DCIT, CEN-CIR-XX, KOLKATA, Kolkata V. M/S. Todays Writing Products Ltd., Kolkata

ITA 348/KOL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4425 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2016
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 04-10-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 26-02-2014
• Court: TRIBUNAL
• Department Lawyers: DULAR CHAND MONDAL
• Assessee Lawyers: DILIP LOYALKA

Judgement Text

I.T.A. NO. 348/KOL./2014 ASSESSMENT YEAR: 2009-2010 PAGE 1 OF 5 , , IN THE INCOME TAX APPELLATE TRIBUNAL A, BENC H KOLKATA BEFORE SHRI WASEEM AHMED, AM & SHRI K. NARASIMHA C HARY, JM ./ ITA NO.348/KOL/2014 ( / ASSESSMENT YEAR :2009-2010) D E PUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-XX, KOLKATA, 110, SHANTI PALLY, AAYAKAR BHAVAN POORVA, 5 TH FLOOR, KOLKATA-700 107 VS. M/S TODAYS WRITING PRODUCTS LTD., 13, BRABOURNE ROAD, KOLKATA- 700001 ./ ./ PAN/GIR NO. : AABCT 1487 E ( / APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI DULAR CHAND MONDAL , JCIT, D.R . /ASSESSEE BY : SHRI DILIP LOYALKA, FCA / DATE OF HEARING : 04/10/2016 / DATE OF PRONOUNCEMENT : 07/10/2016 / O R D E R PER SHRI NARASIMHA CHARY, J.M.: THIS IS AN APPEAL BY ASSESSEE CHALLENGING THE ORDE R DATED 31.12.2013, IN APPEAL NO.38/CC-XX/CIT(A)C-III/2011-12/KOLKATA, PAS SED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-CENTRAL-III, KOLKATA [HEREINAF TER CALLED AS CIT(A)]. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN MANUFACTURING AND TRADING OF WRITING PRODUCTS AND S TATIONERY ITEMS. FOR THE ASSESSMENT YEAR 2009-2010, THE ASSESSEE FILED THE RETURN OF IN COME ON 29.09.2009 DISCLOSING A LOSS I.T.A. NO. 348/KOL./2014 ASSESSMENT YEAR: 2009-2010 PAGE 2 OF 5 OF RS.27,55,08,775/-. THE CASE WAS TAKEN UP FOR SCR UTINY AND DURING SCRUTINY THE ASSESSING OFFICER, AMONG OTHER THINGS, FOUND THAT I N THE ACCOUNTS, THE ASSESSEE INDICATED INVESTMENT OF RS.4,15,26,000/- AND SHARE APPLICATIO N MONEY OF RS.8,76,00,000/-, AND THE ASSESSEE FURNISHED THE BREAK UP FIGURES OF THE INTEREST PAID DURING THE YEAR. THE AO FURTHER FOUND THAT THE TOTAL PAYMENT OF INTEREST DU RING THE YEAR WAS TO A TUNE OF RS.19,94,72,326/-. TAKING THIS FIGURES, THE AO ESTI MATED THE DISALLOWANCE OF EXPENSES TO A TUNE OF RS.59,32,660/- AND ADDED IT BACK TO THE T OTAL INCOME OF THE ASSESSEE. AGGRIEVED BY THIS FINDING THE ASSESSEE PREFERRED APPEAL BEFOR E THE LD. CIT(A) AND THE LD. CIT(A) BY WAY OF IMPUGNED ORDER MODIFIED THE AMOUNT OF DISALL OWANCE AND FOUND THAT THE TOTAL AMOUNT TO BE DISALLOWED WAS ONLY RS.11,08,690/-. 3. CHALLENGING THE SAID FINDING OF THE LD. CIT(A), THE REVENUE CAME IN THIS APPEAL ON THE FOLLOWING GROUNDS :- 1. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CIT (A) ERRED IN ACCEPTING THE NET INTEREST AS EXPENDITURE OF INTEREST INSTEAD OF TOTAL INTEREST PAID FOR THE PURPOSE OF CALCULATION OF DISALLOWANCE U/S.1 4A OF THE I.T. ACT. 2. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CI T(A) ERRED IN ACCEPTING THE CALCULATION OF DISALLOWANCE U/S.14A READ WITH RULE 8D OF THE ASSESSEE WITHOUT GETTING IT VERIFIED OR EXAMINED BY THE AO. 4. IT IS THE ARGUMENT OF THE LD. DR THAT IN ACCEPTI NG THE NET INTEREST AS EXPENDITURE OF INTEREST INSTEAD OF TOTAL INTEREST PAID FOR THE PURPOSE OF CALCULATION OF THE DISALLOWANCE U/S.14A OF THE ACT, THE LD. CIT(A) COM MITTED AN ERROR. HE FURTHER SUBMITTED THAT IN ALL FAIRNESS BEFORE ACCEPTING THE CALCULATION OF DISALLOWANCE AS SUBMITTED BY AR, THE LD. CIT(A) SHOULD HAVE GOT IT VERIFIED OR EXAMINED BY AO. LD. DR FURTHER SUBMITTED THAT FOR THIS REASON, THE ORDER O F THE LD. CIT(A) NEEDS TO BE QUASHED AND ORDER OF AO HAS TO BE RESTORED. I.T.A. NO. 348/KOL./2014 ASSESSMENT YEAR: 2009-2010 PAGE 3 OF 5 5. THE ARGUMENT OF LD. AR IS THAT WHILE CALCULATING THE DISALLOWANCE THE AO COMMITTED AN ERROR IN TAKING SHARE APPLICATION MONE Y OF RS.8,76,00,000/- ALSO TAKE INTO CONSIDERATION AS INVESTMENT AND THEREBY REACHED TO A WRONG FIGURE OF RS.6,56,88,500/- AS THE AVERAGE INVESTMENT TO WORK OUT THE DISALLOWA NCE ENDED UP WITH THE ADDITION OF RS.59,32,660/-. LD. AR SUBMITS THAT SHARE APPLICATI ON MONEY DOES NOT YIELD ANY INCOME AND, THEREFORE, IT SHALL NOT BE CONSIDERED AS AN IN VESTMENT FOR THE PURPOSE OF SECTION 14 A OF THE ACT READ WITH RULES 8D OF THE I.T. RULES. 6. THE NEXT CONTENTION OF THE LD. AR IS THAT WHILE COMPUTING THE INTEREST PAID BY THE ASSESSEE ON BORROWED FUNDS THE AO SHOULD HAVE DEDUC TED THE INTEREST RECOVERED FROM THE SUBSIDIARY COMPANIES TO A TUNE OF RS.6,04,18,89 4/- AND NET INTEREST ALONE SHOULD HAVE BEEN TAKEN FOR DETERMINING THE DISALLOWANCE. L D. AR SUPPORTS THE IMPUGNED ORDER ON THESE TWO GROUNDS AND PRESSED TO DISMISS THE APP EAL. 7. GROUNDS NO.1 & 2 . 7.1 ON A CAREFUL PERUSAL OF THE ORDERS OF AUTHORITI ES BELOW, WE FOUND THAT WHILE CALCULATING THE AMOUNT OF DISALLOWANCE THE AO HAS T AKEN THE SUM TOTAL OF THE INVESTMENT AND SHARE APPLICATION MONEY WHICH COMES TO RS.12,91 ,26,000/- AS THE CLOSING BALANCE OF THE INVESTMENT, WHEREAS OPENING BALANCE OF INVESTME NT WAS RS.22,51,000/-, THEREBY HE REACHED AVERAGE INVESTMENTS AT RS.6,56,88,500/-. ON THIS AMOUNT ONLY HE CALCULATED DISALLOWABLE PORTION UNDER RULE 8D(2)(II)&(III) OF THE I.T. RULES AND IT WAS RS.59,32,660/-. 7.2 LD. CIT(A) CONSIDERED THIS ASPECT IN THE LIGHT OF THE SUBMISSIONS MADE BY LD. AR, THE DECISIONS OF COORDINATE BENCH OF THE MUMBAI TRI BUNAL IN THE CASE OF RAINY INVESTMENTS (P) LTD. [2013] 30 TAXMANN.COM 169, MOR GAN STANLEY INDIA SECURITIES (P) LTD., (2011) 55 DTR 177 FOR THE PRINCIPLE THAT THE SHARE APPLICATION MONEY IS INCAPABLE I.T.A. NO. 348/KOL./2014 ASSESSMENT YEAR: 2009-2010 PAGE 4 OF 5 OF YIELDING ANY TAX FREE INCOME AND IT HAS TO BE EX CLUDED IN WORKING OUT DISALLOWANCE UNDER RULE 8D, AND TOOK THE VIEW THAT SHARE APPLICA TION MONEY CANNOT BE TREATED AS INVESTMENT. WHEN THIS EXCLUSION OF THE SHARE APPLI CATION MONEY FROM THE RECKONING THE INVESTMENT IS BASED ON SOUND PRINCIPLE OF LAW HOLDI NG THE FIELD AS ON THE DATE, WE FIND IT DIFFICULT TO SAY THAT SUCH EXCLUSION OF SHARE APPLI CATION MONEY BY THE LD. CIT(A) WHILE CALCULATING THE TOTAL INVESTMENT, IS BAD EITHER UND ER LAW OR ON FACTS. 8. NOW, TURNING TO THE NEXT CONTENTION OF LD. DR TH AT THE LD. CIT(A) ERRED IN CONSIDERING THE NET INTEREST DEBITED TO THE P&L ACC OUNT FOR THE PURPOSE OF RULE 8D(2)(II) AND (III), THE ORDER OF THE LD CIT(A) SHOWS THAT ON VERIFICATION OF THE RECORD HE FOUND THAT THE ASSESSEE HAS RECOVERED AN AMOUNT OF RS.6,0 4,18,894/- TOWARDS INTEREST FROM ITS SUBSIDIARY COMPANY AND INTEREST WHICH WAS CAPITALIZ ED WAS RS.1,58,78,221/-, THE INTEREST RECEIVED WAS RS.87,56,255/-, AND THE NET I NTEREST PAID BY THE ASSESSEE WAS ONLY RS.11,44,18,956/- BUT NOT RS.19,94,72,326/-. WHILE COMPUTING THE DISALLOWABLE PORTION UNDER RULE 8D2(II) AND (III) OF THE RULES, THE LD. CIT(A) CONSIDERED ONLY THE NET INTEREST PAID BY THE ASSESSEE. THIS ACT OF LD CIT IS BASED O N THE RATIO OF THE FOLLOWING DECISIONS I) MORGAN STANLEY INDIA SECURITIES (P) LTD., (201 1) 55 DTR 177; II) M/S TRADE APARTMENT LTD., ITA NO.1277/KOL/2011 , ORDER DATED 30.03.2012; III) KARNAVATI PETROCHEM (P) LTD., ITA NO.2228/AHD /2012, ORDER DATED 05.07.2013; AND IV) SHAH BHAGWANDAS K. CHOKSI, ITA NO.777/AHD/201 1, ORDER DATED 19.09.2014. IN ALL THESE DECISIONS, IT IS CONSISTENTLY HELD THA T SINCE THE AMOUNT OF INTEREST IS DEBITED TO THE PROFIT AND LOSS ACCOUNT IS ON NET BASIS, THE DISALLOWANCE OF INTEREST SHOULD ALSO BE MADE ONLY WITH REFERENCE TO THE NET INTEREST. THERE FORE, WE FIND THAT THE ACT OF LD. CIT(A) I.T.A. NO. 348/KOL./2014 ASSESSMENT YEAR: 2009-2010 PAGE 5 OF 5 IN CONSIDERING THE NET INTEREST OF RS.11,44,18,956/ - PAID BY THE ASSESSEE IS BASED ON ESTABLISHED PRINCIPLE OF LAW. 9. SINCE THE CALCULATION OF THE DISALLOWABLE PORTIO N BY THE LD. CIT(A) IS BASED ON THE PRINCIPLE OF LAW LAID DOWN BY THE VARIOUS COORDINAT E BENCHES OF THE TRIBUNAL, WE DO NOT SEE ANY ILLEGALITY OR IRREGULARITY IN THE ORDER OF LD. CIT(A). WE ACCORDINGLY, UPHOLD THE SAME AND DISMISS BOTH THE GROUNDS OF REVENUE. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED . ORDER PRONOUNCED IN THE OPEN COURT ON 07/10/2 016. SD/- (WASEEM AHMED) SD/- (NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER ! ! /KOLKATA; $% DATED 07/10/2016 & '() /PRAKASH MISHRA, . / PS '#$ %$ / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / (ASSTT. REGISTRAR) , / ITAT, 1. / THE APPELLANT 2. / THE RESPONDENT. 3. * ( ) / THE CIT(A), CENTRAL-III, KOLKATA 4. * / CIT 5. +, - . , .# , / DR, ITAT, KOLKATA 6. - / / GUARD FILE. + //TRUE COPY//