DCIT, CIR-4, KOLKATA, Kolkata V. M/s Jay Shree Tea & Industries Ltd., Kolkata

ITA 675/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9409 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 9 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-02-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 16-04-2014
• Court: TRIBUNAL
• Department Lawyers: N O N E
• Assessee Lawyers: BIJAY KUMAR CHATURVEDI
• Keywords: Business expenditure; Earning of tax free income; Proportionate interest
• Section: 14A

Judgement Text

I.T.A. NO. 675/KOL./2014 ASSESSMENT YEAR: 2009-2010 PAGE 1 OF 6 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA B BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 675/KOL/ 2014 ASSESSMENT YEAR: 2009-2010 DEPUTY COMMISSIONER OF INCOME TAX,................. ...................APPELLANT CIRCLE-4, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 -VS.- M/S. JAY SHREE TEA & INDUSTRIES LIMITED,........... ................RESPONDENT INDUSTRY HOUSE, 15 TH FLOOR, 10, CAMAC STREET, KOLKATA-700 017 [PAN: AAACJ 7788 D] APPEARANCES BY: N O N E, FOR THE DEPARTMENT SHRI BIJAY KUMAR CHATURVEDI, A.R., FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : JANUARY 03, 2017 DATE OF PRONOUNCING THE ORDER : FEBRUARY 03, 2017 O R D E R PER SHRI P.M. JAGTAP, A.M. .: THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-IV, KOLKATA DA TED 05.12.2013. 2. IN GROUND NO. 1, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD. CIT(APPEALS) IN DELETING THE DISALLOWANCE OF RS.92, 73,089/- MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES. 3. THE ASSESSEE IN THE PRESENT CASE IS A COMPANY, W HICH IS ENGAGED IN THE BUSINESS OF GROWING AND MANUFACTURING OF TEA, C HEMICALS, FERTILIZERS, TEA TRADING, WAREHOUSING, DEVELOPMENT OF REAL ESTAT E AND EDUCATIONAL ACTIVITY. THE RETURN OF INCOME FOR THE YEAR UNDER C ONSIDERATION WAS FILED I.T.A. NO. 675/KOL./2014 ASSESSMENT YEAR: 2009-2010 PAGE 2 OF 6 BY IT ON 30.09.2009, WHICH WAS REVISED ON 28.03.201 1, DECLARING FINALLY TOTAL INCOME OF RS.2,12,22,360/-. IN THE SAID RETUR N, DIVIDEND INCOME EARNED BY THE ASSESSEE WAS CLAIMED TO BE EXEMPT FRO M TAX AND A DISALLOWANCE OF RS.30,57,783/- WAS OFFERED UNDER SE CTION 14A ON ACCOUNT OF EXPENDITURE INCURRED IN RELATION TO THE EARNING OF THE SAID EXEMPT INCOME. SINCE THE SAID DISALLOWANCE OFFERED BY THE ASSESSEE WAS NOT COMPUTED AS PER THE METHOD PRESCRIBED IN RULE 8D, T HE ASSESSING OFFICER RECOMPUTED THE DISALLOWANCE TO BE MADE UNDER SECTIO N 14A BY APPLYING THE SAID RULE OF RS.1,30,08,824/- AND MADE A FURTHE R DISALLOWANCE OF RS.92,73,089/-. 4. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U NDER SECTION 14A READ WITH RULE 8D WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(APPEALS) AND THE FOLLOWING SUBMI SSION WAS MADE ON ITS BEHALF BEFORE THE LD. CIT(APPEALS) IN SUPPORT OF TH E CASE THAT A FURTHER DISALLOWANCE OF RS.92,73,089/- MADE BY THE ASSESSIN G OFFICER WAS NOT SUSTAINABLE:- IN THE RETURN FILED BY THE ASSESSEE, A SUM OF RS.3 0,57,783/- WAS ADDED BACK IN THE INCOME ON ACCOUNT OF DISALLOW ANCE U/S 14A OF THE INCOME TAX ACT, 1961 WHICH CONSISTS OF AVERAGE VALUE OF INVESTMENT AS WELL AS OTHER DIRECT EXPENDITURE INCURRED FOR EARNING THE EXEMPT INCOME. HOWEVER, THE LD. ASSESSING OFFICER FURTHER DISALLOW ED A SUM OF RS.92,73,089/- ON ACCOUNT OF PROPORTIONATE INTEREST. IN THIS CONNECTION THIS MAY BE NOTED THAT TOTAL INVESTMENT OF THE ASSESSEE AT THE BEGINNING OF THE YEAR WAS RS.94,68,05,193/- AND AT THE END OF THE YEAR I.E. A S ON 31.03.09 WAS RS.1,00,70,62,725/-. THE ASSESSEE HAS NOT MADE ANY INVESTMENT OUT OF THE BORROWED FUND ON WHI CH INTEREST HAS BEEN CHARGED. THE ASSESSEE WAS HAVING SUFFICIENT RESERVE WHICH WAS RS.1,49,09,64,617/- AS ON 31.03.08 AND RS.1,52,41,35,078/- AS ON 31.03.09. AP ART FROM THE ABOVE, THE ASSESSEE IS HAVING AROUND 11 CR ORE AS SHARE HOLDERS FUND. THEREFORE, THE INTEREST PAID ON BORROWED FUND WAS ON ACCOUNT OF BUSINESS ACTIVITY O F THE COMPANY AND WAS NOT RELATABLE TO INVESTMENT MADE BY THE COMPANY OUT OF WHICH THE EXEMPT INCOME WAS EARNED. FROM THE ABOVE FACTS AND FIGURES, YOUR GOODSELF CAN FIND THAT THE ASSESSEE WAS HAVING HIS OWN SUFFICIENT FUN D FOR I.T.A. NO. 675/KOL./2014 ASSESSMENT YEAR: 2009-2010 PAGE 3 OF 6 MAKING INVESTMENT OUT OF WHICH THE EXEMPT INCOME HA S BEEN EARNED. IN THIS CONNECTION, THE RELIANCE IS PL ACED ON THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. WALFORT SHARE & STOCK BROKERS PVT. LTD. [326 IT R 1} AND THE RECENT JUDGEMENT OF THE HONBLE ITAT, MUMBAI IN THE CASE OF JUSTICE SAM P. BHARUCHA VS. THE ADDL. COMMI SSIONER OF INCOME TAX 11(3), MUMBAI IN THE [ITA 3889/MUM/20 11] WHEREIN IT WAS HELD THAT UNLESS A DIRECT NEXUS IS M ADE OUT BETWEEN THE EXPENDITURE INCURRED AND THE EXEMPTED INCOME EARNED, NO DISALLOWANCE CAN BE MADE. UNDER THE ABOVE CIRCUMSTANCES, IT IS PRAYED BEFORE YOUR GOODSELF THAT THE ADDITION MADE BY THE LD. ASSESSIN G OFFICER SHOULD BE DELETED. 5. THE LD. CIT(APPEALS) FOUND MERIT IN THE SUBMISSI ONS OF THE ASSESSEE AND DELETED THE DISALLOWANCE OF RS.92,73,089/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF PROPORTIONATE INTEREST UNDER RULE 8D(2)(II) AFTER HAVING FOUND THAT THE ASSESSEE-COMPANY HAD SUFFICIE NT FUNDS OF ITS OWN TO MAKE INVESTMENT IN SHARES AT THE RELEVANT TIME. 6. AT THE TIME OF HEARING BEFORE US, THE LD. D.R. H AS FILED AN APPLICATION SEEKING ADJOURNMENT. HOWEVER, KEEPING IN VIEW THE S UBMISSION MADE BY THE LD. COUNSEL FOR THE ASSESSEE THAT BOTH THE ISSU ES INVOLVED IN THIS APPEAL OF THE REVENUE ARE SQUARELY COVERED IN FAVOU R OF THE ASSESSEE, THE REQUEST OF THE LD. D.R. FOR ADJOURNMENT IS NOT ACCE DED TO AND THIS APPEAL OF THE REVENUE IS BEING DISPOSED OF EX PARTE AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS MADE BY THE LD. COUNS EL FOR THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD. IT IS OBS ERVED THAT A SIMILAR DISALLOWANCE ON ACCOUNT OF PROPORTIONATE INTEREST E XPENDITURE BY APPLYING RULE 8D(2)(II) WAS MADE IN ASSESSEES CASE FOR A.Y. 2008-09 AND THE ORDER OF THE LD. CIT(APPEALS) DELETING THE SAID DISALLOWANCE WAS UPHELD BY THE TRIBUNAL VIDE ITS ORDER DATED 13.07.2 016 PASSED IN ITA NO. 2773/KOL/2013 FOR THE FOLLOWING REASONS GIVEN IN PA RAGRAPHS NO. 6 & 7 OF ITS ORDER:- 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE FACTS STATED HER EINABOVE I.T.A. NO. 675/KOL./2014 ASSESSMENT YEAR: 2009-2010 PAGE 4 OF 6 REMAIN UNDISPUTED AND HENCE THE SAME ARE NOT REITER ATED FOR THE SAKE OF BREVITY. ADMITTEDLY THE DISALLOWANCE U/ S 14A TO THE TUNE OF RS.92,89,825/- HAVE BEEN MADE BY THE LD . AO BY INVOKING THE PROVISIONS OF RULE 8D(2)(II) OF THE RU LES. WE FIND THAT THE ASSESSEE COMPANY IS HAVING SHARE CAPITAL O F RS.10.67 CRORES AND SUFFICIENT FREE RESERVES OF RS.123.67 CR ORES AS ON 31.3.2007 AND RS.137.99 CRORES AS ON 31.3.2008, BUT WHEREAS THE TOTAL INVESTMENTS AS ON 1.4.2007 WAS RS.105.86 CRORES AND AS ON 31.3.2008 WAS RS.94.68 CRORES. WE FIND TH AT THE LD. CIT(A) HAD GIVEN RELIEF AFTER GOING THROUGH THE COP Y OF THE AGREEMENT OF CONSORTIUM OF THE BANKS AND SANCTION L ETTERS OF THE BANKS SUBMITTED BY THE ASSESSEE THAT THE LOAN W AS SANCTIONED FOR THE PURPOSE OF WORKING CAPITAL AND P URCHASE OF FIXED ASSETS. WE HOLD THAT THE ASSESSEE HAS GOT SUFFICIENT OWN FUNDS TO MAKE THE INVESTMENTS AND WHEN THAT POI NT IS NOT IN DISPUTE, NO DISALLOWANCE COULD BE MADE U/S 1 4A OF THE ACT READ WITH RULE 8D(2)(II) OF THE RULES. RELIANCE IN THIS REGARD IS PLACED ON THE FOLLOWING DECISIONS:- CIT-VS.- RELIANCE UTILITIES & POWER LTD. REPORTED I N 313 ITR 340 (BOM.) INTEREST ON BORROWED CAPITAL- INVESTMENTS BY ASSES SEE- FINDING THAT INVESTMENTS WERE FROM INTEREST FREE FU NDS AVAILABLE WITH ASSESSEE-BORROWED CAPITAL FOR THE PU RPOSES OF BUSINESS-INTEREST DEDUCTIBLE UNDER INCOME TAX ACT U /S 36(1)(III). G.D. METSTEEL PVT. LTD. VS.- ACIT REPORTED IN 142 TTJ 641 (MUMBAI TRIBUNAL) HELD THAT THE INVESTMENTS ARE MADE BY THE ASSESSEE S OWN FUNDS AND HAVE BEEN MADE IN THE EARLIER YEARS, NO DISALLOWANCE U/S 14A IS REQUIRED TO BE MADE. THE HE AD NOTE READS AS UNDER:- BUSINESS EXPENDITURE-DISALLOWANCE UNDER SECTION 1 4A- APPORTIONMENT OF EXPENDITURE-WHEN INVESTMENTS ARE M ADE FROM OWN FUNDS, MERELY BECAUSE THE ASSESSEE HAD TO SUBSEQUENTLY BORROW THE FUNDS FOR BUSINESS USE, IT CANNOT BE SAID THAT THE BORROWED FUNDS HAVE BEEN USED FOR THE PURPOSES OF INVESTMENTS. CIT VS.- HDFC BANK LTD REPORTED IN 366 ITR 505 (BO M.) HELD, DISMISSING THE APPEAL, (I) THAT THE FINDING OF FACT GIVEN BY THE TRIBUNAL WAS THAT THE ASSESSEES OWN F UNDS AND OTHER NON-INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX-FREE SECURITIES. THIS FACTUAL POSITION WAS NOT ONE THAT WAS DISPUTED. UNDISPUTEDLY, THE AS SESSEES CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOU NT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN THE TAX FREE SEC URITIES. IN VIEW OF THIS FACTUAL POSITION, IT WOULD HAVE TO BE PRESUMED I.T.A. NO. 675/KOL./2014 ASSESSMENT YEAR: 2009-2010 PAGE 5 OF 6 THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE O UT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. 6.1. SIMILAR VIEWS WERE EXPRESSED IN THE FOLLOWING DECISIONS:- WOOLCOMBERS OF INDIA LTD. VS.- CIT REPORTED IN 13 4 ITR 219 (CAL.) EAST INDIA PHARMACEUTICALS WORKS LTD. VS.- CIT REPORTED IN (1997) 224 ITR 627 (SC). 6.2. WE FIND THAT THOUGH THE DECISION IN THE CASE O F RELIANCE UTILITIES POWER LTD. WAS RENDERED IN THE CONTEXT OF ALLOWABILITY OF INTEREST U/S 36(1)(III) OF THE ACT, THE ANALOGY DRAWN THEREON WOULD APPLY WITH EQUAL FORCE FOR ADJU DICATING THE ISSUE OF DISALLOWANCE U/S 14A OF THE ACT. WE AL SO FIND THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V S.- HDFC BANK LTD. REPORTED IN 366 ITR 505 (BOM.) HAD ALSO H ELD THE SAME VIEW. 7. IN VIEW OF THE AFORESAID FACTS AND FINDINGS AND RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS RELI ED UPON HEREINABOVE, WE HOLD THAT THE LD. CIT(A) HAD RIGHTL Y DELETED THE DISALLOWANCE U/S 14A OF THE ACT IN THE FACTS AN D CIRCUMSTANCES OF THE CASE TO THE TUNE OF RS.92,89,8 25/-. ACCORDINGLY, THE GROUND NO. 1 RAISED BY THE REVENUE IS DISMISSED. AS THE ISSUE INVOLVED IN THE YEAR UNDER CONSIDERATI ON AS WELL AS ALL THE MATERIAL FACTS RELEVANT THERETO ARE SIMILAR TO THAT OF A.Y. 2008-09, WE RESPECTFULLY FOLLOW THE DECISION OF THE COORDINATE BENCH RENDERED IN A.Y. 2008-09 AND UPHOLD THE IMPUGNED ORDER OF THE LD. CI T(APPEALS) DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON A CCOUNT OF PROPORTIONATE INTEREST UNDER RULE 8D(2)(II). GROUND NO. 1 OF THE REVENUES APPEAL IS ACCORDINGLY DISMISSED. 7. AS REGARDS GROUND NO. 2 OF THE REVENUES APPEAL, IT IS OBSERVED THAT THE CONTROVERSY INVOLVED THEREIN AS TO WHETHER THE DEDUCTION ON ACCOUNT OF CESS ON GREEN LEAF IS TO BE ALLOWED FROM THE COM POSITE INCOME BEFORE APPLYING RULE 8D OR FROM 60% AGRICULTURAL INCOME AF TER APPLYING RULE 8D NOW STANDS RESOLVED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS.- APEEJAY TEA CO. LIMITED (CIVIL AP PEAL NO. 1105 OF 2006 DATED AUGUST 06, 2015), WHEREIN IT WAS HELD THAT TH E DEDUCTION ON I.T.A. NO. 675/KOL./2014 ASSESSMENT YEAR: 2009-2010 PAGE 6 OF 6 ACCOUNT OF CESS PAID HAS TO BE ALLOWED WHILE COMPUT ING THE INCOME OF THE TEA GROWN AND MANUFACTURED UNDER RULE 8D. RESPECTFU LLY FOLLOWING THE SAID DECISION OF THE HONBLE SUPREME COURT, WE UPHO LD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON THIS ISSUE AND DISMISS GROUND NO. 2 OF THE REVENUES APPEAL. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON FEBRUARY 03, 2017. SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT ME MBER KOLKATA, THE 3 RD DAY OF FEBRUARY, 2017 COPIES TO : (1) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (2) M/S. JAY SHREE TEA & INDUSTRIES LIMITED, INDUSTRY HOUSE, 15 TH FLOOR, 10, CAMAC STREET, KOLKATA-700 017 (3) COMMISSIONER OF INCOME TAX(APPEALS)-IV, KOLKAT A; (4) COMMISSIONER OF INCOME TAX- , (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.