M/s Srikirti Stock Brokers Pvt. Ltd., Kolkata V. DCIT, KOLKATA-3, KOLKATA, Kolkata

ITA 600/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 1521 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 3 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 31-05-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 13-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: V N PUROHIT FCA MD USMA
• Assessee Lawyers: T VARKEY JUDIC IA L M EMBER
• Keywords: Business income; Earning of tax free income
• Section: 143(3); 142(1); 14A; 115JB; 263; 10

Judgement Text

, A , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI ABY.T VARKEY, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 600 / KOL / 2015 ASSESSMENT YEAR :2010-11 M/S SRIKIRTI STOCK BROKERS PVT. LTD. ( PRESENTLY TASHA INVESTMENT ADVISORS PVT.LTD ), 4, HO-CHI-MIN SARANI, KOLKATA-700 071 [ PAN NO. AACCT 2296 C ] V/S . DCIT, KOLKATA-3 AAYAKAR BHAWAN, 5 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA-69 /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI V.N. PUROHIT, FCA /BY RESPONDENT MD.USMAN, CIT-DR /DATE OF HEARING 05-07-2017 !' /DATE OF PRONOUNCEMENT 01-09-2017 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER OF COMMISSIONER OF INCOME TAX-3, KOLKATA PASSED U/S 26 3 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VI DE HIS ORDER DATED 26.03.2015 PERTAINS TO ASSESSMENT YEAR 2010-11. SHRI V.N. PUROHIT, LD. AUTHORIZED REPRESENTATIVE AP PEARED ON BEHALF OF ASSESSEE AND MD. USMAN, LD. DEPARTMENTAL REPRESENTA TIVE REPRESENTED ON BEHALF OF REVENUE. 2. BOTH GROUNDS ARE INTER-RELATED AND THEREFORE BEI NG TAKEN UP TOGETHER FOR THE SAKE OF CONVENIENCE. THE ISSUE RAISED BY ASSESS EE IS THAT LD. CIT ERRED IN HOLDING THE ORDER OF ASSESSING OFFICER AS ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE. ITA NO.600/KOL/2015 A.Y. 2010-11 M/S SRIKIRTI STOCK BROKERS PVT. LTD. VS. DCIT K OL-3 PAGE 2 3. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS A PRIV ATE LIMITED COMPANY AND HAS FILED ITS RETURN OF INCOME DECLARING TOTAL INCO ME OF 15,37,529/- DATED 15.09.2010. SUBSEQUENTLY THE CASE WAS SELECTED UNDE R SCRUTINY UNDER CASS MODULE. ACCORDINGLY, STATUTORY NOTICE U/S. 143(2) A ND SUBSEQUENTLY NOTICE U/S 142(1) WERE DULY SERVED UPON THE ASSESSEE. THE ASSE SSMENT WAS FRAMED U/S 143(3) OF THE ACT AFTER MAKING CERTAIN ADDITIONS / DISALLOWANCES TO THE TOTAL INCOME OF THE ASSESSEE AT 14,33,110/- UNDER THE NORMAL PROVISION OF THE ACT. HOWEVER, THE INCOME UNDER THE PROVISION OF MINIMUM ALTERNATE TAX (MAT) WAS DETERMINED AT 68,31,595/- ONLY AS TAX LIABILITY WAS HIGHER UNDER THE PROVISION OF MAT AND THEREFORE THE ASSESSEE WAS LIA BLE TO PAY TAX UNDER MAT. 4. SUBSEQUENTLY, THE LD. CIT U/S 263 OF THE ACT OBS ERVING CERTAIN DEFECTS IN THE ASSESSMENT ORDER ON ACCOUNT OF FOLLOWING RE ASONS:- I) THE EXPENDITURE OF 4,05,922/- IN RELATION TO CAPITAL GAIN INCOME AND 578/- ON ACCOUNT OF COMMISSION OF INSURANCE WAS DI SALLOWED BY THE ASSESSEE IN THE ORDER BUT THE AO OMITTED TO ADD BAC K THE AFORESAID EXPENDITURES DISALLOWED WHILE COMPUTING THE TAXABLE INCOME UNDER THE NORMAL PROVISION OF THE ACT. II) SIMILARLY, AN AMOUNT OF 28,20,067/- WAS DISALLOWED U/S. 14 OF THE ACT BUT THE SAME WAS NOT ADDED BACK WHILE DETERMINING T HE BOOK PROFIT U/S. 115JB OF THE ACT. IN VIEW OF THE ABOVE, LD. CIT OBSERVED THAT THE ORD ER OF AO IS ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE AND A CCORDINGLY CALLED UPON THE ASSESSEE FOR THE EXPLANATION BY ISSUING A NOTICE U/ S 263 OF THE ACT. 4.1 THE ASSESSEE BEFORE LD. CIT SUBMITTED THAT NO E XPENSE OF 4,05,922/- WAS CLAIMED BY IT SO THERE IS NO QUESTION OF ANY DI SALLOWANCE OF THE SAID EXPENSE. ACCORDING, THERE WAS NO UNDER ASSESSMENT O F INCOME. SIMILARLY THE BORROWED FUND WAS UTILIZED IN THE SEC URITIES WHICH HAVE RESULTED SHORT TERM CAPITAL GAIN INCOME AND THEREFORE, IT WA S TAXABLE AT THE CONCESSIONAL RATE OF TAX U/S. 111A OF THE ACT. BESI DES THE ABOVE ASSESSEE ALSO SUBMITTED THAT THERE WAS NO OTHER EXPENSE WAS INCURRED BY ASSESSEE ITA NO.600/KOL/2015 A.Y. 2010-11 M/S SRIKIRTI STOCK BROKERS PVT. LTD. VS. DCIT K OL-3 PAGE 3 ENGAGED IN THE BUSINESS OF INVESTMENT IN SHARES AND SECURITIES IN RELATION TO EXEMPTED INCOME. THE ASSESSEE ALSO SUBMITTED THAT T HE PROVISION OF SECTION 14A R.W.S. 8D OF THE INCOME TAX RULE, 1962 ARE NOT APPLICABLE TO THE COMPUTATION OF BOOK PROFIT. THEREFORE, NO DISALLOWA NCE WAS MADE BY THE AO. 4.2 HOWEVER, LD. CIT IN HIS IMPUGNED ORDER U/S 263 OF THE ACT DISREGARDED THE CONTENTION OF ASSESSEE AND HELD THAT THE ORDER OF AO IS ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE BY OBSERV ING AS UNDER:- 3. IT IS OBSERVED THAT AO AFTER DETAILED DISCUSSIO N HAS DISALLOWED EXPENSES ON INVESTMENT FOR EARNING EXEMPT INCOME, U/ S 14A OF THE IT ACT TO THE TUNE OF RS. 28,20,067/-. AS THE EXPENDITURE DISALLOWED U /S 14A REFERS TO THE EXPENDITURE PERTAINING TO EXEMPT INCOME (WHICH FALL S UNDER SECTION 10 OF THE ACT); HENCE THE BOOK PROFIT SHOULD HAVE BEEN INCREA SED BY THE AMOUNT DISALLOWED U/S 14A OF THE ACT. HOWEVER, THE AO FOR THE PURPOSE OF CALCULATION OF TAX AS PER THE PROVISIONS OF MAT FAILED TO TAKE INTO ACCOUNT THE SAME. IN THIS REGARD, POINT NO. (F) OF THE EXPLANATION (1) T O THE SECTION 115JB OF THE INCOME TAX ACT, HOLDS THAT THE 1 BOOK PROFIT SHALL BE INCREASED BY THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME T O WHICH SECTION 10(OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) IS APP LICABLE. THEREFORE, THE AO HAS FAILED TO APPLY HIS MIND AND APPLY THE RELEVANT LAW TO THE FACTS OF THE CASE AND THEREFORE THE ORDER OF THE AO IS ERRONEOUS THER EBY PREJUDICIAL TO THE INTEREST OF REVENUE. 4. THE ASSESSEE DURING THE COURSE OF ASSESSMENT PRO CEEDINGS HAS NOT PROVIDED DETAILS REGARDING THE BIFURCATION OF INTER EST EXPENDITURE CLAIMED AGAINST EXEMPT INCOME AND TAXABLE INCOME. HENCE, TH E INTEREST EXPENDITURE CANNOT BE WHOLLY ATTRIBUTABLE TO EARNING TAXABLE IN COME. THERE ARE VARIOUS CASE LAWS OF HON'BLE COURTS WHICH HAVE DECIDED THAT IN THE CASE OF MIXED FUNDS, INTEREST PAID ON BORROWED FUNDS IS ALSO RELA TABLE TO INTEREST ON INVESTMENT MADE IN TAX- FREE FUNDS. WHEN BORROWED F UNDS, BEING IN THE NATURE OF MIXED FUNDS, ARE UTILISED BY THE ASSESSEE; THE I NTEREST PAID ON BORROWED FUNDS IS ALSO RELATABLE TO INTEREST ON INVESTMENT M ADE IN TAX FREE FUNDS. 5. THE ASSESSEE HAS STATED THAT IT HAD NOT CLAIMED THE AMOUNT OF RS.4,05,922/- ON ACCOUNT OF EXPENDITURE RELATED TO CAPITAL GAINS AND RS.5,768/- ON ACCOUNT OF COMMISSION ON INSURANCE, U NDER ANY HEAD OF INCOME. AND THAT UNDER ASSESSMENT OF INCOME UNDER N ORMAL COMPUTATION OF INCOME DOES NOT ARISE. THUS, THE ASSESSEE HAS ACCEP TED THE ERROR. THE ASSESSING OFFICER IN THE 'ORDER U/S.143(3) DATED 11 .09.2012 HAD DEDUCTED TOTAL EXPENDITURE, AS PER THE P&L ACCOUNT OF THE AS SESSEE, AMOUNTING TO RS.29,50,413/- FROM THE BUSINESS INCOME OF THE ASSE SSEE. HOWEVER, AO HAD FAILED TO ADD BACK THE AMOUNT OF RS.28,20,067/- FOR THE PURPOSES OF CALCULATION OF BOOK PROFIT U/S 115 JB OF THE I. T. ACT 6. IT IS WELL SETTLED THAT INCORRECT ASSUMPTION OF FACTS OR APPLICATION OF LAV. SATISFIES THE REQUIREMENT OF THE LAW I.E. ' ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. ' THE ORDER PASSED BY THE AO WITHOUT ITA NO.600/KOL/2015 A.Y. 2010-11 M/S SRIKIRTI STOCK BROKERS PVT. LTD. VS. DCIT K OL-3 PAGE 4 APPLICATION OF MIND OR ORDERS SHOWING APPARENT ERRO R OF REASONING OR THE ORDERS WHERE THE A.O. SIMPLY ACCEPTS WHAT THE ASSES SEE HAS STATED IN HIS RETURN OF INCOME AND FAILS TO MAKE THE ENQUIRIES WH ICH ARE CALLED FOR IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WILL ALSO CALL FOR INTERVENTION U/S.263 BY THE CIT. IT IS ALSO A TRITE LAW THAT THE DISCLOSURE OF FACTS BY THE ASSESSEE IN THE RETURN OF INCOME OR/AND IN THE COURSE OF ASSESSMENT PROCEEDINGS CANNOT GIVE IMMUNITY FROM REVISIONAL JURISDICTION OF THE CIT U/ S.263. THE ABOVE POSITION OF THE LAW HAS BEEN REITERATED BY THE HON'BLE SUPREME COURT IN VARIOUS DECISIONS INCLUDING THAT OF RAMPYARI DEVI SARAOGI V S. CIT [67 ITR 84 (SC) ] ; TARA DEVI AGARWAL VS. CIT [88 ITR 323 (SC)] ; MALAB AR INDUSTRIES CO. LTD. VS. CIT [198 ITR 611 (KER) ]. 7. I HAVE CONSIDERED THE MATTER, THE FACTS OF THE C ASE AND THE SUBMISSIONS OF THE ASSESSEE, AND I AM OF THE OPINION THAT THE AO H AS FAILED TO APPLY HIS MIND TO THE LAW APPLICABLE TO THE FACTS, WHILE COMPLETIN G THE ASSESSMENT U/S. 143(3) AND THEREBY THE ASSESSMENT IS ERRONEOUS AND PREJUDI CIAL TO THE INTEREST OF REVENUE. I AM OF THE OPINION THAT THE CASE HAS TO G O BACK TO THE A.O. FOR COMPLETING FRESH ASSESSMENT. BEING AGGRIEVED BY THIS ORDER OF LD. CIT ASSESSEE C AME IN APPEAL BEFORE US. 5. BEFORE US LD. AR SUBMITTED THAT THE AO IN GIVING EFFECT ORDER HAS NOT MADE THE DISALLOWANCE OF THE EXPENSE FOR 4,05,922/- AND 5,768/- AND THEREFORE THE IMPUGNED ORDER PASSED BY LD. CIT U/S 263 OF THE ACT ON THIS ISSUE BECOME INFRUCTUOUS. AS FAR AS DISALLOWANCE DIRECTED BY LD. CIT U/S 115J B OF THE ACT IT WAS SUBMITTED BY LD. AR THAT THE PROVISION OF SECTION 1 4A R.W.S 8D OF THE RULE, CANNOT BE IMPORTED UNDER THE MAT PROVISION. LD. AR IN THIS CONNECTION, RELIED ON THE ORDER OF SPECIAL BENCH OF ITAT DELHI BENCH I N THE CASE OF ACIT CIRCLE 17(1) VS. VIREET INVESTMENT PVT. LTD. IN ITA NO. 502/DEL/2012 VIDE ORDER DATED 16.06.2017, WHEREIN IT WAS HELD AS UNDER:- 6.22. IN VIEW OF ABOVE DISCUSSION, WE ANSWER THE QU ESTION REFERRED TO US IN FAVOUR OF ASSESSEE BY HOLDING THAT THE COMPUTATION UNDER CLAUSE (F) OF EXPLANATION I TO SECTION 115JB(2), IS TO BE MADE WI THOUT RESORTING TO THE COMPUTATION AS CONTEMPLATED U/S. 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. HE FAIRLY REQUESTED THE BENCH TO CONFIRM THE ORDER OF AO. ON THE OTHER HAND, LD. DR VEHEMENTLY RELIED ON THE ORDER OF LD. CIT. ITA NO.600/KOL/2015 A.Y. 2010-11 M/S SRIKIRTI STOCK BROKERS PVT. LTD. VS. DCIT K OL-3 PAGE 5 6. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AT THE OUTSET, WE FIN D THAT IMPUGNED ORDER PASSED BY LD. CIT(A) U/S. 263 HELD THE ORDER OF AO AS ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE ON ACCOUNT O F TWO REASONS:- I) EXPENSE WAS DISALLOWED BY THE AO IN THE ORDER FO R 4,05,922/- AND 5,768/- RESPECTIVELY BUT THE SAME WAS NOT ADDED IN THE COMPUTATION OF INCOME; II) THE AMOUNT OF IDS U/S. 14A OF THE ACT WAS NOT A DDED TO THE BOOK PROFIT COMPUTED U/S. 115JB OF THE ACT. IN CONNECTION WITH THE FIRST DISALLOWANCE WE FIND T HAT NO ADDITION WAS MADE BY THE AO IN GIVING EFFECT ORDER OF LD. CIT DIRECTION. THEREFORE, ON THIS COUNT, THE IMPUGNED ORDER LD. CIT CANNOT BE HELD AS ERRONEOUS IN SO FAR PREJUDICIAL TO THE INTEREST OF REVENUE. 6.1 NOW, COMING TO THE OTHER POINT WHEREIN LD. CIT HELD THE ORDER OF AO AS ERRONEOUS IN SO FAR AS PREJUDICIAL TO THE INTEREST OF REVENUE FOR THE REASONS THAT THE AO OMITTED TO ADD THE DISALLOWANCE OF THE EXPEN SES IN RELATION EXEMPTED INCOME U/S 115JB OF THE ACT. IN THIS REGARD, THE AR GUMENT PLACED BY LD AR IS THAT PROVISION OF SECTION 14A OF THE ACT CANNOT BE IMPORTED TO THE PROVISION OF SECTION 115JB OF THE ACT. IT IS BECAUSE THE PROVISI ON OF SECTION 115JB OF THE ACT STARTS WITH THE NON OBSTANTE CLAUSE, THEREFORE THE PROVISIONS OF SECTION 14A OF THE ACT ARE NOT APPLICABLE TO THE MAT PROVIS IONS. LD. AR IN THIS CONNECTION HAS ALSO RELIED ON THE ORDER OF SPECIAL BENCH ITAT DELHI IN THE CASE OF VIREET INVESTMENT PVT. LTD. (SUPRA). HOWEVER, WE FIND THAT THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. JAYSHREE TEA AND INDUSTRIES LTD. IN GA NO.1501/2014 ITA NO.47/2014 DATED 19.11.2014 HAS HELD AS UNDER:- WE FIND COMPUTATION OF THE AMOUNT OF EXPENDITURE RE LATABLE TO EXEMPTED INCOME OF THE ASSESSEE MUST BE MADE SINCE THE ASSES SEE HAS NOT CLAIMED SUCH EXPENDITURE TO BE NIL. SUCH COMPUTATION MUST B E MADE BY APPLYING CLAUSE (F) OF EXPLANATION 1 UNDER SECTION 115JB OF THE ACT. WE REMAND THE MATTER FOR SUCH COMPUTATION TO BE MADE BY THE LEARN ED TRIBUNAL. WE ACCEPT THE SUBMISSION OF MR. KHAITAN, LEARNED SE NIOR ADVOCATE THAT THE PROVISION OF SECTION 115JB IN THE MATTER OF COMPUTA TION IS A COMPLETE CODE IN ITSELF AND RESORT NEED NOT AND CANNOT BE MADE TO SE CTION 14A OF THE ACT. ITA NO.600/KOL/2015 A.Y. 2010-11 M/S SRIKIRTI STOCK BROKERS PVT. LTD. VS. DCIT K OL-3 PAGE 6 FROM THE ABOVE, IT IS CLEAR THAT THE DISALLOWANCE M ADE UNDER THE PROVISIONS OF SECTION 14A OF THE ACT CANNOT BE IMPORTED WHILE DIS ALLOWING THE EXPENSES IN RELATION TO EXEMPTED INCOME UNDER THE PROVISIONS OF MAT. BUT THE DISALLOWANCE UNDER CLAUSE (F) TO EXPLANATION 1 OF S ECTION 115JB OF THE ACT NEEDS TO BE MADE INDEPENDENTLY AFTER REFERRING THE EXPENSES DEBITED IN THE PROFIT & LOSS ACCOUNT. WE ALSO FIND THAT THE CASE L AW CITED BY THE LD. AR IS NOT RELEVANT AS THAT THERE WAS NO REFERENCE TO THE JUDG MENT OF THE HONBLE JURISDICTIONAL HIGH COURT AS DISCUSSED ABOVE. THUS, WE ARE OF THE VIEW THOSE CASE LAWS ARE IRRELEVANT AS THE INSTANT ISSUE IS SQ UARELY COVERED IN FAVOUR OF REVENUE AND AGAINST THE ASSESSEE IN TERMS OF CLAUSE (F) OF EXPLANATION-1 TO SECTION 115JB OF THE ACT. AS THE AO IN THE INSTANT CASE HAS NOT MADE ANY DISALLOWANCE UNDER THE COMPUTATION MAT, THEREFORE T HE ORDER OF THE AO IS ERRONEOUS IN SO FAR PREJUDICIAL TO THE INTEREST OF REVENUE. THUS THE GROUND OF APPEAL OF ASSESSEE IS PARTLY ALLOWED. 7. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 0 1/09/2017 SD/- SD/- (ABY. T. VARKEY) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP #$%&- 01 / 09 /201 7 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-M/S SRIKIRTI STOCK BROKERS PVT. LTD. (PR ESENTLY TASHA INVESTMENT ADVISORS PVT. LT D.)4, HO CHI MIN SARANI, KOLKATA-71 2. /RESPONDENT-DCIT, KOLKATA-3,AAYAKAR BHAWAN, 5 TH FL, P-7 CHOWRINGHEE SQ. KOL-69 3.%.%/ 0 / CONCERNED CIT KOLKATA 4. 0- / CIT (A) KOLKATA 5.34566/ , / , / DR, ITAT, KOLKATA 6.589:; / GUARD FILE. BY ORDER/ $, /TRUE COPY/ SR. PRIVATE SECRETARY, HEAD OF OFFICE/DDO / ,