JCIT(OSD), Circle -4, Kolkata, Kolkata V. M/S Madhu Jayanti International Ltd., Kolkata

ITA 683/KOL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100012 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 27-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SNJAY BHOWMIK
• Assessee Lawyers: MD GHAYAS UDDIN JCITSRDR
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH B KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 56 3 / KOL / 2013 ASSESSMENT YEAR :2007-08 PUNJAB PRODUCE HOLDINGS LTD., BIRLA BUILDING, 4TH FLOOR, 9/1 R.N.MUKHERJEE ROAD, KOLKATA 700 001 [ PAN NO.AABCG 1807 D ] V/S . ACIT, CIRCLE-5, AAYKAR BHAWAN, 6TH FLOOR, P- 7, CHOWRINGHEE SQUARE, KOLKATA-69 /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI SNJAY BHOWMIK, AR /BY RESPONDENT MD. GHAYAS UDDIN, JCIT-SR-DR /DATE OF HEARING 13-10-2015 /DATE OF PRONOUNCEMENT 13-11-10215 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS ARISING OUT OF ORDE R OF COMMISSIONER OF INCOME TAX (APPEALS)VI, KOLKATA IN APPEAL NO.1550/C IT(A)-VI/CIR-5/09-10/KOL DATED 14.01.2013. ASSESSMENT WAS FRAMED BY ITO WARD -6(2), KOLKATA U/S 143(3)R.W.S 115WE(3) OF THE INCOME TAX ACT, 1961 (H EREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 22.10.2009 FOR ASSE SSMENT YEAR 2007-08 AND IN THE SOLITARY GROUND RAISED THEREIN THE ASSESSEE HAS CHALLENGED THE ACTION OF ITA NO.563/KOL/2013 A.Y. 2007-08 PUNJAB BRODUCE HOLDINGS. LTD. V. ACIT, CIR.5 KOL. PAGE 2 LD. CIT(A) IN UPHOLDING THE ORDER OF ASSESSING OFFI CER BY DISALLOWING THE EXPENSE OF 14,40,020/- ON ACCOUNT OF EXEMPTED INCOME. 2. BRIEFLY STATED FACTS ARE THAT ASSESSEE IS A PRIV ATE LIMITED COMPANY AND HAVING VALID LINCENCE OF NON-BANKING FINANCIAL CORP ORATION (NBFC FOR SHORT) AND IS ENGAGED IN THE BUSINESS OF TRADING AND INVES TMENT IN SHARES, MUTUAL FUNDS. DURING THE YEAR, ASSESSEE HAS EARNED EXEMPTE D INCOME DIVIDEND OF 2,30,23,830/- OUT OF TRADING AND INVESTMENT IN SHAR E. THE AO FOUND THAT ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE IN CONNECT ION WITH EXEMPTED INCOME IN HIS BOOKS OF ACCOUNT. ON QUESTION PUT BY AO TO ASSESSEE ABOUT THE DISALLOWANCE OF SUCH EXPENSES INCURRED IN AFORESAID INCOME, LD. AR OF ASSESSEE SUBMITTED THAT THE COMPANY HAS NOT INCURRE D ANY EXPENSES OTHER THAN TO MAINTAIN ITS CORPORATE STRUCTURE AND RUNNIN G ITS DAY TO DAY BUSINESS. THERE IS NO BORROWED FUND FOR THE PURPOSE OF THE BU SINESS. HENCE NO DISALLOWANCE OF THE EXPENSES IS REQUIRED FOR THE PU RPOSE OF SECTION 14A OF THE ACT. HOWEVER THE AO DID NOT ACCEPT THE REPLY OF THE ASSESSEE AND WORKED OUT THE DISALLOWANCE BY RELYING THE ORDER OF HONBLE IT AT (SPECIAL BENCH) MUMBAI IN THE CASE OF M/S DAGA CAPITAL WHEREIN IT WAS HELD THAT THE APPLICATION OF RULE 8D IS RETROSPECTIVE IN NATURE. ACCORDINGLY THE AO W ORKED OUT THE DISALLOWANCE OF THE EXPENSES @ .5% OF THE AVERAGE VALUE OF INVES TMENT WHICH COMES TO 14,40,020/-. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT (A) WHO HAS UPHELD THE ORDER ASSESSING OFFICER BY OBSERVING THAT ASSESSEE HAS RECEIVED DIVIDEND OF 2,30,23,830/- ON STOCK-IN-TRADE AND THE EXPENDITURE INCURRED AT 25,93,638.00 ON EMPLOYEES PAYMENTS AND ADMINISTRATIVE AND OTHER EXPENSES. BESIDES, DIVIDEND INCOME AS AFORESAID, THE ASSESSEE HAS SHOW N INCOME FROM SHARE TRADING BUSINESS FOR AN AMOUNT OF 702065/-. HOWEVER, IT IS IMPORTANT TO NOTE THAT ASSESSEE AT ITS OWN HAS DISALLOWED AN AMOUNT O F 2,74,150/- AS THE EXPENDITURE INCURRED IN CONNECTION WITH EXEMPTED IN COME. DURING THE APPELLANT PROCEEDINGS, LD. CIT(A) HAS FURTHER RECOR DED THAT DISALLOWANCE ITA NO.563/KOL/2013 A.Y. 2007-08 PUNJAB BRODUCE HOLDINGS. LTD. V. ACIT, CIR.5 KOL. PAGE 3 MADE BY ASSESSEE CONSTITUTED ONLY 10.57% OF THE TOT AL EXPENDITURE WHILE THE CONTRIBUTION OF DIVIDEND INCOME IS 97.04% OF THE TO TAL INCOME. THE MAJORITY OF THE EXPENDITURE IS THEREFORE REQUIRED TO BE APPORTI ONED FOR THE EARNING OF DIVIDEND INCOME. LD. CIT(A) HAS RELIED IN THE DECIS ION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. V. DCIT (2010) 328 ITR 81 (BOM) THE RELEVANT EXTRACT PORTION OF TH E ORDER OF LD. CIT(A) IN PARA-10 IS EXTRACTED BELOW FOR THE SAKE OF CLARITY AND CON VENIENCE:- 10. THEREFORE, IN THE FACTS & CIRCUMSTANCES AS DIS CUSSED AND FOLLOWING THE JUDGMENTS OF THE HON'BLE APPELLATE AUTHORITIES INCLUDING THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF ISG TRADE RS LTD. VS. CIT-III, KOLKATA; DHANUKA & SONS V. CIT (CENTRAL)-1; THE HON 'BLE SPECIAL BENCH OF ITAT IN THE CASE OF CHMINVESTE LTD. V. ITO, NEW DELHI, THE EXPENSES DISALLOWED BY THE ASSESSING OFFICER ARE MUCH LESS T HAN THE PROPORTIONATE EXPENSES INCURRED BY THE APPELLANT WH ILE THE MAJOR SOURCE OF INCOME IS DIVIDEND DURING THE YEAR. THERE FORE, THE EXPENSES DISALLOWED BY THE ASSESSING OFFICER AMOUNTING OF RS .17,77,325/- IS HELD TO BE APPROPRIATE AND REASONABLE. THE ADDITION MADE BY THE ASSESSING OFFICER IS UPHELD. ACCORDINGLY AS DISCUSSED GROUND NO. 2 IS DISMISSED AND GROUND NO. 3 IS ALLOWED. AGGRIEVED ASSESSEE PREFERRED SECOND APPEAL BEFORE U S. SHRI SANJAY BHAWMIK, LD. AUTHORIZED REPRESENTATIVE APPEARING ON BEHALF OF ASSESSEE AND MD. GHAYASUDDIN, LD. DEPARTMENTAL REPR ESENTATIVE APPEARING ON BEHALF OF REVENUE. 3. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT ASSESSE E HAS EARNED INCOME FROM SOURCE OF DIVIDEND WHICH IS EXEMPTED UNDER INCOME T AX ACT. WE UNDERSTAND THAT A COMPANY CANNOT EARN DIVIDEND WITHOUT ITS EXI STENCE AND MANAGEMENT. INVESTMENT DECISIONS ARE VERY COMPLEX IN NATURE. IT REQUIRES SUBSTANTIAL MARKET RESEARCH DAY-TO-DAY ANALYSIS OF MARKET TREND S AND DECISIONS WITH REGARD TO ACQUISITION, RETENTION AND SALE OF SHARES , MUTUAL FUNDS ETC., AT THE MOST, APPROPRIATE TIME. THE INVESTMENT REQUIRES AVA ILABILITY OF FUNDS AND CONSEQUENTIAL BLOCKING OF FUNDS. IT IS WELL KNOWN T HAT CAPITAL HAS COST AND THE ITA NO.563/KOL/2013 A.Y. 2007-08 PUNJAB BRODUCE HOLDINGS. LTD. V. ACIT, CIR.5 KOL. PAGE 4 ELEMENT OF COST IS REPRESENTED BY INTEREST. BESIDES INVESTMENT DECISIONS ARE GENERALLY TAKEN IN THE MEETING OF BOARD OF DIRECTOR S FOR WHICH ADMINISTRATIVE EXPENSES ARE INCURRED. IT IS THEREFORE, NOT CORRECT TO SAY THAT INCOME CAN BE EARNED BY INCURRING NO OR NOMINAL EXPENDITURE. THIS ASPECT OF THE MATTER HAS ALSO RECEIVED CAREFUL ATTENTION OF THE CHENNAI BENC H IN THE CASE OF SOUTHERN PETROCHEMICAL INDUSTRIES V. DCIT (2005) 93 TTJ 161 (CHENNAI) AFTER COMPREHENSIVE CONSIDERATION OF ALL THE RELEVANT ASP ECTS OF THE CASE INCLUDING THE PROVISIONS OF LAW, THE TRIBUNAL HAS HELD AS UND ER:- WHETHER TO INVEST OR NOT TO INVEST AND WHETHER TO RETAIN THE INVESTMENTS OR TO LIQUIDATE THE SAME ARE VERY STRATEGIC DECISIO NS WHICH THE MANAGEMENT IS CALLED UPON TO TAKE. THESE ARE MINDBO GGLING DECISIONS AND TOP MANAGEMENT IS INVOLVED IN TAKING THESE DECI SIONS. THIS DECISION MAKING PROCESS SIS VERY COMPLICATED AND RE QUIRES VERY CAREFUL ANALYSIS. MOREOVER, THE ASSESSEE HAS TO KEEP TRACK OF VARIOUS DIVIDEND INCOME DECLARED BY THE INVESTEE COMPANIES AND ALSO TO KEEP TRACK OF THE DIVIDEND INCOME HAVING BEEN REGULARLY RECEIVED BY THE ASSESSEE. THIS ACTIVITY ITSELF CALLS FOR CONSIDERABLE MANAGEM ENT ATTENTION AND CANNOT BE LEFT TO A JUNIOR CLERK WE FURTHER OBSERVED THAT ORIGINALLY AT THE TIME OF ASSESSMENT ORDER, ASSESSEE DID NOT OFFER ANY DISALLOWANCE AT ITS OWN BUT DISAL LOWED THE EXPENSES TO THE TUNE OF 2,74,150/- AT ITS OWN DURING THE APPELLATE STAGE. H OWEVER, WE FIND THAT THE RULE 8D IS APPLICABLE W.E.F 24 TH DAY OF MARCH 2008 I.E. FROM THE ASSESSMENT YEAR 2008-09. HENCE THE PROVISIONS OF RU LE 8D DOES NOT APPLY TO THE RELEVANT YEAR UNDER CONSIDERATION I.E. ASSESSME NT YEAR 2007-08. SO PRIOR TO THE APPLICABILITY OF RULE 8D, DIFFERENT ITAT BEN CHES HAS CONSIDERED 1% OF DIVIDEND INCOME AS REASONABLE DISALLOWANCE UNDER SE CTION 14A OF THE ACT. A REFERENCE CAN BE MADE TO THE FOLLOWING CASE LAWS. 1) ITO WARD 5(3) KOL VS. B.P.S. SECURITIES (P) LTD. ITA NO. 123/KOL/2010. 2) CIVIL ENGINEERS ENTERPRISES (P) LTD. VS. DCIT IT A NO. 859/KOL/2010. 3) ACIT VS. NARSINGPORE TEA CO. (P) LTD. ITA NO. 92 9 & 931/ KOL/2009. ITA NO.563/KOL/2013 A.Y. 2007-08 PUNJAB BRODUCE HOLDINGS. LTD. V. ACIT, CIR.5 KOL. PAGE 5 IN THE ABOVE CASES THE DISALLOWANCE WAS MADE AT 1% OF THE DIVIDEND INCOME UNDER THE PROVISIONS OF SECTION 14A OF THE ACT. HOW EVER, WE ARE FINDING FROM THE CIT(A) ORDER THAT THE ASSESSEE HAS OFFERED THE DISALLOWANCE OF RS. 274150.00 WHICH IS MORE THAN 1% OF THE EXEMPTED INC OME. THEREFORE WE ARE INCLINED TO RESTRICT THE DISALLOWANCE AT THE SAME A MOUNT. 4. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 13/ 11/2015 SD/- SD/- (MAHAVIR SINGH) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP !- 13 /1 1 /2015 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-PUNJAB PRODUCE HOLDINGS LTD BIRLA BUILD ING 4 TH FLOOR, 9/1 R.N. MUKHERJEE ROAD, KOLKATA 01 2. /RESPONDENT-INCOME TAX OFFICER, WARD-6(2) AAYKAR BH AWAN, 6 TH FLOOR, 9/1 R.N.MUKHERJEE, KOLKATA 69 3. * +, - - . / CONCERNED CIT KOLKATA 4. - - .- / CIT (A) KOLKATA 5. 012 33+,, - +, , / DR, ITAT, KOLKATA 6. 267 89 / GUARD FILE. BY ORDER/ - , /TRUE COPY/ / - +, ,