Misrilall Mines Pvt Ltd, Kolkata V. D.C.I.T CC - XI,kolkata, Kolkata

ITA 643/KOL/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9475 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 10 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-10-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 25-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIJYENDRA KUMAR JCITSRDR
• Assessee Lawyers: AMITAV KOTHARI
• Keywords: Business income; Earning of tax free income; Speculation loss
• Section: 143(3); 142(1); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI A.T.VARKEY, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 643 - 644 / KOL / 2013 ASSESSMENT YEARS :2010-11 & 2011-12 MISRILALL MINES PVT. LTD. 27A, CAMAC STREET, KOLKATA-700 016 [ PAN NO.AABCM 9928 P ] V/S . DDCIT, CENTRAL CIRCLE-XI, AYAKAR BHAWAN, POORVA, 110, SHANATIPALLY, KOLKATA-107 /APPELLANT .. / RESPONDENT /BY ASSESSEE SHRI AMITAV KOTHARI, FCA /BY REVENUE SHRI VIJYENDRA KUMAR, JCIT-SR-DR /DATE OF HEARING 10-01-2017 ! /DATE OF PRONOUNCEMENT 08 - 02-2017 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- BOTH APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST THE DIFFERENT ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-I, KOLKATA OF EVEN DATED I.E. 31.01.2013. ASSESSMENTS WERE FRAMED BY DCIT, CENTRA L CIRCLE-XI, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) VIDE THEIR DIFFERENT ORDERS DATED 23.02.2012 AND 26.12.2 012 FOR ASSESSMENT YEARS 2010-11 & 2011-12 RESPECTIVELY. SHRI AMITAV KOTHARI, LD. AUTHORIZED REPRESENTATIVE APPEARED ON BEHALF OF ASSESSEE AND SHRI VIJYENDRA KUMAR, LD. SENIOR DEPAR TMENTAL REPRESENTATIVE REPRESENTED ON BEHALF OF REVENUE. 2. BOTH APPEALS ARE HEARD TOGETHER AND ARE BEING DI SPOSED OF BY WAY OF A CONSOLIDATE ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.643-644/KOL/2013 A.YS. 10-11 & 11 -12 MISRILALL MINES PVT. LTD. VS. DCIT, CC-XI, KOL. PAGE 2 FIRST WE TAKE UP ITA NO.643/KOL/2013 FOR A.Y.10-11 . 3. GROUNDS RAISED BY ASSESSEE ARE REPRODUCED BELOW: - 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) ERRED IN CONFIRMING THE ORDER OF THE ASSESSING OFFICER IN RE SPECT HIS CONCLUSION IN THE ASSESSMENT ORDER THAT THE LONG TERM CAPITAL LOSS ARISING OUT OF THE INVESTMENT MADE THROUGH PORT FOLIO MANAGEMENT S ERVICES OF RS.60,83,332/- IS SPECULATION LOSS WITHIN THE MEANI NG OF EXPLANATION TO SEC. 73 OF THE INCOME TAX ACT, 1961 AND NOT LONG TE RM CAPITAL LOSS CLAIMED BY THE ASSESSEE. 2. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN CONFIRMING THE ADDITION OF RS.60,53,495/- MADE BY T HE ASSESSING OFFICER UNDER SEC. 14A OF INCOME TAX ACT, 1961 READ WITH RU LE 8D AS AGAINST THE CLAIM OF THE ASSESSEE THAT NO DISALLOWANCE SHOU LD BE MADE U/S. 14A OF IT ACT, 1962, THE RULE 8D DOES NOT APPLY IN THE CASE OF THE ASSESSEE COMPANY AND DIVIDEND INCOME IS NOT AN INCO ME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT AS THE SAME HAVE ALREADY SUFFERED TAX U/S. 115O OF INCOME TAX ACT, 1 961. 