I.T.O Wd - 6(1),kolkata., Kolkata V. M/s DTC Securities Ltd., Kolkata

ITA 48/KOL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 92030 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 08-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANJAY
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOLKATA [BEFORE SHRI P. K. BANSAL, AM & SHRI MAHAVIR SINGH, JM ] I.T.A NO. 48 /KOL/20 1 3 ASSESSMENT YEAR : 200 9 - 1 0 INCOME - TAX OFFICER, WD - 6 ( 1 ), KOLKATA. VS. M/S. DTC SECURITIES LTD. (PAN:AA BCD0191P ) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 2 8 .0 5 .2015 DATE OF PRONOUNCEMENT: 30 . 0 6 . 2015 FOR THE APPELLANT: SHRI SANJAY , ADDL. CIT - DR FOR THE RESPONDENT: SHRI PAWAN KUMAR AGARWAL , FCA ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER PASSED BY CIT (A) - V I , KOLKATA VIDE APPEAL NO. 1 8 8 /CIT(A) - V I - VI/WD - 6(4) / KOL DATED 25 . 1 0 .20 12 . ASSESSMENT WAS FRAMED BY ITO, WD - 6 ( 4 ), KOLKATA U/S. 14 3(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR ASSESSMENT YEAR 200 9 - 1 0 VIDE HIS ORDER DATED 16 . 12 .20 1 1 . 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGAINST THE ORDER OF CIT(A) DELETING THE DISALLOWANCE MADE BY AO ON ACCOUNT OF EXEMPT INCOME BY INVOKING THE PROVISION OF SECTION 14A OF THE ACT . FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO 1 : 1. THAT LD. CIT[A] HAS ERRED IN LAW S WELL AS ON FACTS BY DELETING THE ADDITION OF RS.13,41,749/ - ON ACCOUNT OF U/S 14A. 3 . BRIEFLY STATED FACTS ARE THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS.7,352/ - ON MUTUAL FUND AND DIVIDEND OF RS.40,678/ - ON SHARES INVESTMENT , CLAIMING THE AGGREGATED EXEMPTED INCOME OF RS.48,030/ - . THE ASSESSING OFFICER DISALLOWED THE EXPENSES RELAT ABLE EXEMPTED INCOME BY INVOKING THE PROVISION OF SEC. 14A OF THE ACT READ WITH RULE 8D OF THE I.T. RULE, 1962 (HEREINAFTER REFERRED TO AS THE RULE ) AMOUNTING TO RS. 14,88,522/ - BY COMPUTING AS UNDER: - 8D[I] DIRECT EXPENDITURE: - PLACEMENT FEE ON MUTU AL FUND EXPENSES ON SHARE TRANSACTION INTEREST PAID ON MUTUAL FUND RS.50,000 RS. 1,798 RS. 4,150 RS.55,948 [I] EXPENDITURE ON ACCOUNT OF INTEREST : - 2 ITA NO .48 /K/20 13 M/S DTC SECURITIES LTD. AY 200 9 - 10 INTEREST PAID X AVERAGE ON INVESTMENT AVERAGE TOTAL ASSET OF BALANCE SHEET {1/2 OF [287003429 + 249363493] = RS.268182961} RS.1,98,09,179 X RS.1,81,65,028 RS.26,81,82,961 RS.13,41,749 ## INTEREST PAID OF RS.18909179 IS CONSIDERED AS DISCUSSED IN PARA [04] BELOW. [III] INVESTMENT: - INVESTMENT AS ON 01.04.2008 INVESTMENT AS ON 31.03.2009 AVERAGE VALUE OF INVESTMENT % OF AVERAGE VALUE OF INVESTMENT = % OF RS.1,81,65,028 EXPENSES DISALLOWABLE U/S 14A APPLYING RULE 8D RS.2,09,93,107 RS.1,53,36,949 RS.3,63,30,056 RS.1,81,65,028 RS. 90,825 RS.14,88,522 