ALLBank Finance Ltd, Kolkata V. J.C.I.T (OSD) Cir - 5,kolkata., Kolkata

ITA 465/KOL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 5145 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 08-03-2013
• Court: TRIBUNAL
• Department Lawyers: S S ALAM JCITSR
• Assessee Lawyers: B K GHOSH; PIJUSH DEY FCAS LD ARS
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

ITA NO. 465/KOL/2013-A-AM ALLBANK FINANCE LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, A BENCH, KOLKATA BEFORE : SHRI N.VASUDEVAN, JUDICIAL MEMBER, AND SHRI M. BALAGANESH, ACCOUNTANT MEMBER ITA NO. 465/KOL/2013 A.Y 2009-10 ALLBANK FINACE LTD VS. JCIT(OSD), CIRCLE-5, KOLK ATA PAN: AACCA4014D (APPELLANT) (RESPONDENT) FOR THE APPELLANT/ASSESSEE: S/SHRI B.K GHOSH & PIJUSH DEY, FCAS, LD.ARS FOR THE RESPONDENT/DEPARTMENT: SHRI S.S ALAM, JCIT/SR.DR DATE OF HEARING: 09-12 -2015 DATE OF PRONOUNCEMENT: 13-01-201 6 ORDER SHRI M.BALAGANESH, AM : THIS APPEAL OF THE ASSESSEE ARISES OUT OF THE ORD ER OF THE LEARNED CIT(A)-VI, KOLKATA IN APPEAL NO. 308/CIT(A)-VI/CIRC LE-6/11-12/KOL DATED 08-01-2013 FOR THE ASST YEAR 2009-10 PASSED AGAINST THE ORDER OF ASSESSMENT FRAMED BY THE LEARNED AO U/S 143(3) OF THE INCOME T AX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DISALLOWANCE U/S 14A OF THE ACT COULD BE MADE IN THE SUM OF RS. 12,24,192/-. ITA NO. 465/KOL/2013-A-AM ALLBANK FINANCE LTD 2 3. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSES SEE HAD DERIVED THE FOLLOWING EXEMPT INCOME :- DIVIDEND FROM MUTUAL FUNDS 1,61,72,775 DIVIDEND FROM SHARES 14,19,096 TAX FREE INTEREST 3,84,725 --------------- 1,79,76,596 THE ASSESSEE VOLUNTARILY DISALLOWED A SUM OF RS. 4, 67,484/- U/S 14A OF THE ACT IN THE REVISED COMPUTATION OF INCOME FILED BEFORE T HE COMPLETION OF ASSESSMENT PROCEEDINGS TOGETHER WITH WORKINGS FOR THE SAME. T HE LEARNED AO IGNORING THE SAID WORKINGS, DIRECTLY PROCEEDED TO MAKE DISALLOWA NCE U/S 14A OF THE ACT TO THE EXTENT OF RS. 12,24,192/- BY MAKING THE FOLLOWI NG OBSERVATIONS:- IT IS NOTICED THAT THE ASSESSEE COMPANY HAS CLAIME D EXEMPTED DIVIDEND INCOME. BUT IN THE COMPUTATION, THERE WAS NO SUCH DISALLOWANCE MADE IN RESPECT OF EXPENDITURE INCURRE D BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME. IN THE ASSESSMENT ORDER, THE LEARNED AO HAD NOT FUR NISHED THE WORKINGS OF ARRIVING AT THE DISALLOWANCE U/S 14A OF THE ACT AND NO DETAILS OF INVESTMENTS HELD BY THE ASSESSEE WERE SPELT OUT BY THE LEARNED AO IN THE ORDER. ON FIRST APPEAL, THE LEARNED CIT(A) UPHELD THE ADDITION MADE BY THE LEARNED AO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON T HE FOLLOWING GROUNDS:- 1. THAT, ON FACTS AS WELL AS ON LAW, THE LEARNED COMM ISSIONER OF INCOME TAX (APPEALS) - VI, KOL HAS ERRED IN CONFIRMING THE DISALLOWANCES AMOUNTING TO RS.12,24,192 UNDER SECTION 14A WITHOUT BRINGING ON RECORD ANY COGENT REASONS FOR DISREGARDING AND REJE CTING THE ESTIMATE INCLUDING THE MANNER OF MAKING ESTIMATE OF DISALLOW ANCES AMOUNTING TO RS.4,67,484 OFFERED BY THE APPELLANT ITSELF. 