DCIT, CC-XXVII, Kolkata, Kolkata V. M/s Sangita Securities Pvt.Ltd., Kolkata

ITA 599/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9368 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 04-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SALLONG YADEN CITSRDR
• Keywords: Earning of tax free income
• Section: 143(3); 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 599 / KOL / 2014 ASSESSMENT YEAR :2011-12 DCIT, CENTRAL CIRCLE- XXVII, AAYKAR BHAVAN, POORVA 5 TH FLOOR, ROOM NO. 510, 110 SHANTIPALLY V/S . M/S SANGITA SECURITIES PVT. LTD., 1A, GRANT LANE, ROOM NO. 206, KOLKATA-700 012 [ PAN NO.AAICS 8877 L ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI SALLONG YADEN, ADDL. CIT-SR-DR /BY RESPONDENT SHRI RAVI TULSIYAN, FCA /DATE OF HEARING 17-01-2017 /DATE OF PRONOUNCEMENT 24-02-2017 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-II, KOLKATA DA TED 28.01.2014. ASSESSMENT WAS FRAMED BY DCIT, CENTRAL CIRCLE-XXVII , KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO A S THE ACT) VIDE HIS ORDER DATED 30.07.2013 FOR ASSESSMENT YEAR 2011-12. SHRI SALLONG YADEN, LD. DEPARTMENTAL REPRESENTATIVE REPRESENTED ON BEHALF OF REVENUE AND SHRI RAVI TULSIYAN, LD. AUTHORIZED R EPRESENTATIVE APPEARED ON BEHALF OF ASSESSEE. 2. THE FACTS IN BRIEF ARE THAT THE ASSESSEE, A PRIV ATE LIMITED COMPANY IS ENGAGED IN BUSINESS OF SHARE TRADING AND INVESTMENT S. THE ASSESSEE, FOR THE YEAR UNDER CONSIDERATION FILED ITS RETURN OF INCOME DATED 30.09.2011 SHOWING ITA NO.599/KOL/2014 A.Y.2011-12 DCIT CC-XXVII, KOL. VS. M/S SANGI TA SECURITIES PVT. LTD. PAGE 2 TOTAL INCOME OF 28,71,936/- WHICH WAS PROCESSED U/S. 143(1) OF THE ACT. SUBSEQUENTLY THE CASE WAS SELECTED UNDER SCRUTINY A ND NOTICE U/S 143(2) / 142(1) OF THE ACT ISSUED UPON ASSESSEE. THE ASSESSM ENT WAS FRAMED U/S 143(3) OF THE ACT BY ASSESSING OFFICER AT A TOTAL I NCOME OF 1,76,58,706/- AFTER MAKING CERTAIN ADDITIONS / DISALLOWANCES. 3. FIRST ISSUE RAISED BY REVENUE IN GROUND NO. 1 AN D 2 IS THAT LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO WORK OU T THE DISALLOWANCE UNDER RULE 8D OF THE INCOME TAX RULE, 1962 R.W.S.14A OF T HE ACT BY TAKING INTO CONSIDERATION ONLY THOSE INVESTMENTS WHICH HAD YIEL DED DIVIDEND INCOME. 3.1 THE ASSESSEE, IN THE YEAR UNDER CONSIDERATION H AS DECLARED DIVIDEND INCOME FOR 27,59,496/- WHICH WAS CLAIMED EXEMPTED U/S. 10(34) OF THE ACT. THE ASSESSEE HAS DISALLOWED A SUM OF 1,20,075/- IN ITS COMPUTATION OF TOTAL INCOME U/S. 14A RWS RULE 8D OF THE IT RULES. THE AO , DURING THE COURSE OF ASSESSMENT PROCEEDINGS OBSERVED THAT THE DISALLOWAN CE HAS NOT BEEN MADE ON THE BASIS OF RULE 8D OF IT RULES. ACCORDINGLY, T HE AO