DCIT, CIR-5(1), KOLKATA, Kolkata V. M/s Hamilton & Co. Ltd., Kolkata

ITA 36/KOL/2016

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1780 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 06-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AGAINST DATED PASSED
• Keywords: Unexplained cash credit; Earning of tax free income
• Section: 14A; 133(6); 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A, KOLKATA BEFORE SH. J.SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SH. S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO.36/KOL/2016 (ASSESSMENT YEAR-2009-10) ORDER PER S.S. VISWANETHRA RAVI, JUDICIAL MEMBER THIS APPEAL BY THE REVENUE AGAINST THE ORDER DATED 09.07.2012 PASSED BY CIT(A)-VI, KOLKATA FOR AY 2009-10. 2. GROUND NO. 1 IS RELATING TO RESTRICTION OF DISALLOWANCE AT 50% MADE ON ACCOUNT OF TRAVELLING AND CONVEYANCE EXPENSES. 3. THE LD.AR SUPPORTED THE ORDER OF CIT(A) AND LD.DR SUPPORTED THE ORDER OF AO. 4. HEARD BOTH PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. CIT(A) EXAMINED THE RECORD AND HELD THE ASSESSEES CLAIM OF TRAVELLING AND CONVEYANCE EXPENSES INCLUDING FOREIGN TRAVEL EXPENSES IS ONLY RS.12,90,441/- BUT NOT RS.15,76,876/- AS MENTIONED BY THE AO. THE CIT(A) EXAMINED THE TOTAL EXPENDITURE INCURRED BY THE ASSESSEE AND FOUND THE EXPENDITURE ON FOREIGN TRAVEL WAS ONLY 6,33,578/- AND CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE RESTRICTED THE SAID DISALLOWANCE AT 50% I.E. RS.3,3,16,789/-. LD.AR ADMITS THAT THE ASSESSEE DID NOT FILE ANY APPEAL QUESTIONING THE RESTRICTION OF SAID DISALLOWANCE BEFORE THIS TRIBUNAL. FOR BETTER UNDERSTANDING, THE RELEVANT PORTION OF ORDER OF CIT(A) IS REPRODUCED HEREIN BELOW:- PAGE | 1 DCIT, CIRCLE-5(1), P-7, CHOWRINGHEE SQUARE, KOLKATA-700069. VS M/S. HAMILTON & COMPANY LTD., 13A, NEW ROAD, ALIPORE, KOLKAT A-700027. PAN-AAACH8178B (APPELLANT) (RESPONDENT) APPELLANT BY SH.ROBIN CHOUDHARY, ADDL.CIT SR.DR RESPONDENT BY SH. S.M.SURANA, ADVOCATE DATE OF HEARING 23.10.2018 DATE OF PRONOUNCEMENT 16.11.2018 ITA NO.36/KOL/2016 (ASSESSMENT YEAR-2009-10) 3.3. I HAVE CONSIDERED THE SUBMISSION MADE BY THE LD. A/ R OF THE APPELLANT AND ALSO GONE THROUGH THE ASSESSMENT ORDER. DURING THE COURSE OF APPELLATE PROCEEDINGS, THE LD. AIR HAS EXPLAINED THAT THE APPELLANT HAS ACTUALLY INCURRED THE EXPENDITURE OF RS. 12,90,441 / - ON ACCOUNT OF TRAVELLING & CONVEYANCE INCLUDING FOREIGN TRAVELS WHEREAS THE AO HAS WRONGLY TAKEN IT AS RS.15,76,876/-. HE HAS ALSO EXPLAINED THAT OUT OF TOTAL EXPENSES ON TRAVELLING & CONVEYANCE OF RS.12,90,441/-, EXPENDITURE. ON FOREIGN TRAVELLING WAS ONLY RS.6,33,578/-. CONSIDERING THE FACTS OF THE CASE, THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE OUT OF TRAVELLING & CONVEYANCE TO RS.3,16,789/-, BEING 50% OF RS.6,33,578/-. THUS THE APPELLANT GETS A RELIEF OF RS.4,71,649/-. THIS GROUND OF APPEAL IS PARTLY ALLOWED. 5. IN VIEW OF THE ABOVE AND DISCUSSION MADE IN PARA IN PARA NO.2.1, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A). THEREFORE, GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 6. GROUND NO.2 IS RELATING TO DELETION OF ADDITION ON ACCOUNT OF UNEXPLAINED CASH CREDIT. 