RS.14,88,522 AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE RESTRICTED THE DISALLOWANCE AT RS.1,46,773/ - BY OBSERVING AS UNDER: - I HAVE CONSIDERED THE OBSERVATIONS OF THE ASSESSING OFFICE IN T HE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT. THE INVESTMENT IN SHARES WAS MADE PRIOR TO PROCUREMENT OF LOANS AND A SECURITY DEPOSIT WAS GIVEN OF RS.11.9 CRORES TO M/S EAST COMMERCIAL PVT. LTD. THE ENTIRE LOAN HAD DIRECT NEXUS WITH THE TAXABLE INCOME. THE APPELLANT HAD IT S OWN SUFFICIENT FUNDS FOR THE INVESTMENT AND THE LOAN AMOUNT HAS NOT BEEN INVESTED IN THE INVESTMENTS. 6. HOWEVER, THERE ARE OTHER INDIRECT EXPENSES AMOUNTING TO RS.13,43,931/ - AS PER SCHEDULE 6 OF THE TAX AUDIT REPORT. THE APPELLANT HAS NOT DISALLOWED A NY EXPENSES ON ACCOUNT OF ADMINISTRATIVE AND ESTABLISHMENT EXPENSES. THE ASSESSING OFFICER HAS CALCULATED THE EDDIES AS PER RULE 8D SINCE THE APPELLANT IS UNABLE TO ESTABLISH THE CORRECTNESS OF THE CLAIM IN RESPECT OF THE EXPENDITURE INCURRED IN EARNING IN COME WHICH DOES NOT FORM PART OF THE TAXABLE INCOME. THE INCOME TAX ACT, 1961 HAS PROVIDED A PARTICULAR METHOD IN THESE CIRCUMSTANCES. RULE 8D(2)(III) IS A MECHANISM/FORMULA ADOPTED FOR ATTRIBUTING PART OF THE ADMINISTRATIVE/MANAGERIAL EXPENSES TO TAX EXEM PT INVESTMENT INCOME. THE ADMINISTRATIVE EXPENSES ATTRIBUTABLE TO TAX - FREE CHARGED RANGES BETWEEN 2 AND 2.5 P4EER CENT OF THE PORTFOLIO VALUE WHICH INCLUDE A PROFIT ELEMENT FOR THE PORTFOLIO MANAGER. THE FIXED ADMINISTRATIVE EXPENSES COULD NOT BE CORRECTLY CALCULATE D SINCE IN THIS CASE THESE EXPENSES ARE SPREAD OVER A LARGE NUMBER OF VOLUMINOUS ACTIVITIES OF THE APPELLANT. THE EXPENSES HAVE TO BE COMPUTED AT ONE - HALF PER CENT OF THE VALUE OF THE INVESTMENT WHICH ARE VERY REASONABLE AND APPROPRIATE IN THE FA CTS OF THE APPELLANT. 7. RULE 8D(20(III) IS STILL APPLICABLE IN THE CASE OF THE APPELLANT. SECTION 14A(2) MAKES IT ABUNDANTLY CLEAR THAT RULE 8D IS TO BE INVOKED WHERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSE E AS PER THE ACCOUNTS OF THE ASSESSEE. THEREFORE, THE DISALLOWANCE IS TO BE CALCULATED AS PER RULE 8D (2)(II). AS PER THE CALCULATION THE DISALLOWANCE AMOUNTS TO RS.40,699/ - ONLY UNDER RULE 8D(2)(III). 8. THE AVERAGE VALUE OF INVESTMENTS IS RS.1,81,65,028 / - AS PER THE ORDER OF AO. THE APPELLANT EARNED DIVIDEND OF RS.7352/ - ON MUTUAL FUND AND DIVIDEND OF RS.40,678/ - ON SHARES INVESTMENT AGGREGATING TO RS.48,030/ - AS EXEMPTED INCOME. THE ASSESSING OFFICER HAS CALCULATED DISALLOWANCE @ 0.5% AMOUNTING TO RS.90 ,825/ - . THE APPELLANT HAS EXPENDITURE AS PLACEMENT FEE ON MUTUAL FUND OF RS.50,000/ - ; EXPENSES ON SHARE 3 ITA NO .48 /K/20 13 M/S DTC SECURITIES LTD. AY 200 9 - 10 TRANSACTI O NS OF RS.1,798 AND INTER E ST PAID ON MUTUAL FUND OF RS.4,150 