SOUGHT CLARIFICATION FROM THE ASSESSEE. THE ASSESSEE IN COMPLIANCE THERE TO SUBMITTED THAT THE WORKING OF DISALLOWANCE UNDER RULE 8D OF THE IT RUL ES WHICH SHOWS TOTAL DISALLOWANCE UNDER RULE 8D(III) OF IT RULES FOR RS. 4,04,088/- ONLY. IT WAS ALSO OBSERVED BY AO THAT THE DISALLOWANCE HAS BEEN WORKE D OUT BY ASSESSEE AFTER TAKING INTO CONSIDERATION ONLY THOSE INVESTMENTS WH ICH YIELDED THE DIVIDEND INCOME. HOWEVER, AO DISREGARDED THE WORKING OF ASSE SSEE BY OBSERVING THAT ALL THE AVERAGE VALUE OF INVESTMENTS SHOULD BE CONS IDERED FOR MAKING THE DISALLOWANCE. ACCORDINGLY, AO HAS DISALLOWED THE EX PENSE UNDER THE RULE 8D R.W.S 14A OF THE ACT AS DETAILED UNDER:- SL.NO. PARTICULARS OF TRANSACTIONS RULE AMOUNT (RS) 1. DIRECT EXPENSES 8D(I) 21,987/- 2. INTEREST EXPENSES 8D(II) 138,56,373/- 3. ADMINISTRATIVE EXPENSES 8D(III) 9,37,485/- AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT AO HAS GROSSLY ERR ED IN WORKING OUT THE INTEREST OF DISALLOWANCE UNDER RULE 8D(II) OF THE A CT. IT IS BECAUSE THE TOTAL ITA NO.599/KOL/2014 A.Y.2011-12 DCIT CC-XXVII, KOL. VS. M/S SANGI TA SECURITIES PVT. LTD. PAGE 3 INTEREST EXPENSE CLAIMED BY ASSESSEE OF 72,44,454/- WHEREAS AO HAS DISALLOWED THE INTEREST EXPENSE FOR 138,56,373/-. THE ASSESSEE FURTHER SUBMITTED THAT THE AO ERRED IN WORKING OUT THE AVER AGE VALUE OF ASSETS OF 9,80,28,111/- WHEREAS THE SAME CANNOT BE LESS THAN THE AVERAGE VALUE OF INVESTMENT I.E. 18,74,97,093/-. THE ASSESSEE ALSO SUBMITTED THAT ON LY DIVIDEND YIELDING INVESTMENTS WILL BE TAKEN INTO CO NSIDERATION FOR MAKING THE DISALLOWANCE UNDER RULE 8D OF IT RULES. ACCORDINGLY , ASSESSEE WORKED THE DISALLOWANCE U/S 14A OF THE ACT FOR 21,05,539/- AND OFFERED TO TAX. HOWEVER, LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF ASSE SSEE HAS GRANTED RELIEF IN PART BY OBSERVING AS UNDER:- 5. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLAN T AND PERUSE THE ASSESSMENT ORDER. I HAVE ALSO GONE THROUGH THE PROF IT AND LOSS ACCOUNT AS WELL AS THE BALANCE SHEET FOR THE RELEVANT ASSESSME NT YEAR AS WELL AS THE PRECEDING ASSESSMENT YEAR. ON PERUSAL OF CALCULATIO N MADE BY THE AO IN THE ASSESSMENT ORDER WITH REFERENCE TO THE AVERAGE VALU E OF ASSETS, THERE APPEARS TO BE AN APPARENT MISTAKE BECAUSE HE HAS CA LCULATED THE VALUE OF THE AVERAGE ASSETS AT RS.9,80,28,111/- WHEREAS THE AVERAGE VALUE OF THE INVESTMENTS WAS CALCULATED AT RS.18,74,97,093/. THE AMOUNT OF INVESTMENTS IS THE PART OF THE TOTAL ASSETS IN THE BALANCE SHEE T AND HENCE THE AVERAGE VALUE OF THE ASSETS CANNOT BE LESS THAN THE AVERAGE VALUE OF THE INVESTMENTS AS A RESULT THE AO HAS COMPUTED THE DISALLOWANCE UN DER RULE 8D(2)(II) ON ACCOUNT OF INTEREST