6.1. HEARD BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. CIT(A) EXAMINED THE RECORD INCLUDING THE I.T. ACKNOWLEDGEMENT, BALANCE SHEET AND COPY OF BANK STATEMENT OF M/S EXCEL INFOTECH LTD. AND FOUND THE SAID M/S. EXCEL INFOTECH LTD. IS AN ASSESSEE, HAS NET WORTH OF RS.667,36,25,404/- AS ON 31.03.2009 WHICH IS RELEVANT TO THE YEAR UNDER CONSIDERATION. CIT(A) ALSO FOUND SATISFIED THE SAID LOAN RECEIVED BY THE ASSESSEE FROM THE SAID M/S EXCEL INFOTECH LTD. THROUGH BANKING CHANNELS. WE FIND THE ADDITION MADE BY THE AO U/S 68 OF THE ACT WHICH REQUIRES THE ASSESSEE TO PROVE IDENTITY, GENUINENESS OF TRANSACTION AND CREDITWORTHINESS. IN THE PRESENT CASE, THE ASSESSEE PROVED THE SAID THREE INGREDIENTS VIDE ITS LETTER DATED 28.12.2011 BEFORE THE AO IN THE ASSESSMENT PROCEEDINGS. THE CIT(A) HELD THAT THE ASSESSEE DISCHARGED ITS DUTY BEFORE THE AO AND THE SAID M/S EXCEL INFOTECH LTD. RESPONDED TO THE NOTICE U/S 133(6) OF THE ACT ISSUED BY THE AO. THE RELEVANT PORTION OF ORDER OF CIT(A) IS REPRODUCED HEREIN BELOW:- 4.3. I HAVE CONSIDERED THE SUBMISSION MADE BY THE LD. A/R OF THE APPELLANT AND ALSO GONE THROUGH THE ASSESSMENT ORDER. THE LD. A/R HAS EXPLAINED THAT THE APPELLANT HAD SUBMITTED THE COPY OF I.T. ACKNOWLEDGMENT, BALANCE SHEET & THE COPY OF BANK STATEMENT OF M/S EXCEL INFOTECH LTD BEFORE THE AO VIDE ITS REPLY DATED 28.12.2011. HE. HAS ALSO STATED THAT M/S EXCEL INFOTECH LTD HAS A NET WORTH OF RS.667,36,25,404/- AS ON 31.03.2009. THE LD. A/R HAS ALSO STATED THAT THE APPELLANT-COMPANY HAD RECEIVED THE LOAN FROM M/S EXCEL INFOTECH LTD THROUGH BANKING CHANNELS. THE LD. AIR HAS CLARIFIED THAT (I) THE IDENTITY OF M/S EXCEL INFOTECH LTD, (II) ITS CREDITWORTHINESS AND (III) THE GENUINENESS OF THE TRANSACTIONS HAVE BEEN PROVED BEFORE THE AO. HOWEVER, THE AA HAS TREATED THE LOAN AS PAGE | 2 ITA NO.36/KOL/2016 (ASSESSMENT YEAR-2009-10) UNEXPLAINED CASH CREDIT ON THE GROUND THAT THE APPELLANT HAD NOT PAID ANY INTEREST TO M/S EXCEL INFOTECH LTD. THE APPELLANT HAS RECEIVED LOAN FROM M/ S EXCEL INFOTECH LTD BY TWO CHEQUES ON 24.09.2008 AND 06.02.2009 FOR RS.1,00,00,000/- AND RS.40,00,000/- RESPECTIVELY. THE LD. A/R HAS EXPLAINED THAT THE AO HAD ISSUED NOTICE U/S 133(6) TO M/S EXCEL INFOTECH LTD AND THE SAID PARTY HAD MADE PROPER COMPLIANCE TO THE NOTICE ISSUED ULS 133(6). IN ADDITION TO THE ABOVE, THE LD. A/R HAS EXPLAINED THAT THE INTEREST FREE LOAN RECEIVED FROM M/S EXCEL INFOTECH LTD IS NOT PREJUDICIAL TO THE INTEREST OF THE APPELLANT- COMPANY OR ITS SHAREHOLDERS. THE LD. A/R HAS ALSO RELIED ON THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS BEDI & CO PVT LTD [1998] 230 ITR 580(SC). HE HAS FURTHER CLARIFIED THAT THE APPELLANT-COMPANY WAS ABLE TO-MAKE MORE PROFITS DURING THE YEAR DUE TO AVAILABILITY OF INTEREST-FREE LOANS. CONSIDERING THE FACTS OF THE CASE, I AM OF THE OPINION THAT THE AO HAS TREATED THE LOAN OF RS.1,40,00,000/- FROM M/S EXCEL INFOTECH LTD AS UNEXPLAINED CASH CREDITS U/S 68 ON THE BASIS OF CONJECTURE AND SURMISE. IN VIEW OF THE ABOVE, THE AO IS DIRECTED TO DELETE THE ADDITION OF RS.L,40,00,000/- AS UNEXPLAINED CASH CREDIT U/S 68. THUS THE APPELLANT GETS A RELIEF OF RS.L,40,00,000/-. THIS GROUND OF APPEAL IS ALLOWED. 7. IN VIEW OF THE ABOVE AND DISCUSSION MADE IN PARA 4.1, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A). THUS, GROUND NO.2 RAISED BY THE REVENUE IS DISMISSED. 8. GROUND NO.3 RELATING TO DELETION OF ADDITION MADE FOR THE PURPOSE OF SECTION 14A OF THE ACT. 8.1. HEARD BOTH SIDES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOTED FROM THE IMPUGNED ORDER THE CIT(A) HELD THE DISALLOWANCE MADE BY THE ASSESSEE UNDER RULE 8D(2)(C) IS SUFFICIENT AND DELETED THE ADDITION MADE UNDER RULE 8D(2)(III). THE RELEVANT PORTION IS REPRODUCED HEREIN BELOW:- 5.3. I HAVE CONSIDERED THE SUBMISSION MADE BY THE LD. A/R OF THE APPELLANT AND ALSO GONE THROUGH THE ASSESSMENT ORDER. THE RULE 8D IS APPLICABLE ONLY WHEN THE AO IS NOT SATISFIED THAT THE CLAIM MADE BY AN ASSESSEE THAT HE HAS NOT INCURRED ANY EXPENSES TO EARN EXEMPT INCOME OR WHEN THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE EXPENDITURE MADE BY THE ASSESSEE FOR EARNING EXEMPT INCOME. THE RULE 8D(1) READS AS UNDER: '8D.(L) WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHALL DETERMINE THE AMOUNT OF EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB-RULE (2).' THE SUB-RULE (1) OF RULE 8D CLEARLY SPECIFIES THAT THE APPLICABILITY OF THE RULE 8D(2) IS NOT AUTOMATIC. THE PROVISIONS OF RULE 8D(2) ARE ATTRACTED WHEN THE EXPENSES CLAIMED BY THE ASSESSEE IN RELATION TO THE EXEMPT INCOME ARE INCORRECT. IN THE PRESENT CASE, THE EXPENSES DISALLOWED BY THE APPELLANT- COMPANY FOR EARNING EXEMPT INCOME U/S 14A ARE AS UNDER: PAGE | 3 ITA NO.36/KOL/2016 (ASSESSMENT YEAR-2009-10) PARTICULARS AMOUNT (RS) PORTFOLIO MANAGEMENT FEES 10,70,543 INVESTMENT AUDIT FEES 44,944 CERTIFICATION CHARGES 10,485 NSDL CHARGES 60,470 SECURITY TRANSACTION TAX 1,48,568 TOTAL 13,35010 THE LD. A/R HAS EXPLAINED THAT THE APPELLANT-COMPANY HAS ENTRUSTED THE JOB OF INVESTMENTS TO A PORTFOLIO MANAGER WHO ON BEHALF OF THE APPELLANT-COMPANY CARRIED OUT PURCHASE AND SALE OF INVESTMENT FROM TIME TO TIME AGAINST A PROFESSIONAL FEE FOR THEIR SERVICES. THE SAID PORTFOLIO, MANAGEMENT FEE HAS BEEN ALREADY DISALLOWED BY THE APPELLANT WHILE COMPUTING THE AMOUNT OF DISALLOWANCE U/S 14A. AS REGARDS THE APPLICABILITY OF RULE 8D(2)(II), THE AO HAS OBSERVED IN PAGE 2 OF THE ASSESSMENT ORDER THAT 'IN THE CASE OF THE ASSESSEE THE AVERAGE INVESTMENT IS LESS THAN ITS OWN CAPITAL AND THE ASSESSEE HAS TAKEN AND GIVEN LOAN OF ALMOST EQUAL AMOUNT. IT HAS BEEN CONSIDERED. THAT RULE 8D(2)(II) IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE.' THUS, THE AO HAS HELD THAT THE RULE 8D(2)(II) IS NOT APPLICABLE IN THE PRESENT CASE. I HAVE ALSO PERUSED THE APPELLATE ORDER DATED 27.10.2010 PASSED BY THE LD. CIT(A)-VI, KOLKATA FOR THE A.Y. 2007-08 IN APPEAL NO.848/ CIT(A)-VI/09-10/CIR- 5/KOL. CONSIDERING THE FACTS OF THE CASE, I AM OF THE OPINION THAT THE DISALLOWANCE OF RS.13,35,010/- U/S 14A MADE BY THE APPELLANT IS SUFFICIENT FOR EARNING EXEMPT INCOME OF RS.47,97,337/-. KEEPING IN VIEW THE PROVISIONS OF RULE 8D(L) AS DISCUSSED ABOVE, I AM OF THE OPINION THAT THE RULE 8D(2) IS NOT ATTRACTED IN THE INSTANT CASE. ACCORDINGLY, THE AO IS DIRECTED TO DELETE THE ADDITION OF RS.15,76,782/- MADE U/S 14A READ WITH RULE 8D(2). THUS THE APPELLANT GETS A RELIEF OF RS.15,76,782/-. THIS GROUND OF APPEAL IS ALLOWED. 9. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN THE ORDER OF CIT(A). THUS, GROUND NO.3 RAISED BY THE REVENUE IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.11.2018. SD/- SD/- (J.SUDHAKAR REDDY) (S.S.VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATE:- 16.11.2018 *AMIT KUMAR* COPY FORWARDED TO: 1. APPELLANT- DCIT, CIRCLE-5(1), P-7, CHOWRINGHEE SQUARE, KOLKATA- 700069. 2. RESPONDENT- M/S. HAMILTON & COMPANY LTD., 13A, NEW ROAD, ALIPORE, KOLKAT A-700027. 3. CIT-KOLKATA 4. CIT(APPEALS)-KOLKATA 5. DR: ITAT -KOLKATA BENCHES SR.P.S./H.O.O ITAT, KOLKATA PAGE | 4