Appeal details
Counselvise Citation
[2016] 133 COUNSELVISE.COM (IT) 5091 (ITAT-KOLKATA)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 10 month(s) 10 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
29-02-2016
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Assessment Year
2009-2010
Appeal Filed On
18-04-2013
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 847 / KOL / 2013 ASSESSMENT YEAR :2009-10 USHA MARTIN VENTURES LTD., 24, R.N.MUKHERJEE ROAD, 2 ND FLOOR, KOLKATA- 700 001 [ PAN NO.AAACU 3843 J ] V/S . DCIT, CIRCLE-6 AAYKAR BHAWAN, P-7, CHOWRINGHEE SQURE, KOLKATA-700 069 /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI A.K.TIBREWAL, FCA /BY RESPONDENT SHRI SANDEEP CHOUBE, CIT-DR /DATE OF HEARING 21-01-2016 /DATE OF PRONOUNCEMENT 29-02-2016 / 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.218/C IT(A)-VI/CIR-6/11-12/KOL DATED 27.02.2013. ASSESSMENT WAS FRAMED BY DCIT, CI RCLE-6, KOLKATA U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REF ERRED TO AS THE ACT) VIDE HIS ORDER DATED 30.12.2011 FOR ASSESSMENT YEAR 2009 -10. GROUNDS RAISED BY ASSESSEE ARE AS BELOW:- 1) THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN DISALLOWING THE LONG TERM CAPITAL LOSS OF RS.56,76, 211 INCURRED BY THE ASSESSEE COMPANY ON SALE OF 3,49,658 EQUITY SHARES OF USHA BRECO LTD. ON THE ALLEGED GROUND THAT THE AFORESAID LONG TERM CAP ITAL LOSS WAS NOT GENUINE AS THE SAID SHARES OF USHA BRECO LTD. HAD B EEN SOLD AT A PRICE LOWER THAN ITS BREAKUP VALUE. 2) THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN ARBITRARILY DETERMINING THE LONG TERM CAPITAL GAIN AT RS.1,03,6 36 ON THE SALE OF ITA NO.847/KOL/2013 A.Y. 2009-10 USHA MARTIN VENTURES LTD. V. DCIT CIR-6 KOL. PAGE 2 349,658 EQUITY SHARES OF USHA BRECO LTD AS AGAINST THE LONG TERM CAPITAL LOSS OF RS.56,76,211 DECLARED BY THE ASSESSEE COMPA NY. 3) THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN ARBITRARILY HOLDING THAT THE PROFIT IN RESPECT OF THE SALE OF L AND AND BUILDING SITUATED AT VILLAGE CHANDWEPARGANNA, RANCHI, HAS TO BE ASSESSED AS SHORT TERM CAPITAL GAIN UNDER SECTION 50(2) OF THE INCOME TAX ACT, 196 1. 4) THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN ARBITRARILY DETERMINING THE SHORT TERM CAPITAL GAIN, ON THE SAL E OF LAND AND BUILDING SITUATED AT VILLAGE CHANDWEPARGANNA, RANCHI, AT RS. 3,09,90,729 AS AGAINST THE LONG TERM CAPITAL GAIN OF RS.2,23,19,195 DECLAR ED BY THE ASSESSEE COMPANY. 5) THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN ARBITRARILY HOLDING THAT THE WHOLE AMOUNT OF CONSIDERATION BEIN G SUM OF RS.16,50,000 IN RESPECT OF SALE OF TWO PROPERTIES SITUATED AT RAJKO T ARE LIABLE TO BE TAXED UNDER THE HEAD CAPITAL GAINS AS AGAINST THE CLAIM OF THE ASSESSEE APPELLANT TH AT NO AMOUNT WAS CHARGEABLE TO TAX, INASMUCH AS THE AP PELLANT DID NOT INCUR ANY COST FOR ACQUIRING THE SAID PROPERTY. 6) THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN DISALLOWING A SUM OF RS.6,41,09,892 UNDER SECTION 1 4A OF THE INCOME TAX ACT, 1961 AS AGAINST THE SUM OF RS.40,73,686 DISALL OWED BY THE ASSESSEE COMPANY IN ITS RETURN OF INCOME. 7) THAT THE LEARNED COMMISSIONER OF INCOME TAX (APP EALS) WAS NOT JUSTIFIED IN ADDING A SUM OF RS.6,41,09,892 TO THE NET PROFIT AS PER PROFIT & LOSS ACCOUNT, WHICH SUM REPRESENTED THE AMOUNT DISALLOWE D UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 WHILE DETERMINING THE AMOU NT OF BOOK PROFIT FOR CHARGING MINIMUM ALTERNATE TAX UNDER SECTION 115JB ALTHOUGH SUCH SUM WAS NEITHER DEBITED TO THE PROFIT & LOSS A/C. NOR RELAT ABLE TO INCOME NOT CHARGEABLE TO TAX. SHRI A.K.TIBREWAL, LD. AUTHORIZED REPRESENTATIVE AP PEARING ON BEHALF OF ASSESSEE AND SHRI SANDEEP CHOUBE, LD. DEPARTMENTAL REPRESENTATIVE APPEARING ON BEHALF OF REVENUE. 2. AT THE TIME OF HEARING LD. AR FAIRLY STATED THAT HE HAS BEEN INSTRUCTED BY ASSESSEE NOT TO PRESS GROUNDS NO. 3 TO 5 AND LD. DR HAS NOT OBJECTED ON THE SAME. HENCE, WE DISMISS THE GROUNDS NO. 3 TO 5 AS N OT PRESSED. 3. THE COMMON ISSUE IN GROUND NO. 1 AND 2 RAISED BY ASSESSEE ARE THAT LD. CIT(A) ERRED IN TREATING THE LONG TERM CAPITAL GAIN (LTCG FOR SHORT) AT ITA NO.847/KOL/2013 A.Y. 2009-10 USHA MARTIN VENTURES LTD. V. DCIT CIR-6 KOL. PAGE 3 (56,76,211/-) AS NOT GENUINE AND DETERMINING THE LT CG AT 1,03,636/- INSTEAD OF LOSS CLAIMED BY THE ASSESSEE FOR RS. 56, 76,211.00 3.1 FACTS OF THE CASE ARE THAT ASSESSEE IS A LIMITE D COMPANY ENGAGED IN THE BUSINESS OF TRADING/FINANCE/INVESTMENT BUSINESS . DURING THE YEAR UNDER CONSIDERATION, ASSESSEE HAS SOLD 349658 UNQUOTED SH ARES OF M/S USHA BRECO LTD. TO M/S ANUPRIYA REAL ESTATE PVT. LTD. AS A RES ULT OF SALE THE ASSESSEE DECLARED LTCG LOSS OF 56,76,211/-AFTER CLAIMING THE INDEXATION BENEFIT AS PER THE PROVISIONS OF SECTION 48 OF THE ACT. THE AO DUR ING THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS GENERATE D LTCG FROM SALE OF THE IMMOVABLE PROPERTIES. THE AO ALSO OBSERVED THAT THE COMPANY TO WHOM THE SHARES WERE SOLD WAS PART OF THE GROUP COMPANY OF THE ASSESSEE AS THE ADDRESS OF THE BUYER COMPANY WAS ALSO THE SAME AS O F THE ASSESSEE. FROM THE ABOVE FACTS, THE AO OPINED THAT TRANSACTION OF SELLING OF SHARES IS THE COLORABLE DEVICE TO ESCAPE FROM THE BURDEN OF TAX. ACCORDINGLY, AO DISALLOWED THE LOSS BY RELYING IN THE DECISION OF HON'BLE SUPR EME COURT IN THE CASE OF MCDOWELL AND CO. LTD. V. CIT (1985) 154 ITR 148 (SC), WHERE THE HON'BLE SUPREME COURT HAS CLEARLY STATED THAT COLORABLE DEV ICE CANNOT BE PART OF TAX PLANNING. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS GILLETTE DIVERSIFIES OPERATIONS (P) LTD. (APPEAL NO. 434/200 9) HAS ALSO HELD THAT THESE FACTORS COULD HAVE BEEN RELEVANT HAD THE TRIBUNAL F OUND THE TRANSACTIONS UNDERTAKEN BY THE ASSESSEE COMPANY WERE A COLORABLE DEVICE WITH A VIEW TO CAUSE A LOSS TO THE REVENUE. 4. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A). THE LD. AR SUBMITTED THAT ASSESSING OFFICER HAS NOT APPRECIATE D THE FACTS OF THE CASE AND HAS WRONGLY RELIED UPON THE AFORESAID TWO DECISIONS TO DISALLOW THE LOSS OF 56,76,211/-. THE TRANSACTION FOR SALE OF SHARES WAS WITHIN THE AMBIT OF LAW AND IT WAS BETWEEN THE GENUINE PARTIES. THE SALE PROCEE DS WERE UTILIZED IN THE REPAYMENT OF DEBTS IN ORDER TO REDUCE THE BURDEN OF THE INTEREST. THERE IS NO PROHIBITION UNDER ANY LAW TO PREVENT TRANSACTIONS O F SALE AND PURCHASE OF ITA NO.847/KOL/2013 A.Y. 2009-10 USHA MARTIN VENTURES LTD. V. DCIT CIR-6 KOL. PAGE 4 SHARES IN GROUP COMPANIES. LD. AR FURTHER STATED TH AT ONLY REASON FOR DISALLOWANCE OF LOSS WAS ALLEGED COLORABLE DEVICE TO REDUCE THE BURDEN OF TAX. NOW, THE QUESTION THAT HAS TO BE CONSIDERED I S AS TO WHETHER THE GENUINE AND LEGAL TRANSACTIONS RESULTING IN REDUCTION OF TA XES COULD BE CONSIDERED AS COLORABLE TRANSACTION. IN THE AFORESAID DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF MCDOWELL AND CO. LTD. (SUPRA) HELD THAT TAX PLANNING WAS ALLOWED IF IT IS WITHIN THE FRAME WORK OF LAW. THE PLANNING OF THE TAX CAN BE HELD AS COLORABLE IF IT IS RESORTED TO DUBIOUS METH ODS WHICH ARE NOT ALLOWED BY THE LAW. HOWEVER, LD. CIT(A) FOUND THAT THE BOOK VA LUE OF THE SHARE IS MUCH HIGHER THAN THE SALE PRICE. AS PER THE CALCULATION CONSIDERING THE BOOK VALUE OF THE SHARE THERE IS A PROFIT OF RS. 103636.00 AFTER INDEXATION. BESIDES THE BUYER COMPANY IS A MEMBER OF THE GROUP COMPANY THEREFORE THE OWNERSHIP OF THE SHARE IS LYING WITHIN THE GROUP ONLY. ACCORDINGLY, LD. CIT(A) DISREGARDED THE CLAIM OF ASSESSEE FOR THE LOSS OF RS. 56,76,211.00 AND WORKED OUT THE LTCG OF 1,03636/-. BEING AGGRIEVED BY THIS ORDER OF LD CIT(A) ASSESSEE PREFERRED SECOND APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIALS AVAILABLE ON RECORD. LD. AR SUBMITTED PAPER BOOK WHICH IS RUNNIN G AT PAGES 1 TO 71 AND INDEX OF CASE LAWS WHICH IS RUNNING AT PAGES 1 TO 4 3. ON ANALYZING THE CASE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MCDOWELL & CO LTD. (SUPRA) IT WOULD BE FOUND THAT TAX PLANNING MAY BE LEGITIM ATE PROVIDED IT IS WITHIN THE FRAMEWORK OF LAW. IN THE CASE ON HAND, THE GENUINE NESS OF THE TRANSACTIONS IS NOT DOUBTED. THERE IS NO ALLEGATION THAT THE LOSSES INCURRED ON SALE OF SHARES ARE NOT AUTHORIZED OR ILLEGAL. LD. AR SUBMITTED THA T WHEN THE TRANSACTIONS ARE GENUINE AND WITHIN THE AMBIT OF LEGAL PROVISIONS, T HE SAME COULD NOT BE TERMED AS COLORABLE DEVISE ON THE GROUND THAT THE S AID TRANSACTION RESULTED IN REDUCTION OF TAXES. THE ASSESSEE SUBMITS THAT IF TH E DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MCDOWELL AND CO LTD. (SUPRA) IS UNDERSTOOD IN ITA NO.847/KOL/2013 A.Y. 2009-10 USHA MARTIN VENTURES LTD. V. DCIT CIR-6 KOL. PAGE 5 THAT SENSE THEN EVERY TRANSACTION RESULTING IN