Shruti Ltd., Kolkata V. ACIT, Central Circle - XI, Kolkata, Kolkata

ITA 502/KOL/2010

• Counselvise Citation: 50223514 RSA 2010
• Duration Of Justice: 1 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-11-2011
• Appeal Filed By: Assessee
• Bench Allotted: A
• Next Hearing Date: 28-06-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 11-03-2010
• Court: TRIBUNAL
• Department Lawyers: S K ROY
• Assessee Lawyers: S JHAJHARIA
• Keywords: Earning of tax free income
• Section: 10; 14A

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL, BEN CH A, KOLKATA () BEFORE , ,, , , SHRI MAHAVIR SINGH, JUDICIAL MEMBER. /AND . .. . ! ! ! !. .. . , '# SHRI C.D.RAO, ACCOUNTANT MEMBER $ $ $ $ / ITA NO . 502/KOL/2010 %& '(/ ASSESSMENT YEAR : 2006-07 (*+ / APPELLANT ) SHRUTI. LTD., KOLKATA (PAN : AADCS 7585 G) - % - - VERSUS - . (-.*+/ RESPONDENT ) ACIT, CENTRAL CIRCLE-XI. KOLKATA *+ / 0 '/ FOR THE APPELLANT: SHRI S.JHAJHARIA -.*+ / 0 '/ FOR THE RESPONDENT: SHRI S.K.ROY 1%2 / !# /DATE OF HEARING : 01.11.2011. 3' / !# /DATE OF PRONOUNCEMENT : 01.11.2011. '4 / ORDER ( (( ( . .. . ! ! ! !. .. . ) )) ), , , , '# PER SHRI C.D.RAO, AM THIS APPEAL IS FILED BY ASSESSEE AGAINST THE ORDER DATED 17.12.2009 OF THE LD. CIT(A)-CENTRAL-I, KOLKATA PERTAINING TO A.YR. 2006- 07. 2. THE ONLY ISSUE RAISED BY ASSESEE IS RELATING TO SUSTENANCE OF DISALLOWANCE OF RS.90,000/- AS AGAINST DISALLOWANCE OF RS.1,68,633/ - MADE BY AO U/S 14A OF THE IT ACT. 3. THE BRIEF FACTS OF THE ISSUE ARE THAT WHILE DOI NG THE SCRUTINY ASSESSMENT ASSESSING OFFICER HAS DISALLOWED AN AMOUNT OF RS.1, 68,633/- BY OBSERVING AS UNDER :- THE ASSESSEE HAS EARNED INCOME FROM DIVIDEND AMOUN TING TO RS.5,07,810/- CLAIMED TO BE EXEMPT U/S 10 AND LONG TERM CAPITAL GAIN AMOU NTING TO RS.91,09,673/- WHICH AHS CLAIMED TO BE EXEMPT U/S 10(38). HENCE 100% OF THE TOTAL RECEIPT HAS BEEN CLAIMED TO BE EXEMPT AS PER INCOME TAX 1961. AS PER PROFIT AND LOSS ACCOUNT TOTAL 2 EXPENSES CLAIMED IS RS.168633/- WHICH HAVE BEEN MAD E FOR EARNING THIS INCOME INCLUDING THE EXEMPTED INCOME. SINCE NO EXPENDITURE IS ALLOWABLE FOR EARNING EXEMPTED INCOME, HENCE 100% OF EXPENSES AMOUNTING T O RS.1,68,633/- IS DISALLOWED FOR DEDUCTION IN THE LIGHT OF PROVISIONS U/S 14A OF THE INCOME TAX ACT, 1961. 3.1. ON APPEAL LD. CIT(A) HAS RESTRICTED THE DISALL OWANCE TO RS.90,000/- BY OBSERVING AS UNDER :- 4. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE LD. A.R. IN THIS CASE THE RETURN OF INCOME WAS FILED DECLARING NIL INCOME AND THE SA ME WAS ASSESSED BY THE A.O. AT LOSS OF RS.102/ WITH A REMARK THAT LOSS IS NOT BE A LLOWED TO BE CARRY FORWARDED SINCE THE RETURN HAS NOT BEEN FILED IN TIME. HENCE THE IS SUE IN QUESTION DOES NOT HAVE ANY REVENUE EFFECT. THE AO HAS MADE NECESSARY DISALLOWA NCE AS PER PROVISION OF SECTION 14A OF THE ACT. THERE IS NO DISPUTE THAT AS PER MET HOD PRESCRIBED IN SECTION 14A READ WITH RULE 8D THE ENTIRE EXPENDITURE WILL BE ATTRIBU TED TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. HOWEVER THE LIMITED COMPANY EVEN NOT EARNING ANY TAXABLE INCOME HAS TO MAINTAIN ITS ESTABLISHMENT FO R COMPLYING WITH STATUTORY OBLIGATIONS AND HAS TO DISCHARGE CERTAIN LEGAL OBLI GATION AND ACCORDINGLY HAS TO INCURRED CERTAIN INCIDENTAL EXPENSES. HENCE CONSIDE RING ABOVE AND THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T VS GANGA PROPERTIES LTD 199 ITR 94 (CAL) THE DISALLOWANCE MADE BY THE AO IS RESTRIC TED TO RS.90,000/-. 3.2. AGGRIEVED BY THIS ASSESSEE IS IN APPEAL BEFORE US. 4. AT THE TIME OF HEARING, THE LD. COUNSEL APP EARING ON BEHALF OF THE ASSESSEE HAS SUBMITTED THAT IN THE IMMEDIATELY PRECEDING YEAR ON SIMILAR FACTS AND CIRCUMSTANCES THIS TRIBUNAL HAS RESTRICTED THE DISALLOWANCE OF RS .1,43,155/- TO RS.10,000/-. THEREFORE HE REQUESTED TO RESTRICT THE DISALLOWANCE TO RS.10,000/-. 5 .ON THE OTHER HAND, THE LD. DR APPEARING ON BEHAL F OF THE REVENUE RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. 7. AFTER HEARING THE RIVAL SUBMISSIONS AND ON CAREF UL PERUSAL OF MATERIALS AVAILABLE ON RECORD, IT IS OBSERVED THAT IN THE IMM EDIATELY PRECEDING ASSESSMENT YEAR I.E. 2005-06 WHEREIN ASSESSEE HAS TAKEN THE FOLLOWI NG GROUNDS :- 1. FOR THAT IN VIEW OF THE FACTS AND CIRCUMSTANCE S OF THE CASE THE LD. CIT(A) WAS WHOLLY WRONG AND UNJUSTIFIED IN CONFIRMING THE ARBI TRARY AND AD-HOC DISALLOWANCE OF RS.1,43,155/- MADE IN ASSESSMENT U/S 14A OF THE IT ACT, 1961 PROPORTIONATELY @ 97% OF THE TOTAL EXPENSE OF RS.1,47,796/- INCURRED AND DEBITED IN P&L A/C BY ATTRIBUTING IT TO THE EARNING OF THE INCOME OF RS.2,23,725/- AND R S.58,02,382/- FROM DIVIDEND AND LONG TERM CAPITAL GAIN EXEMPT U/S 10(34) AND 10(38) OF THE ACT RESPECTIVELY WHICH IN THE AGGREGATE COMPRISE 97% OF THE TOTAL RECEIPT OF THE ASSESSEE COMPANY, WITHOUT CONSIDERING AND APPRECIATING THE FACTS THAT NO EXPE NSE AS SUCH WAS INCURRED FOR EARNING THE SAID EXEMPT INCOME. NO MATERIAL OR EVID ENCE WAS ALSO BROUGHT ON RECORD 3 EITHER BY THE AO OR THE LD. CIT(A) TO PROVE THAT TH ERE WAS ANY NEXUS BETWEEN THE EARNING OF THE EXEMPT INCOME AND THE EXPENSE INCURR ED. THE ACTIONS OF BOTH THE AO AND THE LD. CIT(A) WERE UNREASONABLE, UNCALLED FOR AND BAD IN LAW. EVEN OTHERWISE THE DISALLOWANCE MADE AND CONFIRMED WAS HIGHLY EXCE SSIVE AND WHOLLY UNREASONABLE. 7.1. AGAINST THIS GROUND THE TRIBUNAL HAS HELD AS U NDER :- 3. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. THE HONBLE JURISDICTION AL HIGH COURT IN THE CASE OF C.I.T.. VS. GANGA PROPERTIES LTD. (SUPRA) HELD AS UNDER : IN OUR VIEW, A LIMITED COMPANY, EVEN IF IT DOES NO T CARRY ON BUSINESS BUT IT DERIVES INCOME FROM OTHER SOURCES HAS TO MAINTAIN ITS ESTABLISHMENT FOR COMPLYING WITH STATUTORY OBLIGATIONS SO LONG IT IS IN OPERATION AND ITS NAME IS NOT STRUCK OFF THE REGISTER OR UNLESS THE COMPANY I S DISSOLVED WHICH MEANS CESSATION OF ALL CORPORATE ACTIVITIES OF THE COMPAN Y FOR ALL PRACTICAL PURPOSES. SO LONG AS IT IS IN OPERATION, IT HAS TO MAINTAIN I TS STATUS AS A COMPANY AND IT HAS TO DISCHARGE CERTAIN LEGAL OBLIGATIONS AND, FOR THAT PURPOSE, IT IS NECESSARY TO APPOINT CLERICAL STAFF AND SECRETARY OR ACCOUNTA NT AND INCUR INCIDENTAL EXPENSES. IN THIS BACKGROUND, THE CONCLUSION OF-THE TRIBUNAL THAT THE EXPENSES..INCURRED WERE WHOLLY AND EXCLUSIVELY FOR THE ACTIVITIES TO EARN INCOME IS PRE-EMINENTLY A REASONABLE CONCLUSION. THUS THE EXPENDITURE INCURRED BY THE COMPANY FOR MA INTAINING ITS CORPORATE STATUS IS. AN ALLOWABLE EXPENDITURE. HOWEVER, FROM THE DETAILS OF THE EXPENDITURE IT CANNOT BE BIFURCATED HOW MUCH EXPENDITURE WAS ACTUALLY INCURR ED FOR MAINTAINING THE CORPORATE STATUS AND HOW MUCH FOR EARNING OF DIVIDEND INCOME. CONSIDERING THE FACTS THE CASE AND THE ARGUMENTS OF BOTH THE SIDES, IN OUR OPINION , IT WOULD MEET. THE ENDS OF JUSTICE IF IT. IS HELD THAT AN EXPENDITURE OF RS.L0,000/- H AD BEEN INCURRED FOR EARNING OF DIVIDEND INCOME OF R.S.2,23,725. ACCORDINGLY, WE SU STAIN THE DISALLOWANCE AT R.S.L0,000/- AND DELETE THE REMAINING DISALLOWANCE AMOUNTING TO RS.L,33,155/-. 7.2. RESPECTFULLY FOLLOWING THE SAME WE RESTRICT TH E DISALLOWANCE TO RS.10,000/- AS AGAINST RS.90,000/- AS CONFIRMED BY LD. CIT(A), 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 01.11.2011. SD/- SD/- , , , , MAHAVIR SINGH, JUDICIAL MEMBER . .. . ! ! ! !. .. . , , , , '# '# '# '# , C.D.RAO, ACCOUNTANT MEMBER. ( (( (!# !# !# !#) )) ) DATE: 01.11.2011. R.G.(.P.S.) 4 '4 / -5 6'5'7- COPY OF THE ORDER FORWARDED TO: 1. M/S. SHRUTI LTD., C/O SALARPURIA JAJODIA & CO., 7,C .R.AVENUE, KOLKATA-700001. 2 THE A.C.I.T., CENTRAL CIRCLE-XI, KOLKATA. 3. THE CIT, 4. THE CIT(A)-CENTRAL-I, KOLKATA. 5. DR, KOLKATA BENCHES, KOLKATA .5 -/ TRUE COPY, '4%1/ BY ORDER, DEPUTY /ASST. REGISTRAR , ITAT, KOLKATA BENCHES