3. THAT THE CONCLUSION ARRIVED AT BY THE LD. CIT(A) IN THE IMPUGNED ORDER IS BASED ON WHOLLY MISCONCEIVED NOTION OF FAC TS, AND ON IRRELEVANT CONSIDERATIONS AND MISPLACED CASE LAW AND, THEREFOR E, THE SAID ORDER UNDER APPEAL IS BAD IN LAW AND PERVERSE. 4. FACTS IN BRIEF ARE THAT ASSESSEE IN THE PRESENT CASE IS A PRIVATE LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF MINING, PROC ESSING AND EXPORT OF CHROME ORE & OTHER MINERAL. IN THE YEAR UNDER CONSI DERATION, ASSESSEE HAS FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME O F 33,94,53,780/- WHICH WAS PROCESSED U/S 143(1) OF THE ACT ON 30.05.2011. SUBS EQUENTLY, CASE WAS SELECTED UNDER SCRUTINY AND ACCORDINGLY, NOTICES U/ S 143(2) AND 142(1) OF THE ACT WERE ISSUED ALONG WITH QUESTIONNAIRE TO THE ASS ESSEE. THE ASSESSMENT WAS FRAMED AFTER MAKING CERTAIN ADDITIONS AND DISAL LOWANCES TO THE TOTAL INCOME OF ASSESSEE AT 34,57,40,170/- U/S. 143(3) OF THE ACT. 5. FIRST ISSUE RAISED BY ASSESSEE IN THIS APPEAL IN GROUND NO. 1 IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF ASSESSING O FFICER BY TREATING THE QUANTUM CAPITAL LOSS OF 60,83,332/- AS SPECULATION LOSS IN TERMS OF PROVISI ON OF EXPLANATION TO SECTION 73 OF THE ACT. ITA NO.643-644/KOL/2013 A.YS. 10-11 & 11 -12 MISRILALL MINES PVT. LTD. VS. DCIT, CC-XI, KOL. PAGE 3 THE ASSESSEE, IN THE YEAR UNDER CONSIDERATION HAS S HOWN FOLLOWING INCOME UNDER THE HEAD CAPITAL GAINS :- SL. NO. HEAD OF LOSS/INCOME AMOUNT (RS) 1. LONG TERM CAPITAL GAIN 9,040/- 2. LONG TERM CAPITAL LOSS 60,83,332/- 3. SHORT TERM CAPITAL LOSS 15,81,221/- DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY AO THAT ALL THE AFORESAID TRANSACTIONS WERE CARRIED OUT THROUGH PORTFOLIO MANAGEMENT SCHEME (PMS FOR SHORT). THE AO CALLED UPON THE ASSE SSEE TO EXPLAIN WHETHER THIS CAN BE TREATED AS BUSINESS INCOME. IN COMPLIAN CE THERETO, ASSESSEE SUBMITTED THAT THE INVESTMENT WAS MADE THROUGH PMS OUT OF ITS SURPLUS FUND. ALL THE TRANSACTIONS OF PURCHASE-SALE WERE CLASSIFI ED UNDER THE HEAD INVESTMENT WHICH WAS SHOWN IN THE BALANCE-SHEET BY ASSESSEE ALL ALONG. THE INCOME / LOSS FROM THE ABOVE TRANSACTIONS WERE SHOWN AND ASSESSED UNDER THE HEAD CAPITAL GAINS ONLY. THE MOTIVE OF ASSESSEE WAS TO EARN INCOME THROUGH THE ACTIVITY OF INVESTMENT AND NOT T HROUGH TRADING ACTIVITIES. HOWEVER, AO DISREGARDED THE CLAIM OF ASSESSEE BY OB SERVING THAT VOLUME, FREQUENCY AND QUANTUM OF TRANSACTIONS SUGGESTS THE TRANSACTIONS OF SALE- PURCHASE OF SECURITIES AS IN THE NATURE OF TRADE. T HE AO ALSO OBSERVED THAT ALL THE TRANSACTIONS WERE MADE THROUGH PMS WITH A VIEW TO MAXIMIZING THE PROFIT OF BUSINESS. FURTHER, AO OBSERVED THAT THE MAIN ACTIVITY OF ASSE SSEE IS THAT OF MINING PROCESSING AND EXPORT OF CHROME ORE & OTHER MINERAL . THEREFORE, THE PROVISION AS CONTAINED IN EXPLANATION TO SEC. 73 OF THE ACT I S APPLICABLE TO THE ASSESSEE. THE ABOVE TRANSACTIONS DO NOT FALL IN THE EXCEPTION PROVIDED UNDER EXPLANATION TO SEC. 73 OF THE ACT. ACCORDINGLY, AO TREATED THE INCOME FROM THE SALE-PURCHASE OF SHARE AS SPECULATION BUSINESS OF ASSESSEE. 6. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHO CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER:- ITA NO.643-644/KOL/2013 A.YS. 10-11 & 11 -12 MISRILALL MINES PVT. LTD. VS. DCIT, CC-XI, KOL. PAGE 4 3. IN GROUND NO. 1, IT HAS BEEN CONTENDED THAT THE AO WAS NOT JUSTIFIED IN TREATING THE LONG-TERM CAPITAL LOSS OF RS.60,83, 332/- AND THE SHORT- TERM CAPITAL LOSS OF RS.1,58,121/- AS SPECULATION L OSS. THE BRIEF FACTS OF THE CASE ARE THAT THE APPELLANT HAS SHOWN THE LOSS MADE THROUGH THE PORTFOLIO MANAGEMENT SCHEME PMS) AS LONG OR SHORT T ERM CAPITAL LOSS DEPENDING UPON THE PERIOD OF HOLDING. IT WAS EXPLAI NED TO THE ASSESSMENT STAGE THAT THE APPELLANT HAD PARKED ITS SURPLUS FUND IN PMS WITH A VIEW TO MAXIMIZE THE PROFIT ON SUCH INVESTME NT; AND, THE SAME WAS SHOWN AS INVESTMENT IN THE BALANCE SHEET. THE A O DID NOT ACCEPT THE EXPLANATION. THE AO NOTED THAT THE ISSUE HAS TO BE DECIDED ON THE BASIS OF THE VOLUME AND FREQUENCY OF TRANSACTIONS. THE AO NOTED THAT THE APPELLANT HAS SHOWN DURING THE YEAR TOTAL PURCH ASES OF RS.89,30,116/- AND TOTAL SALES OF RS.1,45,62,970/-. THE ASSESSING OFFICER HELD THAT THE VOLUME AS WELL AS THE FREQUEN CY OF THE TRANSACTIONS MADE DURING THE YEAR CLEARLY SUGGEST THAT THE APPEL LANT WAS INVOLVED IN TRADING OF SHARE; AND CONSEQUENTLY, THE PROFIT ARIS ING THEREBY WAS ASSESSABLE AS BUSINESS INCOME. THE ASSESSING OFFICE R RELIED ON THE DECISION OF THE HON'BLE DELHI TRIBUNAL TO HOLD THAT THE PROFIT ARISING OUT OF TRANSACTIONS IN SHARES MADE THROUGH PMS HAD TO BE T REATED AS BUSINESS INCOME. THE AO NOTED THAT THE APPELLANT CO MPANY WAS ENGAGED IN THE BUSINESS OF MINING. AS THE PRINCIPAL BUSINESS OF THE APPELLANT IS NOT THAT OF GRANTING OF LOANS AND ADVA NCES, AND, AS THE GROSS TOTAL INCOME OF THE APPELLANT COMPANY DOES NO T CONSIST MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURITIES, INCOME FROM HOUSE PROPERTY, CAPITAL GAIN OR INCOME FROM OTHER SOURCES; THE PROVISIONS OF SECTION 73 WERE APPLICABLE. THE A O THEN CONCLUDED THAT THE LOSS ARISING OUT OF SHARE TRANSACTIONS THR OUGH PMS HAD TO BE TREATED AS SPECULATION LOSS. AGGRIEVED BY THIS, ASSESSEE HAS COME UP IN APPEAL B EFORE US. 7. BEFORE US LD. AR FOR THE ASSESSEE FILED PAPER BO OK WHICH IS RUNNING PAGES 1 TO 121 INCLUDING THE JUDICIAL PRONOUNCEMENT S AND CIRCULARS CITED AND PLACED RELIANCE UPON. LD. AR STATED THAT ALL THE TR ANSACTIONS OF SALE-PURCHASES WERE CLASSIFIED UNDER THE HEAD INVESTMENT. THE LD . AR IN SUPPORT OF ASSESSEES CLAIM SUBMITTED THE FINANCIAL STATEMENT FOR THE YEAR UNDER CONSIDERATION DATED 31.03.2010 WHICH ARE PLACED ON PAGES 28 TO 58 OF THE PAPER BOOK. LD. AR FURTHER SUBMITTED THAT IN EARLIE R A.Y. 2009-10, THE INCOME FROM SALE-PURCHASE OF SHARE WAS ACCEPTED UNDER THE HEAD CAPITAL GAINS. THE ITA NO.643-644/KOL/2013 A.YS. 10-11 & 11 -12 MISRILALL MINES PVT. LTD. VS. DCIT, CC-XI, KOL. PAGE 