Harbanslal Malhotra & sons Pvt. Ltd., Kolkata V. D.C.I.T.Central Circle-XXVII, Kolkata, Kolkata

ITA 5/KOL/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4291 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-10-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 02-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANAND KR SINGH J
• Assessee Lawyers: V N PUROHIT
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI K.NARSIMHA CHARY, JUDICIAL MEMBER ITA NO.05/KOL/2014 ASSESSMENT YEARS:2010-11 HARBANSLAL MALHOTRA & SONS PVT. LTD., P-12, NEW CIT ROAD, KOLKATA-73 [ PAN NO.AAACH 6617 F ] / V/S . DCIT, CENTRAL CIRCLE- XXVII, 110, SHANTI PALLI, AAYAKAR BHAWAN, PURVA KOLKATA-107 /APPELLANT .. /RESPONDENT /BY APPELLANT SHRI V.N. PUROHIT, FCA /BY RESPONDENT SHRI ANAND KR. SINGH, JCIT-DR /DATE OF HEARING 05-10-2016 /DATE OF PRONOUNCEMENT 21-10-2016 /O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, KOLKATA DATED 29.11.2013. ASSESSMENT WAS FRAMED BY DCIT, CENTRAL CIRCLE-XXVII,, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORD ER DATED 30.01.2013 FOR ASSESSMENT YEAR 2010-11. THE GROUNDS RAISED BY THE ASSESSEE PER ITS APPEAL ARE AS UNDER:- ITA NO.05/KOL/2-14 A.Y. 2 010-11 HARBANSLAL MALHOTRA & SONS P. LTD. VS. DCIT CC-XXVII KOL. PAGE 2 1) THAT FOR BOTH THE FACTS AND CIRCUMSTANCES OF TH E CASE AND IN LAW, THE C.I.T.(A) HAS ERRED IN CONFIRMING THE ADDITION OF R S.9,27,329/- AS MADE BY A.O UNDER SECTION 14A OF THE IT ACT, 1961 READ WITH RUL E-8D OF THE IT RULES 1962. (2) THAT THE CIT(A) HAS LIKEWISE, ERRED IN CONFIRMI NG THE ADDITION OF RS.1,02,130/- AS MADE BY AO UNDER SECTION 40(A)(IA) OF THE T ACT, 1961. SHRI V.N. PUROHIT, LD. AUTHORIZED REPRESENTATIVE AP PEARED ON BEHALF OF ASSESSEE AND SHRI ANAND KUMAR SINGH, LD. DEPARTMENT AL REPRESENTATIVE APPEARED ON BEHALF OF REVENUE. 2. FIRST ISSUE RAISED BY ASSESSEE IN ITS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF ASSESSING OFFICER BY SUSTAI NING THE DISALLOWANCE OF 8,80,905/- U/S 14A R.W.S RULE 8D OF THE IT RULES, 1 962. 3. FACTS IN BRIEF ARE THAT ASSESSEE IS A PRIVATE LI MITED COMPANY AND ENGAGED IN MANUFACTURER OF SHAVING BLADES AND VARIOUS OTHER SAFETY RAZORS AND SHAVING SYSTEMS. DURING THE YEAR UNDER CONSIDERATION, ASSES SEE HAS EARNED DIVIDEND INCOME OF 1,49,160/- AND TAX FREE INTEREST FROM INVESTMENT IN HUDCO BOND FOR 9,27,329/-. DURING THE COURSE OF ASSESSMENT PROCEED INGS, AO OBSERVED THAT AS PER TAX AUDIT REPORT THE ASSESSEE HAS DISALLOWED A SUM OF 7,82,695/- U/S 14A OF THE ACT. THE AO ALSO OBSERVED THAT ASSESSEE HAS DISALLOWED LESS EXPENSE AS PER THE PROVISION OF SEC. 14A R.W.S RULE 8D OF THE IT RULES. ACCORDINGLY, AO INVOKED THE PROVISION OF SEC. 14A R.W.S 8D OF THE I T RULES AND MADE DISALLOWANCE OF 8,80,905/- AND ADDED TO THE TOTAL INCOME OF ASSESSE E. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHEREAS ASSESSEE SUBMITTED THAT A SUM OF 7,82,695/- WAS DISALLOWED U/S. 14A OF THE ACT INADVERTENTLY AS SUCH ASSESSEE HAS NOT INCURRED ANY EXPENSE FOR EARNING TAX FREE INCOME. THEREFORE, NO DISALLOWANCE U/S 14A R.W. RUL E 8D OF THE IT RULES IS WARRANTED FOR THE INVESTMENT MADE BY ASSESSEE IN EQ UITY SHARES AND BOND AS THE ITA NO.05/KOL/2-14 A.Y. 2 010-11 HARBANSLAL MALHOTRA & SONS P. LTD. VS. DCIT CC-XXVII KOL. PAGE 3 INVESTMENT IS MADE OUT OF ITS OWN FUND. NO BORROWED FUND WHATSOEVER HAS BEEN USED IN ITS BUSINESS. HOWEVER, LD. CIT(A) DISREGARD ED THE PLEA OF ASSESSEE AND CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER:- 5. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLA NT AND PERUSED THE ASSESSMENT ORDER. ON CAREFUL CONSIDERATION OF THE F ACTS, I AM NOT INCLINED TO AGREE WITH THE SUBMISSION OF APPELLANT. IT IS OBSER VED THAT THE TAX AUDITOR HAS COMPUTED THE DISALLOWANCE U/S. 14A BY APPLYING THE PROVISIONS OF RULE 8D AT RS.7,82,695/- HAVING REGARD TO BOOKS OF ACCOUNT OF THE APPELLANT COMPANY AS THE TAX AUDIT WAS COMPLETED BY HIM. THEREFORE, IT I S NOT CORRECT TO SAY THAT THE AUDITOR HAS COMMITTED A MISTAKE BY COMPUTING THE DI SALLOWANCE UNDER RULE 8D (2)(II) AND 8D(2)(III). FURTHER, THE DISALLOWANCE U /S 14A COMPUTED BY THE TAX AUDITOR, HAVING REGARD TO BOOKS OF ACCOUNT, OF APPE LLANT COMPANY WAS ALSO ACCEPTED BY IT AND THEREFORE SAME WAS ADDED TO THE INCOME AS PER THE COMPUTATION OF INCOME FILED ALONG WITH RETURN OF IN COME. I AM ALSO NOT INCLINED TO AGREE WITH THE SUBMISSION OF APPELLANT THAT THE INVESTMENT IN HU9DCO TAX FREE BONDS WAS MADE OUT OF OWN FUNDS AS THERE IS NO EVIDENCE ON RECORD. IN VIEW OF ABOVE, IT IS HELD THAT THE AO WAS JUSTIFIED IN MAKING DISALLOWANCE U/S. 14A READ WITH RULE 8D AT RS.8,80,905/- WHICH INCLUD ES DISALLOWANCE OF RS.7,82,695/- COMPUTED BY THE TAX AUDITOR AND ACCEP TED BY THE APPELLANT IN ITS RETURN OF INCOME. THE DISALLOWANCE MADE BY THE AO I S CONFIRMED. THE GROUND NO. 1 IS DISMISSED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 5. BEFORE US LD. AR SUBMITTED THAT THE INVESTMENTS HAVE BEEN MADE BY ASSESSEE IN THE GROUP COMPANIES AND ALL ARE STRATEG IC INVESTMENT AND THEREFORE NO DISALLOWANCE SHOULD BE MADE U/S. 14A OF THE ACT. THE ASSESSEE BY MISTAKE HAS MADE ITS DISALLOWANCE IN ITS COMPUTATION OF INC OME. LD. AR FURTHER SUBMITTED THAT INVESTMENT IN HUDCO BOND WAS MADE OU T OF THE OWN FUND OF ASSESSEE AND NO BORROWED FUND HAS BEEN UTILIZED FOR THAT PURPOSE. ON THE OTHER HAND, LD. DR VEHEMENTLY RELIED ON THE ORDER OF AUTH ORITIES BELOW. 6. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE AFORESAID F ACTS, WE FIND THAT ASSESSEE HAS MADE INVESTMENT IN ITS EQUITY SHARES AND TAX FREE B ONDS. THE ASSESSEE IN ITS ITA NO.05/KOL/2-14 A.Y. 2 010-11 HARBANSLAL MALHOTRA & SONS P. LTD. VS. DCIT CC-XXVII KOL. PAGE 4 RETURN OF INCOME SUO MOTO HAS DISALLOWED THE EXPENSE OF 7,82,695/- UNDER THE PROVISION OF SEC. 14A R.W.S. RULE 8D OF THE IT RULE S. IN THIS REGARD, LD. AR BEFORE US SUBMITTED THAT THESE EXPENSES WERE DISALL OWED BY MISTAKE AS ALL THE INVESTMENTS IN EQUITY SHARES ARE STRATEGIC INVESTME NT. IN REJOINDER, LD DR HAS NOT BROUGHT ANYTHING CONTRARY TO THE ADVANCED ARGUM ENT MADE BY LD. AR WITH REGARD TO STRATEGIC INVESTMENT MADE BY THE ASSESSEE . WE ALSO FIND THAT VARIOUS TRIBUNALS HAVE HELD THAT THERE SHOULD NOT BE ANY DI SALLOWANCE U/S. 14A OF THE ACT IN RELATION TO INVESTMENT HELD BY ASSESSEE AS S TRATEGIC INVESTMENT. THEREFORE, WE ARE INCLINED TO REVERSE THE ORDER OF AUTHORITIES BELOW IN RELATION TO INVESTMENT IN EQUITY SHARE WHICH IS STRATEGIC IN VESTMENT MADE BY ASSESSEE. IN THIS CONNECTION, WE RELY IN THE ORDER OF HONBLE LU CKNOW TRIBUNAL IN THE CASE OF U.P. ELECTRONICS CORPORATION LTD. VS. DCIT (2015) 43 CCH 0068. THE RELEVANT EXTRACT OF THE ORDER IS REPRODUCED BELOW. INCOMEEXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOMEAO MADE ADDITION OF RS.40,31,477/- U/S 14A R /W/R 8D HAVING NOTICED THAT ASSESSEE HAD SHOWN DIVIDEND INCOME OF RS.7,52, 120/- WHICH WERE EXEMPTED FROM TAXAO COMPUTED CORRESPONDING EXPENDI TURE AS PER RULE 8D (III) AT RS.40,31,477/- AND MADE ADDITION OF SAMEC IT(A) CONFIRMED DISALLOWANCEHELD, OUT OF TOTAL INVESTMENTS OF RS.8 2,16,45,416/-, INVESTMENT IN SUBSIDIARY COMPANIES WERE OF RS.60,90,10,559/- A S PER BALANCE SHEET OF ASSESSEE COMPANYASSESSEE HAS RAISED SPECIFIC DISPU TE WITH REGARD TO INVOCATION OF PROVISIONS OF RULE 8D WITH CONTENTION THAT BEFORE INVOKING PROVISIONS OF RULE 8D, AO HAS TO RECORD OBJECTIVE S ATISFACTION WITH REGARD TO CORRECTNESS OF ACCOUNTS RELATING TO PROVISIONS OF S ECTION 14ARECORDING OF OBJECTIVE SATISFACTION BY AO WITH REGARD TO CORRECT NESS OF CLAIM OF ASSESSEE IS MANDATORILY REQUIRED IN TERMS OF SECTION 14A(2)MOR EOVER, INVESTMENT WAS MADE IN CASE OF SUBSIDIARY COMPANIES, THEREFORE, IN THOSE CASES DISALLOWANCE UNDER SECTION 1A(2) OF ACT CANNOT BE WORKED OUT UNL ESS AND UNTIL IT IS ESTABLISHED THAT CERTAIN EXPENDITURES ARE INCURRED BY ASSESSEE IN THESE INVESTMENTSKEEPING IN VIEW TOTALITY OF FACTS AND C IRCUMSTANCES OF CASE INVOCATION OF RULE 8D WITHOUT RECORDING OBJECTIVE S ATISFACTION BY AO IS NOT PROPERASSESSEES APPEAL ALLOWED IN VIEW OF ABOVE, THE INVESTMENT MADE IN THE GROUP COMPANIES SHALL NOT TO BE CONSIDERED WHILE APPLYING THE PROVISION OF SEC. 14A OF THE ACT. HOWEVER, WITH REGARD TO INVESTMENT MADE IN THE INTEREST FREE BOND S OF HUDCO. IN THIS REGARD, ITA NO.05/KOL/2-14 A.Y. 2 010-11 HARBANSLAL MALHOTRA & SONS P. LTD. VS. DCIT CC-XXVII KOL. PAGE 5 LD. AR FOR THE ASSESSEE HAS NOT BROUGHT ANYTHING ON RECORD TO JUSTIFY THAT SUCH INVESTMENT WAS MADE OUT OF ITS OWN FUND. AT THE TIM E OF HEARING, LD. AR REQUESTED THE BENCH TO RESTORE THE MATTER BACK TO T HE FILE OF AO TO CHECK WHETHER THE INVESTMENT WAS MADE OUT OF THE BORROWED FUND OR OWN FUND OF ASSESSEE. TO THIS POINT, LD. DR RAISED NO OBJECTION IF THE MATTER IS RESTORED BACK TO THE FILE OF AO FOR FRESH ADJUDICATION. CONSIDERI NG THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN THE INTEREST OF JUSTICE AND FAIR PLAY WE ARE INCLINED TO RESTORE THE MATTER BACK TO THE FILE OF AO TO ADJUDICATE THE MATTER AFRESH AS PER LAW WITH THE DIRECTION TO CHECK WHETHER THE INVESTMENT IN HU DCO BONDS WERE MADE OUT OF OWN FUND OF ASSESSEE. HENCE, THIS GROUND OF ASSE SSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 7. NEXT ISSUE RAISED BY ASSESSEE IN ITS APPEAL IS T HAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY SUSTAINING THE DISALL OWANCE OF 1,02,130/- ON ACCOUNT OF NON DEDUCTION OF TAX U/S 40(A)(IA) OF T HE ACT. 8. THE ASSESSEE HAS CLAIMED LEGAL AND CONSULTANCY E XPENSE WITHOUT DEDUCTING THE TAX DEDUCTED AT SOURCE (TDS FOR SHORT ) U/S 194J OF THE ACT. THEREFORE, AO DISALLOWED THE SAME. 9. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE LD . CIT(A) WHO CONFIRMED THE ORDER OF AO. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 10. AT THE OUTSET, LD. AR BEFORE US SUBMITTED THAT PAYEES HAVE INCLUDED IN THEIR RECEIPTS CHARGES PAID BY ASSESSEE TO THEM UND ER THE HEAD LEGAL AND CONSULTANCY CHARGE AND REQUESTED TO RESTORE THE ISS UE BACK TO THE FILE OF AO. TO ITA NO.05/KOL/2-14 A.Y. 2 010-11 HARBANSLAL MALHOTRA & SONS P. LTD. VS. DCIT CC-XXVII KOL. PAGE 6 THIS POINT LD. DR RAISED NO OBJECTION IF THE MATTER IS RESTORED BACK TO THE FILE OF AO FOR FRESH ADJUDICATION. WITH THE OBSERVATION AS ABOVE, AND FOR THE LIMITED PURPOSE SET OUT ABOVE, THE MATTER STANDS RESTORED T O THE FILE OF AO. NEEDLESS TO ADD THAT ANY MATERIAL, ADVERSE TO THE ASSESSEE, WIL L HAVE TO BE CONFRONTED TO THE ASSESSEE BY THE AO, AND THAT, IN CASE AO INTENDS TO PASS ANY FRESH ORDER AS A RESULT OF THESE DIRECTIONS, HE WILL DO SO ONLY AFTE R GIVING DUE AND FAIR OPPORTUNITY OF HEARING TO THE ASSESSEE, IN ACCORDAN CE WITH THE LAW AND BY WAY OF A SPEAKING ORDER. 11. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON 21/10/2016 SD/- SD/- (K.NARSIMHA CHARY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER *DKP, SR.P.S ! - 21/10/2016 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-HARBANSILALMALHOTA&SONS PVT. LTD., P-12, NEW CIT RD.KOL-73 2. /RESPONDENT-DCIT, CENTRAL CIRCLE-XXVII,110, SHANTI PALLI, AAYAKAR BHA WAN, PURVA, KOLKATA107 3. '# % / CONCERNED CIT 4. % - / CIT (A) 5. & ))'# , '# / DR, ITAT, KOLKATA 6. *+ / GUARD FILE. BY ORDER/ , /TRUE COPY/ / '#,