AND THEREBY TOTALLING TO RS.55,948/ - . THE APPELLANT HAS C LAIMED THESE EXPENSES IN THE PR OFIT AND LOSS ACCOUNT AND HAS NOT DISALLOWED ON THE BASIS THAT THE SAI D INVESTMENTS HAVE NOT YIELDED ANY INCOME DURING THE ASSESSMENT YEAR 2009 - 10. THE PLEA OF THE APPELLANT IS NOT TENABLE SINCE IT IS NOT A RULE WHETHER ANY INVESTMENT YIELD AN INCOME OR NOT BUT THE EXPENSES INCURRED ON INVESTMENTS WHICH MAY EVEN YIELD EXEMPTED INCOME IN FUTURE IS TO BE DISALLOWED, IF DEBITED IN THE PROFIT AND LOSS ACCOUNT. THIS IS A DIRECT EXPENDITURE INCURRED BY THE APPELLANT ON THE INVESTMENTS YIELDING EXEMPTED INCO ME. HOWEVER, DURING THE APPELLATE PROCEEDINGS ON 12 - 10.2010, SHRI PAWAN AGARWAL, AURHORISED REPRESENTATIVE OF THE APPELLANT STATED ON THE ORDER SHEET I HAVE NO OBJECTION IF DISALLOWANCE OF RS.1,46,773/ - IS RETAINED U/S. 14A IN THIS CASE, BEING DIRECT EXPE NDITURE OF RS.55,948/ - AND 0.50% OF AVERAGE INVESTMENTS FOR RS.90,825/ - . THE PLEA OF THE AUTHORISED REPRESENTATIVE IS FOUND TO BE FAIR, REASONABLE AND AS PER THE LEGAL MATRIX OF THE CASE AND IS THEREFORE,, ACCEPTED. 9. THEREFORE, THE EXPENDITURE OF RS.55 ,948/ - AND THE 0.50% OF AVERAGE VALUE OF INVESTMENT AMOUNTING TO RS.90,825/ - TOTALLING TO RS.1,46,773/ - IS DISALLOWED A EXPENDITURE PERTAINING TO EXEMPTED INCOME CALCULATED AS PER RULE 8D READ WITH SECTION 14A. THERESE GROUNDS OF APPEAL ARE PARTLY ALLOWED. AGGRIEVED, REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THERE IS A CATEGORICAL FINDING BY CIT(A) THAT INVESTMENT IN SHARE WAS MADE PRIOR TO PROCUREMENT OF LOA N AND SECURITY DEPOSIT GIVEN TO EAST COMMERCIAL PVT. LTD. OF RS.11.9 CRORES. ACCORDING TO CIT(A), THE ENTIRE LOAN HAS A DIRECT NEXUS WITH THE TAXABLE INCOME AND HE ALSO NOTED THAT ASSESSEE DOES HAVE SUFFICIENT FUNDS FOR INVESTMENT AND LOAN AMOUNT HAVE NOT BEEN INVESTED IN THE INVESTMENT I.E. PURCHASE OF SHARE AND MUTUAL FUNDS. ONCE THE THIS IS THE POSITION, THE SAME WAS PUT BEFORE TO LD. DR BUT HE COULD NOT CONTROVERT THE FINDINGS OF CIT(A) THAT ASSE SSEE HAS NO FUNDS AVAILABLE OR THE INVESTMENT IN SHARE OR MUTUAL FUND IS OUT OF BORROWED FUNDS. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE CONFIRM THE ORDER OF CIT(A). THIS ISSUE OF REVENUE S APPEAL IS DISMISSED. 5. NEXT ISSUE IN THIS APPEAL O F REVENUE IS AGAINST THE ORDER OF CIT(A) IN DELETING THE ADDITION OF COMMISSION EXPENSES. FOR THIS, REVENUE HAS RAISED FOLLOWING GROUND NO.2: - 2. THAT LD. CIT[A]HAS ERRED IN LAW AS WELL AS ON FACTS BY DELETING THE ADDITION OF RS.80,48,713/ - ON ACCOUNT OF COMMISSION. 6. BRIEFLY STATED FACTS ARE THAT AO DISALLOWED THE COMMISSION EXPENSES OF RS.80,48,713/ - PAID TO ANCHOR ENGINEERS FILES. ACCORDING TO AO, NO S ERVIC ES WERE 4 ITA NO .48 /K/20 13 M/S DTC SECURITIES LTD. AY 200 9 - 10 RENDERED BY RECIPIENT OF COMMISSION THAT M/S SUNRISE TRADING CORPORATION FOR THE RECEIPT OF COMMISSION. ACCORDINGLY, HE DISALLOWED THE COMMISSION EXPENSES. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A), WHO ALLOWED THE CLAIM OF ASSESSEE BY RELYING ON IMMEDIATE PRECEDING YEARS ORDER OF CIT(A) BY OBSERVING IN PARA 12 AND 13 AS UNDER: - 12. I HAVE CAREFULLY CONSIDERED THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, AND SUBMISSIONS OF THE APPELLANT. THE ASSESSING OFFICER HAS MADE THE ADDITION ON PERI MATERIAL BASIS IN THE CASE OF M/S SUNRISE TRADING COMPANY IN W HICH ONE OF THE DIRECTORS I.E. MR DINESH JALAN OF THE APPELLANT IS A PARTNER. THE APPELLANT HAS SUBMITTED THAT IN THE CASE OF SUNRISE TRADING COMPANY THE ADDITION HAS BEEN DELETED BY THE LD. C.I.T.(APPEALS) - XX, KOLKATA VIDE ITS ORDER NO. 175/CIT(A) - XX/WD - 3 6(2)/09 - 10/KOL. DATED 26 TH NOVEMBER, 2010 BY OBSERVING AS UNDER: - I HAVE PERUSED THE ASSESSMENT ORDER AND THE REMAND REPORT OF THE AO. I HAVE ALSO CONSIDERED THE SUBMISSIONS OF THE APPELLANT. THE AO DISALLOWED THE CLAIM OF COMMISSION ON THE GROUND THAT NO SERVICES WERE RENDERED BY THE COMMISSION AGENTS, AND, THAT THE PAYMENTS MADE TO THEM WERE OTHERWISE THAN FOR THE PURPOSE OF BUSINESS. HOWEVER, THE GENUINENESS OF THE CLAIM HAS BEEN VERIFIED BY THE AO IN COURSE OF THE REMAND PROCEEDINGS. THE APPELLANT HAS ENTERED INTO AGREEMENT WITH THE COMMISSION AGENTS, AND, THE COMMISSION PAID AS PER THE TERMS OF THE AGREEMENT. COPY OF BILLS RAISED BY THE COMMISSION AGENTS WAS PRODUCED BEFORE THE AO. THE PAYMENTS WERE MADE THROUGH BANKING CHANNEL, AND, TAX WAS ALSO DEDUC TED AT SOURCE. THE BOOKS OF ACCOUNTS, BANK STATEMENTS, AND, OTHER RELEVANT DOCUMENTS WERE PRODUCED, AND, THE AO HAS NOT FOUND ANY DEFECTS IN SUCH BOOKS OR DOCUMENTS. IN THE REMAND REPORT, THE AO HAS ADMITTED THAT THE NATURE OF SERVICES RENDERED HAS BEEN ME NTIONED IN THE AGREEMENT, AND, THE COMMISSION AGENTS HAVE ALSO CONFIRMED RENDERING OF SERVICES TO JUSTIFY THE CLAIM OF COMMISSION. ON THE OTHER HAND, THERE IS NO MATERIAL ON RECORD TO SHOW ANYTHING THAT COULD CAST SUSPICION OR DOUBT ABOUT THE GENUINENESS O F THE CLAIM. IN VIEW OF THE ABOVE, THERE IS NO BASIS OR JUSTIFICATION FOR THE DISALLOWANCE MADE BY THE AO; AND, THE SAME IS DIRECTED TO BE DELETED. THE GROUNDS RAISED BY THE APPELLANT ARE LIABLE TO BE ALLOWED. 13. THE APPELLANT FURTHER SUBMITTED THAT THE ASSESSING OFFICER HAS FURTHER SUBMITTED THAT NO ADDITION IS MADE IN THE ASSESSMENT YEAR 2008 - 09 AND 2009 - 10 ON THE SAME ISSU E IN THE CASE OF M/S. SU N RISE TRAD I NG COMPANY (PARTNER). THE APPELLANT HAS PAID THE COMMISSION DURING THE ASSESSMENT YEAR 2009 - 10. T HE ASSESSING OFFICER HAS NOT BROUGHT ANY MATERIAL ON RECORD TO DISALLOW THE COMMISSION PAID BY THE APPELLANT. THE ONLY BASIS WAS THE DISALLOWANCE IN THE CASE OF M/S. SUNRISE TRADING COMPANY IN THE ASSESSMENT YEAR 2006 - 07 WHICH IS SUB JUDICE BEFORE THE HON'BLE ITAT. THE ADDITION HAS BEEN DELETED IN THE SUBSEQUENT YEAR ON THE BASIS OF THE REMAND REPORT OF ASSESSING OFFICER BY THE LD. C.I.T.