ITO, WD-11(2), KOLKATA, Kolkata V. M/s Alosha Vanijya Pvt. Ltd., Kolkata

ITA 840/KOL/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 9497 (ITAT-KOLKATA)
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Department
• Bench Allotted: SMC
• Next Hearing Date: 10-11-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 27-04-2016
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH, KOLKATA (BENCH - D ) BEFORE SRI ABY T.VARKEY, JUDICIAL MEMBER AND DR. A L SAINI, ACCOUNTANT MEMBER I.T.A NO. 840 /KOL/2016 ASSESSMENT YEAR: 2008 - 09 ORDER PER ABY T.VARKEY, JM THIS IS AN APPEAL PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE CIT(A) - XVI, KOLKATA, DT. 29.02.016, FOR ASSESSMENT YEAR 208 - 09. 2. THE REVENUE HAS RAI SED THE FOLLOWING GROUNDS OF APPEAL : - 1) THE LD. CIT(A) - 16, KOLKATA, ERRED IN DELETING THE ADDITION OF RS. 37,66,989/ - MADE BY THE ASSESSING OFFICER U/S 14A OF THE I.T. ACT, 1961 READ WITH RULE 8D(2)(II) OF THE I.T. RULE 1962. I.T.O. WARD - 11(2) [PAN : A ACCA5623N ] - VS - M/S. ALOSHA VA NIJYA PVT. LTD. (APPELLANT) (RESPONDENT) FOR THE APPELLANT SK. Z.H. TANWEER, JCIT, SR. DR. FOR THE RESPONDENT MIRAJ D SHAH, ADVOCATE DATE OF HEARING 27.12 .201 6 DATE OF PRONOUNCEMENT 31 .01.2017 2 ITA NO.840 /KOL - 2016 , M/S ALOSHA VANIJYA PVT. LTD. A.YR. 20 08 - 09 2 2) THAT ON THE FACTS AND IN THE C IRCUMSTANCES OF THE CASE, LD. CIT(A) IS NOT CORRECT IN HOLDING THAT NO PART OF INTEREST PAID CAN BE TAKEN FOR COMPUTATION OF DISALLOWANCE UNDER RULE 8D (2)(II). 3) THAT THE APPELLANT CRAVES TO ADD, DELETE OR MODIFY ANY OF THE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. THOUGH THERE ARE THREE GROUNDS THE THIRD GROUND IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY ADJUDICATION. GROUND NO. 1 & 2 RELATES TO A SOLE ISSUE ONLY THAT THE REVENUE IS AGGRIEVED BY THE DECISION OF THE LD. CIT(A) DELETING AN ADDITIO N OF RS. 37,66,989/ - MADE BY THE AO U/S 14A OF THE INCOME TAX ACT (HEREINAFTER THE ACT) R.W. RULE 8D(2)(II) OF THE INCOME TAX RULES 1962 (HEREINAFTER THE RULES) . 3. BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE DECLARED TOTAL LOSS OF RS. 61,42,890/ - , L ATER THE CASE WAS SELECTED FOR SCRUTINY. DURING THE ASSESSMENT PROCEEDINGS THE AO NOTED THAT THE ASSESSEE COMPANY WAS EN GAGED IN THE TRADING IN SHARES AND SECURITIES AND ALSO ADVANCING L OANS AND ADVANCES. THE AO NOTED THAT THE ASSESSEE HAS INVESTED HUGE AM OUNT OF CAPITAL IN SHARES INCLUDING UN QUOTED SHARES AND HAS KEPT IT AS STOCK IN TRADE. ACC ORDING TO THE AO THE UNQUOTED SHARES ARE NOT TRADABLE , SO IT CANNOT BE HELD AS STOCK IN TRADE AND SO HE WAS OF THE OPINION THAT THE AMOUNT FOR PURCHASE OF UNA QUO TED S HARE HAS TO BE TREATED AS INVESTMENT. THUS, ACCORDING TO THE AO THE AVERAGE INVESTMENT DURING THE RELEVANT ASSESSMENT YEAR WAS OF RS. 3.08 CRORES IN SHARES. THE AO NOTED THAT THE ASSESSEE HAS PAID INTERES T OF RS. 5.81 CRORES DURING THE RELEVANT ASSESSMENT YEAR. THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHY SECTION 14A OF THE ACT R.W. RULE 8D SHOULD NOT BE APPLIED IN THE CASE OF THE ASSESSEE. THE 3 ITA NO.840 /KOL - 2016 , M/S ALOSHA VANIJYA PVT. LTD. A.YR. 20 08 - 09 3 AO WAS NOT SATISFIED WITH THE REPLY OF THE ASSESSEE AND WAS OF THE OPINION THAT RULE 8D R.W. SECTION 14A OF THE ACT HAS TO BE APPLIED AND HE NOTED THAT SINCE NO DIRECT EXPENDITURE IS ATTRIBUTABLE TO MANAGING INVE STMENT IN SHARES , RULE 8D(2)(I ) IS NOT APPLICABLE AND THEREAFTER HE CALCULATED THE DISALLOWANCE AS BELOW: THE DISALLOWANCE U/S 14A AS PER RULE 8D IS AS UN DER: - (V) RULE 8D(2)(II) - A X B / C HERE, A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR RS.5,81,55,884/ - . B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DO ES NOT OR 'SHALL NOT' FROM PART O F THE TOTAL INCOME, AS APPEARING TO THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND LAST DAY OF THE PREVIOUS YEAR - RS.3,08,13,095/ - C = THE AVERAGE OF THE TOTAL ASSETS AS APPEARED IN THE BALANCE SHEET OF THE ASSESSE E, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR - RS.45,57,01,639/ - . SO, A X B / C = RS.37,66,989/ - (VI) RULE - 8D(III) - AN AMOUNT = % OF THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH 'DOES NOT' OR 'SHALL NOT' FRO M PART OF THE TOTAL INCO ME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. 4 ITA NO.840 /KOL - 2016 , M/S ALOSHA VANIJYA PVT. LTD. A.YR. 20 08 - 09 4 % OF RS.3,08,13,095/ - = RS.1,54,065/ - THEREFORE, TOTAL OF RS.39,09,516/ - (LESS ALREADY CONSIDERED BY THE ASSESSEE RS.11 ,538/) IS CONSIDER ED AND DISALLOWED AS EXPENDITURE RELATED TO EARNING OF EXEMPT INCOME U/S.14A, AS PER METHO D PROVIDED UNDER RULE 8D . AGGRIEVED THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD. CIT(A) WHO UPHELD THE CONTENTION OF THE ASSESSEE AND HELD THAT THE ASSESSEE EARNE D INTEREST INCOME OF RS. 1,21,30,795/ - AND HAS INCURRED INTEREST EXPENDITURE OF RS. 1,08,56,069/ - AND THUS ON NETTING THE SAME THE ASSESSEE HAD EARNED INTEREST AND, THEREFORE, THE LD. CIT(A) FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL I N ACIT VS. CHAMPION COMMERCIAL CO. LTD. [139 ITD 108] AND THE CO - ORDINATE BENCH IN REI AGRO LTD VS. DCIT IN I.T.A. NO. 1331 & 1423/KOL/2011 HELD THAT NO INTEREST EXPENDITURE CAN BE HELD LIABLE TO BE DISALLOWED UNDER RULE 8D(2)(II ) OF THE INCOME TAX RULES, 1962. THEREAFTER THE LD. CIT(A) WHILE DECIDING THE AD DITION MADE UNDER RULE 8D(2)(II ) OF THE RULES MADE ESTIMATION OF THE 5% OF THE DIVIDEND INCOME AND ACCORDINGLY DISALLOWED RS.99,997/ - IN PLACE OF RS. 39,09,516/ - MADE BY THE AO. 4. WE NOTE THAT THE REVE NUE HAS CHALLENGED ONLY THE DELETION OF THE ADDITION MADE ON ACCOUNT OF RULE 8D(2)(II) OF THE INCOME TAX RULES, 1962 AND NOT IN RESPECT TO THE RESTRICTED ADDITION CONFIRMED BY THE LD. CIT(A) UNDER RULE 8(D)(2)(III), THEREFORE, WE ARE ADJUDICATING ONLY THE ISSUE IN RESPECT TO THE 5 ITA NO.840 /KOL - 2016 , M/S ALOSHA VANIJYA PVT. LTD. A.YR. 20 08 - 09 5 ADDITION MADE BY THE AO U/S 8D(2)(II) WHICH HAS BEEN DELETED BY THE LD. CIT(A). WE NOTE FROM THE AUDITED FINANCIAL STATEMENT THAT THE ASSESSEE HAS DE BITED A NET SUM OF RS.4,58,36,028/ - AS INTEREST EXPENSES THE BREAKUP OF THE SAME W AS GIVEN BY THE LD. CIT(A) WHICH IS REPRODUCED AS UNDER : PARTICULARS AMOUNT INTEREST PAID TO SECURED CREDITORS FOR SHARE TRADING BUSINESS 4, 72, 98, 455/ - INTEREST PAID TO UNSECURED CREDITORS FOR BUSINESS ACTIVITY OF ADVANCING LOANS 1,08, 56, 069/ - INTEREST ON LATE PAYMENT OF FBT 1,360/ - TOTAL INTEREST PAID 5, 81, 55, 884/ - LESS: INTEREST INCOME FROM BUSINESS OF ADVANCING LOANS 1, 21, 30, 795/ - LESS: INTEREST INCOME FROM REFUND RECEIVED FROM INCOME TAX 1,89,061/ - NET AMOUNT OF INTEREST PAID DEBITED TO THE PROFIT & LOSS A/C 4, 58, 36, 028/ - 5. WE TAKE NOTE THAT THE CASE OF THE ASSESSEE IS THAT IT HAS PAID AN AMOUNT OF RS. 4,72,98,455/ - TO ITS SECURED LOAN CREDITORS. THE SECURED CREDITORS ARE NBFC ASSOCIATED WITH BIG BROKING H OUSES. ACCORDING TO THE LD. AR THEY HAD PROVIDED THE MARGIN FUNDING TO THE ASSESSEE. ACCORDING TO THE LD. AR THE BORROWINGS FROM THE SECURED CREDITORS WERE USED BY THE ASSESSEE TO TRADE IN SHARES AND SECURITIES BOTH IN CASH SEGMENT AND IN THE FUTURE SEGMEN T OF THE CAPITAL MARKET. THE ARRANGEMENT BETWEEN THE SECURED CREDITORS AND THE ASSESSEE WAS SUCH T HAT THE SECURED CREDITORS WOULD FINANCE TRADES EXECUTED BY THE ASSESSEE THROUGH THEIR GROUP STOCK BROKING ARM. IT WAS BROUGHT TO OUR NOTICE THAT NO PART OF TH E FUNDS DISBURSED BY THE SECURED CREDITORS CAN BE 6 ITA NO.840 /KOL - 2016 , M/S ALOSHA VANIJYA PVT. LTD. A.YR. 20 08 - 09 6 WITHDRAWN BY THE ASSESSEE FOR ANOTHER PURPOSE AS THE PAYEE COULD ONLY BE THEIR STOCK BROKING ARM AND NONE ELSE. IT WAS THUS PLEADED THAT THE MONEY BORROWED FROM SECURED CREDITORS WAS SOLELY USED FOR THE PUR POSE OF THE BUSINESS OF THE ASSESSEE. WE TAKE NOTE THAT THE LD. CIT(A) AFTER TAKING INTO CONSIDERATION THE FINANCIAL STATEMENTS AND GOING THROUGH THE BOOKS OF ACCOUNT OF THE ASSESSEE, CAME TO THE CONCLUSION THAT THE MONEY BORROWED AND THE INTEREST PAID THE RE UPON WERE FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. WE TAKE NOTE THAT THE ASSESSEE HAS PAID INTEREST OF RS. 4,72,98,455/ - TO ITS SECURED LOAN CREDITORS WHO PROVIDED MARGIN FUNDING TO THE ASSESSEE AND THAT NO PART OF THE FUNDS DISBURSED BY THE SEC URED CREDITORS COULD BE WITHDRAWN BY THE ASSESSEE FOR ANY OTHER PURPOSE, AS THE PAYEE COULD ONLY BE THEIR STOCK BROKING ARM AND NONE ELSE. WE F IND THAT THE LD. CIT(A) HAS ARRIVED AT THE FINDING THAT THE FUNDING MADE BY THE SECURED CREDITORS WAS SOLELY FOR TREATING UNLISTED SHARES, SECURITIES AND DERIVATIVES THROUGH THEIR STOCK BROKING ARM. THIS FINDING OF THE LD. CIT(A) COULD NOT BE CONTROVERTED BY THE LD. DR. SO, THEREFORE, THE LD. CIT(A) RIGHTLY FOUND THAT THE MONEY BORROWED AND INTEREST PAID THEREUPON WE RE FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. IN RESPECT TO THE INTEREST PAID TO THE UNSECURED CREDITORS FOR BUSINESS ACTIVITY OF ADVAN CING LOAN OF RS. 1,08,56,069/, WE NOTE THAT THE ASSESSEE HAS RECEIVED INTEREST INCOME FROM BUSINESS OF ADVANCING LO ANS TO THE TUNE OF RS. 1,21,30,795/ - AND THUS WHEN NETTED WE FIND THAT THE ASSESSEE HAS EARNED INTEREST INCOME FROM MONEY LENDING BUSINESS , WHICH MEANS THE ASSESSEE HAS EARNED MORE THAN WHAT IT HAS ADVANCED AND AS SUCH NO PART OF THE SAME CAN BE CONSIDERED FOR DISALLOWANCE U/S 14 A BY APPLYING RULE 8D(2)(II). THE LD. CIT(A) HAS RIGHTLY RELIED ON THE DECISIONS OF THE CO - ORDINATE BENCH OF THE TRIBUNAL IN ASSTT. CIT V. CHAMPION COMMERCIAL CO. (SUPRA) & IN REI AGRO PVT. LTD (SUPRA ) ARRIVING AT THE FINDING THAT I N THE FACTS 7 ITA NO.840 /KOL - 2016 , M/S ALOSHA VANIJYA PVT. LTD. A.YR. 20 08 - 09 7 AND CIRCUMSTANCES THAT RULE 8D(2)(II) IS NOT APPLICABLE . SO, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) IN DELETING THE ADDITION OF RS.37,66,989/ - BY APPLYING 8D(2)(II) OF THE RULES, S O WE CONFIRM IT AND DISMISS THESE GROUND S O F APPEAL I.E. GROUND NO. 1 & 2. SINCE THE REVENUE HAS NOT CHALLENGE IN ITS GROUND OF APPEAL AGAINST THE DECISION OF THE LD. CIT(A) IN RESPECT OF RULE 8D(2)(III), WE ARE NOT ADJUDICATING THE LD. CIT(A)S DECISION ON IT. THEREFORE, WE DO NOT FIND ANY INFI RMITY IN THE ORDER PASSED BY THE LD. CIT(A) IN RESPECT TO APPLICATION OF RULE 8D(2)(II) IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND WE CONFIRM THE SAME. 6. IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE COU RT ON .01.2017. SD/ - SD/ - [ DR. ARJUN LAL SAINI ] [A.T.VARKEY] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 31 .01.2017 {SC SPS} 8 ITA NO.840 /KOL - 2016 , M/S ALOSHA VANIJYA PVT. LTD. A.YR. 20 08 - 09 8 COPY OF THE ORDER FORWARDED TO: 1. I.T.O. WARD 11(2), KOLKATA. 2. M/S. ALOSHA VANIJYA PVT. LTD. 40/15, MOORE AVENUE, KOLKATA - 700040. 3. CIT(A) - KOLKATA. 4. CIT , KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSTT.REGISTRAR, ITAT, KOLKATA BENCHES