Emerald Company Ltd., Kolkata V. DCIT, CIR-8, KOLKATA, Kolkata

ITA 596/KOL/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0783 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2006-2007
• Appeal Filed On: 05-04-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ARINDAM BHATTACHARJEE
• Assessee Lawyers: P R KOTHARI
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM & DR.ARJUN LAL SAINI, AM] I.T.A NO.596/KOL/2016 ASSESSMENT YEAR : 2006-07 EMERALD CO.LTD. -VS.- D.C.I.T., CIRCLE-8 , KOLKATA KOLKATA. [PAN : AAACL 2059 H] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI P.R.KOTHARI, FCA FOR THE RESPONDENT : SHRI ARINDAM BHATTACHAR JEE, ADDL.CIT DATE OF HEARING : 23.11.2017. DATE OF PRONOUNCEMENT : 29.11.2017. ORDER PER N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 12.01.2016 OF CIT-(A)- 18 KOLKATA RELATING TO A.Y.2006-07. . 2. GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS FOLLOWS :- FOR THAT ON THE FACTS AND CIRCUMSTANCES OF THE CAS E AND IN LAW, LD. COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN CONFIRMING THE DISA LLOWANCE MADE BY THE LD. ASSESSING OFFICER U/S 14A OF THE INCOME TAX ACT 196 1 AMOUNTING TO RS.600000/- PAID AS RETAINERSHIP FEES TREATING THE SAME AS DIRE CT EXPENSES IN RELATION TO EARNING OF EXEMPT INCOME. 3. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF TRADING IN SHARES, SECURITIES, INVESTMENTS AND FINANCING. FOR A.Y.200 6-07 THE ASSESSEE FILED RETURN OF INCOME SHOWING TOTAL INCOME OF RS.67,16,678/- UNDER THE HEAD CAPITAL GAINS. THE AO IN AN ORDER OF ASSESSMENT DATED 21.11.2008 U/S 143( 3) OF THE INCOME TAX ACT, 1961 (ACT) DETERMINED THE TOTAL INCOME OF THE ASSESSEE A T RS.80,55,135/- AFTER MAKING DISALLOWANCE OF EXPENSES OF RS.13,38,457/- U/S 14A OF THE ACT NAMELY EXPENDITURE INCURRED IN EARNING INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. 2 ITA NO.596/KOL/2016 EMERALD COMPANY LIMITED A.Y.2006-07 2 THIS ADDITION WAS ULTIMATELY DELETED BY THE HONBLE ITAT IN AN APPELLATE ORDER DATED 19.11.2010. THE HONBLE ITAT HELD THAT RULE 8D CAN NOT BE APPLIED FOR A.YRS. PRIOR TO A.Y.2007-08. THE MATTER WAS SET ASIDE TO THE AO TO MAKE DISALLOWANCE U/S 14A OF THE ACT WITHOUT RESORTING TO THE PROVISION OF RULE 8D O F THE RULES. 4. PURSUANT TO THE ORDER OF THE TRIBUNAL HE AO CONS IDERED THE QUANTUM OF DISALLOWANCE TO BE MADE U/S 14A OF THE ACT. THE AO HELD THAT A SUM OF RS.6,00,000/- PAID TO ONE MR. BANGUR AS RETAINERSHIP FEE FOR REND ERING ADVISORY SERVICES FOR INVESTMENTS SHOULD BE DISALLOWED AS EXPENSES INCURR ED IN EARNING EXEMPT INCOME U/S 14A OF THE ACT. 5. ON APPEAL BY THE ASSESSEE THE CIT(A) CONFIRMED T HE ORDER OF THE AO. IT WAS THE PLEA OF THE ASSESSEE THAT SERVICES OF MRS..BANGUR W ERE UTILIZED FOR OTHER PURPOSES AND NOT RESTRICTED TO ONLY EARNING OF EXEMPT INCOME. TH IS WAS NOT ACCEPTED BY THE REVENUE AUTHORITIES FOR THE REASONS THAT THERE WAS NO SUPPO RTING EVIDENCE FURNISHED. 6. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE HA S PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. AT THE TIME OF HEARING OF THE APPEAL THE LD. COU NSEL FOR THE ASSESSEE FILED BEFORE US COPY OF THE ORDER OF ITAT KOLKATA BENCH IN ASSES SEES OWN CASE FOR A.Y.2007-08 IN ITA NO.1096/KOL/2016 ORDER DATED 25.01.2017. ON AN IDENTICAL DISALLOWANCE OF RS.6,00,000/- PAID TO MRS.BANGUR AS EXPENDITURE INC URRED TO EARN TAX FREE INCOME, THE TRIBUNAL HELD THAT INTERNSHIP FEE PAID TO MRS. BANG UR CANNOT SAID TO BE AN EXPENDITURE INCURRED FOR EARNING TAX FREE INCOME. THE TRIBUNAL ALSO NOTICED THAT OVER AND ABOVE RETAINERSHIP FEE TO MRS. BANGUR, THE AO HAD DISALLO WED 1% OF THE EXEMPT INCOME ALSO AS EXPENDITURE INCURRED IN EARNING EXEMPT INCOME. T HE TRIBUNAL THEREFORE DELETED THE ADDITION MADE WHILE DISALLOWING FEES TO MRS. BANGUR OF RS.6,00,000/- IN THE PRESENT 3 ITA NO.596/KOL/2016 EMERALD COMPANY LIMITED A.Y.2006-07 3 ASSESSMENT YEAR ALSO THE FACTS REMAIN THE SAME. OVE R AND ABOVE A SUM OF RS.6,00,000/- WHICH WAS FEES PAID TO MRS. BANGUR WHICH WAS DISALL OWED AS EXPENSES INCURRED TO EARN TAX FREE INCOME U/S 14A OF THE ACT, THE AO HAD ALSO DISALLOWED 1% OF THE EXEMPT INCOME OF RS.5,36,77,242/-. THE AFORESAID DISALLOWA NCE OF 1% OF THE EXEMPT INCOME WOULD BE SUFFICIENT AND NO DISALLOWANCE OF FEES PAI D TO MRS. BANGUR U/S 14A OF THE ACT SHOULD BE MADE. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL WE DIRECT THAT THE ADDITION OF RS.6,00,000/- U/S 14A OF THE ACT BE DEL ETED. THE APPEAL OF THE ASSESSEE IS ALLOWED. 8. IN THE RESULT THE APPEAL BY THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN THE COURT ON 29.11.2017. SD/- SD/- [DR.A.L.SAINI] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 29.11.2017. [RG SR.PS] COPY OF THE ORDER FORWARDED TO: 1.EMERALD COMPANY LIMITED, 31, CHOWRINGHEE ROAD, KO LKATA-700016. 3. D.C.I.T., CIRCLE-8, KOLKATA. 4. C.I.T. (A)-18, KOLKATA. 4. C.I.T.-5, KOLK ATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SR. PRIVA TE SECRETARY HEAD OF OFFICE/DDO,, ITAT, KOLKATA BENCHES 4 ITA NO.596/KOL/2016 EMERALD COMPANY LIMITED A.Y.2006-07 4