2. THAT, ON FACTS AS WELL AS ON LAW, THE LEARNED CO MMISSIONER OF INCOME TAX (APPEALS) - VI, KOL HAS ERRED IN RESTRIC TING THE ITA NO. 465/KOL/2013-A-AM ALLBANK FINANCE LTD 3 DISALLOWANCES UNDER SECTION 14A TO RS.12,24,192 INS TEAD OF RS 4,67,484 OFFERED BY THE APPELLANT WHICH IS MOST REA SONABLE EXPENSES IN RELATION TO EARNING OF TAX- FREE INCOME. 3. THAT, ON FACTS AS WELL AS ON LAW, THE LEARNED CO MMISSIONER OF INCOME TAX (APPEALS) - VI, KOL HAS ERRED IN DISREGA RDING THE ORDER OF LEARNED CIT(A) - VI, KOLKATA IN RESPECT OF ASSESSME NT YEARS 2006-07 AND 2007-08 IN THE APPELLANT'S OWN CASE (APPEAL NO. 850/CIT(A)- VI/CIR-6/KOL/2009-10 AND APPEAL NO. 569/CIT(A)-VI/C IR-6/KOL/2008- 09 RESPECTIVELY AND ORDERS DATED 29/11/2010) IN WHI CH 1 % OF THE TAX- FREE INCOME WAS HELD TO BE REASONABLE EXPENSES FOR THE PURPOSE OF DISALLOWANCES UNDER SECTION 14A. 4. THAT, ON FACTS AS WELL AS ON LAW, THE LEARNED CO MMISSIONER OF INCOME TAX (APPEALS)-VI, KOL HAS ERRED IN DISALLOWI NG 0.5% OF TAX- FREE INVESTMENTS IN ACCORDANCE WITH THE PROVISION O F RULE 8D READ WITH SECTION 14A(2) OF THE INCOME TAX ACT, 1961 EVE N THOUGH THE AMOUNT OF MOST REASONABLE EXPENSES WAS OFFERED TO T AX IN RELATION TO EARNING OF TAX-FREE INCOME IN COMPUTATION OF TOTAL INCOME. 4. THE LEARNED AR ARGUED THAT THE LEARNED AO HAD NOT GIVEN THE BASIS WITH WORKINGS FOR INVOKING THE DISALLOWANCE U/S 14A OF T HE ACT. THE ASSESSEE HAD MADE DISALLOWANCE U/S 14A OF THE ACT TO THE TUNE OF RS. 4,67,484/- BY ADOPTING THE FOLLOWING BASIS :- - THE INVESTMENT DECISION OF THE COMPANY WAS TAKEN BY THE MANAGING DIRECTOR , CEO AND ONE ASSISTANT VICE PRESIDENT OF THE COMPANY. THEREFORE A PART OF THEIR SALARY HAS BEEN CONSIDERE D AS AMOUNT OF EXPENSES ATTRIBUTABLE TO EARNING OF EXEMPT INCOME. - TOTAL SALARY PAID TO THESE PERSONS DURING THE FINA NCIAL YEAR 2008-09 RELEVANT TO ASST YEAR 2009-10 AMOUNTED TO RS. 19,16 ,408/-. (A) - TOTAL EXEMPT INCOME DERIVED BY THE ASSESSEE IS RS. 1,79,76,596/- (B) - TOTAL INVESTMENTS HELD BY THE ASSESSEE IS RS. 11,97 ,37,137/-. (C ) ITA NO. 465/KOL/2013-A-AM ALLBANK FINANCE LTD 4 - DISALLOWANCE U/S 14A IS WORKED OUT IN THE FOLLOWING MANNER:- (I) SALARY PAID TO AFORESAID PERSONS * EXEMPT INCO ME / TOTAL INVESTMENTS (A) * (B) / (C )= RS. 2,87,718/- (II) FOR INDIRECT EXPENSES 1% OF EXEMPT INCOME RS. 1,79,766/- TOTAL DISALLOWANCE U/S 14A = RS. 4,67,484/- ( 2877 18+179766) THE LEARNED AR ARGUED THAT THE LEARNED AO DID NOT R ECORD