AT RS.1,38,56,373/- WHEREAS HI MSELF HAS MENTIONED THAT TOTAL EXPENDITURE ON ACCOUNT OF INTEREST PAYMENT W AS RS.72,44,454/-. THUS, THE DISALLOWANCE UNDER RULE 8D(2)(II) CANNOT BE MOR E THAN THE TOTAL EXPENDITURE ON ACCOUNT OF INTEREST. ON PERUSAL OF BALANCE SHEET AS ON 31.03.2010 AND 31.03.2011, IT IS OBSERVED THAT WHIL E COMPUTING THE AVERAGE VALUE OF THE ASSETS, THE AO HAS CONSIDERED THE FIGU RES OF NET CURRENT ASSETS (AFTER DEDUCTING CURRENT LIABILITIES AND PROVISION) AT RS.4,62,29,040/- AND RS.14,98,27,183/- AS PER BALANCE SHEET AS ON 31.03. 2011 AND 31.03.2010 RESPECTIVELY AND ALSO IGNORED THE VALUE OF INVESTME NTS WHICH ARE SEPARATELY RECORDED IN THE BALANCE SHEET. THUS, TO ARRIVE ON T HE VALUE OF AVERAGE ASSETS, THE AO HAS NOT TAKEN CORRECT FIGURES AS PER THE BAL ANCE SHEET. ON FACTS, I AGREE WITH THE VIEW OF THE AO THAT IN THE CASE OF A PPELLANT COMPANY THE DISALLOWANCE U/S 14A HAS TO BE MADE AS PER RULE 8D. HOWEVER, THERE IS CALCULATION MISTAKE IN THE VALUE OF AVERAGE INVESTM ENT AS MENTIONED ABOVE. FURTHER, FOR THE PURPOSE OF COMPUTATION U/S. 14A AS PER RULE 8D, THE AO HAS CONSIDERED VALUE OF ENTIRE INVESTMENTS AS PER THE B ALANCE SHEET. BUT, THE HON'BLE JURISDICTIONAL TRIBUNAL IN THE CASE OF REI AGRO LTD. (SUPRA) HAS HELD THAT FOR THE PURPOSE OF CALCULATION OF AVERAGE VALU E OF INVESTMENTS, THE VALUE OF ONLY SUCH INVESTMENTS HAS TO BE TAKEN INTO CONSI DERATION WHICH HAS YIELDED EXEMPT INCOME IN THE RELEVANT PREVIOUS YEAR AND THE ENTIRE VALUE OF INVESTMENTS CANNOT BE CONSIDERED FOR THE SAME. IN T HE COURSE OF APPELLATE PROCEEDINGS, THE APPELLANT SUBMITTED THE CALCULATIO N U/S. 14A AS PER RULE 8D WHICH HAVE BEEN REPRODUCED ABOVE. THE SAID CALCULAT ION HAS BEEN MADE IN ITA NO.599/KOL/2014 A.Y.2011-12 DCIT CC-XXVII, KOL. VS. M/S SANGI TA SECURITIES PVT. LTD. PAGE 4 ACCORDANCE WITH THE RATIO LAID DOWN BY THE TRIBUNAL IN THE CASE OF REI AGRO LTD. AND AS PER THE APPELLANT DISALLOWANCE U/S 14 R EAD WITH RULE 8D COMES TO RS.21,05,539/-. IN VIEW OF ABOVE FACTS, THE AO IS D IRECTED TO RECALCULATE THE DISALLOWANCE U/S. 14A READ WITH RULE 8D IN ACCORDAN CE WITH THE DECISION OF THE ITAT IN THE CASE OF REI AGRO LTD., AND IF THE C ALCULATION MADE BY THE APPELLANT AT RS.21,05,539/- IS FOUND TO BE CORRECT, HE IS DIRECTED TO RESTRICT THE DISALLOWANCE U/S. 14A TO THAT EXTENT. THE GROUND NO . 2(A) IS PARTLY ALLOWED AND GROUND NO. 2(B) IS DISMISSED. BEING AGGRIEVED BY THIS ORDER OF LD CIT(A) REVENUE CAME IN APPEAL BEFORE US. 4. BEFORE US LD. DR FOR THE REVENUE SUBMITTED THAT WHILE PASSING APPELLATE ORDER LD. CIT(A) HAS OVERLOOKED THE PROVI SION HAS LAID DOWN BY THE HON'BLE ITAT IN ITS SPECIAL BENCH IN THE CASE OF CHEMINVEST INVESTMENT LTD. VS. ITO REPORTED IN 121 ITD 318 WHERE IT WAS HELD THAT ALL THE INVESTMENTS WHETHER YIELDING DIVIDEND OR NOT SHOULD BE TAKEN IN TO ACCOUNT FOR MAKING THE DISALLOWANCE. HE VEHEMENTLY RELIED ON THE ORDER OF AO. ON THE OTHER HAND, LD. AR FOR THE ASSESSEE RELIED ON THE ORDER OF LD. CIT(A). 