Rural Engineering Co. Ltd., , Kolkata V. DCIT, Circle - 1(2), Kolkata , Kolkata

ITA 845/KOL/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 3755 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 4 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 27-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: C J SINGH
• Assessee Lawyers: D S DAMLE
• Keywords: Earning of tax free income; Question of law; Rule 8D; Set aside
• Section: 14A

Judgement Text

I.T.A NO.845/KOL/2018 RURAL ENGINEERING CO. LTD. PAGE | 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOLKATA BEFORE: SHRI P. M. JAGTAP, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A NO.845/KOL/2018 (ASSESSMENT YEAR: 2013-14) RURAL ENGINEERING CO. LTD. APPELLANT [PAN: AABCR2672P] VS DCIT, CIRCLE-1(2), KOLKATA RESPONDENT FOR THE APPELLANT : SHRI D.S. DAMLE, AR FOR THE RESPONDENT : SHRI C.J. SINGH, JCIT, SR. DR DATE OF HEARING : 02.07.2019 DATE OF PRONOUNCEMENT : 30.08.2019 ORDER SHRI S.S. VISWANETHRA RAVI, JM: THIS APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 27.02.2018 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-1, KOLKATA [CIT(A)] FOR ASSESSMENT YEAR 2013-14. 2. THE ONLY ISSUE TO BE DECIDED IS AS TO WHETHER THE CIT(A) IS JUSTIFIED IN CONFIRMING THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE MADE U/S 14A OF THE ACT READ WITH RULE 8D(2)(II) OF THE RULES IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. HEARD BOTH PARTIES AND PERSUED THE MATERIAL ON RECORD. THE ASSESSEE EARNED EXEMPT INCOME OF RS.37,47,596/- AND OFFERED DISALLOWANCE ON ITS OWN OF RS.15,62,904/-. BUT HOWEVER THE ASSESSING OFFICER FURTHER DISALLOWED OF RS.35,61,978/- (51,24,882/- - 15,62,904/-) VIDE ITS ORDER DATED 30.11.2015. THE CIT(A) CONFIRMED THE VIEW OF ASSESSING OFFICER. THE CONTENTION OF THE LD. AR IS THAT THE ASSESSEE DID NOT INCUR ANY EXPENDITURE RELATING TO THE INVESTMENT WHICH YIELDED EXEMPT INCOME. MOREOVER THE ASSESSEE HAS SURPLUS I.T.A NO.845/KOL/2018 RURAL ENGINEERING CO. LTD. PAGE | 2 RESERVES WHICH IS MORE THAN THE AVERAGE COST OF INVESTMENTS. THE LD. AR ARGUED THAT WHEN THERE IS SURPLUS FUNDS OF THE ASSESSEE, THE PRESUMPTION IS THAT THE ASSESSEE MADE INVESTMENTS FROM ITS OWN FUNDS BUT NOT FROM BORROWED FUNDS. THE LD. AR PLACED RELIANCE ON THE DECISION OF HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF PCIT VS. RASOI LIMITED IN G.A NO.633 OF 2016 AND AN ORDER OF THIS TRIBUNAL IN THE CASE OF CRESCENT FOUNDRY CO. PVT. LTD. VS. JCIT IN ITA NO.1267/KOL/2017. IT IS NOTED FROM THE RECORD THAT THE ASSESSEE HAS COST OF INVESTMENTS IN SHARES OF RS.16,85,91,000/- AS ON 31.03.2013 WHICH IS FAR LESS THAN THE AVERAGE VALUE OF TOTAL ASSETS OF THE ASSESSEE OF RS.59,45,99,094/-. AS DISCUSSED ABOVE, THE ASSESSING OFFICER DID NOT TAKE INTO THIS ASPECT OF THE ASSESSEE BEING HAVING ITS OWN FUND WHICH IS MORE THAN THE AVERAGE COST OF INVESTMENTS RELATING TO THE YEAR UNDER CONSIDERATION. THEREFORE THE DISALLOWANCE UNDER RULE 8D(2)(II) IS NOT MAINTAINABLE. SUPPORTING THIS VIEW, AS RIGHTLY POINTED BY THE HIGH COURT OF CALCUTTA IN THE CASE ROSOI LIMITED (SUPRA) HELD THAT WHEN THE ASSESSEE HAS FUNDS IN EXCESS OF THE AVERAGE TOTAL INVESTMENTS AND THERE COULD NOT BE ANY PRESUMPTION OF UTILIZATION OF BORROWED FUNDS. THE RELEVANT PORTION OF WHICH IS REPRODUCED HEREINBELOW: MR. GUPTA, LEARNED ADVOCATE APPEARED ON BEHALF OF THE ASSESSEE AND SUBMITTED THAT THE ASSESSEE HAD NOT INCURRED ANY EXPENDITURE ON THE INVESTMENTS WHICH RESULTED IN THE DIVIDEND INCOME. THAT HAD BEEN FOUND AS A FACT CONCURRENTLY BY THE CIT AS WELL AS THE TRIBUNAL. HE RELIED ON FIRSTLY THE CASE OF CIT VS. HDFC BANK REPORTED IN (2014) 49 TAXMANN.COM 335(BOMBAY) TO SUBMIT THAT WHERE THERE WAS A FINDING OF FACT GIVEN BY THE TRIBUNAL THAT THE ASSESSEE'S CAPITAL, PROFIT RESERVE, SURPLUS AND CURRENT ACCOUNT DEPOSIT WERE HIGHER THAN THE INVESTMENT IN THE TAX FREE SECURITY, IT WOULD HAVE TO BE PRESUMED THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH IT AND DISMISSAL OF THE APPEAL OF THE REVENUE BY THE TRIBUNAL ON SUCH A GROUND DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. HE ALSO RELIED ON THE CASE OF CIT VS. CRISH PARK VINCOM LTD. DECIDED BY A BENCH OF THIS COURT TO WHICH ONE OF US WAS A PARTY (ARINDAM SINHA,J.) AND REPORTED IN (2015) 371 ITR 15 (CAL) WHEREIN IT WAS HELD THAT WHETHER OR NOT THE EXPENDITURE INCURRED FOR THE PURPOSE OF EARNING THE EXEMPT INCOME HAS BEEN PROPERLY EXPLAINED IS ESSENTIALLY A QUESTION OF FACT. IN THAT CASE BOTH APPELLATE AUTHORITY AND TRIBUNAL WERE OF THE OPINION THAT THE EXPENDITURE WAS PROPERLY ESTABLISHED AND AS AS SUCH THE APPEAL OF THE REVENUE WAS NOT ADMITTED. IT APPEARS FOR BOTH THE ASSESSMENT YEARS THE APPELLATE AUTHORITY HELD THAT THERE WAS NO FINDING OF DIRECT NEXUS BETWEEN THE BORROWED FUND AND INVESTMENT IN SHARES. THE ASSESSEE'S OWN FUNDS WERE FAR IN EXCESS OF THE AVERAGE TOTAL INVESTMENTS. THERE COULD NOT BE ANY PRESUMPTION OF I.T.A NO.845/KOL/2018 RURAL ENGINEERING CO. LTD. PAGE | 3 UTILIZATION OF BORROWED FUNDS. HENCE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2)(II)WAS DELETED WHILE DISALLOWANCE OF INDIRECT EXPENSES OF RS.1,82,346/- BY APPLICATION OF RULE 8D(2)(III) UPHELD WITH THE DIRECTION TO ALLOW RELIEF OF THE SUM ALREADY DISALLOWED BY THE APPELLANT ITSELF. 4. IN VIEW OF THE LAW LAID DOWN BY THE HONBLE HIGH COURT OF CALCUTTA IN THE CASE OF RASOI LTD. (SUPRA) AND DISCUSSION MADE BY US IN THE AFOREMENTIONED PARAGRAPH NO.3, THE ADDITION MADE BY THE ASSESSING OFFICER AND CONFIRMED BY THE CIT(A) U/S 14A R.W.R. 8D(2)(II) IS NOT MAINTAINABLE AND ACCORDINGLY IT IS DELETED. THE ORDER OF CIT(A) IS SET ASIDE. THUS THE ONLY GROUND RAISED BY THE ASSESSEE IS ALLOWED. 5. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30.08.2019. SD/- SD/- [P. M. JAGTAP] [S.S. VISWANETHRA RAVI] VICE PRESIDENT JUDICIAL MEMBER DATED :30.08.2019 PLACE : KOLKATA RS, SR.PS COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT RURAL ENGINEERING CO. LTD., 20, MAHARSHI DEVENDRA ROAD, KOLKATA 700007. 2 RESPONDENT DCIT, CIRCLE1(2), KOLKATA 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA //TRUE COPY// BY ORDER, ASSISTANT REGISTRAR, ITAT, KOLKATA