DCIT, Circle - 5, Kolkata, Kolkata V. M/s. Batlivala & Karani Securities India (P) Ltd., Kolkata

ITA 445/KOL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48186 (ITAT-KOLKATA)
• Duration Of Justice: 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 15-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GOUTAM MONDAL
• Assessee Lawyers: P K AGARWAL
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH-B: KO LKATA ( ) , , . . , ,) [BEFORE HONBLE SHRI MAHAVIR SINGH, J.M. & HONBLE SHRI C.D. RAO, A.M] /I.T.A. NO. 445/KOL./2011 ASSESSMENT YEAR : 2007-2008 DEPUTY COMMISSIONER OF INCOME TAX, -VS.- M/S. BA TLIVALA & KARANI SECURITIES INDIA CIRCLE-5, KOLKATA (P) LTD., KOLKATA (PAN : AABCB 4650 R) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI GOUTAM MONDAL, SR. D.R . RESPONDENT BY : SHRI P.K. AGARWAL, A.R. ! ! ! ! /O R D E R PER SHRI MAHAVIR SINGH, JUDICIAL MEMBER / , : THIS APPEAL BY REVENUE IS ARISING OUT OF THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-VI, KOLKATA IN APPEAL NO. 1059/CIT(A)-VI/ CIR-5/09-10/KOL DATED 24.12.2010. ASSESSMENT WAS FRAMED BY ACIT, CIRCLE-V, KOLKATA FO R ASSESSMENT YEAR 2007-08 U/S. 143(3) R.W.S. 115WE(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE ORDER DATED 30.11.2009. 2. THE ONLY ISSUE IN THIS APPEAL OF THE REVENUE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-VI, KOLKATA CONFIRMING THE DIS ALLOWANCE MADE BY THE ASSESSING OFFICER AT RS.13,47,173/- BY INVOKING THE PROVISIONS OF SECTIO N 14A READ WITH RULE 8D(II) OF THE INCOME TAX RULES, 1962. FOR THIS, THE REVENUE HAS RAISED THE FOLLOWING EFFECTIVE GROUND :- THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, L D. CIT(A.)-VI, KOLKATA HAS ERRED IN LAW AS WELL AS ON FACTS BY DEL ETING THE DISALLOWANCE UNDER SECTION 14A OF RS.13,47,173/- AN D COMPUTING DISALLOWANCE @ 1% OF EXEMPT INCOME I.E. RS.59,21,04 4/- WITHOUT ANY BASIS AND LOGIC, WHICH IS MORE SO AS IN THE CASE OF CIT VS.- HERO CYCLES, NOVEMBER 4, 2009 (P&H) IT WAS HELD THAT EVE N IF THE FUNDS ARE MERGED IN A COMMON KITTY, THE DISALLOWANCE UNDER SE CTION. 14A IS JUSTIFIED. 3. BRIEF FACTS RELATING TO THE ABOVE ISSUE ARE THAT THE ASSESSING OFFICER BY INVOKING THE PROVISION OF SECTION 14A READ WITH RULE 8D(2)(II) O F THE ACT DISALLOWED EXPENDITURE AT RS. 13,47,173/- LINKED TO EARNING OF EXEMPT INCOME. AGG RIEVED AGAINST THE ADDITION, THE ASSESSEE ITA NO. 445/KOL.2011 BATLIVALA & KARANI SECURITIES INDIA (P) LTD. ASSESSMENT YEAR 07-08 2 PREFERRED APPEAL BEFORE CIT(APPEALS), WHO RESTRICTE D THE DISALLOWANCE TO RS.59,210/- BY GIVING FINDING AT PARA 4 OF PAGES 3 AND 4 , WHICH READS AS UNDER :- I HAVE CAREFULLY CONSIDERED ALL THE FACTS AND CIRC UMSTANCES OF THIS CASE. IT IS SEEN THAT PROBABLY THE A.O. HAS MADE DISALLOWANCE U/S. 1 4A O F THE I. T. ACT AS PER RULE 8D OF THE I. T. RULES ON THE BASIS OF THE DECISION GIVEN BY H ONBLE I.T.A.T. (S.B.), MUMBAI IN THE CASE OF M/S. DAGA CAPITAL MANAGEMENT PVT. LTD. THAT RULE 8D WAS APPLICABLE RETROSPECTIVELY THOUGH IT WAS INTRODUCED W.E.F. 24. 03.2008. IT IS SEEN THAT THIS DECISION OF HONBLE SPECIAL BENCH, I.T.A.T., MUMBAI HAS BEEN RE VERSED BY HONBLE BOMBAY HIGH COURT BY ITS ORDER DTD. 12.08.2010, GIVEN IN THE CA SE OF GODREJ & BOYCE MFG. CO. LTD., MUMBAI. I HAVE GONE THROUGH THIS ORDER OF HONBLE B OMBAY HIGH COURT. HONBLE HIGH COURT HAS HELD THAT THE PROVISIONS OF RULE 8D SHALL BE APPLICABLE FROM ASSESSMENT YEAR 2008-09 ONWARDS. IN THE PRESENT CASE THE ASSESSMENT YEAR INVOLVED IS ASSTT. YEAR 2007- 08. THEREFORE, THE DISALLOWANCE U/S. 14A MADE BY TH E A.O. AS PER RULE 8D WILL NOT BE APPLICABLE TO THIS YEAR. HOWEVER THE CLAIM OF LD. A.R. THAT NO EXPENDITURE CAN BE SAID TO BE RELATED TO EXEMPT INCOME CANNOT BE ACCEPTED. FIRST OF ALL WE H AVE TO SEE IF ANY INTEREST EXPENSES CAN BE SAID TO BE RELATED TO EXEMPT INCOME. IT IS S EEN THAT AS ON 31.03.07 THE INVESTMENTS OF THE ASSESSEE ARE ABOUT RS.15.55.CR. AS AGAINST T HIS THE SHARE CAPITAL AND RESERVE AND SURPLUS ARE ABOUT RS.28.59 CR. FROM THIS PRIMA-FACI E IT CAN BE SAID THAT THE INTEREST FREE FUNDS ARE UTILIZED FOR THESE INVESTMENTS. HENCE NO INTEREST CAN BE LINKED TO THE EXEMPT INCOME. AS REGARDS THE OTHER EXPENSES IT IS SEEN T HAT IN RECENT DECISIONS HONBLE ITAT, KOLKATA HAS DECIDED THAT 1% OF THE EXEMPT INCOME CA N BE CONSIDERED AS ADMINISTRATIVE EXPENSES RELATED TO THE EXEMPT INCOME AND CAN BE DI SALLOWED U/S. 14A. IN THE CASE OF THE ASSESSEE THE EXEMPT LTCG IS RS.56,97,008/- AND THE EXEMPT DIVIDEND IS RS.2,24,036/- WHICH TOTAL UP TO RS.59,21,044/-. ONE PERCENT OF TH IS AMOUNT WOULD BE RS.59,210/-. THEREFORE, I HOLD THAT THE DISALLOWANCE U/S. 14A SH OULD BE RESTRICTED TO RS. 59,2L0/-. 3. AFTER HEARING RIVAL CONTENTIONS AND GOING THROUG H FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSEE EARNED DIVIDEND INCOME OF RS .3,85,121/- AND LTCG OF RS.56,97,008/. WE FURTHER FIND THAT THE ASSESSING OFFICER HAS DISALLO WED EXPENDITURES ON THE SAME AT RS.13,47,173/- BY INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. CIT(A) RESTRICTED THE DISALLOWANCE TO RS.59,210/- B Y FOLLOWING THE DECISION OF GODREJ BOYCEE MFG. CO. LTD. VS. DCIT [2010] 328 ITR 81 (BOM.). WE ALSO FIND THAT THE PRINCIPLE LAID DOWN BY HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ BOY CEE MFG. CO. LTD. VS. DCIT [2010] 328 ITR 81 (BOM.) AT PAGES 138 & 139 VIDE SUB PARAS (V) TO (VII) ARE AS UNDER: (V) THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RU LES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM MARCH 24, 2008, SHALL APPLY WITH E FFECT FROM THE ASSESSMENT YEAR 2008-09; (VI) EVEN PRIOR TO THE ASSESSMENT YEAR 2008-09, WHE N RULE 8D WAS NOT APPLICABLE, THE ASSESSING OFFICER HAS TO ENFORCE TH E PROVISIONS OF SUB-SECTION (1) OF SECTION 14A. FOR THAT PURPOSE, THE ASSESSING OFFICE R IS DUTY BOUND TO DETERMINE THE EXPENDITURE WHICH HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. THE ASSESSI NG OFFICER MUST ADOPT A REASONABLE BASIS OR METHOD CONSISTENT WITH ALL THE RELEVANT FACTS AND CIRCUMSTANCES AFTER FURNISHING A REASONABLE OPPORTU NITY TO THE ASSESSEE TO PLACE ALL GERMANE MATERIAL ON THE RECORD; ITA NO. 445/KOL.2011 BATLIVALA & KARANI SECURITIES INDIA (P) LTD. ASSESSMENT YEAR 07-08 3 (VII) THE PROCEEDINGS FOR THE ASSESSMENT YEAR 2002 -03 SHALL STAND REMANDED BACK TO THE ASSESSING OFFICER. THE ASSESSING OFFICE R SHALL DETERMINE AS TO WHETHER THE ASSESSEE HAS INCURRED ANY EXPENDITURE (DIRECT O R INDIRECT) IN RELATION TO DIVIDEND INCOME/INCOME FROM MUTUAL FUNDS WHICH DOES NOT FORM PART OF THE TOTAL INCOME AS CONTEMPLATED UNDER SECTION 14A. THE ASSES SING OFFICER CAN ADOPT REASONABLE BASIS FOR EFFECTING THE APPORTIONMENT. W HILE MAKING THAT DETERMINATION, THE ASSESSING OFFICER SHALL PROVIDE A REASONABLE OPPORTUNITY TO THE ASSESSEE OF PRODUCING ITS ACCOUNTS AND RELEVANT AND GERMANE MATERIAL HAVING A BEARING ON THE FACTS AND CIRCUMSTANCES OF THE CASE SINCE CIT(A) RESTRICTED THE DISALLOWANCE AT RS.59, 210/- BY FOLLOWING THE AFORESAID DECISION CITED SUPRA, WE FIND NO INFIRMITY IN HIS O RDER AND THE SAME IS HEREBY UPHELD. THE APPEAL OF THE REVENUE IS DISMISSED. 4. IN VIEW OF THE ABOVE, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- [C. D. RAO ( . . )] [ MAH AVIR SINGH / ] ACCOUNTANT MEMBER/ JUDICIAL MEMBER/ ] DATED : 13 / 06/ 2011 COPY OF THE ORDER FORWARDED TO: 1 . M/S. BATLIVALA & KARANI SECURITIES INDIA (P) LTD., 7, LYONS RANGE, KOLKATA-1 2. DCIT, CIRCLE-5, KOLKATA, P-7, CHOWRINGHEE SQUARE, K OLKATA- 69 3. CIT(APPEALS)- , KOLKATA 4 . CIT- , KOLKATA 5 . DR, KOLKATA BENCHES, KOLKATA (TRUE COPY) BY ORDER ASSISTANT REGISTRAR I.T.A.T., KOLKATA. LAHA, SR. P.S.