Rajesh Chander Seth, Kolkata V. ACIT Circle 45, Kolkata, Kolkata

ITA 570/KOL/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1680 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 23-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARNIDAM BHATTACHARJEE CIT REV
• Assessee Lawyers: ASHIS RUSTAGI
• Keywords: Rectification of order; Earning of tax free income
• Section: 143(3); 14A; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH (SMC), KOLKATA [BEFORE HONBLE SHRI P.M. JAGTAP] I.T.A. NO. 570/KOL/2017 ASSESSMENT YEAR 2009-10 RAJESH CHANDER SETH.............................APPELLANT 116/1/1, M.G. ROAD, KOLKATA - 700007 [PAN : ALCPS0329P] ACIT, CIR-45..........................................RESPONDENT 3, GOVT. PLACE (WEST) KOLKATA - 700101 APPEARANCES BY: SHRI ASHIS RUSTAGI, FCA APPEARING ON BEHALF OF THE ASSESSEE. SHRI ARNIDAM BHATTACHARJEE, ADDL CIT APPEARING ON BEHALF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : AUGUST 10, 2017 DATE OF PRONOUNCING THE ORDER : AUGUST 16, 2017 ORDER THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LD. CIT (APPEALS) 13, KOLKATA DATED 11.11.2016 WHEREBY HE CONFIRMED THE DISALLOWANCE OF RS. 1,21,489/- MADE BY THE AO UNDER SECTION 14A OF THE ACT READ WITH RULE 8D BY WAY OF RECTIFICATION ORDER PASSED U/S 154. 2. THE ASSESSEE IN THE PRESENT CASE IS AN INDIVIDUAL WHO FILED HIS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION ON 28.07.2009 DECLARING A TOTAL INCOME OF RS. 10,46,950/-. IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) VIDE AN ORDER DATED 13.11.2011, THE TOTAL INCOME OF THE ASSESSEE WAS DETERMINED BY THE AO AT RS. 10,67,680/-. THEREAFTER, IT WAS NOTICED BY THE AO FROM THE RECORD THAT THE ASSESSEE HAS EARNED A SUBSTANTIAL TAX FREE INCOME IN THE FORM OF 2 I.T.A. NO. 570/KOL/2017 SHANKAR LAL AGARWALA DIVIDEND INTEREST AND LONG TERM CAPITAL GAIN, BUT NO DISALLOWANCE UNDER SECTION 14A WAS MADE IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO THE SAID EXEMPT INCOME. ACCORDING TO HIM, THERE WAS THUS A MISTAKE IN THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) AND THE SAME WAS RECTIFIED BY HIM VIDE AN ORDER DATED 17.03.2014 PASSED U/S 154 MAKING DISALLOWANCE OF RS. 1,21,489/- U/S 14A AS WORKED OUT BY APPLYING RULE 8D. 3. AGAINST THE ORDER PASSED BY THE AO U/S 154, AN APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE LD. CIT (A) CHALLENGING THE DISALLOWANCE MADE BY THE AO U/S 14A READ WITH RULE 8D. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE LD. CIT (A), IT WAS SUBMITTED BY THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED BY HIM IN RELATION TO THE EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. IT WAS SUBMITTED THAT THE RELEVANT INVESTMENT WHICH YIELDED EXEMPT INCOME WAS ENTIRELY MADE BY THE ASSESSEE OUT OF HIS OWN FUNDS AND THE OVERDRAFT AMOUNT ON WHICH INTEREST HAD BEEN PAID WAS USED TO ADVANCE MONEY TO M/S. SETH TRADING CO. LTD. AND M/S. A.R. ASSOCIATES ON HIGHER RATE OF INTEREST. IT WAS ALSO SUBMITTED BY THE ASSESSEE THAT THERE WAS NO DIRECT EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME AND EVEN THE DEMAT CHARGES OF RS. 1068/- WERE NOT CLAIMED AS DEDUCTION IN THE COMPUTATION OF HIS INCOME BY THE ASSESSEE. IT WAS CONTENDED ON BEHALF OF THE ASSESSEE BEFORE THE LD. CIT (A) THAT THERE WAS THUS NO EXPENDITURE INCURRED EITHER DIRECTLY OR INDIRECTLY IN RELATION TO THE EARNING OF EXEMPT INCOME AND THE PROVISIONS OF RULE 14A AS WELL AS RULE 8D WERE NOT APPLICABLE IN HIS CASE. 3 I.T.A. NO. 570/KOL/2017 SHANKAR LAL AGARWALA 4. THE SUBMISSION MADE BY THE ASSESSEE WAS NOT FOUND ACCEPTABLE BY THE LD. CIT (A) AND HE PROCEEDED TO CONFIRM THE DISALLOWANCE MADE BY THE AO U/S 14A READ WITH RULE 8D BY WAY OF RECTIFICATION ORDER PASSED U/S 154 FOR THE FOLLOWING REASONS GIVEN READS AS UNDER: THE ASSESSEE HAS FILED HIS INCOME TAX RETURN FOR THE ASSESSMENT YEAR 2009-10 ON 28.07.2009 SHOWING TOTAL INCOME AT RS. 10,46,950/-. ASSESSMENT UNDER SECTION 143(3) WAS COMPLETED ON 30.11.2011 AT THE ASSESSED INCOME OF RS. 10,67,680/- RAISING A DEMAND OF RS. 22,750/-. DURING THE F.Y. 2008-09, THE ASSESSEE HAD DERIVED TAX FREE INCOME FROM DIVIDEND TO THE TUNE OF RS. 1392/-, TAX FREE INTEREST INCOME OF RS. 22,34,777/- AND INCOME FROM L T CAPITAL GAIN OF RS. 21,097/-. FOR THE PURPOSE OF COMPUTATION OF TOTAL INCOME, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. HENCE, THE DEDUCTION IS TO BE DISALLOWED AS PER THE EXISTING PROVISION OF SECTION 14A OF THE INCOME TAX ACT 1961. FINANCE ACT 2006 HAS INSERTED SUB SECTION [2] & [3] IN SECTION 14 WHICH HAS PRESCRIBED METHOD AND RULE 8D HAS BEEN PRESCRIBED BY THE CBDT VIDE NOTIFICATION NO. 45/2008 DATED 24.03.2008 AND APPLYING THE SAME INTEREST DISALLOWED WOULD BE AS UNDER: VIDE RULE 8[D][2][I] DIRECT EXPENSES DMAT ETC. 1068/ - VIDE RULE 8[D][2][II] REGARDING INTEREST 255581 X 5741365/15999313 91715/- VIDE RULE 8[D][2][III] % OF AV. INTEREST OF RS. 5741365/- 28706/- TOTAL DISALLOWANCES U/S 14A READ WITH RULE 8D RS. 1,21,489/- HENCE RS. 1,21,489/- SHOULD HAVE BEEN DISALLOWED WHICH WAS NOT DONE. HENCE THERE IS UNDERCHARGE OF TAX OF RS. 36,446/- PLUS INTEREST AS PER LAW. AGGRIEVED BY THE ORDER OF THE LD. CIT (A), THE ASSESSEE HAS PREFERRED THIS APPEAL BEFORE THE TRIBUNAL. 4 I.T.A. NO. 570/KOL/2017 SHANKAR LAL AGARWALA 5. I HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE MAIN CONTENTION RAISED BY THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT FOR THE ISSUE RELATING TO THE DISALLOWANCE U/S 14A R.W.R. 8D IS A HIGHLY DEBATABLE ISSUE AND THE SAME WAS BEYOND THE SCOPE OF RECTIFICATION PERMISSIBLE U/S 154. THE LEARNED DR ON THE OTHER HAND HAS CONTENDED THAT THE ASSESSEE HAVING EARNED SUBSTANTIAL EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION, THE PROVISIONS OF SECTION 14A WERE CLEARLY ATTRACTED. HE HAS CONTENDED THAT THE ISSUE RELATING TO APPLICABILITY OF SECTION 14A IN THE CASE OF THE ASSESSEE THUS IS NOT DEBATABLE AND SINCE THERE WAS A MISTAKE ON THE PART OF THE AO IN THE ORDER PASSED U/S 143(3) IN NOT MAKING DISALLOWANCE ON ACCOUNT OF EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME BY APPLYING THE PROVISIONS OF SECTION 14A, THE RECTIFICATION AS MADE BY THE AO IS WELL WITHIN THE SCOPE OF SECTION 154. I AM UNABLE TO FULLY ACCEPT THIS CONTENTION OF THE LEARNED DR. IN MY OPINION, THE ISSUE RELATING TO THE DISALLOWANCE U/S 14A R.W.R. 8D INVOLVES APPLICABILITY OF THE SAID PROVISION AS WELL AS COMPUTATION OF DISALLOWANCE TO BE MADE BY APPLYING THE SAID PROVISION. THESE TWO PARTS BEING INSEPARABLE, THEY CANNOT BE SEEN IN ISOLATION AND EVEN IF ONE OF THESE TWO PARTS IS DEBATABLE, THE ENTIRE ISSUE RELATING TO THE DISALLOWANCE U/S 14A BECOMES DEBATABLE. IT, THEREFORE, FOLLOWS THAT EVEN IF THE ISSUE RELATING TO APPLICABILITY OF SECTION 14A IN THE CASE OF THE ASSESSEE WAS NOT DEBATABLE AS CONTENDED BY THE LEARNED DR, THE COMPUTATION OF THE DISALLOWANCE BY APPLYING THE SAID PROVISION IN THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE WAS A DEBATABLE ISSUE AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE AND AS FURTHER EVIDENT FROM THE SUBMISSION MADE ON BEHALF OF THE ASSESSEE BEFORE THE LD. CIT (A). I, 5 I.T.A. NO. 570/KOL/2017 SHANKAR LAL AGARWALA THEREFORE, FIND MERIT IN THE CONTENTION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ISSUE RELATING TO THE DISALLOWANCE U/S 14A R.W.R. 8D IN THE FACTS AND CIRCUMSTANCES OF THE ASSESSEES CASE WAS A DEBATABLE ISSUE AND THE SAME WAS BEYOND THE SCOPE OF SECTION 154. I, THEREFORE, DELETE THE DISALLOWANCE MADE BY THE AO U/S 14A AND CONFIRMED BY THE LD. CIT (A) AND ALLOW THE APPEAL FILED BY THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH AUGUST, 2017. SD/- (P.M. JAGTAP) ACCOUNTANT MEMBER DATED: 16/08/2017 BISWAJIT, SR. P.S. COPY OF ORDER FORWARDED TO: 1. RAJESH CHANDER SETH, 116/1/1, M.G. ROAD, KOLKATA 700007. 2. ACIT CIRCLE 45. 3. THE CIT(A) 4. THE CIT 5. DR TRUE COPY, BY ORDER, SR. P.S. / H.O.O. ITAT, KOLKATA