5. WE HAVE GONE THROUGH THE RIVAL SUBMISSIONS MADE BY BOTH THE SIDES AND ORDER OF LOWER AUTHORITIES INCLUDING THE MATERI AL AVAILABLE ON RECORD AS WELL AS JUDGMENTS RELIED UPON BEFORE US. THE ISSUE IN THE INSTANT CASE IS ABOUT THE DISALLOWANCES MADE BY THE AO UNDER RULE 8D READ WITH SECTION 14A OF THE ACT. THE LD CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO BUT DIRECTED TO CONSIDER ONLY THOSE INVESTMENTS WHICH HAVE YIELDED EXEMPT INCOME IN THE YEAR UNDER CONSIDERATION. WHILE DOING SO THE LEARNE D CIT-A RELIED IN THE ORDER OF JURISDICTIONAL TRIBUNAL IN THE CASE OF REI AGRO LTD IN ITA 1331/KOL/2011 ORDER DATED 19. 6.2013. AGAINST THE SAID DIRECTION REVENUE HAS FILED AN APP EAL AND SUBMITTED THAT THE LEARNED CIT-A HAS OVERLOOKED THE ITAT SPECIAL BENCH DECISION IN THE CASE OF CHEMINVEST LTD VS. ITO (2009) REPORTED IN 121 ITD 3 18 WHERE IT WAS HELD THAT FOR THE WORKING OF DISALLOWANCE ALL THE INVESTMENTS WHETHER EARNED EXEMPTED INCOME AND NOT HAVE TO BE CONSIDERED UNDER THE PROV ISIONS OF RULE 8D READ WITH SECTION 14A OF THE ACT. ITA NO.599/KOL/2014 A.Y.2011-12 DCIT CC-XXVII, KOL. VS. M/S SANGI TA SECURITIES PVT. LTD. PAGE 5 IT IS PERTINENT TO MENTION THAT THE DECISION AS REL IED ON BY THE LEARNED CIT-A HAS BEEN OVERRULED BY THE HONBLE HIGH COURT OF DEL HI IN ITS JUDGMENT IN THE CASE OF CHEMINVEST LTD. VS. CIT REPORTED IN 378 ITR 33. THE RELEVANT EXTRACT OF THE ORDER JUDGMENT IS REPRODUCED BELOW FOR READY REFERENCE : 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREINBE FORE THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EXPRESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF THE ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE T OTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWI NG ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SEC TION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. FROM THE PLAIN READING OF THE ABOVE JUDGMENT IT IS CLEAR THAT THE ORDER CHEMINVEST LTD. (SUPRA) RELIED BY THE REVENUE IS NOT A GOOD LAW AS THE PRINCIPLES LAID DOWN THEREIN HAVE BEEN OVERRULED BY THE HONBLE DELHI HIGH COURT. THUS, IN VIEW OF ABOVE WE FIND NO INFIRMITY IN THE ORDER OF LD CIT(A) AND UPHOLD THE SAME. HENCE, THIS GROUND OF APPEAL OF TH E REVENUE IS DISMISSED. 6. THE NEXT ISSUE RAISED BY THE REVENUE IN THIS APP EAL IS THAT LEARNED CIT(A) ERRED IN DIRECTING THE AO TO CALCULATE THE D ISALLOWANCE U/S 14A READ WITH RULE 8D OF THE IT RULES BY CONSIDERING THE CUR RENT ASSETS WITHOUT DEDUCTING CURRENT LIABILITIES THERE FROM. 7. AT THE OUTSET, WE FIND IMPORTANT TO EXPLAIN THE PROVISIONS OF DISALLOWANCE UNDER RULE 8D OF INCOME TAX RULES WHICH GOES AS UND ER : (2) THE EXPENDITURE WHICH IS TO BE DISALLOWED SHALL BE THE AGGREGATE OF (I) TO (III) BELOW: (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOT AL INCOME; (II) WHERE INTEREST IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FO RMULA, NAMELY:- A X B C A = TOTAL INTEREST PAID LESS INTEREST INCLUDED IN ( I) ABOVE B = AVERAGE OF VALUE OF INVESTMENT (INCOME FROM WHI CH IS EXEMPT), AS PER BALANCE SHEET, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS Y EAR; C = THE AVERAGE OF TOTAL ASSETS AS PER BALANCE SHEE T OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; (III) 0.50 PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, AS PER BALANCE SHEET, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. ITA NO.599/KOL/2014 A.Y.2011-12 DCIT CC-XXVII, KOL. VS. M/S SANGI TA SECURITIES PVT. LTD. PAGE 6 AS PER RULES, TOTAL ASSETS WOULD MEAN, TOTAL ASSE TS AS PER BALANCE SHEET EXCLUDING THE INCREASE ON ACCOUNT OF REVALUATION OF ASSETS BUT IN CLUDING THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS. IN THE CASE ON HAND, THE ASSESSING OFFICER WHILE WO RKING OUT THE DISALLOWANCES UNDER RULE 8D OF INCOME TAX RULES HAS TAKEN THE AVE RAGE VALUE OF TOTAL ASSETS NET OF CURRENT ASSETS AND LIABILITIES. HOWEV ER, LD CIT(A) DIRECTED THE AO TO TAKE THE AVERAGE VALUE OF TOTAL ASSETS WITHOUT R EDUCING THE CURRENT LIABILITY FROM THE CURRENT ASSETS. AGAINST THIS PROPOSITION O F LD CIT(A) THE REVENUE HAS FILED AN APPEAL BEFORE US. AT THE OUTSET, WE FIND T HAT AS PER THE PROVISIONS OF RULE 8D THE TOTAL AVERAGE VALUE OF ASSETS SHOULD BE TAKEN INTO ACCOUNT WHICH HAS BEEN CORRECTLY ADOPTED BY THE LD CIT(A) IN THE INSTANT CASE. IN VIEW OF ABOVE, WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT (A). HENCE THIS GROUND OF APPEAL OF THE REVENUE IS DISMISSED. 8. IN THE RESULT, APPEAL OF REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 24/ 02/2017 SD/- SD/- ( !') ( !') (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S $!% &- 24 / 02 /201 7 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-DCIT, CC-XXVII, AAKKAR BHAVAN, POORVA 5 TH FLOOR, ROOM NO. 510, 110 SHANTIP ALLY 2. /RESPONDENT-M/S SANGITA SECURITIES PVT. LTD. 1A,GRA NT LANE, ROOM NO.206, KOL-12 3. %.%/0 1 1 2 / CONCERNED CIT KOLKATA 4. 1 1 2- / CIT (A) KOLKATA 5. 567 /0, 1 /0 , / DR, ITAT, KOLKATA 6. 7:; <= / GUARD FILE. BY ORDER/ 1! , /TRUE COPY/ / % 1 /0 ,