LOSS ES OR WHERE THERE EXISTS PROVISIONS RELATION TO EXEMPTION OF INCOME FROM TAX WOULD BE CONSIDERED AS COLORABLE DEVISE. IN SUCH CASES, EVEN THE TRANSACTI ONS OF LTCG ON SALE OF STT PAID SHARES & SECURITIES RESULTING IN EXEMPT CA PITAL GAINS WOULD BE TREATED AS COLORABLE DEVISE SINCE THE LTCG WOULD RESULT IN REDUCTION / AVOIDANCE OF TAXES. THE ASSESSEE SUBMITS THAT THE A O WAS NOT JUSTIFIED IN ALLEGING THAT THE SALE OF SHARES RESULTING IN LOSES WAS COLORABLE DEVISE TO DISALLOW THE SAME FOLLOWING THE TWO DECISION RELIED BY LD. CIT(A). LD. AR FURTHER SUBMITTED THAT THE DECISION OF HON'BLE SUPR EME COURT IN THE CASE OF MCDOWELL AND CO LTD. (SUPRA) WAS NOT CORRECTLY UNDERSTOOD BY AO. THERE IT WAS FOUND THAT THE ASSESSEE RESORTED TO DUBIOUS MET HODS WHICH ARE NOT AUTHORIZED BY LAW TO AVOID EXCISE DUTY CHARGEABLE O N MANUFACTURER OF LIQUOR BY THE DEPARTMENT AND TRANSACTIONS, ITSELF WERE FOU ND TO BE ILLEGAL. IN THESE FACTS OF THE CASE, HON'BLE SUPREME COURT HELD THAT AVOIDING TAXES BY MEANS OF ILLEGAL TRANSACTIONS ADOPTING DUBIOUS METHOD GIV ING THEM THE SHAPE OF LEGALITY WOULD BE COLORABLE DEVICE. FURTHER, LD. AR SUBMITTED THAT IT IS FOR THE ASSESSEE TO ARRANGE ITS AFFAIRS IN A MANNER WHICH R EDUCES ITS TAX LIABILITY. SO FAR THE ASSESSEE DOES NOT VIOLATE THE PROVISIONS OF ANY STATUTE, THE TRANSACTIONS RESULTING IN REDUCTION OF TAXES COULD NOT BE TERMED AS COLORABLE DEVISE AS ENVISAGED IN THE CASE OF MCDOWELL AND CO LTD. (SUPRA). 6. ON THE OTHER HAND, LD. DR VEHEMENTLY RELIED ON T HE ORDERS OF AUTHORITIES BELOW. 7. FROM THE AFORESAID DISCUSSION, WE FIND THAT ASSE SSEE HAS SOLD SHARES TO ITS GROUP COMPANY AND BOOKED A LOSS OF 56,76,211/- UNDER THE HEAD CAPITAL GAINS. THE ASSESSING OFFICER FOUND THAT THE PURPOS E OF SELLING SHARE AT A PRICE LESS THAN MARKET VALUE/ BOOK VALUE WAS TO ESC APE FROM THE TAX LIABILITY THEREFORE, IT WAS DISALLOWED BY AO. HOWEVER, FROM T HE ABOVE FACTS, WE UNDERSTAND THAT GENUINENESS OF THE TRANSACTION OF S ALE AND PURCHASE OF SHARE WITH ASSESSEE AND BUYER-COMPANY HAS NOT BEEN DOUBTE D BY AO. THE LD. DR ITA NO.847/KOL/2013 A.Y. 2009-10 USHA MARTIN VENTURES LTD. V. DCIT CIR-6 KOL. PAGE 6 COULD NOT BRING ANYTHING ON RECORD THAT THE TRANSAC TION WAS A COLORABLE DEVICE TO REDUCE THE TAX LIABILITY. THERE HAS TO BE COGENT REASONS FOR HOLDING A TRANSACTION AS COLORABLE DEVICE TO REDUCE THE TAX L IABILITY. IN THE INSTANT CASE THE TRANSACTION WAS WITH THE GROUP COMPANY AND AT T HE PRICE LESS THAN THE BOOK VALUE. IN OUR VIEW THIS OBSERVATION OF THE AO DOES NOT MAKE THE TRANSACTION AS COLORABLE DEVICE TO REDUCE THE TAX B URDEN. WE ARE ALSO RELYING IN THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. SMT. NANDINI NOPANY (1998) 230 ITR 679 (CAL), WHERE THE HON'BLE JURISD ICTIONAL HIGH COURT HAS HELD:- UPON CONSIDERATION OF ALL THE ABOVE FACTS AND ALSO THE QUESTION THAT THE MARKET VALUE OF THE SHARES TRANSFERRED BY THE ASSES SEE WAS RS.20,67,876, THE ASSESSING OFFICER REJECTED THE CONTENTION OF TH E ASSESSEE REGARDING THE TRANSFER OF SHARES AND ADDED THE DIFFERENCE BETWEEN THE AMOUNT OF RS.13,34,392 AND RS.20,67,876 AND THUS HELD THAT TH E ASSESSEE HAD EARNED AN INCOME OF RS.7,57,382. BEING AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFOR E THE COMMISSIONER OF INCOME-TAX (APPEALS) WHO AFTER CONSIDERING THE FACT S AND CIRCUMSTANCES OF THE CASE REVERSED THE ORDER OF THE ASSESSING OFFICE R BEING OF THE OPINION THAT THERE WAS NO CASE FOR SUBSTITUTING THE DISCLOSED VA LUE OF CONSIDERATION ON TRANSFER BY THE SHARES AND HE ACCORDINGLY DELETED T HE ADDITION MADE ON THAT ACCOUNT IN THE INCOME OF THE ASSESSEE BY THE ASSESS ING OFFICER. BEING AGGRIEVED, THE REVENUE FILED AN APPEAL BEFORE THE TRIBUNAL. THE TRIBUNAL UPHELD THE FINDING OF THE COMMISSIONER OF INCOME-TAX (APPEALS) BY AGREEING WITH THE CONTENTIONS. THUS, UNDER THOSE CI RCUMSTANCES, THE AFORESAID QUESTION OF LAW HAS BEEN REFERRED TO US F OR OUR OPINION. THE GENUINENESS OF THE TRANSACTION OF THE SALE AND PURCHASE OF THE SHARES BETWEEN THE ASSESSEE AND VISHWA MANGAL TRADING CO. PVT. LTD., HAS NOT BEEN DOUBTED BY THE ASSESSING OFFICER. THIS HAS NOT EVEN BEEN QUESTIONED BY THE DEPARTMENT. IT IS NOT DISPUTED THAT THE ASSE SSEE HAD TRANSFERRED THOSE SHARES AT THE BOOK VALUE COST MAINTAINED BY HER. IT IS ALSO NOT DISPUTED THAT THE BOOK VALUE COST WAS LOWER THAN THE MARKET VALUE OF THE SHARES. IN FACT IT IS ADMITTED THAT THE MARKET VALUE OF THOSE SHARES WAS TO THE TUNE OF RS.20,67,876 UNDER THOSE CIRCUMSTANCES, HOLDING THAT THE ASSESSE E HAD DERIVED ANY INCOME, BEING THE DIFFERENCE BETWEEN THE MARKET VAL UE AND THE PRICE ON WHICH THE SHARES WERE SOLD BY THE ASSESSEE, IN OUR OPINIO N, WAS NOT CORRECT. WE ARE OF THE VIEW THAT THE TRIBUNAL RIGHTLY UPHELD THE FI NDING OF THE COMMISSIONER OF INCOME-TAX (APPEALS). IT IS NOT A CASE WHERE ANY UN DERSTATEMENT OF VALUE OR MISSTATEMENT OF VALUE OF THE SHARES SOLD WAS MADE B Y THE ASSESSEE. THIS IS A CASE WHERE THE ASSESSEE HAD SOLD THE SHARES AT A VA LUE ADMITTEDLY LOWER ITA NO.847/KOL/2013 A.Y. 2009-10 USHA MARTIN VENTURES LTD. V. DCIT CIR-6 KOL. PAGE 7 THAN THE MARKET PRICE. YET THE SHARES COULD NOT BE ASSESSED ON THE DIFFERENCE AMOUNT BEING HER INCOME BECAUSE NO INFERENCE CAN BE DRAWN IN THE FACTS AND CIRCUMSTANCES OF THE CASE THAT THE DESIGN OF THE AS SESSEE WAS SUCH THAT SHE CONCEALED CERTAIN FACTS AND SHE RECEIVED THE DIFFER ENCE OF THE VALUE BY FRAUDULENT MEANS THERE WAS NO EVIDENCE DIRECT OR IN FERENTIAL, NOR WAS THERE ANY FINDING BY ANY INCOME-TAX AUTHORITY THAT THE AS SESSEE INDULGED IN SUCH A PRACTICE. WE ARE FORTIFIED IN OUR VIEW BY A JUDGMEN T OF THE SUPREME COURT IN THE CASE OF CTT V. SHIVAKAMI CO. PVT. LTD. [1986] 159 ITR 71 (SC). WE ALSO FIND SUPPORT IN OUR VIEW FROM A DIVISION BENCH JUDG MENT OF THE BOMBAY HIGH COURT IN THE CASE OF INDIA FINANCE AND CONSTRUCTION CO. PVT. LTD. V. B.N.PANDA, DY. CTT [1993] 200 ITR 710 . TAKING A CONSISTENT VIEW OF HON'BLE SUPREME COURT I N THE CASE OF MCDOWELL AND CO LTD. (SUPRA) AND IN TERMS OF THE DECISION OF HON'BLE JU RISDICTIONAL HIGH COURT IN THE CASE OF SMT. NANDINI NOPANY (SUPRA), WE REVERSE THE ORDERS OF AUTHORITIES BELOW AND HOLD ACCORDINGLY. THESE COMMO N GROUNDS OF ASSESSEE ARE ALLOWED. 8. THE NEXT ISSUE RAISED BY THE ASSESSEE IN GROUND NO. 6 IS THAT THE LD. CIT(A) CONFIRMED THE ORDER OF AO BY SUSTAINING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT. 8.1 THE ASSESSEE HAS EARNED DIVIDEND INCOME AMOUNTI NG TO 2,55,97,302/- DURING THE ASSESSMENT YEAR 2009-10. THE INVESTMENT WAS MADE IN VARIOUS COMPANIES BUT ALL THE INVESTMENTS HAVE NOT GENERATE D THE DIVIDEND INCOME IN THE YEAR OF ASSESSMENT. THE ASSESSEE HAS VOLUNTARIL Y DISALLOWED THE FOLLOWING EXPENSES IN TERMS OF SEC. 14A OF THE ACT:- (1) DIRECT EXPENSE 3,45,670/- (DEMAT CHARGES 344932+SHARE TRANSFER CHARGES 738). (2) INTEREST EXPENSE U/S 14A OF THE ACT OF 34,29,673/- (3) 5% OF ADMINISTRATIVE EXPENSE 2,98,343/- 40,73,586.00 THE ASSESSING OFFICER HAS DISREGARDED AND IGNORED T HIS DISALLOWANCE WITHOUT ADDUCING ANY REASON. THE AO ALSO NOT RECORDED ANY D ISSATISFACTION WITH REGARD TO DISALLOWANCE MADE BY ASSESSEE IN TERMS OF SEC. 14A OF THE ACT. THE AO DIRECTLY INVOKED THE PROVISION OF SEC. 14A OF TH E ACT AND APPLIED RULE 8D ITA NO.847/KOL/2013 A.Y. 2009-10 USHA MARTIN VENTURES LTD. V. DCIT CIR-6 KOL. PAGE 8 OF THE I.T. RULES, 1962. THE RELEVANT EXTRACT OF TH E AO'S ORDER IS EXTRACTED BELOW FOR THE SAKE OF CLARITY :- IT IS NOTED THAT DURING THE YEAR THE ASSESSEE EARN ED TAX FREE INCOME BY WAY OF DIVIDEND, RENT AND INTEREST FORM BOND OF RS.2,55 ,97,302/- AGAINST WHICH THE ASSESSEE HAS ADJUSTED A SUM OF RS.40,73,686 U/S. 14 A OF INCOME-TAX ACT. HERE INTEREST DISALLOWANCE IS CALCULATED AT 34,29,6 73/-, OTHER EXPENSES IS ON THE BASIS OF 5% OF ADMINISTRATIVE EXPENSES AND DEMA T CHARGES OF RS.3,44,932/- ALL THE ABOVE CALCULATION IS UNDOUBTEDLY AN APPROXI MATION, WHEN SECTION 14A READ WITH RULE 8D HAS PRESCRIBED COMPUTATION FOR SU CH DISALLOWANCE ANY OTHER APPROXIMATION IS NOT ACCEPTABLE. MOREOVER, THE ASSE SSEE HAS ALSO GIVEN AN ANOTHER COMPLEX CALCULATION ON A NUMBER OF BASIS VI Z LOAN FOUND USED ON CLOSING BALANCE BASIS AS ON 31.03.09, LOAN FOUND US ED ON AVERAGE BASIS AS ON 31.03.09 AND ON DIRECT LOAN USED FOR INVESTMENT PURPOSE. ON 5 TH DECEMBER THE ASSESSEE HAS GIVEN ANOTHER SUBMISSION OF THE CO RE CONTENTION OF WHICH IS BORROWED FUND USED AND WHOLE LOT OF OTHER CALCULATI ON. THE ABOVE SUBMISSION OF THE ASSESSEE IS PERUSED BUT THE ASSESSEE IS ITSELF CONFUSED AS TO THE METHOD TO BE USED FOR DISALLOWIN G EXPENDITURE WHICH IS USED TO EARN INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. IT IS NOT UNDERSTANDABLE AS TO WHY THE ASSESSEE HAS SUBMITTED DIFFERENT METHOD FOR CALCULATION OF DISALLOWANCE U/S. 14A WHEN THE STATU TE HAS GIVEN A SIMPLE METHOD FOR CALCULATION OF SUCH EXPENDITURE. ON PERU SAL OF THE BALANCE SHEET AND P & L ACCOUNT AND TAX AUDIT REPORT AS WELL AS S UBMISSION DURING SCRUTINY PROCEEDINGS THE FOLLOWING WAS NOTED. THE AO FURTHER OBSERVED THAT OWN FUND OF ASSESSEE I S 51.43 CRORES AND LOAN FUND OF 48.99 CRORES. THE ASSESSEE MADE INVESTMENT IN SECU RITIES AT 69.46 CRORES BESIDES THE MONEY INVESTED IN FIXED ASSETS A ND CURRENT ASSETS. THEREFORE, AO OPINED THAT SUBSTANTIAL PORTION OF TH E BORROWED FUND HAS BEEN INVESTED IN SHARE (QUOTED SHARE AND UNQUOTED SHARE) AND MUTUAL FUND. ACCORDINGLY, AO INVOKED THE PROVISION OF SEC. 14A O F THE ACT AND MADE THE DISALLOWANCE AS UNDER :- 8(D) (I) DIRECT CHARGE = 3,44,932 + 738 = 3,45,670/ - ----------A A IN CASE WHERE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS WHICH ARE NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT INTEREST PAID 15,25,10,586/- B THE AVERAGE OF THE VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT OR SHALL NOT AS ON 01.04.08: RS.67,72,23,027/- 67,72,23,027/- 68,59,34,578 ITA NO.847/KOL/2013 A.Y. 2009-10 USHA MARTIN VENTURES LTD. V. DCIT CIR-6 KOL. PAGE 9 FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND LAST DAY OF THE PREVIOUS YEAR. AS ON 31.03.09 : RS.69,46,46,129/- 69,46,46,129/- C AVERAGE OF THE TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET ON THE FIRST DAY AND LAST DAY OF PREVIOUS YEAR AS ON 01.04.08: FIXED ASSETS; 3,60,73,135/- INVESTMENTS: 67,72,23,027 CURRENT ASSETS: 84,56,52,316 155,89,48,478 128,15,85,573 AS ON 31.03.09: FIXED ASSETS; 64,96,447 INVESTMENTS: 69,46,46,129/- CURRENT ASSETS: 30,30,80,091 100,42,22,667/- 8(D) (II) = A X B/C = 15,25,10,586 X 68,59,34,578 = 8,16,27,233/- --------C 128,15,85,573 8(D) (III): AN AMOUNT EQUAL TO 0.5% OF THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AS ON 01.04.08: RS.67,72,23,027/- 67,72,23,027/- 68.59.3457 X 0.5% AS ON 31.03.09 : RS.69,46,46,129/- 69,46,46,129/- 8(D) (III) = 34,29,673/- ----------B TOTAL =A + B + C = 3,45,670 + 8,16,27,133 + 34,29,6 73 + = 8,54,02,576/- 9. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE LD . CIT(A) WHO OBSERVED THAT THE AO HAD RECORDED HIS DISSATISFACTI ON BY MENTIONING THAT THE ASSESSEE HAS NOT BEEN ABLE TO ESTABLISH WITH SUFFIC IENT MATERIAL THAT THE MANNER OF CALCULATING THE AMOUNT DISALLOWABLE FOR E ARNING THE EXEMPTED INCOME WAS CORRECT METHOD. ONCE ASSESSEE FAILS TO E STABLISH ITS EXPLANATION REGARDING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT THEN THE ONLY COURSE AVAILABLE FOR WORKING OUT THE AMOUNT DISALLOWABLE I S THE APPLICATION OF RULE 8D OF THE IT RULES. BEFORE THE LD. CIT(A) THE ASSESSEE SUBMITTED THAT THE AO HAS WITHOUT RECORDING HIS SATISFACTION REGARDING THE WO RKING OF THE ASSESSEE HAS DIRECTLY INVOKED THE