICED TH AT THE ASSESSEE HAD EARNED EXEMPT DIVIDEND INCOME OF RS.83,13,550/- WHICH IS NOT CHAR GEABLE TO TAX AND IS EXEMPT. 4. IN VIEW OF THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961 (ACT), WHICH LAYS DOWN THAT ANY EXPENDITURE INCURRED IN EA RNING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, SHALL NOT B E ALLOWED AS DEDUCTION IN COMPUTING TOTAL INCOME OF AN ASSESSEE, THE AO HAD TO DISALLOW EXPENSES THAT WERE INCURRED IN EARNING EXEMPT DIVIDEND INCOME. THE AO COMPUTED T HE DISALLOWANCE U/S.14A OF THE ACT READ AS FOLLOWS: IN THE ABOVE SITUATION PROVISION OF SECTION 14A REA D WITH RULE 8D APPLIED AND AFTER APPLYING THE SAME WITH REFERENCE TO EXEMPTED INCOME AS CLAIMED BY THE ASSESEE FOR RS.83,13,550/- . THE DISALLOWANCES WORK OUT TO RS.1 ,20,82,774/-. RULE 8D(2) (I) NIL RULE 8D((2)(II) INTEREST 1,29,16,413 X17,17,80,126 + 10,46,99,437/- 2 _____________________________________ 18,81,64,850+12,53,23,297 = 1,29,16,413+13,83,39,781 18,81,64,850+ 12,53,23,297 = 15,67,44,073 = 1,13,91,576 RULE 8D (2) (III) % OF RS.13,82,39,781 6,91,198 TOTAL 1,20,82,774/- IN VIEW OF THE ABOVE PROVISIONS, NECESSARY EXPENSES PERTAINING TO EXEMPTED INCOME IS CALCULATED AT RS.1,20,82,774/- AND THE SAME IS BEIN G DISALLOWED AND ADDED TO THE TOTAL INCOME. 5. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE HAS PREFERRED APPEAL BEFORE THE CIT(A). THE SUBMISSION OF THE ASSESSEE BEFORE THE C IT(A) WAS THAT THE DISALLOWANCE U/S.14A OF THE ACT WAS COMPUTED BY THE AO AT RS.1,2 0,82,774/- WHEREAS THE EXEMPT DIVIDEND INCOME EARNED BY THE ASSESSEE WAS ONLY RS. 83,13,550/-. IT WAS ARGUED THAT THE DISALLOWANCE OF EXPENSES U/S.14A OF THE ACT CANNOT EXCEED THE EXEMPT DIVIDEND INCOME. ON THE ABOVE SUBMISSION THE CIT(A) HELD AS FOLLOWS: ITA NO.316/KOL/2014- M/S. NEERAJ CONSULTANTS LTD. A .Y.2006-07 3 I HAVE CAREFULLY CONSIDERED THE SUBMISSION PUT FOR TH ON BEHALF OF THE APPELLANT ALONG WITH THE SUPPORTING DETAILS / DOCUMENTS FURNISHED & THE JUDGMENTS OF THE CASES RELIED UPON, PERUSED THE FACTS OF THE CASE INCLUDING THE F INDINGS OF THE AO IN THE IMPUGNED ASSESSMENT ORDER AND OTHER MATERIALS BROUGHT ON REC ORD. I. T. RULES ARE NOT APPLICABLE IN THE RELEVANT ASSESSMENT YEAR SINCE THE SAME ARE APP LICABLE FROM THE AY 2008-09 AND ONWARDS IN VIEW OF THE LEGAL PRONOUNCEMENTS RELIED UPON IN THIS REGARD. AT THE SAME TIME, I AGREE WITH THE CONTENTION OF THE AO THAT TH E PROVISIONS OF SECTION 14A OF THE ACT ARE STILL APPLICABLE IN THE INSTANT