5 LD. AR IN SUPPORT OF ASSESSEES CLAIM SUBMITTED COP Y OF ASSESSMENT ORDER FOR AY 2009-10 WHICH IS PLACED ON PAGES 76 TO 79 OF THE PAPER BOOK. ON THE OTHER HAND, LD. DR STATED THAT ALL THE TRANS ACTIONS OF SALE-PURCHASE OF SHARE WERE CARRIED OUT THROUGH PMS IN ORDER TO MAXI MIZE ITS PROFIT. HE FURTHER SUBMITTED THAT CONSIDERING THE VOLUME, FREQUENCY AN D QUANTUM OF TRANSACTIONS, ASSESSEE WAS ENGAGED IN NATURE OF TRA DE. THEREFORE, THE INCOME THEREON SHOULD BE TREATED AS UNDER THE HEAD BUSINE SS. LD. DR FURTHER SUBMITTED THAT THE INCOME FROM SOURCE OF DIVIDEND I S OF MEAGER AMOUNT BUT THE INCOME FROM CAPITAL GAINS IS MUCH HIGHER. THERE FORE, IT IS CLEAR THAT ASSESSEES INTENTION WAS TO CARRY OUT BUSINESS ACTI VITIES. HE VEHEMENTLY SUPPORTED THE ORDER OF AUTHORITIES BELOW. 8. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORD INC LUDING THE JUDICIAL PRONOUNCEMENTS CITED AND PLACED RELIANCE UPON. THE ISSUE IN THE INSTANT CASE RELATES TO THE TREATMENT OF CAPITAL GAINS INCOME BY AUTHORITIES BELOW AS INCOME FROM BUSINESS. AFTER CONSIDERING THE VOLUM E, FREQUENCY AND QUANTUM OF TRANSACTIONS, AUTHORITIES BELOW PRESUMED THAT AS SESSEE WAS CARRYING OUT THE ACTIVITY OF BUSINESS. THEREFORE THE PROFIT AND LOSS ON SUCH TRANSACTIONS SHOULD BE TREATED AS UNDER THE HEAD BUSINESS . ADMITTEDLY, WE FIND THAT THAT THERE IS NO DISPUTE WITH REGARD TO TREATMENT OF THE AFORESAID TRANSACTIONS IN THE BOOKS OF ACCOUNT OF ASSESSEE AND AFORESAID TRANSACT IONS WERE CLASSIFIED BY ASSESSEE UNDER THE HEAD INVESTMENT AND SUCH PRACTICE WAS ALSO FOLLOWED BY ASSESSEE IN THE EARLIER YEAR ALSO. WE ALSO FIND THAT THE ASSESSEE IN THE EARLIER YEAR HAS SHOWN SUCH TRANSACTIONS UNDER THE HEAD CAPITAL GAINS AND NO DISALLOWANCE WAS WARRANTED BY AO IN HIS ASSESSME NT ORDER FOR AY 2009- 10. 8.1 WE ALSO FIND THAT RECENTLY CBDT HAS ISSUED CIRC ULAR NO. 6 OF 2016 ON 29.02.2016 WHICH STATES AS UNDER:- A) WHERE THE ASSESSEE ITSELF, IRRESPECTIVE OF THE PERIOD OF HOLDING THE LISTED SHARES AND SECURITIES, OPTS TO TREAT THE M AS STOCK-IN- ITA NO.643-644/KOL/2013 A.YS. 10-11 & 11 -12 MISRILALL MINES PVT. LTD. VS. DCIT, CC-XI, KOL. PAGE 6 TRADE, THE INCOME ARISING FROM TRANSFER OF SUCH SHA RES/SECURITIES WOULD BE TREATED AS ITS BUSINESS INCOME, B) IN RESPECT OF LISTED SHARES AND SECURITIES HELD FOR A PERIOD OF MORE THAN 12 MONTHS IMMEDIATELY PRECEDING THE DATE OF IT S TRANSFER, IF THE ASSESSEE DESIRES TO TREAT THE INCOME ARISING FR OM THE TRANSFER THEREOF AS CAPITAL GAIN, THE SAME SHALL NOT BE PUT TO DISPUTE BY THE ASSESSING OFFICER. HOWEVER, THIS STAND, ONCE TA KEN BY THE ASSESSEE IN A PARTICULAR ASSESSMENT YEAR, SHALL REM AIN APPLICABLE IN SUBSEQUENT ASSESSMENT YEARS ALSO AND THE TAXPAYERS SHALL NOT BE ALLOWED TO ADOPT A DIFFERENT /CONTRARY STAND IN THIS REGARD IN SUBSEQUENT YEARS; ON PERUSAL OF THE ABOVE CIRCULAR WE FIND THAT THE C BDT HAS ALREADY CURTAILED THE DISPUTES BY INSTRUCTING TO INCOME TAX AUTHORITI ES FOR NOT DISREGARDING TREATMENT MADE BY THE ASSESSEE WITH REGARD TO THE S HARE TRANSACTIONS. THE ASSESSEE HAS SHOWN LTCG AND LTCL WHICH INDICATES TH E PERIOD OF HOLDING MORE THAN 12 MONTHS AND THERE IS NO DISPUTE ON THE PERIOD OF HOLDING. SO THE STAND TAKEN BY THE ASSESSEE CANNOT BE CHALLENGED. T HE SIMILAR ANALOGY CAN ALSO BE APPLIED TO THE STCL. 8.2 WE ALSO FIND IN SIMILAR FACTS AND CIRCUMSTANCES THE HON'BLE DELHI HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE I N THE CASE OF RADIALS INTERNATIONAL VS. ACIT IN ITA NO. 485/2012 DATED 25.04.2014 AND RELEVANT EXTRACT OF THE JUDGMENT IS REPRODUCED BELOW:- A. THE PMS AGREEMENT IN THIS CASE WAS A MERE AGREE MENT OF AGENCY AND CANNOT BE USED TO INFER ANY INTENTION TO MAKE PROFIT B. THE INTENTION OF AN ASSESSEE MUST BE INFERRED H OLISTICALLY, FROM THE CONDUCT OF THE ASSESSEE, THE CIRCUMSTANCES OF T HE TRANSACTIONS, AND NOT JUST FROM THE SEEMING MOTIVE AT THE TIME OF DEPOSITING THE MONEY C. ALONG WITH THE INTENTION OF THE ASSESSEE, OTHER CRUCIAL FACTORS LIKE THE SUBSTANTIAL NATURE OF THE TRANSACTIONS, FREQUEN CY, VOLUME ETC. MUST BE TAKEN INTO ACCOUNT TO EVALUATE WHETHER THE TRANSACTIONS ARE ADVENTURE IN THE NATURE OF TRADE 18. THEREFORE THE BLOCK OF TRANSACTIONS ENTERED IN TO BY THE PORTFOLIO MANAGER MUST BE TESTED AGAINST THE PRINCIPLES LAID DOWN, IN ORDER TO EVALUATE WHETHER THEY ARE INVESTMENTS OR ADVENTU RES IN THE NATURE OF TRADE. ITA NO.643-644/KOL/2013 A.YS. 10-11 & 11 -12 MISRILALL MINES PVT. LTD. VS. DCIT, CC-XI, KOL. PAGE 7 FROM THE ABOVE, IT IS VERY CLEAR THAT THE ACTIVITIE S THROUGH PMS CANNOT BE REGARDED AS BUSINESS ACTIVITIES ON STANDALONE BASIS . THERE ARE OTHER FACTORS WHICH NEED TO BE CONSIDERED. IN THE INSTANT CASE TH E REVENUE HAS BEEN HARPING TO TREAT THE SHARE TRANSACTION ACTIVITY AS BUSINESS ACTIVITY AS THE ASSESSEE HAS AVAILED THE SERVICES OF PMS TO MAXIMIZ E THE PROFIT. AT THE END WE CONCLUDE THAT THE ASSESSEE HAS BEEN S HOWING INCOME UNDER THE HEAD CAPITAL GAINS FROM THE SALE-PURCHASE OF SECURITIES WHICH IS HEL D FOR A PERIOD MORE THAN 12 MONTHS CONSISTENTLY THEN THE SAME HAS TO BE TREATED AS INCOME UNDER THE HEAD CAPITAL GAINS ONLY. SIMILARLY, THE TRANSACTIONS FOR THE SALE-PURCHASE SHARES CARRIED OUT THROUGH PMS CANNOT BE REGARDED AS BUSINESS TRANSACTIONS FOR THE REASONS DISCUSSED ABO VE. THEREFORE, WE ARE INCLINED TO REVERSE THE ORDER OF AUTHORITIES BELOW AND THIS GROUND OF ASSESSEE IS ALLOWED. 9. NEXT ISSUE RAISED BY ASSESSEE IN GROUND NO.2 IS THAT LD. CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY SUSTAINING THE DISALL OWANCE OF 60,53,495/- U/S 14A R.W.S. 8D OF THE IT RULES, 1962 (HEREINAFTER RE FERRED TO AS THE RULE). 10. THE ASSESSEE, IN THE YEAR UNDER CONSIDERATION H AS SHOWN INCOME OF DIVIDEND INCOME FOR 3.99 CRORES WHICH IS EXEMPT U/S 10(34) OF THE ACT. THE ASSESSEE IN RELATION TO DIVIDEND INCOME HAS DISALLO WED THE EXPENSE AT ITS OWN FOR 4,41,728/- U/S. 14A OF THE ACT. THE ASSESSEE ALSO S UBMITTED THAT THERE WAS NO OTHER EXPENDITURE INCURRED IN RELATION TO TH E EXEMPTED INCOME. HOWEVER, THE AO DISREGARDED THE CLAIM OF ASSESSEE B Y OBSERVING THAT ASSESSEE HAS MADE INVESTMENT IN SHARE / MUTUAL FUND FOR 158,12,49,403/- AND TO MAINTAIN SUCH VOLUME OF INVESTMENT ASSESSEE HAS TO INCUR EXPENDITURE FOR THE MAINTENANCE AND KEEPING OF ACCOUNTS OF SUCH INVESTMENT. THEREFORE, TO MAINTAIN THE ACCOUNTS, ASSESSEE NEEDS MANPOWER A ND EXPERTISE FOR HOLDING SUCH HUGE PORTFOLIO OF INVESTMENT. IT WAS A LSO OBSERVED THAT IT IS THE DUTY OF ASSESSEE TO DEMONSTRATE THE EXPENDITURE INC URRED IN CONNECTION WITH THE DIVIDEND INCOME AS ALL THE MATERIAL FACTS ARE I N ITS EXCLUSIVE KNOWLEDGE. ITA NO.643-644/KOL/2013 A.YS. 10-11 & 11 -12 MISRILALL MINES PVT. LTD. VS. DCIT, CC-XI, KOL. PAGE 8 THE ASSESSEE IN THE INSTANT CASE DOES NOT MAINTAIN SEPARATE ACCOUNTS FOR THE EXEMPTED AND NON-EXEMPTED INCOME. THEREFORE, THERE IS NO OPTION EXCEPT TO RESORT THE PROVISION OF SEC. 14A OF THE ACT. ACCORD INGLY, AO INVOKED THE PROVISION OF SEC. 14A R.W.S. 8D OF THE RULE AND WOR KED OUT THE DISALLOWANCE AS UNDER:- EXPENDITURE IN RELATION TO EXEMPTED INCOME (DEMAT CHARGES) RS.1,489/- OPENING VALUE OF INVESTMENT AS ON 1-4-2009 (EXCLUDING THE TAXABLE INVESTMENT) RS. 99,19,25 ,865/- CLOSING VALUE OF INVESTMENT RS.142,88,76,462/- AVERAGE VALUE OF INVESTMENT RS.121,04,01,164/- 0.5% THEREOF COMES TO RS. 60,52,006/- TOTAL DISALLOWANCE U/S. 14 READ WITH RULE-8D RS. 60,53,495/- 11. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE LD. CIT(A) WHO CONFIRMED THE ORDER OF AO BY OBSERVING AS UNDER:- 5. GROUND NO 2 RELATES TO THE DISALLOWANCE OF RS.6 0,53,495/- BY APPLYING THE PROVISIONS OF SECTION 14A. THE AO FOUN D THAT THE APPELLANT HAS RECEIVED DIVIDEND INCOME OF RS.3,99,72,709/- DU RING THE YEAR. IT WAS ARGUED AT THE ASSESSMENT STAGE THAT THE APPELLA NT HAD OFFERED TRANSACTION TAX OF RS.98,301/- AND PORTFOLIO MANAGE MENT FEE OF RS.3,43,427/- AS EXPENDITURE RELATABLE TO EXEMPT IN COME. IT WAS CONTENDED THAT NO EXPENDITURE WAS INCURRED FOR EARN ING THE DIVIDEND INCOME. THE AO REJECTED THE CONTENTION BY RELYING O N THE DECISIONS OF VARIOUS BENCHES OF THE ITAT. THE LD. AR REITERATED THE SUBMISSIONS MADE AT THE ASSESSMENT STAGE. IT WAS ALSO ARGUED TH AT DIVIDEND IS CHARGEABLE TO INCOME TAX AT THE DISTRIBUTION STAGE AND CANNOT BE TREATED AS EXEMPT INCOME. I DO NOT FIND SUBSTANCE IN THE SU BMISSIONS. THE DIVIDEND INCOME IS NOT CHARGEABLE TO TAX IN THE HAN DS OF THE APPELLANT; AND CONSEQUENTLY, IT HAS TO BE TREATED AS EXEMPT IN COME. THE AO HAS MADE THE DISALLOWANCE IN ACCORDANCE WITH THE PROVIS IONS OF SECTION 14A READ WITH RULE 8D WHICH IS NOT IN DISPUTE. IN VIEW OF THE ABOVE, THE ORDER OF THE AO CALLS FOR NO INTERFERENCE. GROUND N O 2 IS DISMISSED. AGGRIEVED BY THIS, ASSESSEE HAS COME UP IN APPEAL B EFORE US. 12. BEFORE US LD. AR SUBMITTED THAT NO BORROWED FUN D WAS UTILIZED IN MAKING SUCH INVESTMENT AND THERE WAS SUFFICIENT FUN D AVAILABLE WITH THE ASSESSEE IN THE FORM OF SHARE CAPITAL AND FREE RESE RVES. LD. AR IN SUPPORT OF ASSESSEES CLAIM DREW OUR ATTENTION ON ITS BALANCE SHEET WHERE SHAREHOLDERS ITA NO.643-644/KOL/2013 A.YS. 10-11 & 11 -12 MISRILALL MINES PVT. LTD. VS. DCIT, CC-XI, KOL. PAGE 9 FUNDS OF 240,68,81,386/- WAS SHOWN IN THE BALANCE SHEET WHIC H IS PLACED ON PAGE 46 OF THE PAPER BOOK. HE FURTHER SUBMITTED THA T ASSESSEE HAS NOT PAID ANY MANAGERIAL REMUNERATION TO ITS DIRECTOR. THEREF ORE, NO EXPENSES CAN BE ATTRIBUTED TO THE EXEMPTED INCOME. LD. AR FURTHER S UBMITTED THAT THERE A NOTIFICATION WITH RESPECT TO PROVISION OF RULE 8D O F THE RULE AND AS PER THE NOTIFICATION 1% OF THE ANNUAL AVERAGE OF MONTHLY AV ERAGES OF THE OPENING AND CLOSING BALANCE OF THE VALUE OF INVESTMENT NEEDS TO BE DISALLOWED. ON THE OTHER HAND, LD. DR EMPHATICALLY SUPPORTED TH E ORDERS OF AUTHORITIES BELOW. 13. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED AND CAREFULLY CONSIDERED THE MATERIAL ON RECORDS; I NCLUDING THE JUDICIAL PRONOUNCEMENTS CITED AND PLACED RELIANCE UPON. IN T HE INSTANT CASE THE ISSUE RELATES TO THE DISALLOWANCE MADE BY THE AO UNDER TH E PROVISIONS OF SECTION 14A READ WITH RULE 8D OF INCOME TAX RULES 1962. THE AO IN THE INSTANT CASE INVOKED THE PROVISIONS OF RULE 8D ON THE GROUND THA T THE ASSESSEE FAILS TO PROVIDE THE NECESSARY DETAILS OF THE EXPENSES INCUR RED IN CONNECTION WITH THE EXEMPTED INCOME. AS PER THE AO IT WAS THE DUTY OF T HE ASSESSEE TO MAINTAIN SUCH DETAILS AND IT IS NOT FOR THE REVENUE TO WORK OUT THE EXPENSES INCURRED IN RELATION TO EXEMPTED INCOME. THE ACTION OF THE AO W AS SUBSEQUENTLY CONFIRMED BY THE LEARNED CIT(A). NOW IN THE CONTEXT OF ABOVE ARGUMENTS AND FACTS, THE POINT THAT ARISES FOR OUR CONSIDERATION IS WHETHER THE AUTHORITIES BELOW ARE JUSTIFIED IN DISALLOWING A SUM OF RS. 60, 53,495.00 OVER AND ABOVE WHICH WAS OFFERED BY THE ASSESSEE UNDER SECTION 14A OF THE ACT. AT THE OUTSET WE FIND THAT THE AO HAS DERIVED HIS S ATISFACTION FOR INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF INCO ME TAX RULES BY OBSERVING AS UNDER:- IT IS THE DUTY OF THE ASSESSEE TO BIFURCATE THE EX PENDITURES INCURRED IN RELATION TO EXEMPT INCOME AND TAXABLE INCOME. IN TH E SAID CASE, IT WAS FURTHER HELD THAT IT IS FOR THE ASSESSEE TO PROVE T HAT THE EXPENDITURE INCURRED BY HIM IS IN RELATION TO NON-EXEMPTED INCO ME AS IT IS ASSESSEE WHICH IS CLAIMING DEDUCTION. THIS IS SO BECAUSE ALL THE MATERIAL FACTS ARE IN HIS SPECIAL & EXCLUSIVE KNOWLEDGE. IF THE ASSESS EE FAILS TO PROVE SO ADVERSE INFERENCE IS LIABLE TO DRAW AGAINST HIM. IT IS NOT FOR THE REVENUE ITA NO.643-644/KOL/2013 A.YS. 10-11 & 11 -12 MISRILALL MINES PVT. LTD. VS. DCIT, CC-XI, KOL. PAGE 10 TO PROVE THAT THE EXPENDITURE INCURRED BY THE ASSES SEE WAS IN RELATION TO NON-EXEMPTED INCOME. IT IS FOR THE ASSESSEE EITHER TO PREPARE SEPARATE ACCOUNTS OF EXPENDITURE FOR EXEMPTED INCOME AND NON -EXEMPTED INCOME, OR ALTERNATIVELY, TO SUBSTANTIATE AS TO HOW MUCH OF THE COMPOSITE EXPENDITURE INCURRED IN RELATION TO NON-E XEMPTED INCOME. IF HE FAILS TO DO SO, THEY WOULD HAVE NO OPTION BUT TO APPORTION THE COMPOSITE EXPENDITURE BETWEEN EXEMPTED INCOME AND N ON-EXEMPTED INCOME AND DISALLOW THE EXPENDITURE IN RELATION TO EXEMPTED INCOME IN TERMS OF PROVISIONS OF SEC. 14A. ACCORDINGLY WERE OF THE VIEW THAT THERE WAS NO OPT ION AVAILABLE TO THE AO EXCEPT TO RESORT TO THE PROVISIONS OF SECTION 14A R EAD WITH RULE 8D OF INCOME TAX RULES. THE ARGUMENT OF THE LEARNED AR THAT THAT IS NO MANAGERIAL REMUNERATION EXPENSES CLAIMED BY THE ASSESSEE IN IT S PROFIT AND LOSS ACCOUNT IS ALSO NOT TENABLE. IT IS BECAUSE THE PROVISIONS O F SECTION 14A DO NOT LIMIT THE DISALLOWANCE TO THE EXTENT OF MANAGERIAL REMUNERATI ON. THE DISALLOWANCE ENVISAGED IN THE SECTION 14A OF THE ACT EXTENDS TO ALL THE ADMINISTRATIVE EXPENSES CLAIMED BY THE ASSESSEE IN PROFIT AND LOSS ACCOUNT. THE LEARNED AR DREW OUR ATTENTION ON PAGE 54 OF THE PAPER BOOK WHE RE THE DETAILS OF ADMINISTRATIVE & OTHER EXPENSES WERE PLACED. ON PER USAL OF THE SAME WE FIND THAT THE ASSESSEE HAS CLAIMED TOTAL EXPENDITURE OF RS.4,14,08,065/-. OUT OF THE SAME A SUM OF RS. 2 CRORES WAS DONATED TO CHARI TABLE TRUST WHICH IN OUR CONSIDERED VIEW HAS NO NEXUS WITH THE DIVIDEND INCO ME. HOWEVER THE BALANCE EXPENSES OF RS.2,14,08,065/- HAS BEEN INCURRED AND CLAIMED BY THE ASSESSEE UNDER THE HEAD ADMINISTRATIVE AND OTHER EXPENSES. I N THE INSTANT CASE THE DISALLOWANCE HAS BEEN WORKED OUT TO RS.60,53,495/- OUT OF TOTAL ADMINISTRATIVE EXPENSES OF RS.2,14,08,065/-. HENCE, THE DISALLOWAN CE IS NOT EXCEEDING THE TOTAL ADMINISTRATIVE EXPENSES INCURRED BY THE ASSES SEE. THEREFORE THE RECENT NOTIFICATION ISSUED BY THE CBDT NO. SO 1949(E) DATE D 2.6.2016 AND RELIED BY THE ASSESSEE WHERE THE DISALLOWANCE WAS LIMITED TO THE EXTENT OF TOTAL EXPENSES WILL NOT BE OF ANY HELP. HENCE, THIS GROUN D OF APPEAL OF THE ASSESSEE IS DISMISSED. 14. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. ITA NO.643-644/KOL/2013 A.YS. 10-11 & 11 -12 MISRILALL MINES PVT. LTD. VS. DCIT, CC-XI, KOL. PAGE 11 COMING TO ITA NO.644/KOL/2013 FOR A.Y. 11-12 . 15. THE FACTS OF THE CASE IN THE YEAR UNDER APPEAL IS IDENTICAL TO THE FACTS FOR THE AY 10-11 EXCEPT THE AMOUNT INVOLVED. AS THE RES T OF THE FACTS AND CIRCUMSTANCES ARE SIMILAR, SO FOLLOWING OUR ORDER F OR THE AY 2010-11, WE DECIDE THE EFFECTIVE GROUND APPEAL IN TERMS OF PARA -8 TO 8.1 & 8.2 AND 13 OF THIS ORDER. WE HOLD ACCORDINGLY. 16. IN THE RESULT, BOTH APPEALS OF ASSESSEE STAND PARTL Y ALLOWED ORDER PRONOUNCED IN THE OPEN COURT 08 /02/2017 SD/- SD/- (#$) () (A.T.VARKEY) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S &'(- 08 / 02 /201 7 / COPY OF ORDER FORWARDED TO:- 1. /ASSESSEE-MISRILALL MINES PVT. LTD., 27A, CAMAC STR EET, KOLKATA-16 2. /REVENUE-DCIT, CENTRAL CIRCLE-XI,AYAKAR BHAWAN, POO RVA 110, SHANTIPALLY KOL-107 3.'0'12 3 / CONCERNED CIT KOLKATA 4. 3- / CIT (A) KOLKATA 5.6 78$$12, 12!, / DR, ITAT, KOLKATA 6.8;<=> / GUARD FILE. BY ORDER/ , /TRUE COPY/ /' 12!,