DCIT, Cir-10(1), Kolkata, Kolkata V. M/s. Bhoruka Investment (P) Ltd., Kolkata

ITA 683/KOL/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6660 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 07-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: R S AGARWAL
• Keywords: Earning of tax free income; Proportionate interest; Deemed dividend
• Section: 143(3); 14A

Judgement Text

ITA NO.683/KOL/2017 M/S. BHORUKA INVESTMENT (P)LTD. A.Y.2013-14 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH B KOL KATA [BEFORE HONBLE SHRI S.S.GODARA, JM & SHRI M.BALA GANESH, AM ] ITA.NO.683/KOL//2017 ASSESSMENT YEAR : 2013-14 D.C.I.T., CIRCLE-10(1) VS M/S BHORUKA INVESTMENT (P)LTD. KOLKATA KOLKATA (PAN: AABCB 9008 R) (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI S.DASGUPTA, ADDL. CIT(DR ) FOR THE RESPONDENT: SHRI R.S.AGARWAL, FCA DATE OF HEARING : 27.06.2018. DATE OF PRONOUNCEMENT : 29.06.2018. ORDER PER S.S.GODARA, JM THIS REVENUES APPEAL FOR A.Y.2013-14 ARISES AGAINS T THE CIT(A)-4, KOLKATAS ORDER DATED 27.01.2017 PASSED IN APPEAL NO.1454/CIT (A)-4/CIRCLE-10(1)/KOL/15-16 REVERSING THE ASSESSING OFFICERS ACTION INVOKIN G SECTION 14A R.W.RULE 8D DISALLOWANCE OF RS.1,30,237/- FOLLOWED BY DEEMED DI VIDEND ADDITION MADE U/S 2(22)(E) AMOUNTING TO RS.99,45,697/-; RESPECTIVELY INVOLVING PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). HEARD BOTH THE PARTIES. CASE FILE PERUSED. 2. WE COME TO THE FORMER ISSUE OF SECTION 14A R.W.. R 8D DISALLOWANCE RELATING TO ASSESSEES EXEMPT INCOME FROM DIVIDEND TO THE TUNE OF RS.26,53,390./-. THE ASSESSING OFFICER INVOKED RULE 8D (I) TO (III) IN ASSESSMENT ORDER DATED 11.02.2016 TO INTER-ALIA DISALLOW DEMAT CHARGES OF RS.5,221/-, PROPORTIONA TE EXPENDITURE OF RS.28,63,004/- AND ADMINISTRATIVE EXPENDITURE OF RS.3,49,979; RESP ECTIVELY. THE CIT(A) HAS ACCEPTED ASSESSEES ARGUMENTS QUA LATTER TWO COMPONENTS OF T HE IMPUGNED DISALLOWANCE AS FOLLOWS :- 4.2. I HAVE CONSIDERED THE SUBMISSION OF THE AR OF THE APPELLANT IN THE BACKDROP OF THE ASSESSMENT ORDER ON THE MATTER. I HAVE ALSO CONSIDERED THE VARIOUS JUDICIAL DECISIONS AS CITED BY THE AR IN DECIDING THE MATTER AT HAND. I FIND THAT THE AO HAS ITA NO.683/KOL/2017 M/S. BHORUKA INVESTMENT (P)LTD. A.Y.2013-14 2 MADE THE IMPUGNED DISALLOWANCE U/S 14A BY INVOKING RULE 8D OF THE I.T. RULES, 1962 IN AN AMOUNT OF RS.32, 1S,204/- FOR THE PRIMAR Y REASON THAT IN SPITE OF REAPING AN EXEMPT INCOME OF RS.26,53,390/- BY WAY O F DIVIDEND, THE APPELLANT DID NOT SUO MOTO OFFER ANY DISALLOWANCE U/S 14A OF THE ACT. IN KEEPING WITH THE VARIOUS RELEVANT JUDICIAL PRECEDENTS IN THE MATTER, I FIND THAT ON FACTS (SUPRA) THE APPELLANT HAD ENOUGH FUNDS OF ITS OWN TO MAKE INVES TMENTS IN SHARES WHICH YIELDED DIVIDEND INCOME. IT IS ALREADY A FOREGONE C ONCLUSION ARRIVED AT BY VARIOUS JUDICIAL FORUMS (SUPRA) THAT ONCE THERE IS ENOUGH N ON-INTEREST BEARING FUND AVAILABLE WITH AN ASSESSEE WHICH IS IN .EXCESS OF I NVESTMENTS MADE THEN THERE COULD NOT BE ANY DISALLOWANCE MADE UNDER RULE . 8D( 2)(II), THE FACT OF WHICH IS EVIDENCED FROM RECORD IN THE CASE OF THE APPELLANT. THERE IS NO ADVERSE FINDING ON THIS COUNT BY THE AO IN ANY MANNER IN THE ASSESSMEN T ORDER. WITH REGARD TO DISALLOWANCE MADE UNDER RULE 8D(2)(III), THE AO IS DIRECTED TO RESTRICT THE SAID DISALLOWANCE @ 0.5% ONLY WITH RESPECT TO INVESTMENT S WHICH YIELDED EXEMPT INCOME. THE AO SHALL WORK OUT THE DISALLOWANCE ACCO RDINGLY AND IF REQUIRED, THE APPELLANT MAY BE AFFORDED AN OPPORTUNITY IN .ADDRES SING THE ISSUE. IT MAY NOT BE OUT OF PLACE TO MENTION HERE THAT IN THIS CONNECTIO N, THE AR OF THE APPELLANT HAS SUBMITTED, DURING THE APPELLANT PROCEEDING, A CHAR T WHEREIN IT IS DEPICTED THAT 0.5% OF AVERAGE INVESTMENTS WHICH YIELDED EXEMPT IN COME WORKED OUT TO RS.1,30,237/- AS DEPICTED BELOW: AVERAGE INVESTMENT (RS.26454954 + RS.25639815)/2 : RS.2,60,47,385/- 0.5% OF THE ABOVE : RS.1,30,237/- THEREFORE, DISALLOWANCE UNDER RULE 8D(2)(III) AT RS .1,30,237/- WAS PROPOSED BY THE AR OF THE APPELLANT IN ACCORDANCE WITH THE DATA AS PROVIDED ABOVE. IN THIS RESPECT, THE AO MAY MAKE THE REQUISITE VERIFICATION TO COME TO A JUDICIOUS DECISION AND MAKE THE DISALLOWANCE ACCORDINGLY I.E. @ 0.5% OF ONLY THE INVESTMENTS WHICH YIELDED EXEMPT INCOME. THIS GROUN D IS ALLOWED ACCORDINGLY FOR STATISTICAL PURPOSES. ON AN OVERALL ANALYSIS, T HESE GROUNDS ARE TREATED AS PARTLY ALLOWED WHEREIN DISALLOWANCE IS TO BE MADE ONLY WIT H REGARD TO RULE 8D(2)(III) R.W. SECTION 14A OF THE ACT AS ABOVE. 3. THE REVENUE VEHEMENTLY CONTENDS DURING THE COURS E OF HEARING THAT THE CIT(A) HAS ERRED IN LAW AND ON FACTS IN REVERSING T HE IMPUGNED DISALLOWANCE QUA THE ABOVE TWO COMPONENTS. IT FAILS TO DISPUTE FIRST OF ALL THAT VARIOUS HIGH COURTS I.E. CIT VS RELIANCE UTILITIES & POWER LTD. 313 ITR 340& CIT VS SUZLON ENERGY LTD. [2013] 354 ITR 630(GUJ) HAVE HELD THAT THE IMPUGNED PROPO RTIONATE EXPENDITURE DISALLOWANCE IN QUESTION UNDER RULE 8D (2)(II)OF TH E INCOME TAX RULES DOES NOT APPLY IN CASE OF AN ASSESSEE HAVING SURPLUS NON INTEREST BEARING FUNDS SINCE ITS INVESTMENTS ITA NO.683/KOL/2017 M/S. BHORUKA INVESTMENT (P)LTD. A.Y.2013-14 3 MADE LEAD TO A NECESSARY PRESUMPTION OF UTILISATION OF THE INTEREST FREE FUNDS ONLY. WE KEEP IN MIND THE SAID LEGAL PROPOSITION TO NOTE TH AT THE ASSESSES SHARE CAPITAL ALONG WITH RESERVES AND SURPLUS AS ON 21.03.2013 READ A F IGURE OF RS.7,33,75,898/- AS AGAINST ITS INVESTMENT MADE IN SHARES OF 6,96,95,083/- ONLY . WE THUS DECLINE THE REVENUES INSTANT ARGUMENTS QUA PROPORTIONATE INTEREST EXPEND ITURE IN RELATION TO ASSESSEES EXEMPT INCOME. 4. THE REVENUES NEXT GRIEVANCE IN THE INSTANT ISSU E SEEKS TO REVIVE ADMINISTRATIVE EXPENDITURE DISALLOWANCE (SUPRA). WE NOTICE THAT THE CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO COMPUTE THE IMPUG NED DISALLOWANCE ONLY QUA ASSESEES INVESTMENTS YIELDING EXEMPT INCOME IN THE IMPUGNED ASSESSMENT YEAR. THIS TRIBUNALS COORDINATE BENCH IN THE CASE OF REI AGRO LTD VS DCIT 144 ITD 141 (KOL)AS UPHELD BY HONBLE JURISDICTIONAL HIGH COURT IN ITAT NO.220 OF 2013 DECIDED ON 09.4.2014, HOLDS THAT ONLY SUCH EXEMPT INCOME YIEL DING INVESTMENTS ARE TAKEN INTO CONSIDERATION FOR THE PURPOSE OF ADMINISTRATIVE EXP ENDITURE. WE THUS FIND NO FAULT WITH THE CIT(A) S DIRECTION ISSUED TO THE ASSESSIN G OFFICER IN THIS REGARD. THE REVENUE FAILS IN THE FORMER SUBSTANTIVE GROUND. 5. THE REVENUES LATTER SUBSTANTIVE GRIEVANCE SEEK S TO REVIVE DEEMED DIVIDEND ADDITION OF RS.99,45,697/-. ITS ONLY PLEA IS THAT THE CIT(A) HAS ERRED IN LAW AS WELL ON FACTS IN TREATING THE OTHER ENTITY M/S TCI BHORUKA PROJECTS LTD AS A COMPANY IN WHICH PUBLIC ARE SUBSTANTIALLY INTERESTED WITHOUT ANY MAT ERIAL ON RECORD IN ASSESSEES SUPPORT. WE FIND THE INSTANT ISSUE TO NO MORE RES I NTEGRA. A COORDINATE BENCH IN ITA NO.329/KOL/2016 DECIDED ON 29.01.2017 IN ASSESSEES CASE ITSELF FOR PRECEDING ASSESSMENT YEAR HAS ALREADY DECLINED REVENUES VERY ARGUMENT IN SEEKING TO TREAT THE SAID OTHER ENTITY AS A COMPANY NOT HAVING SUBSTANTI AL INTEREST OF THE PUBLIC. WE WISH TO REITERATE HERE THAT SECTION 2(22)(E) IS IN THE NATU RE OF DEEMING FICTION OF INCOME IN A FISCAL STATUTE WHICH IS TO BE STRICTLY CONSTRUED. WE THUS AFFIRM THE CIT(A)S FINDINGS ON THIS GROUND ALONE WITHOUT GOING INTO MUCH DEEPER IN THE RELEVANT FACTS OF THE ISSUE. THIS LATTER SUBSTANTIVE GROUND FAILS ACCORDINGLY. ITA NO.683/KOL/2017 M/S. BHORUKA INVESTMENT (P)LTD. A.Y.2013-14 4 6. THIS REVENUES APPEAL IS ACCORDINGLY DISMISSED. OR DER PRONOUNCED IN THE COURT ON 29.06.2018. SD/- SD/- [M.BALAGANESH] [ S.S.GODARA ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 29.06.2018. [RG SR.PS] COPY OF THE ORDER FORWARDED TO: 1.M/S BHORUKA INVESTMENT (P)LTD., P-10, NEW CIT ROA D, KOLKATA-700073. 2. D.C.I.T., CIRCLE-10(1), KOLKATA. 3. C.I.T.(A)- 4, KOLKATA 4. C.I.T-4, KOLKATA 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER, SENIOR PRIVATE SECRETARY HEAD OF OFFICE/D.D.O, ITAT KOLKATA BENCHES