CASE AS THE APP ELLANT HAS EARNED DIVIDEND INCOME AMOUNTING TO RS.83,13,550/- DURING THE YEAR UNDER C ONSIDERATION AND CLAIMED EXEMPTION U/S.10(34) OF THE ACT. WITHOUT PREJUDICE TO THE APP ELLANTS CONTENTION THAT PROVISIONS OF SECTION 14A ARE NOT APPLICABLE TO THE APPELLANT COM PANY. IT IS SUBMITTED THE DISALLOWANCE U/S.14A CANNOT IN CASE EXCEED THE AMOUNT OF DIVIDEN D INCOME EARNED DURING THE YEAR. RELIANCE IS PLACED IN THIS REGARD ON THE DECISION O F HONBLE ITAT, CHANDIGARH IN CASE OF ACIT VS. PUNJAB STATE COOP & MARKETING WHEREIN THE HONBLE TRIBUNAL HAS HELD THAT DISALLOWANCE U/S.14A CANNOT EXCEED THE EXEMPT INCOM E. FURTHER, IT IS STATED THAT IN APPELLANTS OWN CASE FOR A. Y.2009-10, THE AO HAS V IDE HIS ORDER U/S 143(3) DATED 17.11.2011 RESTRICTED THE DISALLOWANCE U/S14A TO TH E EXTENT OF DIVIDEND INCOME EARNED. IN SUPPORT OF THIS CONTENTION A COPY OF ASSESSMENT ORDER FOR A.Y.2009-10 IS FURNISHED FOR READY REFERENCE. THUS, IT IS CONTENDED THAT THE DIS ALLOWANCE IN THE RELEVANT YEAR UNDER APPEAL IN CASE OF THE APPELLANT, THEREFORE, CANNOT EXCEED RS.83,13,550/- BEING THE DIVIDEND INCOME EARNED DURING THE YEAR. AFTER CONSIDERING THE SUBMISSION OF THE APPELLANT A LONG WITH THE CASE LAWS RELIED UPON PERUSING THE ENTIRE FACTS OF THE CASE AND PARTICULA RLY TAKING INTO CONSIDERATION THAT FACT THAT THE AO HIMSELF IN THE ASSESSMENT ORDER PASSED U/S143(3) DATED 17.11.2011 IN THE APPELLANTS OWN CASE FOR AY 2009-10, HAS RESTRICTED THE DISALLOWANCE U/S.14A TO THE EXTENT OF DIVIDEND INCOME EARNED, I AM OF THE VIEW THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING THE EXPENSES OF RS.1,20,82,774/- I.E. E XCEEDING RS.83,13,550/- BEING THE DIVIDEND INCOME EARNED DURING THE YEAR U/S.14A OF T HE ACT TO THE EXTENT OF RS.83,13,550/- BEING THE DIVIDEND INCOME BY THE APPELLANT COMPANY DURING THE YEAR UNDER ASSESSMENT. THUS, THIS GROUND OF APPEAL IS PARTLY ALLOWED. 6. AGGRIEVED BY THE ORDER OF THE CIT(A) THE REVENUE HAS RAISED GROUND NO. 1 AND 2 BEFORE THE TRIBUNAL. 7. AT THE TIME OF HEARING IT WAS BROUGHT TO OUR NO TICE THAT THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT. LTD. VS. CI T ITA NO.117/2015 TAXSUTRA.COM, 372 ITR 694 (DEL) HAS TAKEN THE VIEW THAT THE DISALLOWA NCE U/S 14A OF THE ACT CANNOT EXCEED THE EXEMPT DIVIDEND INCOME. IN VIEW OF THE AFORESA ID JUDICIAL PRONOUNCEMENT, WE ARE OF ITA NO.316/KOL/2014- M/S. NEERAJ CONSULTANTS LTD. A .Y.2006-07 4 THE VIEW THAT THERE IS NO MERIT IN GROUND NOS.1 AND 2 RAISED BY THE REVENUE. ACCORDINGLY THE SAME ARE DISMISSED. 