Bengal Tools Ltd., Kolkata V. DCIT, CIR-1(1), KOLKATA, Kolkata

ITA 522/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1841 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 9 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 28-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ARINDAM BHATTACHARJEE
• Assessee Lawyers: AMITAVA BOSE
• Keywords: Earning of tax free income; Proportionate interest
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : KOLKATA [BEFORE HONBLE SHRI WASEEM AHMED, AM & HONBLE SH RI S.S.VISWANETHRA RAVI, JM] I.T.A NO. 522/KOL/201 6 ASSESSMENT YEAR :2011-12 BENGAL TOOLS LTD. -VS- DCIT,CIRCLE-1(1), KO LKATA [PAN: AADCS 7466 G] (APPELLANT) (RESPONDE NT) FOR THE APPELLANT : SHRI AMITAVA BOSE, ADVOCA TE FOR THE RESPONDENT : SHRI ARINDAM BHATTACHAR JEE, ADDL.CIT DATE OF HEARING : 01.01.2018 DATE OF PRONOUNCEMENT : 25.01.2018 ORDER PER WASEEM AHMED, AM THIS APPEAL BY THE ASSESSEE ARISES OUT OF THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS)-1, KOLKATA [IN SHORT THE LD CIT (A)] DATED 29.01.2016 AGAINST THE ORDER PASSED BY THE DCIT, CIRCLE-1(1), KOLKATA [ IN SHORT THE LD AO] UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 29 .03.2014 FOR THE ASSESSMENT YEAR 2011- 12. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. FOR THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) WAS WRONG IN NOT CONSIDERING THE GROUND NO.1(A) IN RESPECT OF DISALL OWANCE U/S 14A BEING PROPORTIONATE INTEREST OF RS. 39,57,254.- UNDER RULE 8D(II) THOUG H SUBMISSION WAS MADE. HE WAS WRONG IN NOT GIVING ANY DECISION ON THE SAID GROUND. 2. FOR THAT ON THE FACTS AND CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) SHOULD HAVE FOUND THAT DISALLOWANCE MADE UNDER RULE 8D(II) OF RS. 39,57,25 4/- IS NOT DISALLOWABLE IN VIEW OF THE FACTS AND SUBMISSION MADE BEFORE HIM AND ASSESSING OFFICER. 3. FOR THAT THE APPELLANT CRAVES LEAVE TO ADDUCE AN D/OR ALTER FURTHER GROUND/S BEFORE HEARING OF THE APPEAL. 2 ITA NO.522/KOL/2016 BENGAL TOOLS LTD. A.YR. 2011-12 2 2. THE ONLY ISSUE RAISED BY THE ASSESSEE IS THAT TH E LD. CIT(A) ERRED IN NOT ADJUDICATING THE DISALLOWANCES MADE BY THE AO U/S 14A READ WITH RULE 8D(2)(II) OF THE INCOME TAX RULES, 1962 ON ACCOUNT OF INTEREST EXPENSES. 3. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A LIMITED COMPANY AND ENGAGED IN MANUFACTURING OF ENGINEERING AND TRADING OF AGRO GOODS. THE ASSES SEE, DURING THE YEAR HAS EARNED DIVIDEND INCOME OF RS. 12,74,558/- WHICH WAS CLAIMED EXEMPTE D U/S 10(34) OF THE ACT. HOWEVER, THE AO DURING THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE OF EXPENSES INCURRED IN CONNECTION WIT H SUCH DIVIDEND INCOME. ACCORDINGLY, THE ASSESSEE WAS SHOW CAUSED FOR NOT MAKING THE DISALLO WANCE OF EXPENSES AGAINST EXEMPTED INCOME. THE ASSESSEE IN COMPLIANCE WITH THE NOTICE SUBMITTED THAT THE DISALLOWANCE OF EXPENDITURE CAN BE MADE UNDER RULE 8D OF THE IT RUL ES, AFTER CONSIDERING ONLY THOSE INVESTMENTS WHICH HAVE GIVEN RISE TO THE DIVIDEND I NCOME DURING THE YEAR. 4. HOWEVER, THE AO DISREGARDED THE CONTENTION OF TH E ASSESSEE AND MADE THE DISALLOWANCE AFTER INVOKING THE PROVISION OF SECTION 14A READ WITH RUL E 8D AS UNDER: SL NO. PARTICULARS AMOUNT 1. DIRECT EXPENSES UNDER RULE 8D(2)(I) RS. NIL 2. INTEREST EXPENSES UNDER RULE 8D(2)(II) RS. 39,57 ,254/- 3. INDIRECT/ADMINISTRATIVE EXPENSES RS. 3,99,553/- TOTAL RS. 43,56,807/- IN VIEW OF THE ABOVE, THE AO MADE THE DISALLOWANCE OF RS. 43,56,807/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE T HE LD. CIT(A). THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED THAT NO BORROWED FUNDS HAS BEE N UTILIZED IN THE INVESTMENT OF SHARES. BESIDES THE ABOVE, THE OWN FUND OF THE ASSESSEE EXC EEDS THE AMOUNT OF INVESTMENT MADE IN THE SHARES. THE AMOUNT OF INVESTMENT IN THE SHARES STAN DS AT RS.13,23,68,527/- WHEREAS ITS OWN FUND STANDS FOR RS.45,71,35,188/- AS ON 31.03.2011. THE ASSESSEE ALSO SUBMITTED THAT THE INDIRECT/ADMINISTRATIVE EXPENSES CAN BE DISALLOWED ONLY AFTER CONSIDERING THOSE INVESTMENTS WHICH HAVE GENERATED DIVIDEND INCOME DURING THE YEA R AS PER THE PROVISION OF SECTION 14A READ WITH RULE 8D OF INCOME TAX RULES. THE LD. CIT(A) AF TER CONSIDERING THE SUBMISSION OF THE ASSESSEE ALLOWED ITS APPEAL IN PART BY OBSERVING AS UNDER: 3 ITA NO.522/KOL/2016 BENGAL TOOLS LTD. A.YR. 2011-12 3 I HAVE CAREFULLY CONSIDERED THE OBSERVATION MADE BY THE AO IN THE ASSESSMENT ORDER AND SUBMISSION FILED BY THE AR OF THE APPELLANT. THERE IS SUBSTANCE IN THE SUBMISSION THE ARGUMENT OF THE AR OF THE APPELLANT THAT DISALLOWANCE OF EXP ENSES TO EARN DIVIDEND CAN BE MADE ONLY TO THE EXTENT OF INVESTMENT MADE IN SHARES ON WHICH DI VIDEND IS EARNED. THE LD. CIT(A), CENTRAL- II, KOLKATA IN THE APPELLANT IN THE CASE FOR ASSESS MENT YEAR 2008-09 DECIDED THE SAME ISSUE, I ALSO GONE THROUGH THE DECISION OF HONBLE ITAT, KOL KATA IN CASE OF REI AGRO LTD.(SUPRA) IT WAS HELD BY THE HONBLE ITAT, KOLKATA THAT NOT ALL INVE STMENT BECAME THE SUBJECT MATTER OF CONSIDERATION WHEN COMPUTING DISALLOWANCE U/S 14A R EAD WITH RULE 8D. THE DISALLOWANCE U/S 14A READ WITH RULE 8D IN RELATION TO THE INCOME W HICH DOES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DONE ONLY BY TAKING INTO CONSIDERAT ION THE INVESTMENT WHICH HAS GIVEN RISE TO THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL I NCOME. AS MENTIONED ABOVE THE VALUE OF INVESTMENT FROM WHI CH THE APPELLANT COMPANY HAS EARNED DIVIDEND INCOME WAS RS. 12,74,558/- AND THEREOF, IN VIEW THE DECISION OF THE ITAT IN CASE OF REI AGRO LTD. AND FOLLOWING THE DECISION OF THE LD. CIT(A), CENTRAL-II, KOLKATA IN THE APPELLANT OWN CASE FOR THE ASSESSMENT YEAR 2008-09. THE AO IS DIRECTED TO RECOMPUTED THE AMOUNT OF DISALLOWANCE UNDER RULE 8D(2)(II) BY CONSIDERING ON LY THE INVESTMENT MADE IN SUCH SHARES. HOWEVER, THE AO IS DIRECTED TO VERIFY THE VALUE OF INVESTMENT IN SHARES FROM WHICH EXEMPT INCOME WAS EARNED WHILE RECALCULATING THE DISALLOWA NCES. IN VIEW OF THE ABOVE, THESE GROUNDS ARE PARTLY ALLOWED. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) THE ASS ESSEE IS IN SECOND APPEAL BEFORE US. 7. THE LD. AR BEFORE US SUBMITTED THAT THE AO HAS M ADE THE DISALLOWANCE OF INTEREST EXPENSES AS WELL AS INDIRECT/ADMINISTRATIVE EXPENSE S. AGAINST THE ORDER OF AO AN APPEAL WAS PREFERRED BEFORE THE LD. CIT(A) WHO HAS ADJUDICATED THE ISSUE OF INDIRECT/ADMINISTRATIVE EXPENSES DISALLOWED BY THE AO. HOWEVER, THE LD. CIT (A) INADVERTENTLY OMITTED TO ADJUDICATE THE ISSUE RAISED BEFORE HIM WITH REGARD TO THE DISA LLOWANCE OF INTEREST EXPENSES MADE BY THE AO UNDER RULE 8D(2)(II) OF INCOME TAX RULE. THE LD. AR ALSO SUBMITTED THAT THE OWN CAPITAL OF THE ASSESSEE EXCEEDS THE AMOUNT OF INVESTMENT MA DE BY THE ASSESSEE IN THE SHARES. THEREFORE, AS SUCH NO DISALLOWANCE OF INTEREST EXPE NSES IS WARRANTED. HOWEVER, THE LD. AR BEFORE US REQUESTED TO RESTORE THE MATTER TO THE FI LE OF LD. CIT(A) FOR FRESH ADJUDICATION OF THE INTEREST EXPENSES ISSUE AS PER THE PROVISION OF LAW . ON THE OTHER HAND, THE LD. DR FAIRLY CONSIDERED THE FACT THAT THE ISSUE OF DISALLOWANCE OF INTEREST MADE BY THE AO HAS NOT BEEN ADJUDICATED BY THE LD. CIT(A). THEREFORE, THE LD. DR RAISED NO OBJECTION IF THE MATTER IS RESTORED BACK TO THE FILE OF LD. CIT(A) FOR FRESH ADJUDICATION IN ACCORDANCE WITH THE LAW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING THE PAPER BOOK FILED BY THE ASSESSEE WHICH IS RUNNI NG FROM PAGE NO. 1 TO 35. FROM THE 4 ITA NO.522/KOL/2016 BENGAL TOOLS LTD. A.YR. 2011-12 4 FOREGOING DISCUSSION, THERE REMAINS NO DOUBT THAT T HE ISSUE OF DISALLOWANCE OF INTEREST MADE BY THE AO HAS NOT BEEN ADJUDICATED BY THE LD. CIT(A). THEREFORE, IN THE INTEREST OF JUSTICE AND FAIR PLAY WE ARE INCLINED TO GIVE ONE MORE OPPORTUNITY T O THE ASSESSEE TO RAISE ITS POINT OF CONTENTION BEFORE THE LD. CIT(A). ACCORDING THE LD. CIT(A) IS DIRECTED TO ADJUDICATE THE SAME AFTER HEARING THE ASSESSEE. IN VIEW OF THE ABOVE WE REMIT THE IMPUGNED ISSUE OF INTEREST EXPENSES TO THE FILE OF LD. CIT(A) FOR FRESH ADJUDICATION IN AC CORDANCE WITH THE PROVISION OF THE LAW. HENCE, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TRE ATED ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 25.01.2018 SD/- SD/- [S.S. VISWANETHRA RAVI] [WAS EEM AHMED ] JUDICIAL MEMBER ACCOUNTANT MEMB ER DATED : 25.01.2018 SB, SR. PS COPY OF THE ORDER FORWARDED TO: 1. BENGAL TOOLS LTD., 2, JESSORE ROAD, DUM DUM, KOL KATA-700028. 2. DCIT, CIRCLE-1(1), KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, 7 TH FLOOR, KOLKATA-700069. 3.C.I.T.- 4. C.I.T.- K OLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. 6. GUARD FILE. BY ORDER /TRUE COPY/ SENIOR PRIVAT E SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHE S