Exim Scrips Dealers pvt. Ltd., Kolkata V. ITO, WD-5(2), KOLKATA, Kolkata

ITA 675/KOL/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 4261 (ITAT-KOLKATA)
• Duration Of Justice: 6 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2016
• Appeal Filed By: Assessee
• Bench Allotted: SMC
• Assessment Year: 2011-2012
• Appeal Filed On: 13-04-2016
• Court: TRIBUNAL
• Assessee Lawyers: GIRISH SHARMA FCA LD
• Keywords: Depreciation; Earning of tax free income
• Section: 143(3); 142(1); 14A

Judgement Text

ITA NO. 675/KOL/2016 EXIM SCRIPS DEALERS P.LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA D BEN CH, KOLKATA BEFORE SHRI M.BALAGANESH, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 675/KOL/2016 ASSESSMENT YEAR: 2011-12 EXIM SCRIPS DEALERS PVT. LTD 412 MUKTI CHAMBERS, 4 CLIVE ROW, KOLKATA-700 001. PAN:AACE69006E APPELLANT -VS.- I.T.O WARD 5(2), KOLKATA KOLKATA RESPONDENT APPEARANCES BY: SHRI GIRISH SHARMA, FCA, LD.AR FOR THE ASSESSEE NONE APPEARED ON BEHALF OF REVENUE DATE OF HEARING : 14-10- 2016 DATE OF PRONOUNCEMENT : 04-11-2016 SHRI. S.S.VISWANETHRA RAVI, JM: THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDERS D T: 04-04-2016 PASSED BY THE COMMISSIONER OF INCOME TAX-(APPEALS), KOLKATA FOR THE ASSESSMENT YEAR 2011-12. 2. NONE APPEARED FOR RESPONDENT REVENUE. THEREFORE, WE PROCEED TO DISPOSE OF THE APPEAL HEARING THE LD. AR OF THE APP ELLANT ASSESSEE AND BY PERUSING THE MATERIAL AVAILABLE ON RECORD. ITA NO. 675/KOL/2016 EXIM SCRIPS DEALERS P.LTD 2 3. IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLL OWING GROUNDS OF APPEAL: 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. COMMISSIONER (APPEALS) ERRED IN DISALLOWING RS.5,29, 464/- AS PER RULE 8D READ WITH SECTION 14A OF THE INCOME TAX ACT, 1961. 2. THAT THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND, DELETE, SUBSTITUTE ANY OF THE GROUNDS AND/OR TAKE ADDITIONAL GROUND/S BEFORE OR AT ANY TIME OF HEARING OF THIS APPEAL. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY AND DEALING IN DERIVATIVE, SHARE TRADING, INVESTMENTS IN SHARES & MUTUAL FUNDS AND GRANTING OF LOANS & ADVANCES AND FILED ITS RETURN O F INCOME BY DISCLOSING A TOTAL INCOME OF RS.16,81,729/- THROUGH E-FILING ON 25-09-2011. UNDER SCRUTINY, NOTICE U/S 143(2) AND THEREAFTER, NOTICE U/S 142(1) OF THE ACT WERE ISSUED. IN COMPLIANCE TO THE ABOVE NOTICES, THE AR OF THE ASSESSEE APPEARED AND FURNISHED VARIOUS SUPPORTING DETAILS AND DOCUME NTS I.E BOOKS OF ACCOUNTS LIKE CASH BOOK, ALLOTMENT REGISTER, LEDGER S AND BANK STATEMENTS IN SUPPORT OF THE RETURN FOR THE YEAR UNDER CONSIDERAT ION AY 2011-12. 5. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE EARNED DIVIDEND INCOME OF RS.42,70,046 /- FROM THE PROFIT & LOSS ACCOUNT AND THE SAME WAS CLAIMED EXEMPT INCOME AND OFFERED AN AMOUNT OF RS.5,29,464/- BEING THE EXPENSES TO BE DI SALLOWABLE U/S.14A OF THE ACT. IN SUPPORT OF WHICH, FILED A WRITTEN SUBMI SSION DATED 06.05.2013 SHOWING THE COMPUTATION OF EXPENSES AS DISALLOWED B Y IT U/S.14A OF THE ACT IN EARNING EXEMPT INCOME AS UNDER: ITA NO. 675/KOL/2016 EXIM SCRIPS DEALERS P.LTD 3 TOTAL EXPENSES FOR AY.-2011-12 : RS.13,35,00 8/- LESS: DEPRECIATION : RS. 2,84,145/- DEPOSITORY CHARGES : RS. 8,066/- :( - ) RS. 2,92 ,211/- : RS. 10,42,797/- 50% DISALLOWED U/S. 14A : RS. 5,21 ,398/- ADD: DEPOSITORY CHARGES : RS. 8,066/ - TOTAL DISALLOWANCE U/S. 14A : RS. 5,29,4 64/- 6. ACCORDING TO AO, HE WAS UNABLE TO ATTRIBUTE HOW MUCH EXPENSES THAT HAD ACTUALLY BEEN INCURRED BY THE ASSESSEE FOR EARN ING EXEMPT INCOME FROM THE EXPENSES AS DEBITED UNDER VARIOUS HEADS AGAINST ITS TOTAL INCOMES AND FOUND THE ABOVE COMPUTATION UNSATISFACTORY AND PROC EEDED TO DISALLOW BY APPLYING RULE 8D OF INCOME TAX RULES. THE AO FOUND RS.8,066/-AS EXPENDITURE WHICH HAD BEEN DEBITED UNDER THE HEAD DEMAT CHARGES UNDER RULE 8D(2)(I) TOWARDS DIRECT EXPENSES AND FOUND NO INTEREST EXPE NDITURE IN THE PROFIT &LOSS ACCOUNT AND COMPUTED NIL EXPENDITURE UNDER RULE BD( 2)(II). FOR COMPUTED THE AVERAGE VALUE OF INVESTMENTS AT RS.21,17,26,456/- T AKING INTO CONSIDERATION THE TOTAL INVESTMENTS FROM BALANCE SHEETS AS STANDI NG ON 31.03.2010 & 31.03.2011 AT RS.19,30,62,446.72 AND RS.23,03,90,46 5.58 RESPECTIVELY AND DISALLOWED RS.10,58,632/ - AS EXPENDITURE BEING % OF RS.21,17,26,456/-. THE AO ADDED RS.5,21,399/- BEING (10,66,690/- - RS. 5,29,464/-) TO THE TOTAL INCOME OF THE ASSESSEE. 7. THE ASSESSEE CHALLENGED THE ORDER OF AO BEFORE T HE CIT-A, CONTENDING THAT THE AO ARBITRARILY AND MECHANICALLY APPLIED R ULE 8D OF THE RULES AND DISALLOWED THE BALANCE EXPENSES OF RS 5,21,399/- WI THOUT RECORDING ANY SATISFACTION ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. THE ASSESSEE ITA NO. 675/KOL/2016 EXIM SCRIPS DEALERS P.LTD 4 FILED A CHART GIVING DETAILS OF DISALLOWANCES UNDER SECTION 14A OF THE ACT AS MADE BY THE RESPONDENT REVENUE UNDER SCRUTINY ASSES SMENT UNDER SECTION 143(3) OF THE ACT IN EARLIER YEARS IN SUPPORT OF IT S CLAIM WHICH IS AS UNDER: (AMOUNT IN RS.] A.Y TOTAL DIVIDEND TOTAL EXPENSESCONSIDERED FOR 14A EXPENSESDISALLOWED U/S 14A 2001- 02 98,976 11,64,097 1474 2002- 03 9,91,585 5,06,162 15789 2003- 04 NIL 2004- 05 37,18,543 12,99,793 91,956 2005- 06 38,47,927 20,64,279 3,12,397 2006- 07 38,97,272 13,02,644 1,30,264 2007- 08 37,47,470 14,10,526 2,13,412 % OF EXPENSESDISALLOWED % OF DISALLOWANCE TO DIVIDEND REMARKS 0.01% 1.5% PROPORTIONATE EXPENDITURE DISALLOWED. (PRO-RATA BASIS) 3.12% 1.59% PROPORTIONATE EXPENDITURE DISALLOWED. (PRO-RATA BASIS) AS DIVIDEND WAS TAXABLE IN AY 2003-04 7.07% 2.47% PROPORTIONATE EXPENDITURE DISALLOWED. (PRO-RATA BASIS) 15.13% 8.12% PROPORTIONATE EXPENDITURE DISALLOWED. (PRO-RATA BASIS) ITA NO. 675/KOL/2016 EXIM SCRIPS DEALERS P.LTD 5 10% 3.34% 10% OF TOTAL EXPENDITURE DISALLOWED 15.13% 5.69% 15.13% OF TOTAL EXPENDITURE DISALLOWED. 8. THE CIT-A, CONSIDERING THE SUBMISSIONS OF THE AS SESSEE, OBSERVED THAT THE ASSESSEE COULD NOT PRODUCE ANY BIFURCATION OF E XPENSES IN SUBSTANTIATING ITS CLAIM. THE RELEVANT PORTION OF WHICH REPRODUCED HEREIN BELOW: I HAVE CONSIDERED THE' SUBMISSION OF THE AR OF THE AP PELLANT. I FIND FORCE IN THE CONTENTIONS OF THE AO. THE AO HAS RIGHTLY APPLIE D SECTION 14A READ WITH RULE 8D AND ACCORDINGLY CALCULATED THE DISALLOWANCE IN THE CASE. I HAVE ALSO CONSIDERED THE JUDGEMENT OF HON'BLE KOLKATA ITAT - B ENCH 'C' WHERE THE HON'BLE ITAT DID NOT AGREE WITH 100% OF EXPENSES DISA LLOWED RELATED TO EXEMPT WHEN THE 'A' HAD OTHER INCOMES BUT THE ASSESSE E NEITHER DURING THE ASSESSMENT PROCEEDINGS NOR DURING APPELLATE PROCEEDING S FILED ANY BIFURCATIONS OF EXPENSES IN SUPPORT OF HIS CONTENTION. IN VIEW OF ABOVE, THE DISALLOWANCE AS MADE BY THE AD IS CONFIRMED AND APPE AL OF THE ASSESSEE IS DISMISSED. 9. AGGRIEVED BY SUCH ORDER OF THE CIT-A NOW THE AS SESSEE IS IN APPEAL BEFORE US BY RAISING THE ABOVE MENTIONED GROUNDS OF APPEAL. THE LD.AR SUBMITS THAT THE AO DID NOT RECORD ANY SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE ACCOUNTS OF THE ASSESSEE AND REI TERATED THE SUBMISSIONS AS MADE BEFORE THE AO AND CIT-A. 10. HAVING HEARD THE LD.AR OF THE ASSESSEE AND ON CAREFUL PERUSAL OF THE MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW TH AT THE RESPONDENT REVENUE ALLOWED THE CLAIM OF THE ASSESSEE IN EARLIER YEARS WHICH CAN BE SEEN FROM THE DETAILS OF DISALLOWANCES FOR AYS 2001-2008 UNDER S CRUTINY PROCEEDINGS U/S 143(3) OF THE ACT. THE FACTS REMAINS ADMITTED THAT THE REVENUE DISALLOWED EXPENSES ON PROPORTIONATE BASIS. IT IS SEEN FROM TH E CHART ABOVE THAT FOR AY 2007-08 THE ASSESSEE EARNED RS.34,47,470/- AS DIVID END INCOME AND THE ITA NO. 675/KOL/2016 EXIM SCRIPS DEALERS P.LTD 6 DISALLOWANCE MADE THEREON WAS RS.2,13,412/- WHICH I S 15.13% TO THE TOTAL EXPENSES DISALLOWED, BUT, ALL THESE DISALLOWANCES A S SHOWN IN THE CHART ARE PRIOR TO THE APPLICABILITY OF RULE 8D CAME IN TO FO RCE. THE CIT-A CONFIRMED THE DISALLOWANCE AS MADE BY THE AO BY CONSIDERING THE O RDER DT:31-05-2012 OF COORDINATE BENCH OF KOLKATA IN THE CASE OF DEEVEE COMMERCIAL LTD VS DCIT ,CENTRAL CIRCLE- XIII, KOLKATA IN ITA NO. 1770/KOL/ 2010 WHEREIN THE TRIBUNAL DID NOT AGREE WITH DISALLOWANCE AT 100% OF EXPENSES RELATED TO EXEMPT WHEN THE ASSESSEE HAD OTHER INCOMES AND REMANDED THE ISS UE TO AO FOR RECALCULATION OF THE DISALLOWANCE. 11. IN THE PRESENT CASE IT IS NOTICED THAT THE AO C OMPUTED THE DISALLOWANCE UNDER RULE 8D(III) OF THE RULES ON THE AVERAGE VALU E OF INVESTMENT OF RS.21,17,26,456/- AT % TAKING INTO CONSIDERATION THE TOTAL INVESTMENTS FROM BALANCE SHEETS AS STANDING ON 31.03.2010 & 31.03.20 11 AT RS.19,30,62,446.72 AND RS.23,03,90,465.58. IT IS AL SO NOTICED FROM THE ORDER OF AO AT PAGE NO-2, THE ASSESSEE EARNED DIVIDEND I NCOME AND OFFERED DISALLOWANCE ON ITS OWN TO AN EXTENT OF RS.5,29,464 /- AND THAT UNDER EXPLANATION SUBMITTED A BREAK UP OFF THE EXPENSES I NCURRED BY WAY WRITTEN SUBMISSION DT:06-05-2013. THE AO DID NOT ACCEPT THE WORKING OF BREAK UP OF EXPENSES AND WITHOUT ASSIGNING ANY REASON I.E WITHO UT EXAMINING THE ACCOUNTS OF THE ASSESSEE REJECTED THE WORKING OF THE ASSESSE E AND THEREBY HE INVOKED THE RULE 8D AND COMPUTED THE EXPENDITURE TO AN EXTE NT OF RS.10,58,632/-. IN OUR VIEW, WITHOUT EXAMINING THE CORRECTNESS OF THE CLAIM OF ASSEESEE AND APPLYING RULE 8D THEREON ON MERE PRESUMPTION THAT T HE COMPUTATION OF EXPENSES AS SUBMITTED BY THE ASSEESEE IS UNSATISFAC TORY TO SOME EXTENT IS NOT PERMISSIBLE UNDER LAW. IN THIS REGARD WE MAY REFER TO THE DECISION OF KOLKATA TRIBUNAL IN THE CASE OF DCIT VS. ASHISH JHUNJHUNWAL A IN ITA NO. ITA NO. 675/KOL/2016 EXIM SCRIPS DEALERS P.LTD 7 1809/KOL/2012 FOR THE AY 2009-10 HELD THAT THE AO H AS TO RECORD HIS SATISFACTION ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE AND WITHOUT THERE BEING NO SATISFACTION INVOCATION OF RULE 8D O F THE RULES IS BAD UNDER LAW. THE RELEVANT PORTION IS REPRODUCED HEREIN BELOW:- WE FIND FROM THE FACTS OF THE ABOVE CASE THAT THE AO HAS NOT EXAMINED THE ACCOUNTS OF THE ASSESSEE AND THERE IS NO SATISFACTION RECORDED BY THE AO ABOUT THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE AND WITHOUT THE SAME HE INVOKED THE RULE 8D OF THE RULES. WHILE REJECTING T HE CLAIM OF THE ASSESSEE WITH REGARD TO EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION OF EXEMPTED INCOME, THE AO HAS TO INDICATE COG ENT REASONS FOR THE SAME. FROM THE FACTS OF THE PRESENT CASE, IT IS NOTI CED THAT THE AO HAS NOT CONSIDERED THE CLAIM OF THE ASSESSEE AND STRAIGHT A WAY EMBARKED UPON COMPUTING THE DISALLOWANCE UNDER RULE 8D OF THE RULES ON PRESUMING THE AVERAGE VALUE OF INVESTMENT AT % OF THE TOTAL VALUE . IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE CO-ORDINATE BENCH DECI SION IN THE CASE OF J.K INVESTORS (BOMBAY) LTD SUPRA, WE UPHOLD THE ORDER OF C IT(A). THIS APPEAL OF REVENUE IS DISMISSED. 12. IT IS ALSO BROUGHT TO OUR NOTICE THAT THE HONB LE JURISDICTIONAL HIGH COURT OF KOLKATA HAS UPHELD THE DECISION OF KOLKAT A TRIBUNAL IN THE CASE OF DCIT VS. ASHISH JHUNJHUNWALA SUPRA . THE PRINCIPLE AS LAID DOWN IN THE AFOREMENTIONED CASE IS CLEARLY APPLICABLE TO THE FA CTS OF THE PRESENT CASE, IN VIEW OF THE SAME, WE HOLD THAT THE AO DID NOT VERIF Y THE ACCOUNTS AND CLAIM OF THE ASSESSEE WHILE APPLYING RULE 8D OF I.T RULE S IN COMPUTING EXPENDITURE THEREON IS NOT MAINTAINABLE, AND, THERE FORE, THE ORDER OF THE CIT-A IS QUASHED IN THIS REGARD AND ADDITION MADE T HEREON IS DELETED. ACCORDINGLY, THE SOLE GROUND AS RAISED BY THE ASSES SEE IS ALLOWED. ITA NO. 675/KOL/2016 EXIM SCRIPS DEALERS P.LTD 8 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 4 TH NOVEMBER, 2016. SD/- SD/- M.BALAGANESH S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DT: 04 -11-2016 COPIES TO : **PP/SPS (1) APPELLANT/ASSESSEE: (2) RESPONDENT/DEPARTMENT: (3)COMMISSIONER OF INCOME-TAX (APPEALS) (4) COMMISSIONER OF INCOME TAX, KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL KOLKATA