(APPEALS) - XX, KOLKATA IN THE CASE OF M/S. SUNRISE TRADING COMPANY. THEREFORE, IN THE FACTS AND CIRCUMSTAN CES THE ADDITION OF RS.80,48,713/ - IS DELETED. THESE GROUNDS OF APPEAL ARE ACCORDINGLY ALLOWED AND APPELLANT GESTS RELIEF OF RS.80,48,713/ - . AGGRIEVED, REVENUE CAME IN APPEAL BEFORE TRIBUNAL. 5 ITA NO .48 /K/20 13 M/S DTC SECURITIES LTD. AY 200 9 - 10 7. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT T HE AO DISALLOWED THE CLAIM OF COMMISSION ON THE GROUND THAT NO SERVICES WERE RENDERED BY THE COMMISSION AGENTS, AND, THAT THE PAYMENTS MADE TO THEM WERE OTHERWISE THAN FOR THE PURPOSE OF BUSINESS. BUT WE FIND T HAT THE GENUINENESS OF THE CLAIM HAS BEEN VERIFIED BY THE AO IN COURSE OF THE REMAND PROCEEDINGS. WE FURTHER FIND FROM THE FACTS OF THE CASE THAT THE ASSESSEE HAS ENTERED INTO AGREEMENT WITH THE COMMISSION AGENTS, AND, THE COMMISSION PAID AS PER THE TERMS OF THE AGREEMENT. WE FIND FROM RECORDS THAT THE ASSESSEE HAS FILED COMPLETE DETAILS BEFORE THE AO. THE PAYMENTS WERE MADE THROUGH BANKING CHANNEL, AND, TAX WAS ALSO DEDUCTED AT SOURCE. THE BOOKS OF ACCOUNTS, BANK STATEMENTS, AND, OTHER RELEVANT DOCUMENTS W ERE PRODUCED, AND, THE AO HAS NOT FOUND ANY DEFECTS IN SUCH BOOKS OR DOCUMENTS. WE FIND THAT IN IMMEDIATELY PRECEDING ASSESSMENT YEAR, THE AO IN THE REMAND REPORT, THE AO HAS ADMITTED THAT THE NATURE OF SERVICES RENDERED HAS BEEN MENTIONED IN THE AGREEMENT , AND, THE COMMISSION AGENTS HAVE ALSO CONFIRMED RENDERING OF SERVICES TO JUSTIFY THE CLAIM OF COMMISSION. ON THE OTHER HAND, THERE IS NO MATERIAL ON RECORD TO SHOW ANYTHING THAT COULD CAST SUSPICION OR DOUBT ABOUT THE GENUINENESS OF THE CLAIM. IN VIEW OF THE ABOVE, THERE IS NO BASIS OR JUSTIFICATION FO R THE DISALLOWANCE MADE BY THE AO AND CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE MADE BY AO . WE CONFIRM THE ORDER OF AO. THIS ISSUE OF REVENUE S APPEAL IS DISMISSED. 8 . IN THE RESULT, APPEAL OF REVENUE IS DI SMISSED. 9 . ORDER IS PRONOUNCED IN THE OPEN COURT ON 3 0 .06.2015 S D / - S D / - ( P. K. BANSAL ) (MAHAVIR SINGH) ACCOUNTANT MEMBER J UDICIAL MEMBER DATED : 3 0 T H JUNE , 201 5 *DKP P.S. 6 ITA NO .48 /K/20 13 M/S DTC SECURITIES LTD. AY 200 9 - 10 COPY OF THE ORDER FORWARDED TO: 1 . A PPELLANT ITO, WARD - 6 ( 1 ), P - 7, CHOWRINGHEE SQUARE, 6 TH FLOOR, KOLKATA 700 069 . 2 RESPONDENT M/S. DTC SECURITIES LTD., 1, N.S ROAD , KOLKATA - 700 00 1 . 3 . THE CIT (A), KOLKATA 4. 5. THE CIT, KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .