M/s TMT Viniyogan Ltd., Kolkata V. DCIT, CIR-6(2), KOLKATA, Kolkata

ITA 561/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0650 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-12-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 28-06-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 08-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: AGAINST TH E PASSED
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TR IBUNAL KOLKATA BENCH, KOLKATA (BENCH B) BEFORE SHRI A. T. VARKEY, ACCOUNTANT MEMBER AND SHRI WASEEM AHMED, JUDICIAL MEMBER I.T.A. NO.561/KOL/2015 ASSESSMENT YEAR 2008-09 ORDER PER WASEEM AHMED, AM THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST TH E ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-2 [IN SHORT THE CIT(A)] VIDE APPEAL NO.24/CIT(A)-2(08-09)/14-15 DATED 06.01.2015 . ASSESSMENT FRAMED U/S 143(3) OF THE INCOME TAX ACT 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR THE A.Y 2009-10. M/S. TMT VINIYOGAN LTD . EMAMI TOWER, FLAT-687, ANANDAPUR, EM BYPASS, KOLKATA 700 017. [PAN : AAACT 9455 F] -VS- DCIT, CIR-6(2), KOLKATA AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA 700 069. (APPELLANT) (RESPONDENT) FOR THE APPELLANT SHRI S.K. AGARWAL, FCA FOR THE RESPONDENT SHRI SAURABH KUMAR, ADDL. CIT(DR) DATE OF HEARING 05.10.2017 DATE OF PRONOUNCEMENT 15.12.2017 M/S. TMT VINIYOGAN LTD. I.T.A. NO.561/KOL/2015 ASSESSMENT YEAR 2008-09 PAGE | 2 S.K. AGARWAL, LD. AUTHORIZED REPRESENTATIVE APPEARE D ON BEHALF OF ASSESSEE AND SAURABH KUMAR, LD. DEPARTMENTAL REPRESENTATIVE REPRESENTED ON BEHALF OF REVENUE. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.19,23,063/- U/S 14A R.W.R 8D (2)(III) IN AS MUCH AS THE ACTUAL EXPENSES DEBITED TO P/L A/C & CLAIMED IS RS.51,669/ -. 2. THAT ON THE FACTS & CIRCUMSTANCES OF THE CASE TH E LD. CIT(A) ERRED IN CONFIRMING THE ADDITION OF RS.19,52,849/- TO BOOK PROFIT U/S 115JB . 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND WITHOUT PREJUDICE TO GROUND NO.2. THE ADDITION TO BOOK PROFIT SHOULD NOT EXCEED THE ACTUAL EXPENSES OF RS.51,669/- DEBITED TO P/L A/C. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD ADDITIONA L GROUND AND OR MODIFY/SUBSTITUTE ANY OF THE GROUNDS. 3. THE FIRST ISSUE RAISED BY THE ASSESSEE IN THIS A PPEAL IS THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF ASSESSING O FFICER BY SUSTAINING DISALLOWANCE OF RS.19,23,063/- U/S 14A R.W.R 8D(2)( III) OF I.T RULES 1962 WHEREAS ACTUAL EXPENSES WERE CLAIMED TO THE TUNE OF RS.51,669/- ONLY. 4. THE BRIEF STATED FACTS ARE THAT THE ASSESSEE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE ACTIVITY OF INVESTMENT. THE ASSE SSEE DURING THE YEAR HAS EARNED DIVIDEND INCOME OF RS. 29,78,576/- WHICH WAS CLAIMED AS EXEMPTED INCOME U/S 10(34) OF THE ACT. HOWEVER, THE ASSESSEE DID NOT MAKE ANY DISALLOWANCE OF THE EXPENSES INCURRED IN RELATION T O SUCH EXEMPTED INCOME. THUS, THE ASSESSING OFFICER INVOKED THE PROVISION O F 14A R.W.R 8D AND MADE THE FOLLOWING DISALLOWANCES: SL. NO. RULE PARTICULARS AMOUNTS(IN RS.) 1 8D(2)(I) DIRECT EXPENSES 29,786/- 2 8D(2)(II) INTEREST EXPENSES NIL 3 8D(2)(III) DISALLOWANCE 1923063/- TOTAL 1952849/- M/S. TMT VINIYOGAN LTD. I.T.A. NO.561/KOL/2015 ASSESSMENT YEAR 2008-09 PAGE | 3 THE ABOVE EXPENSES WERE DISALLOWED AS PER RULE 8D A ND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT( A) WHERE IT SUBMITTED DETAILS OF ACTUAL EXPENSES CLAIMED BY THE ASSESSEE IN HIS PROFIT & LOSS A/C FOR RS. 51,699/- AS DETAILED UNDER: RENT & RATES RS.5800/- FILING FEES RS.3168/- PROFESSIONAL FEES RS.10551.00 MISCELLANEOUS EXPENSES RS.15296/- AUDITORS REMUNERATION RS.16854/- TOTAL RS.51669/- THUS, THE ASSESSEE SUBMITTED THAT THE EXPENSES UNDE R RULE 8D(2)(III) OF I.T RULES CANNOT EXCEED THE EXPENSES ACTUALLY CLAIMED B Y IT IN THE P & L A/C. HOWEVER, THE LD. CIT(A) DISREGARDED THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ORDER OF ASSESSING OFFICER BY OBSERVI NG AS UNDER: 4.2 I AM NOT IN AGREEMENT WITH THE VIEWS OF THE AR OF THE APPELLANT. IN HIS WRITTEN SUBMISSIONS THE AR HAS STATED THAT THE APPELLANT HA S INCURRED A TOTAL EXPENDITURE OF ONLY RS.51,699/- AND HE HAS CITED CASE LAWS TO ARGU E THAT ANY DISALLOWANCE CANNOT BE MADE U/S 14A OVER AND ABOVE THE EXPENSES CLAIMED . IN THIS CONTEXT, I HAVE EXAMINED THE P&L ACCOUNT OF THE APPELLANT FOR THE P ERIOD ENDING 31.03,2008 AND I FIND THAT APART FROM THE EXPENDITURE OF RS.51,699/- POINTED OUT BY THE AR OF THE APPELLANT, A NET INTEREST OF RS.4,73,43,908/- HAS A LSO BEEN CLAIMED AS EXPENDITURE. I HAVE FURTHER EXAMINED THE BALANCE SHEET OF THE APPE LLANT COMPANY FOR THE PERIOD ENDING 31.03.2008 AND I FIND THAT THE APPELLANT HAD AN INVESTMENT OF RS.26.23 CRORES AS ON THIS DATE. THE SOURCES OF FUND COULD BE SHARE CAPITAL (RS.1,10,63,500/-), RESERVE AND SURPLUS (RS.7,82,67,108/-) AND 0% FULLY CONVERTIBLE BONDS (RS.13,00,00,000/-). HOWEVER, TOGETHER SUCH FUND AM OUNT TO ONLY RS.21.93 CRORES WHICH IS INSUFFICIENT FOR MAKING INVESTMENT OF RS.2 6.23 CRORES. OBVIOUSLY, THE BALANCE FUND HAVE COME FROM UNSECURED LOANS OF RS.9,87,15,3 86/-. THEREFORE, IT CAN BE HELD THAT INVESTMENTS ON WHICH DIVIDEND HAS BEEN EARNED HAVE BEEN PARTLY MET OUT OF INTEREST BEARING UNSECURED LOANS WHICH BRINGS THE A PPELLANT WITHIN THE PURVIEW OF SECTION 14A R.W.R 8D. THEREFORE, THE ACTION OF THE ASSESSING OFFICER TO MAKE A DISALLOWANCE OF RS.19,52,849/- U/S 14A IS CONFIRMED AND GROUND NOS.2&3 ARE DISMISSED. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE FILED SECOND APPEAL BEFORE US. 6. THE LD. AR FILED A PAPER BOOK WHICH IS RUNNING P AGE 1 TO 19 AND REITERATED THE SUBMISSIONS THAT WERE MADE BEFORE TH E LD. CIT(A) WHEREAS THE LD. DR VEHEMENTLY SUPPORTED THE ORDER OF LOWER AUTH ORITY. M/S. TMT VINIYOGAN LTD. I.T.A. NO.561/KOL/2015 ASSESSMENT YEAR 2008-09 PAGE | 4 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE INSTANT CASE RELATES TO THE DISALLOWANCE MADE BY THE AO U/S 14A R.W.R 8D(2)(III) OF THE I.T RULES WHICH WAS SUBSEQUENTLY CONFIRMED BY LD. CIT(A). 8. FROM THE ABOVE DISCUSSION, WE NOTE THAT ASSESSIN G OFFICER CAN RESORT TO MAKE THE DISALLOWANCE U/S 14A OF THE ACT R.W.R. 8D OF THE IT RULES, 1962 AFTER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AND F EELS DISSATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. THUS, IT IS CLEAR THAT THE AO CAN MAKE THE DISALLOWANCES OF THE EXPENSES INCURRED IN RELATION TO EXEMPT INCOME IN PURSUANCE TO THE PROVISIONS AS SPECIFIED U/S 14A OF THE ACT. ON PERUSAL OF THE FACTS OF THE PRESENT CASE, WE NOTE THAT THE ASS ESSEE HAS CLAIMED INDIRECT/ADMINISTRATIVE EXPENSES DURING THE YEAR TO THE TUNE OF RS.51,669/- ONLY. THUS, IT IS UNDOUBTEDLY CLEAR THAT ACTUAL EXP ENSES CLAIMED BY THE ASSESSEE ARE MUCH LESS THEN THE EXPENSES DISALLOWED UNDER RULE 8D(2)(III) OF THE I.T. RULES BY THE AO. IN THE BACKDROP OF THE PR ESENT CASE WE ARE OF THE VIEW THAT THE EXPENSES TO BE DISALLOWED UNDER RULE 8D(2)(III) CANNOT EXCEED THE ACTUAL EXPENSES INCURRED BY THE ASSESSEE. HOWE VER, THE AO HAS MADE THE DISALLOWANCE OF THE EXPENSES UNDER RULE 8D(III) EXCEEDING THE ACTUAL EXPENSES. 9. THE ACT OF MAKING THE DISALLOWANCE BY THE AO UND ER RULE 8D(III) SHOWS THAT NO REFERENCE HAS BEEN MADE TO THE BOOKS OF ACC OUNTS OF THE ASSESSEE. IN SUCH A SITUATION WE ARE OF THE VIEW THAT THE DISALL OWANCE U/S 14A VIZ A VIZ RULE 8D OF THE I.T RULES HAS BEEN MADE WITHOUT COMP LYING THE PROVISIONS OF LAW. THUS THE ADDITION CANNOT BE SUSTAINED IN THE I NSTANT CASE. THUS, WE DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED ADDITI ON. THUS, FIRST ISSUE IN GROUNDS OF APPEAL FILED BY THE ASSESSEE IS ALLOWED. 10. THE SECOND ISSUE RAISED BY THE ASSESSEE (IN GRO UND NOS.2 & 3) IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN CONFIRMING THE A DDITION OF RS.19,52,849/- U/S 115JB OF THE ACT. M/S. TMT VINIYOGAN LTD. I.T.A. NO.561/KOL/2015 ASSESSMENT YEAR 2008-09 PAGE | 5 11. THE ASSESSING OFFICER IN THE INSTANT CASE HAD M ADE THE DISALLOWANCE U/S 14A R.W.R 8D FOR RS.19,52,849/- WHILE COMPUTING INCOME UNDER NORMAL COMPUTATION OF INCOME. THE ASSESSING OFFICER, FURTH ER, DISALLOWED THE SAME AMOUNT WHILE COMPUTING THE INCOME UNDER SECTION 115 JB OF THE ACT. 12. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD. CIT(A). THE ASSESSEE BEFORE THE LD. CTI(A) SUBMITTED THAT THE DISALLOWAN CE MADE U/S 14A R.W.R 8D UNDER THE NORMAL COMPUTATION OF INCOME CANNOT BE IM POSED TO THE COMPUTATION OF INCOME DETERMINED U/S 115JB OF THE A CT. HOWEVER, THE LD. CIT(A) DISREGARDED THE CONTENTION OF THE ASSESSEE A ND CONFIRMED THE AO BY OBSERVING AS UNDER: 6.2 I HAVE EXAMINED THE SUBMISSION OF THE AR OF THE APPELLANT AND PERUSED THE ASSESSMENT ORDER. THE CASE LAWS QUOTED ABOVE BY THE AR OF THE APPELLANT ARE RELEVANT. HOWEVER, IN A SUBSEQUENT DE CISION, THE ITAT MUMBAI AT ITA NO.7546/MUM/2011 AND ITA NO.6678/MUM/2011 FO R ASSESSMENT YEAR 2008-09 IN THE CASE OF ITO VS. RBK SHARE BROKING DA TED 24/07/2013 HAS HELD THAT THE AMOUNT DISALLOWABLE U/S 14A WAS ALWAYS A P ART OF EXPENSES SPECIFICALLY DEBITED TO P&L ACCOUNT AND HENCE COVER ED UNDER THE CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2). SIMILAR VIEWS HA VE ALSO BEEN EXPRESSED BY THE ITAT MUMBAI IN THE CASE OF ESQUIRE (P) LTD ITA NO.5688/MUM/2011 FOR ASSESSMENT YEAR 2008-09. I AM THEREFORE OF THE VIEW THAT THE ACTION OF THE ASSESSING OFFICER TO ADD A SUM OF RS.19,52,849/- TO THE BOOK PROFIT OF THE APPELLANT COMPANY U/S 115JB IS JUSTIFIED. GROUND NO .5 OF THE APPEAL IS DISMISSED. T BEING AGGRIEVED BY THE ORDER OF LD. CIT(A), THE ASS ESSEE IS IN SECOND APPEAL BEFORE US. 13. THE LD. AR BEFORE US SUBMITTED THAT THAT DISALL OWANCES MADE UNDER NORMAL COMPUTATION OF INCOME CANNOT BE APPLIED WHIL E DETERMINING THE INCOME U/S 115JB OF THE ACT. THE LD. AR ALTERNATIVE LY SUBMITTED THAT IF THE DISALLOWANCES U/S 115JB OF THE ACT IS REQUIRED TO B E MADE THEN IT SHOULD NOT EXCEED THE ACTUAL EXPENSES CLAIMED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS I.E. RS.51,669/-. ON THE OTHER HAND, LD. DR VEHEMENTLY SUPPORTED THE ORDER OF LOWER AUTHORITIES. M/S. TMT VINIYOGAN LTD. I.T.A. NO.561/KOL/2015 ASSESSMENT YEAR 2008-09 PAGE | 6 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ISSUE IN THE INSTANT CASE RELATES TO THE DISALLOWANCES MADE BY ASSESSING OFFICER U/S 14A R.W.R 8D OF THE I NCOME TAX RULES WHILE DETERMINING THE INCOME UNDER NORMAL COMPUTATION OF INCOME. THE DISALLOWANCE OF THE SAME WAS ALSO MADE WHILE DETERM INING THE PROFIT U/S 115JB OF THE ACT. HOWEVER, WE NOTE THAT IN RECENT J UDGMENT OF SPECIAL BENCH OF HONBLE DELHI TRIBUNAL IN THE CASE OF ACIT VS. V IREET INVESTMENT PVT. LTD. REPORTED IN 82 TAXMANN.COM 415 THAT THE DISALLOWANC ES MADE U/S 14A R.W.R. 8D CANNOT BE THE SUBJECT MATTER OF DISALLOWANCES WH ILE DETERMINING THE NET PROFIT U/S 115JB OF THE ACT. RELEVANT PORTION OF TH E SAID ORDER IS REPRODUCED BELOW: IN VIEW OF ABOVE DISCUSSION, THE COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2), IS TO BE MADE WITHOUT RESORTING T O THE COMPUTATION AS CONTEMPLATED UNDER SECTION 14A, READ WITH RULE 8D O F THE INCOME-TAX RULES, 1962. THE RATIO LAID DOWN BY THE HONBLE TRIBUNAL IS SQUA RELY APPLICABLE TO THE FACTS OF THE CASE. THUS IT CAN BE CONCLUDED THAT THE DISA LLOWANCE MADE UNDER SECTION 14A R.W.R. 8D CANNOT BE RESORTED WHILE DETE RMINING THE EXPENSES AS MENTIONED UNDER CLAUSE (F) TO EXPLANATION 1 OF SECT ION 115JB OF THE ACT. HOWEVER IT IS ALSO CLEAR THAT THE DISALLOWANCE NEED S TO BE MADE IN TERMS OF THE PROVISIONS OF CLAUSE (F) TO SECTION 115JB OF TH E ACT WHILE DETERMINING THE BOOK PROFIT. IN HOLDING SO WE DRAW OUR SUPPORT FROM THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. JAYSHREE TEA INDUSTRIES LTD. IN GO NO.1501 OF 2014 (ITAT NO.47 OF 2014) DATED 19.11.14 WHEREIN IT WAS HELD THAT THE DISALLOWANCE IN RELATION TO EXEMPTED INCOM E NEEDS TO BE MADE AS PER THE CLAUSE (F) TO EXPLANATION-1 OF SEC. 115JB OF TH E ACT INDEPENDENTLY. THE RELEVANT EXTRACT OF THE JUDGMENT IS REPRODUCED BELO W:- WE FIND COMPUTATION OF THE AMOUNT OF EXPENDITURE R ELATABLE TO EXEMPTED INCOME OF THE ASSESSEE MUST BE MADE SINCE THE ASSESSEE HAS NO T CLAIMED SUCH EXPENDITURE TO BE NIL. SUCH COMPUTATION MUST BE MADE BY APPLYING CLAU SE (F) OF EXPLANATION 1 UNDER SECTION 115JB OF THE ACT. WE REMAND THE MATTER FOR SUCH COMPUTATION TO BE MADE BY THE LEARNED TRIBUNAL. M/S. TMT VINIYOGAN LTD. I.T.A. NO.561/KOL/2015 ASSESSMENT YEAR 2008-09 PAGE | 7 WE ACCEPT THE SUBMISSION OF MR. KHAITAN, LEARNED SE NIOR ADVOCATE THAT THE PROVISION OF SECTION 115JB IN THE MATTER OF COMPUTATION IS A COMPLETE CODE IN ITSELF AND RESORT NEED NOT AND CANNOT BE MADE TO SECTION 14A OF THE A CT. IN VIEW OF ABOVE WE HOLD THAT THE DISALLOWANCES MAD E UNDER THE PROVISIONS OF SEC. 14A R.W.S 8D OF THE IT RULES, CANNOT BE APPLIE D TO THE PROVISION OF SEC. 115JB OF THE ACT AS PER THE DIRECTION OF THE HON'BL E JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. JAYSHREE TEA INDUSTRIES LTD. (SUPRA). THEREFORE, THE AO SHALL WORK OUT THE DISALLOWANCES IN TERMS OF THE CL AUSE (F) TO EXPLANATION-1 OF SEC. 115JB OF THE ACT INDEPENDENTLY AFTER CONSIDERI NG THE EXPENSES DEBITED IN THE PROFIT & LOSS ACCOUNT AS MANDATED UNDER THE PRO VISIONS OF LAW. THEREFORE WE ARE INCLINED TO RESTORE THIS ISSUE TO THE FILE O F AO FOR FRESH ADJUDICATION IN ACCORDANCE TO LAW AND IN THE LIGHT OF ABOVE DISCUSS ION. THUS THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL P URPOSES. 15. IN THE RESULT, ASSESSEES APPEAL STANDS ALLOWED FOR STATISTICAL P URPOSE. ORDER PRONOUNCED IN THE COURT ON 15/12/2017. SD/- SD/- [A. T. VARKEY] [WASEEM AHMED] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 15/12/2017 RS(SPS) COPY OF THE ORDER FORWARDED TO: 1. APPELLANT. M/S. TMT VINIYOGAN LTD. 2. RESPONDENT- DCIT, CIR-6(2), KOLKATA 3. CIT(A)- 4. CIT , 5. CIT(DR), KOLKATA BENCHES, KOLKATA /TRUE COPY/ BY ORDER SR. PRIVAT E SECRETARY HEAD OF OFFICE, DDO, KOLKATA BENCHES, KOLKATA.