Likhami Commercial Co. Ltd., Kolkata V. THE DCIT, CIR-7, KOLKATA, Kolkata

ITA 432/KOL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0959 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 14-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DAVID Z CHAWNGTHU CIT SR D
• Section: 14A

Judgement Text

ITA NO.432/KOL/2016 LIKHAMI COMMERCIAL CO. LTD. A.Y .2009-10 1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM & SHRI WASE EM AHMED, AM] I.T.A NO. 432/KOL/2016 ASSESSMENT YEAR : 2009-10 LIKHAMI COMMERCIAL COMPANY LTD. -VS.- D.C .I.T., CIRCLE-7, KOLKATA KOLKATA [PAN : AAACL 4314 A] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SMT. NILIMA JOSH I, FCA FOR THE RESPONDENT : SHRI DAVID Z.CHAWNG THU, ADDL. CIT, SR.DR DATE OF HEARING : 14.11.2017. DATE OF PRONOUNCEMENT : ORDER PER N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED.27.01.2016 OF. C.I.T.(A)-18, KOLKATA RELATING TO A.Y. 2009-10. 2. THE ONLY ISSUE THAT NEEDS CONSIDERATION BY THE T RIBUNAL IS THIS APPEAL IS THE CORRECTNESS OF THE DISALLOWANCE OF OTHER EXPENSES UNDER RULE 8D(2)(III) OF THE INCOME TAX RULES, 1962 (RULES) READ WITH SEC.14A OF THE INCOME TAX ACT, 1961 (ACT). 3. THE ASSESSEE IS A COMPANY. IT CARRIES ON THE BU SINESS OF NON-BANKING FINANCING ACTIVITIES. IT EARNED DIVIDEND INCOME OF RS.27,43,330. THE SAID INCOME WAS NOT CHARGEABLE TO TAX. IN TERMS OF SECTION 14A OF T HE ACT READ WITH RULE 8D OF THE RULES, DISALLOWANCE OF EXPENSES THAT ARE INCURRED T O EARN TAX FREE INCOME HAS TO BE MADE. 4. THE DISPUTE IN THIS APPEAL IS WITH REGARD TO DIS ALLOWANCE OF OTHER EXPENSES UNDER RULE 8D(2)(III) OF THE RULES. RULE 8D(2)(III) OF T HE RULES RELATES TO DISALLOWANCE OF OTHER EXPENSES INCURRED TO EARN TAX FREE INCOME AND IT RE ADS AS FOLLOWS: (III) AN AMOUNT EQUAL TO ONE-HALF PER CENT. OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL ITA NO.432/KOL/2016 LIKHAMI COMMERCIAL CO. LTD. A.Y .2009-10 2 INCOME, AS APPEARING IN THE BALANCE-SHEET OF THE AS SESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. 5. THE AO COMPUTED DISALLOWANCE IN TERMS OF RUL E 8D(2)(III) OF THE RULES OF RS.38,75,942/- AS FOLLOWS: AVERAGE VALUE OF INVESTMENTS: 76,34,80,813 (INVEST MENT AS APPEARING IN BALANCE SHEET AS ON 1 ST DAY OF THE PREVIOUS YEAR) + 76,68,96,156(INVESTMEN T AS APPEARING IN BALANCE SHEET AS ON 1 ST DAY OF THE PREVIOUS YEAR) /2 = RS.38,75,942. 6. THE PLEA OF THE ASSESSEE BEFORE CIT(A) WAS THAT ONLY INVESTMENTS WHICH YIELDED DIVIDEND INCOME DURING THE RELEVANT PREVIOU S YEAR OUGHT TO BE CONSIDERED WHILE WORKING AVERAGE VALUE OF INVESTMENTS. IN SUP PORT OF SUCH PLEA THE ASSESSEE RELIED ON DECISION OF HONBLE DELHI HIGH COURT IN T HE CASE OF ACB INDIA LTD. VS. ACIT 374 ITR 108 (DEL.). THE CIT(A) DID NOT AGREE WITH THE AFORESAID PLEA OF THE ASSESSEE ON THE GROUND THAT THE FACTS OF THE ASSESS EES CASE ARE DIFFERENT FROM THE FACTS OF THE CASE DECIDED BY HONBLE DELHI HIGH COU RT. 7. AGGRIEVED BY THE ORDER OF THE CIT(A) THE A SSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS. BEF ORE US THE PLEA OF THE LEARNED COUNSEL FOR THE ASSESSEE WAS THAT WHILE APPLYING RULE 8D(2) (III) OF THE RULES, AO SHOULD CONSIDER ONLY THE INVESTMENTS WHICH YIELDED DIVIDEN D INCOME DURING THE PREVIOUS YEAR AND NOT THE ENTIRE INVESTMENTS AS APPEARING IN THE BALANCE SHEET WHILE WORKING AVERAGE VALUE OF INVESTMENTS. THIS SUBMISSION IS MA DE BY THE ASSESSEE KEEPING IN VIEW OF THE DECISION OF THE TRIBUNAL (ITAT KOLKATA) RENDERED IN THE CASE OF REI AGRO LTD. VS DCIT IN ITA NO.1331/KOL/2011 WHEREIN IT WAS HELD THAT THE ONLY INVESTMENTS YIELDING DIVIDEND INCOME DURING THE PRE VIOUS YEAR ARE TO BE CONSIDERED IN WORKING AVERAGE VALUE OF INVESTMENTS WHILE COMPUTIN G DISALLOWANCE U/S 14 A READ WITH RULE 8D OF THE RULES. THE AFORESAID VIEW OF TH E TRIBUNAL HAS SINCE BEEN AFFIRMED AS CORRECT BY THE HONBLE CALCUTTA HIGH COURT IN G. A.NO.3581 OF 2013 IN THE APPEAL ITA NO.432/KOL/2016 LIKHAMI COMMERCIAL CO. LTD. A.Y .2009-10 3 AGAINST THE ORDER OF THE TRIBUNAL IN THE CASE OF RE I AGRO LTD. (SUPRA). THE LEARNED DR RELIED ON THE ORDER OF THE CIT(A). 9. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE O F THE VIEW THAT IN THE LIGHT OF THE DECISION REFERRED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE THE PLEA OF THE ASSESSEE FOR RESTRICTING THE DISALLOWANCE U/S 14A OF THE ACT IS FOUND TO BE JUSTIFIED. THE AO IS ACCORDINGLY DIRECTED TO CONSIDER THE AVERAGE VALUE OF INVESTMENTS BY CONSIDERING ONLY THE INVESTMENTS WHICH YIELD TAX FREE INCOME DURING THE PREVIOUS YEAR. THE APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED. 10. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON 17.11.2017. SD/- SD/- [WASEEM AHMED] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 17.11.2017. [RG SR.PS] COPY OF THE ORDER FORWARDED TO: 1.LIKHAMI COMMERCIAL COMPANY LTD., 216, A.J.C.BOSE ROAD, KOLKATA-700017. 2. D.C.I.T., CIRCLE-7, KOLKATA. 3. C.I.T. (A)-18, KOLKATA. 4. C.I.T.-3, KO LKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SR. PRIVA TE SECRETARY HEAD OF OFFICE/DDO,, ITAT, KOLKATA BENCHES