8. GROUND NO.3 RAISED BY THE REVENUE READ AS UNDER : 2. THAT IS THE FACTS AND IN LAW OF THE CASE THE LD. CIT(A) ERRED IN ALLOWING THE INTEREST ON LOAN AMOUNTING TO RS.862668/- WHICH WAS NOT UTILIZED FOR BUSINESS PURPOSE. 9. THE AO DISALLOWED INTEREST EXPENSES CLAIMED BY T HE ASSESSEE FOR THE FOLLOWING REASONS: DISALLOWANCE OF INTEREST THE ASSESSEE HAS DEBITED RS.1,29,16,413/- SECURED L OAN AND UNSECURED LOAN FOR RS.14,61,16,864/- AND RS.3,95,67,216. EXAMINATION O F BALANCE SHEET ALSO SHOWS INVESTMENT IN UNQUOTED SHARE FOR RS.57,51,120/- AS PER SCH. 5 AND ALSO LOAN AND ADVANCE AS PER SCH,5 FOR RS.88,35,187/-. THE ASSESSEE WAS A SKED TO EXPLAIN VIDE ORDER SHEET DATED 08.02.2008 WHY INTEREST DEBITED TO P/L A/E SHOULD NOT BE DISALLOWED ON PRO RATA BASIS CONSIDERING THAT INVESTMENT AND LOAN AND ADVANCES A RE NOT USED FOR BUSINESS PURPOSE, AS NO BENEFIT IS DERIVE. THE ASSESSEE MADE A WRITTEN S UBMISSION ON 25.03.2008 AS UNDER:- THE INVESTMENT MADE BY THE ASSESEE COMPANY IN UNQU OTED EQUITY SHARES IS DETAILED IN SCHEDULE 4 OF THE AUDITED ANNUAL ACCOUN TS. THE COMPANY HAS NOT DERIVED ANY BENEFIT FROM THESE INVESTMENTS DURING T HE YEAR UNDER ASSESSMENT. IT IS THE BUSINESS OF THE ASSESSEE COMPANY TO INVEST IN S HARES AND TO EARN PROFIT ON THE SAME ON ACCOUNT OF APPRECIATION IN THE VALUE OF SHA RES AND ALSO TO EARN DIVIDEND INCOME. THE DIRECTORS OF THE ASSESSEE COMPANY HAD T AKEN THE DECISION TO INVEST IN THESE UNQUOTED SHARES WITH THE EXPECTATION OF APPRE CIATION OF THEIR VALUE AND ALSO TO EARN INCOME BY WAY OF DIVIDEND AT SOME POINT OF TIME. THOUGH THE ASSESSEE CO. HAS NOT DERIVED ANY BENEFIT FROM THESE SHARES DURIN G THE YEAR UNDER ASSESSMENT, BUT IT EXPECTS TO MAKE PROFIT ON THE SAME IN FUTURE . NO DISALLOWANCE OUT OF INTEREST PAID IS CALLED FOR ON THIS ACCOUNT. THE ABOVE EXPLANATION IS NOT ACCEPTED AS SATISFACTO RY, HENCE ON PRO RATA BASIS I.E. RS.8,62,668/- IS BEING DISALLOWED. 10. ON APPEAL BY THE ASSESSEE THE CIT(A) DELETED TH E DISALLOWANCE MADE BY THE AO OBSERVING AS FOLLOWS: I HAVE CAREFULLY CONSIDERED THE SUBMISSIONS PUT FO RTH ON BEHALF OF THE APPELLANT ALONG WITH THE SUPPORTING DETAILS/DOCUMENTS FURNISHED AND THE JUDGMENTS OF THE CASES RELIED UPON, PERUSED THE FACTS OF THE CASE INCLUDING THE F INDINGS OF THE AO IN THE IMPUGNED ASSESSMENT ORDER AND OTHER MATERIALS BROUGHT ON REC ORD. THE AO HAS MADE THE ITA NO.316/KOL/2014- M/S. NEERAJ CONSULTANTS LTD. A .Y.2006-07 5 DISALLOWANCE OF THE INTEREST PAID TOWARDS THE LOAN AND ADVANCES ON PRO-RATA BASIS ON ACCOUNT OF NON USE OF THE FUND FOR THE PURPOSE OF B USINESS OF THE APPELLANT SINCE NO BENEFIT DERIVED THE APPELLANT DURING THE YEAR OUT O F THE SAID LOAN AMOUNT. HOWEVER, IN THIS REGARD, THE AR OF THE APPELLANT SUBMITTED THAT THE MAIN BUSINESS OF THE APPELLANT COMPANY IS DEALING IN SHARES, LEASING AND FINANCE I N ALL KINDS OF GOODS AND SECURITIES AND MAKING INVESTMENTS ETC. DURING THE YEAR UNDER ASSES SMENT, THE APPELLANT COMPANY HAS PURCHASED SHARE OF APOLLO TYRES LTD. SOLD SHARES OF SUNLIFE TRADE LINKS PVT. LTD. AND SECURED LOAN TAKEN FROM BODY CORPORATE. IT IS FURTH ER SUBMITTED THAT THE EXPENDITURE INCURRED BY THE APPELLANT COMPANY DURING THE YEAR U NDER ASSESSMENT IS EXPENDITURE WHICH IS NECESSARY TO KEEP THE COMPANY'S BUSINESS R UNNING. BY REFERRING TO THE SCHEDULES 8, 9 & 10 OF THE ANNUAL ACCOUNTS, IT IS CONTENDED T HAT THE EXPENDITURE INCURRED IS BY WAY OF SALARIES, ADMINISTRATIVE EXPENSES AND INTEREST E XPENDITURE. THUS IT IS STATED THAT THESE EXPENDITURES ARE NECESSARILY REQUIRED TO BE INCURRE D TO KEEP THE COMPANYS BUSINESS RUNNING. IN RESPECT OF INTEREST EXPENDITURE INCURRE D, IT IS CONTENDED THAT THE SAME RELATES TO LOANS AVAILED BY THE ASSESSEE COMPANY DURING THE YEAR AND THE PRECEDING YEARS FOR BUSINESS PURPOSES AND THE APPELLANT COMPANY IS UNDE R OBLIGATION TO PAY INTEREST ON THESE LOANS. FURTHER SALARIES ARE ALSO NECESSARILY REQUIR ED TO BE PAID TO STAFF WHO ARE REQUIRED FOR DAY TO DAY FUNCTIONING OF THE COMPANY AND TO ME ET STATUTORY COMPLIANCES. THEREFORE IT IS SUBMITTED THAT THESE EXPENSES INCUR RED BY THE APPELLANT COMPANY ARE, ALLOWABLE EXPENDITURE. THE A/ R OF THE APPELLANT PL ACED RELIANCE ON THE FOLLOWING DECISION IN SUPPORT OF THE APPELLANTS CONTENTION: 1.CIT VS RAMPUR TIMBER & TURNERY CO. LTD (1981) 129 ITR 58 (AIL) 2. NAKODAR BUS SERVICE PVT LTD VS CLL (1989) 179 IT R 506 (PUNJ. & HAR.) IN VIEW OF THE ABOVE, IT IS PRAYED THAT THE DISALLO WANCE MADE BY THE ASSESSING OFFICER MAY DELETED. AFTER CONSIDERING THE SUBMISSION OF THE APPELLANT A ND THE FINDINGS OF THE AO AND PERUSING THE ENTIRE FACTS OF THE CASE AND KEEPING IN VIEW TH E PRINCIPLE OF THE JUDGMENTS OF THE CASES RELIED UPON. I AM OF THE VIEW THAT THE AO WAS NOT J USTIFIED IN MAKING THE IMPUGNED DISALLOWANCE OF THE INTEREST PAID TOWARDS LOAN AND ADVANCES ON PRO-RATA BASIS BY HOLDING THAT THE FUNDS WERE NOT USED FOR THE BUSINESS PURPO SES OF 3 APPELLANT. IT IS SEEN THAT ONE OF THE MAIN BUSINESS ACTIVITIES OF THE APPELLANT HA S DEALING IN SHARES ALONG WITH LEASING AND FINANCE IN ALL KINDS OF GOODS AND SECURITIES AN D MAKING INVESTMENTS. THEREFORE, I AGREE WITH THE CONTENTION OF THE APPELLANT THAT THE APPELLANT COMPANY HAS NOT DERIVED ANY BENEFIT FROM THE INVESTMENT OF SHARES IN THE RELEVA NT YEAR UNDER APPEAL CANNOT BE THE SOLE REASON FOR DISALLOWANCE OF INTEREST EXPENDITURE CLA IMED TOWARDS THE LOAN FUND SO LONG AS THE FUND HAS BEEN USED FOR ONE OF THE MAIN PURPOSES OF BUSINESS OF THE APPELLANT. IN THE LIGHT OF THE ABOVE DISCUSSION AND FINDINGS A ND PERUSING THE FACTS AND CIRCUMSTANCES OF THE CASE AND RESPECTFULLY FOLLOWING THE DECISION S OF THE CASES RELIED UPON, THE AO IS DIRECTED TO DELETE THE DISALLOWANCE MADE AT RS. 8,6 2,668/-ON PRO RATA- BASIS ON ACCOUNT OF INTEREST PAID TOWARDS LOAN FUND. THUS, THIS GROU ND OF APPEAL IS ALLOWED. ITA NO.316/KOL/2014- M/S. NEERAJ CONSULTANTS LTD. A .Y.2006-07 6 11. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE HAS RAISED GROUND NO.3 BEFORE THE TRIBUNAL. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LEARNED DR RELIED ON THE ORDER OF THE AO. THE LEARNED COUNSEL FOR THE ASSESSEE RE LIED ON THE ORDER OF THE CIT(A). AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE ARE OF THE VI EW THAT THERE IS NO MERIT IN GR.NO.3 RAISED BY THE REVENUE. THE AO HAS ACCEPTED THAT TH E INVESTMENTS MADE OUT OF BORROWED FUNDS IN QUOTED SHARES AS USE OF BORROWED FUNDS FOR THE PURPOSE OF BUSINESS OF THE COMPANY. HOWEVER TO THE EXTENT BORROWED FUNDS WERE USED IN MAKING INVESTMENTS IN UNLISTED/UNQUOTED COMPANIES, THE AO HAS TREATED THE SAME AS NOT FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE. SUCH A DISTINCTION WAS R IGHTLY HELD BY THE CIT(A) TO BE NOT PROPER. WE THEREFORE DO NOT FIND ANY MERIT IN GR.N O.3 RAISED BY THE REVENUE. THE SAME IS ACCORDINGLY DISMISSED. 12. IN THE RESULT, APPEAL BY THE REVENUE IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.10.2016 SD/- SD/- (M. BALAGANESH) (N. V. VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 19 /10/2016 S. SINHA(PS) COPY OF THE ORDER FORWARDED TO: 1. M/S. NEERAJ CONSULTANTS LTD., 15N, NELIE SENGUPT A SARANI,KOLKATA-700087. 2 D.C.I.T., CIRCLE-10, KOLKATA 3. THE CIT-IV,KOLKATA 4. T HE CIT(A)-XII, KOLKATA 5. DR, KOLKATA BENCHES, KOLKATA TRUE COPY, BY ORDER, ASST. REGISTRAR , ITAT, KOLKATA BENCHES ITA NO.316/KOL/2014- M/S. NEERAJ CONSULTANTS LTD. A .Y.2006-07 7