M/s NRE Metcoke Ltd., Kolkata V. DCIT, CIR-8, KOLKATA, Kolkata

ITA 525/KOL/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6311 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 28-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Reason to believe
• Section: 14A; 10

Judgement Text

ITA NO.484 & 525/KOL/2017 M/S NRE COKE LTD. A.Y.201 0-11 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH A KOL KATA [BEFORE HONBLE SHRI J.SUDHAKAR REDDY, AM & SMT. MADHUMITA ROY, JM ] ITA.NO.484/KOL//2016 ASSESSMENT YEAR : 2010-11 I.T.O., WARD-8(2) -VERSUS- M/S NRE METCOKE LTD. KOLKATA KOLKATA (PAN: AAICS 0079 C) (APPELLANT) (RESPONDENT) ITA.NO.525/KOL//2016 ASSESSMENT YEAR : 2010-11 M/S NRE METCOKE LTD -VERSUS- D.C.I.T., CIRCL E-8, KOLKATA KOLKATA (PAN: AAICS 0079 C) (APPELLANT) (RESPONDENT) FOR THE DEPARTMENT: SHRI SALLONG YADEN, ADDL. C IT FOR THE ASSESSEE : SHRI RAVI TULSIYAN, FCA DATE OF HEARING : 30.05.2018. DATE OF PRONOUNCEMENT : 01.06.2018. ORDER PER BENCH THESE ARE CROSS APPEALS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX-12, KOLKATA RELATING TO A.Y. 2010-11 2. THE SOLE ISSUE THAT ARISES IN THIS APPEAL IS DIS ALLOWANCE MADE U/S 14A OF THE INCOME TAX ACT, 1961 (ACT). THE UNDISPUTED FACT IS THAT THE ASSESSEE DOES NOT HAVE ANY EXEMPT INCOME DURING THE YEAR. THE HONBLE DEL HI HIGH COURT IN THE CASE OF CHEMINVEST LTD.VS CIT 378 ITR 33 (DEL) , WHEREIN I T IS HELD AS FOLLOWS :- '15. TURNING TO THE CENTRAL QUESTION THAT ARISES FO R CONSIDERATION, THE COURT FINDS THAT THE COMPLETE ANSWER IS PROVIDED BY THE DECISIO N OF THIS COURT IN CIT V. HOLCIM INDIA (P) LTD. (DECISION DATED 5TH SEPTEMBER 2014 IN ITA NO. 486/2014). IN THAT CASE A SIMILAR QUESTION AROSE, VIZ., WHETHE R THE ITAT WAS JUSTIFIED IN DELETING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT WHEN NO DIVIDEND INCOME HAD BEEN EARNED BY THE ASSESSEE IN THE RELEVANT AY? THE COURT REFERRED TO THE DECISION OF THIS COURT IN MAXOPP INVESTMENT LTD. (S UPRA) AND TO THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THIS VERY CASE I. E. CHEMINVEST LTD. V. CIT ITA NO.484 & 525/KOL/2017 M/S NRE COKE LTD. A.Y.201 0-11 2 (2009) 317 ITR 86. THE COURT ALSO REFERRED TO THREE DECISIONS OF DIFFERENT HIGH COURTS WHICH HAVE DECIDED THE ISSUE AGAINST REVENUE . THE FIRST WAS THE DECISION IN COMMISSIONER OF INCOME TAX, FARIDABAD V. M/S. LA KHANI MARKETING INCL. (DECISION DATED 2ND APRIL 2014 OF THE HIGH COURT OF PUNJAB AND HARYANA IN ITA NO. 970/2008) WHICH IN TURN REFERRED TO TWO EARLIER DECISIONS OF THE SAME COURT IN CITV. HERO CYCLES LIMITED [2010} 323 ITR518 AND CITV. WINSOME TEXTILE INDUSTRIES LTD. [2009} 319 ITR 204. THE SECOND WAS OF THE GUJARAT HIGH COURT IN COMMISSIONER OF INCOME TAX- I V. CORRTECH ENERGY (P ) LTD. [2014} 223 TAXMANN 130 (GUJ.) AND THE THIRD OF THE ALLAHABAD HIGH COUR T IN COMMISSIONER OF INCOME TAX, KANPUR V. SHIVAM MOTORS (P) LTD. (DECISION DAT ED 5TH MAY 2014 IN ITA NO. 88/2014). THESE THREE DECISIONS REITERATED THE POSI TION THAT WHEN AN ASSESSEE HAD NOT EARNED ANY TAXABLE INCOME IN THE RELEVANT A Y IN QUESTION 'CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANC E. ' 16. IN CIT V. HOLCIM INDIA (P) LTD. (SUPRA), THE CO URT FURTHER EXPLAINED AS UNDER: '15. INCOME EXEMPT UNDER SECTION 1 0 IN A PARTICULA R ASSESSMENT YEAR, MAY NOT HAVE BEEN EXEMPT EARLIER AND CAN BECOME TAXABLE IN FUTURE YEARS. FURTHER, WHETHER INCOME EARNED IN A SUBSEQUENT YEAR WOULD OR WOULD NOT BE TAXABLE, MAY DEPEND UPON THE NATURE OF TRANSACTION ENTERED INTO IN THE SUBSEQUENT ASSESSMENT YEAR. FOR EXAMPLE, LONG TERM CAPITAL GAIN ON SALE O F SHARES IS PRESENTLY NOT TAXABLE WHERE SECURITY TRANSACTION TAX HAS BEEN PAI D, BUT A PRIVATE SALE OF SHARES IN AN OFF MARKET TRANSACTION ATTRACTS CAPITAL GAINS TAX. IT IS AN UNDISPUTED POSITION THAT RESPONDENT ASSESSEE IS AN INVESTMENT COMPANY AND HAD INVESTED BY PURCHASING A SUBSTANTIAL NUMBER OF SHARES AND THERE BY SECURING RIGHT TO MANAGEMENT. POSSIBILITY OF SALE OF SHARES BY PRIVAT E PLACEMENT ETC. CANNOT BE RULED OUT AND IS NOT AN IMPROBABILITY. DIVIDEND MAY OR MAY NOT BE DECLARED. DIVIDEND IS DECLARED BY THE COMPANY AND STRICTLY IN LEGAL SENSE, A SHAREHOLDER HAS NO CONTROL AND CANNOT INSIST ON PAYMENT OF DIVI DEND. WHEN DECLARED, IT IS SUBJECTED TO DIVIDEND DISTRIBUTION TAX.' - 17. ON FACTS, IT WAS NOTICED IN CIT V. HOLCIM INDIA (P) LTD. (SUPRA) THAT THE REVENUE HAD ACCEPTED THE GENUINENESS OF THE EXPENDI TURE INCURRED BY THE ASSESSEE IN THAT CASE AND THAT EXPENDITURE HAD BEEN INCURRED TO PROTECT INVESTMENT MADE. 18. IN THE PRESENT CASE, THE FACTUAL POSITION THAT HAS NOT BEEN DISPUTED IS THAT THE INVESTMENT BY THE ASSESSEE IN THE SHARES OF MAX IND IA LTD. IS IN THE FORM OF A STRATEGIC INVESTMENT. SINCE THE BUSINESS OF THE ASS ESSEE IS OF HOLDING INVESTMENTS, THE INTEREST EXPENDITURE MUST BE HELD TO HAVE BEEN INCURRED FOR HOLDING AND MAINTAINING SUCH INVESTMENT. THE INTEREST EXPENDITU RE INCURRED BY THE ASSESSEE IS IN RELATION TO SUCH INVESTMENTS WHICH GIVES RISE TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME 19. IN LIGHT OF THE CLEAR EXPOSITION OF THE LAW IN HOLCIM INDIA (P) LTD. (SUPRA) AND IN VIEW OF THE ADMITTED FACTUAL POSITION IN THIS CA SE THAT THE ASSESSEE HAS MADE STRATEGIC INVESTMENT IN SHARES OF MAX INDIA LTD.; T HAT NO EXEMPTED INCOME WAS EARNED BY THE ASSESSEE IN THE RELEVANT AY AND SINCE THE GENUINENESS OF THE ITA NO.484 & 525/KOL/2017 M/S NRE COKE LTD. A.Y.201 0-11 3 EXPENDITURE INCURRED BY THE ASSESSEE IS NOT IN DOUB T, THE QUESTION FRAMED IS REQUIRED TO BE ANSWERED IN FAVOUR OF THE ASSESSEE A ND AGAINST THE REVENUE. ' 3. APPLYING THE PROVISIONS OF LAW LAID DOWN BY THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD (SUPRA)TO THE FACTS OF T HE CASE, WE HOLD THAT NO DISALLOWANCE COULD BE MADE U./S 14A OF THE ACT. 4. IN THE RESULT THE DISALLOWANCE U/S 14A IS DELETE D AND THE APPEAL OF THE ASSESSEE IS ALLOWED. REVENUES APPEAL ITA NO.484/KOL/2016 IS ON THE F OLLOWING GROUNDS :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.40, 00,000/- TOWARDS PROFESSIONAL EXPENSES INCURRED FOR THE PURPOSE OF AMALGAMATION. 2. THAT, THE APPELLANT RESERVES THE RIGHT TO AMEND, ALTER OR ADD TO ANY GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING OF THE APPE AL. 5. AFTER HEARING THE RIVAL CONTENTIONS, WE FIND THA T THE GENUINENESS OF THE EXPENDITURE IS NOT DOUBTED BY THE AO. THE LD. DR VE HEMENTLY CONTENDS THAT, THE ASSESSEE HAD NOT EXPLAINED THE REASONS FOR SUBSTANT IAL INCREASE IN THE EXPENDITURE DURING THE YEAR AND HENCE THE AO IN THE REMAND PROC EEDINGS HELD THAT THE EXPENDITURE SHOULD NOT BE ALLOWED. HE SUBMITTED THAT THE ISSUE COULD BE RESTORED TO THE FILE OF THE AO FOR FRESH ADJUDICATION. 6. ON THE OTHER HAND THE LD. COUNSEL FOR THE ASSESS EE SUBMITS THAT, ALL THE DETAILS RELATING TO THIS ISSUE WERE BEFORE THE AO AND THE S OLE GRIEVANCE OF THE AO WAS THAT THE ASSESSEE DID NOT FILE ANY REASON FOR INCREASE OF EX PENDITURE UNDER THE SAID CATEGORY AS COMPARED TO THE PREVIOUS YEAR. HE SUBMITS THAT THIS CANNOT BE A GROUND FOR DISALLOWANCE. HE FURTHER SUBMITS THAT THE EXPENDITU RE HAD INCREASED DUE TO AMALGAMATION 7. WE FIND THAT THE LD CIT(A) AT PAGE 12 OF HIS ORD ER HELD AS FOLLOWS : ITA NO.484 & 525/KOL/2017 M/S NRE COKE LTD. A.Y.201 0-11 4 THE APPELLANT HAS SUBMITTED DETAILS WITH REGARD TO THESE EXPENSES AND DETAILS OF TDS DEDUCTED HAS BEEN SHOWN. THE AO HAS ACCEPTED T HE DETAILS BUT GONE AHEAD AND TREATED THESE AS AMALGAMATION EXPENSES. THE APP ELLANT HAS STATED THAT IT IS NOT UNDERSTOOD HOW THE ASSESSING OFFER HAS DRAWN IN FERENCE THAT PROFESSIONAL FEES OF RS.5316698/- FULLY RELATES TO THE EXPENSE INCURRED ON AMALGAMATION OF COMPANIES . IN FACT AND IN EFFECT THE TOTAL PAYMENT S MADE TO PROFESSIONALS TOWARDS AMALGAMATION WAS RS.57060/- ONLY WHICH STAN DS AT ABOUT 1 % OF TOTAL EXPENSES INCURRED. THE AO EVEN IN HIS REMAND REPOR T HAS NOT CLEARLY ESTABLISHED AS TO HOW THIS WHOLE AMOUNT RELATES TO AMALGAMATION EXPENSES ONLY . HE HAS ONLY CONCLUDED BY SAYING THAT SINCE THE ASSESSEE HAS NO EXPLANATION ABOUT THE REASON FOR INCREASE OF EXPENSES IN THIS PARTICULAR ASSESS MENT YEAR AND ACCORDINGLY THERE IS REASON TO BELIEVE THAT THE INCREASE OF EXP ENDITURE UNDER THIS CATEGORY WAS INCURRED FOR THE PURPOSE OF AMALGAMATION. NOTHI NG WAS BROUGHT OUT BY THE AO IN ASSESSMENT STAGE OR REMAND STAGE AS TO HOW TH ESE WHOLE EXPENSES RELATED SOLELY TO AMALGAMATION EXPENSES. IN FACE HE HAS AL LOCATED THESE EXPENSES ON A PURELY ESTIMATED BASIS. THE AO HAS NOT ESTABLISHED THAT THE CLAIM OF THE ASSESSEE IS NOT CORRECT . THEREFORE , THE DISALLOWANCE MADE BY THE AO IS HEREBY, DELETED. 8. WE FIND NO INFIRMITY IN THE FACTUAL FINDINGS OF THE LD. CIT(A). WE ALSO FIND NO REASON TO ACCEPT THE REQUEST OF THE LD. DR FOR SETT ING ASIDE THIS ISSUE TO THE FILE OF THE AO, AS THE LD. CIT(A) HAD REQUESTED THE AO FOR A RE MAND REPORT ON THIS ISSUE AND DECIDED THE ISSUE AFTER CONSIDERING THE SAME. THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 9. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLO WED AND THE APPEAL OF THE REVENUE IS DISMISSED. O RDER PRONOUNCED IN THE COURT 01.06.2018. SD/- SD/- [J.SUDHAKAR REDDY] [ MADHUMITA ROY ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 01.06.2018. [RG SR.PS] ITA NO.484 & 525/KOL/2017 M/S NRE COKE LTD. A.Y.201 0-11 5 COPY OF THE ORDER FORWARDED TO: 1.M/S NRE METCOKE LTD., 22, CMAC STREET, BLOCK-C, 5 TH FLOOR, KOLKATA-700016. 2. D.C.I.T., CIRCLE-8, KOLKATA. 3. C.I.T.(A)- 12, KOLKATA 4. C.I.T-3, KOLKATA 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER, SENIOR PRIVATE SECRETARY HEAD OF OFFICE/D.D.O, ITAT KOLKATA BENCHES