ANY SATISFACTION CONTEMPLATED IN SECTION 14A READ WITH RULE 8D(1) OF THE RULES AS TO WHY THE DISALLOWANCE FIGURE QUOTED BY THE ASSESSEE IS NOT C ORRECT. WITHOUT RECORDING SATISFACTION IN TERMS OF RULE 8D(1) OF THE RULES, T HE LEARNED AO CANNOT PROCEED TO INVOKE RULE 8D(2) OF THE RULES. THE LEARNED A O WITHOUT PREJUDICE TO HIS MAIN ARGUMENT, ARGUED THAT EVEN ASSUMING IF DISALLO WANCE U/S 14A IS MADE IN TERMS OF RULE 8D OF THE RULES, THEN ONLY THE INVEST MENTS YIELDING EXEMPT INCOME SHOULD ALONE BE CONSIDERED FOR THE PURPOSE O F RULE 8D OF THE RULES. IN RESPONSE TO THIS, THE LEARNED DR VEHEMENTLY SUPPORT ED THE ORDERS OF THE LOWER AUTHORITIES. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE HAD VOLUNTARILY DISALLOWED A SUM OF RS. 4,67,484/- U/S 14A OF THE ACT WITH SOME BASIS. WE FIND THAT THE ASSESEE DOES NOT HAVE ANY DEBT FUNDS AND HENCE NO INTEREST IS DE BITED. THE FACT IS THAT NO INVESTMENTS WERE MADE DURING THE PREVIOUS YEAR RELE VANT TO ASST YEAR 2009-10 OUT OF THE MONEY BORROWED FROM OUTSIDE THE COMPANY. THUS THERE IS NO ELEMENT OF INTEREST COST INVOLVED IN CONNECTION WITH INVEST MENT MADE DURING THE YEAR. THE LEARNED AO WITHOUT CONTROVERTING THE SAID WORKI NGS AND WITHOUT RECORDING ITA NO. 465/KOL/2013-A-AM ALLBANK FINANCE LTD 5 HIS SATISFACTION WITH COGENT REASONS AS TO WHY THE SAID FIGURE IS INCORRECT, DIRECTLY EMBARKED ON INVOKING RULE 8D(2) OF THE RUL ES. IN OUR OPINION, THIS ACTION OF THE LEARNED AO IS NOT IN ACCORDANCE WITH LAW. WE HOLD THAT THE SATISFACTION NEED TO BE RECORDED IN TERMS OF RULE 8 D(1) BY THE LEARNED AO AND NOT BY THE LEARNED CITA. WE WOULD LIKE TO PLACE RELIANCE IN THIS REGARD ON THE FOLLOWING DECISIONS :- CIT VS ASHISH JHUNJHUNWALA IN G.A.NO. 2990 OF 2013 IN ITAT NO. 157 OF 2013 DATED 8.1.2014 RENDERED BY CALCUTTA HIGH COURT ' WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH RE GARD TO EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXEMPTED INCOME, THE AO HAS TO INDICATE COGENT REAS ONS FOR THE SAME. FROM THE FACTS OF THE PRESENT CASE, IT IS NOTICED T HAT THE AO HAS NOT CONSIDERED THE CLAIM OF THE ASSESSEE AND STRAIGHT A WAY EMBARKED UPON COMPUTING DISALLOWANCE UNDER RULE 8D OF THE RU LES ON PRESUMING THE AVERAGE VALUE OF INVESTMENT AT % OF THE TOTAL VALUE. IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE COORDINATE BENCH DECISION IN THE CASE OF J.K. INVESTORS (BOMBAY) LTD ., SUPRA, WE UPHOLD THE ORDER OF CIT (A)'. CIT VS R.E.I. AGRO LTD IN GA 3022 OF 2013 IN ITAT 1 61 OF 2013 DATED 23.12.2013 RENDERED BY CALCUTTA HIGH COURT THE ASSESSING OFFICER ALSO DISALLOWED THE EXPENDIT URE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 WITHOUT FIRST RECOR DING THAT HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM AS REGARDS THE CLAIM THAT NO EXPENDITURE WAS MADE BY THE ASSESSEE. CHALLENGING THE ORDER OF THE TRIBUNAL, THE PRESENT APPEAL HAS BEEN FILED. WE HAVE HEARD MR.BHOWMIK AND ARE OF THE OPINION THA T NO POINT OF LAW HAS BEEN RAISED. THEREFORE, THIS APPEAL IS DIS MISSED. ITA NO. 465/KOL/2013-A-AM ALLBANK FINANCE LTD 6 5.1. WE ALSO FIND LOT OF FORCE IN THE ALTERNATIVE ARGUMENTS OF THE LEARNED AR THAT ONLY INVESTMENTS YIELDING EXEMPT INCOME SHO ULD BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE U/S 14A READ WITH RULE 8D OF THE RULES. RELIANCE IN THIS REGARD IS PLACED ON THE FOLLOWING DECISIONS:- ALLIANCE INFRASTRUCTURE PROJECTS PVT LTD VS DCIT IN ITA NO. 220 & 1043 (BNG.)/2013 FOR ASST YEARS 2009-10 & 2010-11 DATED 12.9.2014 (BANGALORE TRIBUNAL) BALARAMPUR CHINNI MILLS LTD VS CIT REPORTED IN 140 TTJ (KOL) 73 (KOLKATA TRIBUNAL) CIT VS CORRTECH ENERGY PVT LTD REPORTED IN 352 ITR 97 (GUJ) CIT VS SHIVAM MOTORS IN ITA NO. 88 OF 2014 DATED 5. 5.2014 RENDERED BY ALLAHABAD HIGH COURT CIT VS LAKHANI MARKETING IN ITA NO. 970 OF 2008 REN DERED BY PUNJAB & HARYANA HIGH COURT CIT VS DELITE ENTERPRISES IN ITA NO. 110 OF 2009 RE NDERED BY BOMBAY HIGH COURT THE DECISION OF SPECIAL BENCH OF TRIBUNAL IN THE CA SE OF CHEMINVEST LTD VS CIT REPORTED IN 121 ITD 318 HAD HELD THAT DISALLOWANCE U/S 14A COULD BE MADE EVEN IN AN YEAR IN WHICH NO EXEMPT INCOME WAS EARNED OR RECEIVED BY THE ASSESSEE. BUT THIS DECISION HAS BEEN OVERRULED BY BANGALORE TRIBUNAL , GUJARAT HIGH COURT AND ALLAHABAD HIGH COURT AS STATED SUPRA . MOREOVER WE ALSO FIND THAT THE SPECIAL BENCH DECISION IN CHEMINVEST LTD VS CIT HAS BEEN OVERRULED BY THE RECENT DECISION OF THE DELHI HIGH COURT IN C HEMINVEST LTD CASE ITSELF AND ITA NO. 465/KOL/2013-A-AM ALLBANK FINANCE LTD 7 HENCE IT IS NO LONGER GOOD LAW. HENCE WE HOLD IN FA VOUR OF THE ASSESSEE THE ALTERNATIVE ARGUMENT OF THE LEARNED AR THAT ONLY IN VESTMENTS YIELDING DIVIDEND INCOME DURING THE YEAR SHOULD BE CONSIDERED FOR DIS ALLOWANCE U/S 14A OF THE ACT. 5.2. IN VIEW OF THE AFORESAID FACTS AND CIRCUMSTAN CES AND RESPECTFULLY FOLLOWING THE AFORESAID JUDICIAL PRECEDENTS, WE HAVE NO HESIT ATION IN DIRECTING THE LEARNED AO TO DELETE THE ADDITION MADE U/S 14A OF THE ACT A ND ACCEPT THE DISALLOWANCE OFFERED THEREON TO THE EXTENT OF RS. 4,67,484/-. A CCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED ON 13-01-2016 1. THE APPELLANT: ALLBANK FINANCE LTD 14 INDIA EXC HNAGE PL., 1 ST FL., KOL-1. 2 THE RESPONDENT-JCIT(OSD),CIR-5 AAYKAR BHAVAN, P-7 CHOWRINGHEE SQ, KOL- 69. 3 /THE CIT, 4.THE CIT(A ) 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR SD/- ( N.V.VASUDEVAN, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE 13/01/2016 COPY OF THE ORDER FORWARDED TO: