I.T.O Wd - 8(4),kolkata, Kolkata V. M/s Soyuz Trading Co Ltd, Kolkata

ITA 635/KOL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99931 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 22-03-2013
• Court: TRIBUNAL
• Department Lawyers: G SUGLA
• Assessee Lawyers: P B PRAMANICK
• Keywords: Business income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI MAHAVIR SINGH, JM & SHRI WASEEM AHMED , AM] I.T.A NO.635/KOL/2013 ASSESSMENT YEAR: 2009-10 INCOME-TAX OFFICER, WD-8(4), KOLKATA. VS. M/S. SOY UZ TRADING CO. LTD. ` (PAN: AAGCS3371K) ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 15.10.2015 DATE OF PRONOUNCEMENT: 29.10.2015 FOR THE APPELLANT: SHRI G. SUGLA, ADVOCATE FOR THE RESPONDENT: SHRI P. B. PRAMANICK, JCIT, SR. DR ORDER PER SHRI MAHAVIR SINGH, JM: THIS APPEAL BY REVENUE IS ARISING OUT OF ORDER OF C IT(A)-VIII, KOLKATA IN APPEAL NO.155/CIT(A)-VIII/KOL/11-12 DATED 12.12.2012. ASS ESSMENT WAS FRAMED BY JCIT(OSD), CIRCLE-8, KOLKATA U/S. 143(3) OF THE INCOME-TAX ACT , 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR AY 2009-10 VIDE ITS ORDER DATED 22.11.201 1. 2. THE ONLY ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) DELETING THE EXPENDITURE ON ACCOUNT OF CONSULTANCY FEE OF RS.46. 10 LACS AS NOT DISALLOWABLE U/S. 14A OF THE ACT. FOR THIS, REVENUE HAS RAISED FOLLOWING TW O GROUNDS: 1. THAT, ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT(A) ERRED IN ALLOWING RELIEF TO THE ASSESSEE COMPANY IN HOLDING THAT EXPENDITURE OF CONSULTANCY FEE OF RS.46,10,000/- WAS IN RESPECT OF EARNING THE TAXABL E INCOME AND IT CANNOT BE SUBJECTED TO DISALLOWANCE U/S. 14A OF THE INCOME TAX ACT, 1961 W ITHOUT GIVING A FINDING THAT SUCH CONSULTANCY FEE WAS INCURRED FOR EARNING TAXABLE IN COME. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, AND IN LAW, THE LD. CIT(A) HAS ERRED IN DIRECTING THE ASSESSING OFFICER TO RESTRICT THE DIS ALLOWANCE U/S. 14A OF THE INCOME TAX ACT, 1961 TO THE EXTENT OF EXPENSES CLAIMED BY THE ASSES SEE DURING THE YEAR; WHEREAS THERE IS NO SUCH RESTRICTION IN THE PROVISIONS OF THE ACT. 3. BRIEFLY STATED FACTS ARE THAT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT IT HAS EARNED DIVIDEND INCOME OF RS.1, 66,06,788/- AND LONG TERM CAPITAL LOSS OF RS.3,97,694/- WHICH DOES NOT FORM PART OF TAXABLE I NCOME BUT ASSESSEE HAS NOT ATTRIBUTED ANY EXPENDITURE TOWARDS THIS EXCEPT AD HOC DISALLOW ANCE OF RS.2,60,221/- OFFERED U/S. 14A OF THE ACT. ACCORDINGLY, HE OBSERVED THAT AS IS EVIDENT FROM THE ABOVE SUBMISSION, THE ASSESSEE HAS NOT DENIED OF INCURRING EXPENDITURE IN RELATION TO DIVIDEND INCOME, WHICH 2 ITA NO.635/K/2013 M/S. SOYUZ TRADING CO. LTD. AY 2009-10 DOES NOT FORM PART OF THE TOTAL INCOME, BUT IT HAS NOT PROVIDED ANY BASIS FOR OFFERING AN AD HOC DISALLOWANCE OF RS. 2,60,221/- U/S. 14A. IT IS OBSERVED FROM THE ACCOUNTS OF THE CURRENT YEAR AS WELL AS OF EARLIER YEARS THAT THE MAIN ACTI VITIES CARRIED ON BY THE ASSESSEE ARE DERIVING INCOME FROM LONG TERM AND SHORT TERM INVES TMENTS IN SHARES OF OTHER COMPANIES AND UNITS OF MUTUAL FUND . ABOUT 98.60% AND 88.90% OF THE TOTAL FUNDS AT THE DISPOSAL OF THE ASSESSEE HAVE REMAINED SO INVESTED DURING THE P REVIOUS YEARS 2007-08 AND 2008-09 RESPECTIVELY. THE TOTAL VALUE OF INVESTMENT ON THE FIRST DAY AND THE LAST DAY OF THE CURRENT PREVIOUS YEAR 2008-09 AS APPEARING IN THE BALANCE S HEET ARE RS. 97,86,43,112/- AND 101,56,18,232/- RESPECTIVELY. IT WOULD NOT BE OVERE MPHASIZED TO SAY THAT INVESTMENT DECISIONS ARE VERY COMPLEX IN NATURE. THE INVESTMEN T REQUIRES AVAILABILITY OF FUNDS AND CONSEQUENTIAL BLOCKING OF FUNDS, BESIDES, INVESTMEN T DECISIONS ARE GENERALLY TAKEN BY THE MANAGEMENT PERSONNEL OR OTHER PROFESSIONAL EXPERTS EMPLOYED FOR THE PURPOSE FOR WHICH ADMINISTRATIVE, MANAGERIAL AND ESTABLISHMENT EXPENS ES ARE INCURRED. IT IS, THEREFORE, NOT CORRECT TO SAY THAT NO OR NOMINAL EXPENSES WERE INC URRED IN MANAGING SUCH HUGE INVESTMENTS GIVING RISE TO TAX EXEMPT DIVIDEND INCO ME. IN THE INSTANT CASE, THE ASSESSEE HAS NOT MAINTAINED ANY SEPARATE DETAILS OR ACCOUNTS IN ORDER TO ACCOUNT OF EXPENDITURE INCURRED IN RESPECT OF SUCH VOLUME OF INVESTMENT AC TIVITY AND FOR THAT MATTER, IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL IN COME. ACCORDINGLY, HE MADE DISALLOWANCE OF RS.49,85,653/- BY APPLYING THE PROV ISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D(2)(III) OF THE I. T. RULES, 1962 AS UN DER: THE AVERAGE OF VALUE OF INVESTMENT = (RS.97,86 ,43,112 + RS.101,56,18,232)/2 = RS.99,71,30,672/- DISALLOWANCE U/S. 8D(2)(III) = 0.5% OF RS.99, 71,30,672/- = RS.49,85,653/- 4.5. AS THE ASSESSEE HAS ALREADY OFFERED RS.2,60,2 21/- FOR DISALLOWANCE U/S. 14A, THE DIFFERENTIAL AMOUNT OF RS.47,25,432/- (I.E. RS.49,85,653 RS. 2 ,60,221) IS NOW DISALLOWED U/S. 14A AND ADDED BACK IN COMPUTING THE INCOME UNDER NORMAL PROVISION S OF THE ACT. SINCE THE ASSESSEE DID NOT ADD BACK THE DISALLOWANCE U/S. 14A IN COMPUTING THE BOO K PROFIT U/S. 115JB, THE DISALLOWANCE U/S. 14A COMPUTED AT RS.49,85,653/- AS ABOVE IS ADDED BACK I N COMPUTING THE BOOK PROFIT. 4. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT( A), WHO DELETED THE DISALLOWANCE BY OBSERVING IN PARA 5.1.4 AS UNDER: 5.1.4. AFTER CAREFULLY CONSIDERING THE SUBMISSION OF THE APPELLANT ALONG WITH THE SUPPORTING DETAILS/EVIDENCES, PERUSING THE FACTS OF THE CASE AND THE OBSERVATION OF THE AO AND OTHER MATERIALS ON RECORD, I FIND SUBSTANTIAL F ORCE IN THE ARGUMENT PUT FORWARD BY THE APPELLANT. I AGREE WITH THE ARGUMENT OF THE A/R THA T THE DIRECT EXPENSES INCURRED FOR EARNING THE TAXABLE INCOME, IN ANY CASE, CANNOT BE DISALLOWED U/S. 14A OF THE ACT WHICH STIPULATES THAT SUCH EXPENDITURE INCURRED TO EARN T HE INCOME WHICH DOES NOT FORM PART OF 3 ITA NO.635/K/2013 M/S. SOYUZ TRADING CO. LTD. AY 2009-10 THE TOTAL INCOME. HOWEVER, I DO NOT AGREE WITH THE CONTENTION OF THE A/R THAT 1 % OF THE EXEMPT DIVIDEND INCOME CAN REASONABLY BE CONSIDERED AS DISALLOWABLE EXPENSES U/S. 14A AS HAS BEEN HELD BY THE HON'BLE ITAT, KOLKATA AS BE CAUSE THE JUDGEMENTS REFERRED TO ARE RELATED TO THE AYS PRIOR TO THE AY 2008-09 WHEN THE PROVISIONS OF RULE 8D WAS NOT APPLICABLE. AT THE SAME TIME, I AM OF THE VIEW THAT THE DISALLOWABLE EXPENSES CANNOT EXCEED THE TOTAL EXPENSES CLAIMED BY AN ASSESSEE DU RING A YEAR AS HAS BEEN HELD BY THE HON'BLE DELHI HIGH COURT AND OTHER HIGH COURTS OF I NDIA. IN THE LIGHT OF THE ABOVE DISCUSSION & OBSERVATION, PERUSING THE ENTIRE FACTS OF THE CASE, THE AO IS DIRECTED FIRSTLY TO MODIFY/RECALCULATE TH E DISALLOWANCE OF EXPENDITURE MADE ULS. 14A OF THE ACT AFTER REDUCING THE DIRECT EXPENDITUR E OF CONSULTANCY FEES OF RS.46,10,000/- FROM THE TOTAL EXPENSES CLAIMED BY THE APPELLANT IN THE P &L A/C AND THEREAFTER RESTRICT THE DISALLOWANCE OF EXPENDITURE MAXIMUM TO THE EXTE NT OF BALANCE OF EXPENSES CLAIM IN THE P&L A/C BY THE APPELLANT. THUS, THIS GROUND OF APPEAL IS PARTLY ALLOWED. AGGRIEVED, NOW REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUGH FACTS AND CIRCUMSTANCES OF THE CASE. THE FACTS ARE NOT IN DISPUTE THAT DURING THE RELEVANT YEAR, THE ASSESSEE EARNED DIVIDED OF RS. 1,66,06,788/- AND LONG TERM CAPITAL LOSS OF (RS. 3,97,694/-) WHICH DO NOT FORM PART OF TAXABLE INCOME. THE ASSESSEE HAS NOT DENIED OF I NCURRING EXPENDITURE IN RELATION TO DIVIDEND INCOME, WHICH DOES NOT FORM PART OF THE TO TAL INCOME, BUT HAS OFFERED ONLY AN AD HOC DISALLOWANCE OF RS. 2,60,221/- U/S. 14A OF THE ACT. WE FIND THAT ABOUT 98.60% AND 88.90% OF THE TOTAL FUNDS AT THE DISPOSAL OF THE AS SESSEE REMAINED INVESTED IN SHARES DURING THE PREVIOUS YEARS 2007-08 AND 2008-09 RESPECTIVELY . THUS, THE TOTAL VALUE OF INVESTMENT ON THE FIRST DAY AND THE LAST DAY OF THE CURRENT PR EVIOUS YEAR 2008-09 AS APPEARING IN THE BALANCE SHEET ARE RS.97,86,43,112/- AND 101,56,18,2 32/- RESPECTIVELY. BUT WE FIND THAT THE ASSESSEE CONSIDERING ALL THE FACTS OF THE CASE AT I TS OWN DISALLOWED A SUM OF RS. 2,60,221/- U/S. 14A OF THE ACT WHICH WAS BASED UPON THE FACTS AND FIGURES CALCULATED CONSIDERING THE TOTAL EXPENSES INCURRED DURING THE YEAR AND REDUCIN G THE EXPENSES DIRECTLY RELATED TO THE EARNING OF THE TAXABLE INCOME. IN SUPPORT ITS CONTE NTION, THE APPELLANT FURNISHED THE DETAILS OF SUCH EXPENSES AND WORKING OF THE DISALLOWABLE EX PENDITURE ARRIVED AT RS. 2,60,221/- AS ABOVE. IT IS OBSERVED THAT THE ASSESSEE HAD CONSIDE RABLE BUSINESS INCOME FROM MANAGEMENT CONSULTANCY TO THE EXTENT OF RS. 73,50,000/- DURING THE RELEVANT YEAR AND MAJORITY OF EXPENSES WERE INCURRED BY THE COMPANY FOR EARNING S UCH BUSINESS INCOME. BEFORE US IT WAS EXPLAINED THAT FOR EARNING THE MANAGEMENT CONSULTAN CY FEES OF RS. 73,50,000/-, THE ASSESSEE HAS TO INCUR DIRECT EXPENSES OF RS.46,10,0 00/- AS CONSULTANT FEES. THEREFORE, WE ARE OF THE VIEW THAT WHILE APPLYING RULE 8D(2)(II), THE AO SHOULD HAVE EXCLUDED THOSE EXPENSES WHICH WERE DIRECTLY ATTRIBUTABLE TO CONSUL TANCY BUSINESS INCOME EARNED BY THE 4 ITA NO.635/K/2013 M/S. SOYUZ TRADING CO. LTD. AY 2009-10 ASSESSEE. WE FIND FROM RECORDS THAT THE ASSESSEE FI LED THE DETAILS OF CONSULTANCY INCOME AND EXPENSES INCURRED FOR THE SAME BEFORE AO DURING THE COURSE OF ASSESSMENT PROCEEDING BUT HE HAS NOT CONSIDERED THE SAME. WE FURTHER FIND THAT THE DIVIDEND INCOME AMOUNTING TO RS.1,66,06,788/- WAS RECEIVED BY THE ASSESSEE ONLY FROM EIGHT COMPANIES AND DIVIDEND CHEQUES WERE RECEIVED THOUGH POST OR WERE DIRECTLY CREDITED TO THE ASSESSEE' BANK ACCOUNT THROUGH ECS. AS SUCH NO MAJOR EXPENSES WERE INCURRE D BY THE ASSESSEE FOR EARNING SUCH INCOME AND COLLECTION OF DIVIDEND CHEQUE. SIMILARLY , IN RESPECT OF LONG TERM CAPITAL LOSS OF RS. 3,97,694/- THERE WERE ONLY TWO TRANSACTIONS FOR PURCHASE AND SALE OF SHARES AND TWO FOR INVESTMENT AND REDEMPTION OF UNITS OF MUTUAL FUND W HICH TOO WERE TRANSACTED OVER TELEPHONE THROUGH THE BROKER/BANK. NO SEPARATE STAF F WAS EMPLOYED FOR THIS PURPOSE AND EXTRA EXPENSES WERE INCURRED FOR SUCH TRANSACTIONS. IN VIEW OF THE ABOVE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT WE NEED NOT INTERFERE IN THE ORDER OF CIT(A) AND HENCE, THE SAME IS CONFIRMED. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 6. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D. 7. ORDER IS PRONOUNCED IN THE OPEN COURT ON 29.10.2 015 SD/- SD/- (WASEEM AHMED) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 29TH OCTOBER, 2015 JD. SR. P.S COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT ITO, WARD-8(4), KOLKATA. 2 RESPONDENT M/S. SOYUZ TRADING CO. LTD., 2 ND FLOOR, 16B, SHAKESPEARE SARANI, KOLKATA-700071. 3 . THE CIT(A), KOLKATA 4. 5. CIT KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .