Kolay Properties (P) Ltd., Kolkata V. DCIT, CIR-II, KOLKATA, Kolkata

ITA 662/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1852 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 06-04-2017
• Assessment Year: 2008-2009
• Appeal Filed On: 11-04-2014
• Court: TRIBUNAL
• Department Lawyers: RAJAT KUMAR KUREEL
• Assessee Lawyers: T P KAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM & DR.ARJUN LAL SAINI, AM] I.T.A NO. 662/KOL/201 4 ASSESSMENT YEAR : 2008-0 9 KOLAY PROPERTIES (P) LTD. -VS.- D.C.I.T., CIRCLE-11, KOLKATA KOLKATA [PAN : AABCK 5805 D] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI T.P. KAR, AR FOR THE RESPONDENT : SHRI RAJAT KUMAR KUREEL, JCIT. SR.DR DATE OF HEARING : 06.04.2017. DATE OF PRONOUNCEMENT : 12.04.2017. ORDER PER N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 10.03.2014 OF C.I.T.(A)-XII, KOLKATA RELATING TO A.Y.2008-09. 2. THE ONLY GROUND OF APPEAL RAISED BY THE ASSE SSEE READS AS FOLLOWS :- 1. THAT IN THE FACTS AND IN THE GROUNDS OF APPEAL HOW FAR THE ASSESSING OFFICER IS LEGALLY CORRECT IN CALCULATION THE EXPENDITURE TO B E INCURRED BY DEEMING MATHEMATICAL FICTION U/S 14A READ WITH RULE 8D THOU GH NO SUMS WERE EXPENDED FOR EARNING SUCH EXEMPTED INCOME. AS SUCH THE BURDEN IS ON THE REVENUE TO PROVE THE NEXUS BETWEEN EXPENDITURE DISALLOWED AND NON-TAXABL E RECEIPTS IN RELATION TO EXEMPT INCOME. 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF LETTING OUT HOUSE PROPERTY, WHOLESALE MARKET MANAGEMENT AND BUILDING PROMOTION. IN THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSESSEE HAS EA RNED TAX FREE INCOME IN THE FORM OF DIVIDEND OF RS.23,61,137/- BESIDES LONG TERM CAPITA L GAIN RS.6,64,831/-AND TAX FREE INTEREST INCOME OF RS.12,555/-. THE ASSESSEE HAD CO MPUTED A SUM OF RS.,2,62,261/- AS EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING TAX FREE INCOME WHICH IS TO BE DISALLOWED U/S 14A OF THE ACT. THE COMPUTATION OF D ISALLOWANCE U/S.14A OF THE ACT, AS 2 ITA NO.662/KOL/2014 KOLAY PROPERTIES (P)LTD.. A.YR.2008-09 2 MADE BY THE ASSESSEE WAS OF OTHER EXPENSES FALLING WITHIN THE AMBIT OF RULE 8D(2)(III) OF THE RULES. THE AO IN THE ORDER OF ASSESSMENT HAS OBSERVED THAT THE ASSESSEES COMPUTATION OF INADMISSIBLE EXPENSES OF SECTION 14A OF THE ACT WAS NOT SATISFACTORY BUT HAS NOT SPELT OUT WHY IT IS NOT SATISFACTORY. T HEREAFTER THE AO HAS OBSERVED AS FOLLOWS :- 5.4 IT IS SEEN FROM THE ACCOUNTS VIDE SCHEDULE- G OF BALANCE SHEET THAT THE ASSESSEE HAS BEEN MAINTAINING A HUGE PORTFOLIO OF I NVESTMENTS IN SHARES, SECURITIES, DEBENTURES AND MUTUAL FUNDS. FROM THESE INVESTMENTS , THE ASSESSEE HAS BEEN EARNING APPRECIATION IN VALUE BY CHANGE OF INVESTME NTS, BESIDES EARNING DIVIDEND INCOME, CAPITAL GAINS, ETC. PERIODICALLY. DURING TH E YEAR UNDER CONSIDERATION, THE ASSESSEE EARNED TAX-FREE INCOMES BY WAY OF DIVIDEND OF RS.23,61,137/-, LONG TERM CAPITAL GAINS OF RS.6,64,831/- (TAX-EXEMPT) AND INT EREST OF RS.12,555/- ON 6.75% TAX FREE US'64 BONDS. ALL THESE TAX-EXEMPT INCOMES HAVE NOT ACCRUED TO THE ASSESSEE AS 'WINDFALL', RATHER THE ASSESSEE HAS BEE N MAINTAINING AN ESTABLISHMENT AT HEAD OFFICE & SEPARATE ESTABLISHMENTS AT NAFAR BABU 'S BAZAR SECTION AND HOUSE PROPERTY SECTION SO AS TO EARN INCOME FROM DIFFEREN T SOURCES INCLUDING THOSE FROM INVESTMENT IN SHARES, UNITS, ETC. THIS FINDING FIND S FORCE FROM THE ACCOUNTS OF THE ASSESSEE INCLUDING SCHEDULE- P & Q FORMING PART OF THE P&L ACCOUNTS. 5.5 THE PROVISIONS OF SECTION 14A ARE APPLICABLE IN RESPECT OF BOTH DIRECT AND INDIRECT EXPENDITURE, ONCE IT IS FOUND THAT SUCH EX PENDITURE IS INCURRED IN RELATION TO INCOME NOT FORMING PART OF TOTAL INCOME. IN THE PRE SENT CASE, THE ASSESSEE HAS CERTAINLY INCURRED MANAGERIAL & ADMINISTRATIVE EXPE NSES IN THE MAINTENANCE OF ITS INVESTMENT PORTFOLIO [ SCHEDULE- G OF BALANCE SHEET ] FOR WHICH THE ASSESSEE HAS NOT MAINTAINED SEPARATE ACCOUNTS TO BOOK RELATED EX PENSES. THE AUDITOR HAS ALREADY CERTIFIED THAT THE ASSESSEE HAS INCURRED EXPENDITUR E THAT ARE INADMISSIBLE U/S 14A ( ALBEIT, THE QUANTUM IS TO BE DECIDED BY INVOKING RU LE 8D ). THE ASSESSEE HAS NO EVIDENCE AGAINST THE OBSERVATION OF THE AUDITOR. IN SUCH FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HELD THAT THE ASSESSEE HAS INCURRED EXPENDITURE IN RELATION TO TAX- EXEMPT INCOMES EARNED DURING THE YEAR. FOR THIS REA SON, IT IS HELD THAT PROVISIONS OF SUB-SECTION (2) & (3) OF SECTION 14A ARE APPLICABLE IN THE PRESENT CASE. IN THE RESULT, THE QUANTUM OF DISALLOWANCE U/S 14A IS TO B E COMPUTED BY INVOKING RULE 8D(2)(III) AS UNDER:- VALUE OF INVESTMENTS AS ON 01.04.2007 ( A ) = RS. 5,36,95,183/- VALUE OF INVESTMENTS AS ON 31.03.2008 ( B ) = RS. 5,71 ,89,823/- AVERAGE VALUE OF INVESTMENT [(A+B)/2] (C) =RS.5,5 4,42,503/- DISALLOWANCE U/S 14A [ RULE 8D(2)(III) ] =0.5% O F ( C) = RS.2,77,213/- 3 ITA NO.662/KOL/2014 KOLAY PROPERTIES (P)LTD.. A.YR.2008-09 3 4. AGGRIEVED BY THE ORDER OF AO THE ASSESSEE FILED APPEAL BEFORE CIT(A) AND CIT(A) UPHELD THE ORDER OF AO OBSERVING AS FOLLOWS :- 5.2.3. DECISION : I HAVE CONSIDERED THE FACTS AND SUBMISSIONS MADE ON BEHALF OF THE APPELLANT. THIS IS A CASE WHERE THE ASSESSING OFFICER HAS MADE THE DISALLOWANCE UNDER SEC.14A OF THE ACT FOLLOWING THE WORKING GIVEN BY THE AUDITOR OF THE APPELLANT IN THE TAX AUDIT REPORT. THE APPELLANT HAS NOT FURNISHED ANY EXPLANATION OR CERTIFICATE FROM THE SAID AUDITOR TO INDICATE THAT THE SAID WORKING IS NOT BASED ON CORRECT FACTS AND FIGURES. IT IS A FACT THAT FOR EARNING EXEMPTED INC OME, CAPITAL AS ALSO SOME ADMINISTRATIVE EXPENSES ARE NECESSARY. THE APPELLAN T HAS NOT BROUGHT ON RECORD ANY MATERIAL TO SHOW THAT ONLY OWN FUNDS ARE UTILIZED F OR THE INVESTMENT IN THE SHARES AND MUTUAL FUNDS AND NO BORROWED CAPITAL IS EMPLOYE D. THE SATISFACTION ARRIVED AT BY THE ASSESSING OFFICER IS APPARENTLY BASED ON FAC TS AVAILABLE ON RECORD. THEREFORE, IN MY VIEW, HE WAS JUSTIFIED IN MAKING T HE IMPUGNED DISALLOWANCE BY INVOKING RULE 8D(2)(III). THE DISALLOWANCE IS THERE FORE, CONFIRMED. THIS GROUND OF APPEAL IS ACCORDINGLY CONFIRMED. 5. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE H AS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND WE HAVE ALSO PERUSED THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE FOR THE RELEVANT PERIOD. TH E SAME IS GIVEN AS ANNEXURE TO THIS ORDER. A PERUSAL OF THE PROFIT AND LOSS ACCOUNT SHO WS THAT THE EXPENSES DEBITED THEREIN HAS NO DIRECT NEXUS WITH THE EARNING OF TAX FREE IN COME. THE COMPUTATION OF EXPENSES INCURRED IN EARNING THE TAX FREE INCOME AS DONE BY THE ASSESSEE APPEARS TO BE JUST AND PROPER AND CALLS FOR NO INTERFERENCE. THE DIFFERENC E BETWEEN THE COMPUTATION DONE BY THE ASSESSEE AND AS DONE BY THE AO IS VERY INSIGNIF ICANT. THE ASSESSEE AS COMPUTED THE DISALLOWANCE U/S 14A OF THE ACT WAS AT RS.2,62,261/ - AND THE AO HAS COMPUTED THE SAME AT RS.2,77,213/- AND THERE APPEARS TO BE A VER Y MINOR DIFFERENCE ALONE. WE THEREFORE DIRECT THAT THE ADDITION BE RESTRICTED TO THE DISALLOWANCE AS MADE BY THE ASSESSEE. 4 ITA NO.662/KOL/2014 KOLAY PROPERTIES (P)LTD.. A.YR.2008-09 4 7. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE COURT ON 12.04.2017. SD/- SD/- [DR.ARJUN LAL SAINI] [ N.V.VASUDEVA N ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 12.04.2017. [RG PS] COPY OF THE ORDER FORWARDED TO: 1. M/S. KOLAY PROPERTIES (P)LTD., 6B, SIR DEBAPRASA D ROW, KOLKATA-700014. 2. D.C.I.T., CIRCLE-II, KOLKATA. 3. CIT(A)-XII, KOLKATA. 4. C.I.T.-IV, KOLKAT A. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSTT.REGISTRAR, ITAT, KOLKATA BENCHES