Sublime Agro Ltd., Kolkata V. ACIT, Rg-14, Kolkata, Kolkata

ITA 803/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1723 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-05-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 23-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 01-05-2014
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR
• Assessee Lawyers: V N PUROHIT
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

ITA NO.803/KOL/2014-SUBLIME AGRO LTD. A.Y.2009-10 1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM & SHRI WASE EM AHMED, AM] I.T.A NO. 803/KOL/2014 ASSES SMENT YEAR : 2009-10 SUBLIME AGRO LTD. -VS.- ADDL. C.I.T., RANGE- 14, KOLKATA KOLKATA [PAN : AAECS 1804 P] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SH RI V.N.PUROHIT, FCA FOR THE RESPONDENT : SHRI SAURABH KUMAR , ADDL. CIT.SR.DR DATE OF HEARING : 11.05.2017 DATE OF PRONOUNCEMENT : 19.05.2017. ORDER PER N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 24.01.2014 OF CIT(A)-IV, KOLKATA, RELATING TO AY 2009-10. 2. GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ AS FOLLOWS: (1) THAT THE COMMISSIONER OF INCOME TAX (APPEALS)- IV HAS ERRED, BOTH IN LAW AND ON THE FACTS AND UNDER THE CIRCUMSTANCES OF THE CASE, IN NOT ACCEPTING ASSESSEE'S CONTENTION THE AMOUNT SUO MOTO ADDED TO TOTAL INCOME AT RS.10,062/- U/S. 14A OF THE ACT AND IN GIVING DIRECTION TO AO. THAT WHILE AO. IS RIGHT IN TAKING THE AMOUNT UNDER RULE-80(2)(II) IS .CORRECT AND AO. SHOULD RECALCULATE AMOUNT UNDER RULE-80(2)(III) BY NOT CONSIDERING THOSE INVE STMENT ON WHICH INCOME IS TAXABLE IN TERMS OF DECISION OF LTAT., KOLKATA IN R EI AGRO LTD. VS. DCIT. 3. THE ASSESSEE HAS FILED AN APPLICATION FOR S EEKING PERMISSION TO RAISE THE FOLLOWING ADDITIONAL GROUND :- THAT THE COMMISSIONER OF INCOME TAX (APPEALS)-IV H AS FURTHER ERRED IN LAW AND ON FACT IN HOLDING THAT AS FAR AS THE ADDITIONS OF RS.185,520/- MAD BY THE A.O. WHICH RULE 8D(2)(II) IS CONCERNED, NO INTERFER ENCE IS CALLED FOR. 4. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSI NESS OF MANUFACTURING OF TEA. IT IS NOT IN DISPUTE THAT THE ASSESSEE EARNED DIVIDEND IN COME OF RS.1,18,050/- WHICH WAS CLAIMED AS EXEMPT U/S 10(34) OF THE INCOME TAX ACT, 1961 (ACT). IN THE COMPUTATION ITA NO.803/KOL/2014-SUBLIME AGRO LTD. A.Y.2009-10 2 OF TOTAL INCOME FILED FOR A.Y.2009-10 THE ASSESSEE CALCULATED A SUM OF RS.10,062/- AS EXPENSES WHICH WAS INCURRED FOR THE PURPOSE OF EARN ING INCOME WHICH IS NOT CHARGEABLE TO TAX UNDER THE ACT I.E. EXPENSES DISAL LOWABLE U/S 14A OF THE ACT. THE AO WAS OF THE VIEW THAT THE METHOD OF COMPUTATION OF D ISALLOWANCE AS DONE BY THE ASSESSEE WAS NOT PROPER. APPLYING THE PROVISION OF RULE 8D OF THE INCOME TAX RULES, 1962 THE AO COMPUTED THE DISALLOWANCE U/S 14A OF TH E ACT AS FOLLOWS :- THE DISALLOWANCE U/S 14A AS PER RULE 8D IS AS UNDE R :- (I) RULE 8D (2)(II) A X B/C HERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST O THER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR RS.1386020/- B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FROM PART OF THE TOTAL INCOME, AS APPEARING T O THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND LAST DAY OF THE PRE VIOUS YEAR RS.30788590/-. C = THE AVERAGE OF THE TOTAL ASSETS AS APPEARED IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR RS.263818357/- SO, A X B/C = RS.185520/- (II) RULE 8D(III) AN AMOUNT = 0.5% OF THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOESNT OR SHALL NOT FROM P ART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. 0.5% OF RS.30788590/- = RS.153943/- = RS339463/- THEREFORE, TOTAL OF RS.26,61,293/- IS CONSIDERED AN D DISALLOWED AS EXPENDITURE RELATED TO EARNING OF EXEMPT INCOME U/S 14A, AS PER METHOD PROVIDED UNDER RULE 8D. PENALTY PROCEEDINGS U/S 271(1)(C) OF THE I.T.AC T, 1961 IS INITIATED ON THIS ISSUE. [ADDITION : RS.339463/- ] 5. BEFORE CIT(A) THE ASSESSEE CONTENDED THAT THE AO WAS NOT JUSTIFIED IN COMPUTING THE DISALLOWANCE BY CONSIDERING INVESTMENT OF RS.47 ,06,000/- IN GOVERNMENT SECURITIES AS PART OF THE AVERAGE VALUE OF INVESTME NT HELD BY THE ASSESSEE BECAUSE INTEREST RECEIVED ON GOVERNMENT SECURITY WAS CHARGE ABLE TO TAX AND THEREFORE PROVISION OF SECTION 14A OF THE ACT WOULD NOT BE AP PLICABLE TO INCOME WHICH IS CHARGEABLE TO TAX. THE CIT(A) AGREED WITH THE AFORE SAID SUBMISSIONS OF THE ASSESSEE AND TO THIS EXTENT GAVE RELIEF TO THE ASSESSEE BUT CONFIRMED THE ORDER OF AO ON OTHER ITA NO.803/KOL/2014-SUBLIME AGRO LTD. A.Y.2009-10 3 ASPECTS OF DISALLOWANCE U/.S 14A OF THE ACT. THE FO LLOWING WERE THE RELEVANT OBSERVATIONS OF CIT(A) :- 6.2. I AM PARTLY IN AGREEMENT WITH THE VIEWS OF THE A.R. OF THE APPELLANT WITH RESPECT TO RULE 8D(2)(III). THE A.D. HAS TAKEN THE AVERAGE VALUE OF INVESTMENT AT RS.3,07,88,590/-. HOWEVER, THE AVERAGE VALUE OF INV ESTMENT WILL NEED TO BE WORKED OUT ONCE AGAIN, BY THE A.D. AFTER REDUCING T HE AMOUNT WHICH IS INVESTED IN GOVT. SECURITIES ON WHICH THE INTEREST RECEIVED IS IN ANY WAY TAXABLE. THIS DIRECTION TO THE A.D. IS IN KEEPING WITH THE RATIO OF THE JUDGEMENT OF THE JURISDICTIONAL TRIBUNAL AT ITA NO.1331/KO1/2011 FOR A.Y.2008-09 DT.19.06.2013 IN THE CASE OF REI AGRO LTD. VS DCIT. AS FAR AS THE ADDITION OF RS.L,85,520/- MADE BY THE A.D. U/R.8D(2)(II) IS CONCERNED, NO INT ERFERENCE IS CALLED FOR BECAUSE THE APPELLANT HAS INCURRED INTEREST EXPENDITURE ON INTEREST BEARING LOAN, THE USAGE OF WHICH COULD NOT BE ESTABLISHED BEFORE ME BY THE APPELLANT TO E EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THIS GROUND OF APPEAL IS P ARTLY ALLOWED. 6. AGGRIEVED BY THE ORDER OF CIT(A) THE ASSESSEE HAS RAISED THE ORIGINAL AND ADDITIONAL GROUNDS OF APPEAL BEFORE THE TRIBUNAL. 7. AS FAR AS THE ADDITIONAL GROUND RAISED BY T HE ASSESSEE IS CONCERNED THE SAID GROUND IS A LEGAL GROUND AND CAN BE ADJUDICATED ON THE BASIS OF MATERIAL READILY AVAILABLE ON RECORD AND HENCE THE ADDITIONAL GROUND IS ADMITTED FOR ADJUDICATION. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS. FIRST W E SHALL TAKE UP FOR CONSIDERATION THE ADDITIONAL GROUND OF APPEAL WHICH DEALS WITH THE DI SALLOWANCE OF INTEREST EXPENSES UNDER RULE 8D(2)(II) OF THE ACT. THE LD. COUNSEL FO R THE ASSESSEE BROUGHT TO OUR NOTICE THAT INTEREST EXPENSES INCURRED BY THE ASSESSED DUR ING THE RELEVANT PREVIOUS YEAR WAS A SUM OF RS.13,86,020/- PAID BY THE ASSESSEE ON SECUR ED LOANS AVAILED FROM BANK AGAINST THE CASH CREDIT FACILITY. IT WAS HIS SUBMISSION THA T IN THE LIGHT OF THIS ADMITTED POSITION THAT THE INTEREST WAS PAID FOR CASH CREDIT FACILITY AVAILED FROM THE BANK BY HYPOTHETICATION OF STOCK THE DISALLOWANCE U/S 14A O F THE ACT OF INTEREST EXPENSES CANNOT BE MADE. IT WAS HIS SUBMISSION THAT CASH CRE DIT FACILITY CANNOT BE USED FOR ANY OTHER PURPOSE EXCEPT THE BUSINESS OF THE ASSESSEE A ND THEREFORE PRESUMPTION OF THE AO THAT BORROWED FUNDS ON WHICH INTEREST WAS PAID W AS USED FOR MAKING INVESTMENTS WHICH ARE LIKELY TO YIELD TAX FREE INCOME IS FALLAC IOUS. THE LD. DR SUBMITTED THAT THESE FACTS NEED TO BE EXAMINED BY THE AO. ITA NO.803/KOL/2014-SUBLIME AGRO LTD. A.Y.2009-10 4 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE ARE OF THE VIEW THAT THE DISALLOWANCE OF INTEREST EXPENSES IN TERMS OF RULE 8D((2)(II) OF THE ACT AS CONFIRMED IN THE CIT(A) S ORDER SHOULD BE SET ASIDE AND THE ISSUE SHOULD BE REMANDED TO THE AO WITH THE DIRECTION TO EXAMINE THE CLAIM OF THE ASSE SSEE AS STATED IN THE EARLIER PARAGRAPH OF THIS ORDER AND IF THE CLAIM IS FOUND T O BE CORRECT THEN THE DISALLOWANCE UNDER RULE 8D(2)(II) SHOULD BE DELETED. 10. AS FAR AS THE DISALLOWANCE U/R 8D(2)(III) IS CO NCERNED IT WOULD BE JUST AND APPROPRIATE TO DIRECT THE AO TO CONSIDER, WHILE WO RKING OUT THE AVERAGE VALUE OF INVESTMENTS, TO CONSIDER INVESTMENTS THAT ARE YIEL DED TAX FREE INCOME ONLY AS LAID DOWN BY ITAT, KOLKATA BENCHES IN THE CASE OF REI AG RO LTD. VS DCIT IN ITA NO.1331/KOL/2011 ORDER DATED 19.06.2013. WE MAY ALS O POINT OUT THAT THIS ASPECT HAS ESCAPED THE ATTENTION OF CIT(A) THOUGH HE HAS MADE REFERENCE TO THE AFORESAID DECISION OF THE TRIBUNAL IN THE CASE OF REI AGRO LT D. (SUPRA). THE APPEAL OF THE ASSESSEE IS ACCORDINGLY ALLOWED FOR STATISTICAL PUR POSES. 11. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 19.05.2017. SD/- SD/- [WASEEM AHMED] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 19.05.2017. [RG PS] COPY OF THE ORDER FORWARDED TO: 1. SUBLIME AGRO LTD., LORDS R.NO.201-203, 7/1, LO RD SINHA ROAD, KOLKATA-700001. 2. ADDL.C.I.T., RANGE-14, KOLKATA. 3. CIT(A)-IV, KOLKATA. 4. C.I.T.-II, KOLKATA . 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSTT.REGI STRAR, ITAT, KOLKATA BENCHES ITA NO.803/KOL/2014-SUBLIME AGRO LTD. A.Y.2009-10 5