PROVISIONS OF RULE 8D WHICH IS NOT CORRECT. THE ASSESSEE SUBMITTED THAT .5% OF THE AVERAGE VALUE OF INVESTME NT SHOULD BE CONSIDERED AS REASONABLE FOR THE WORKING OF DISALLOWABLE INTER EST. THE ASSESSEE ALSO SUBMITTED THAT THE AMOUNT OF DISALLOWANCE, IN ANY C ASE, SHOULD BE CALCULATED ITA NO.847/KOL/2013 A.Y. 2009-10 USHA MARTIN VENTURES LTD. V. DCIT CIR-6 KOL. PAGE 10 WITH REFERENCE TO THE AMOUNT OF BORROWED FUNDS USED FOR ACQUIRING INVESTMENTS. THE QUANTUM OF BORROWED FUNDS USED FOR SUCH INVESTMENTS COULD BE ARRIVED AT BY REFERENCE TO THE FOLLOWING DECISIO NS: I) CIT VS RELIANCE UTILITIES & POWER LTD. (2009) 17 8 TAXMAN 135 (BOM) II) CIT VS. DHAMPUR SUGAR MILLS LTD. 274 ITR 370 (A LL) III) BRITANNIA INDUSTRIES LTD. VS. JCIT 271 ITR 123 (CAL) IV) BUNGE AGRIBUSINESS (INDIA) (P) LTD. V. DY. CIT (2011) 64 DTR 201 (MUM.) (TRIB.) IN THE ABOVE CASES IT WAS HELD THAT THE AVAILABLE F UNDS OF THE COMPANY SHOULD BE TREATED AS INVESTED IN TAX FREE SECURITIES. THUS ONLY BALANCE AMOUNT OF INVESTMENT MAY BE TREATED AS HAVING BEEN MADE OUT O F BORROWED FUNDS. ACCORDINGLY, INTEREST ON SUCH AMOUNT ONLY COULD BE CONSIDERED AS DISALLOWABLE U/S. 14A OF THE ACT. THE ASSESSEE FURT HER SUBMITTED WITHOUT THE PREJUDICE OF ABOVE THAT THE DISALLOWANCE U/S. 14A C OULD NOT EXCEED THE AMOUNT OF TAX FREE INCOME EARNED DURING THE YEAR. N O DISALLOWANCE U/S 14A COULD BE MADE U/S. 14A UNLESS THE REVENUE ESTABLISH ES THE FACT OF INCURRING OF THE EXPENDITURE IN RELATION TO EARNING OF TAX FR EE INCOME. THE ONUS IS ON REVENUE WHICH HAS NOT BEEN DISCHARGED IN THIS CASE. IN THE ABSENCE OF SATISFACTION RECORDED BY THE ASSESSING OFFICER ABOU T THE ASSESSEES CLAIM OF EXPENSES RELATABLE TO EXEMPT INCOME, RULE 8D CANNOT BE APPLIED TO DISALLOW EXPENSES. RELIANCE IS PLACED TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT IN [(2011) 203 TAXMAN 364 (DEL)]. THE ASSESSEE FURTHER ADDED THAT THE DISALLOWANCE OF INTEREST U/S. 14A SHOULD BE RECALCULATED. WHILE MAKING CALCULATION OF AVERAG E OF INVESTMENTS AS ON THE BEGINNING OF YEAR AND AT THE END OF YEAR SHOULD BE THOSE SHARES AND SECURITIES ON WHICH THE COMPANY HAS RECEIVED EXEMPT DIVIDEND DURING THE YEAR. THE VALUE OF THOSE SHARES ON WHICH NO DIVIDEN D HAS BEEN RECEIVED DURING THE RELEVANT YEAR SHOULD BE EXCLUDED IN AS M UCH AS THERE COULD BE A CASE OF EARNING INCOME THERE FROM WHICH IS CHARGEAB LE TO SHORT TERM CAPITAL GAINS AND/OR LONG TERM CAPITAL GAINS (WITHOUT STT). THIS SITUATION IS THERE IN THE IMPUGNED ASSESSMENT ORDER ALSO. THIS EXPLANATIO N WAS ACCEPTED BY THE ITA NO.847/KOL/2013 A.Y. 2009-10 USHA MARTIN VENTURES LTD. V. DCIT CIR-6 KOL. PAGE 11 ASSESSING OFFICER IN OUR CASE ONLY IN THE ASSESSMEN T YEAR 2007-08. THE COPY OF THE ASSESSMENT ORDER IS ENCLOSED AT PAGES 396-400 OF THE PAPER BOOK. ONCE THE ISSUE IS SETTLED IN AN EARLIER YEAR THEN T HAT SHOULD NOT BE DISTURBED IN THE SUBSEQUENT YEAR AS HELD BY HONBLE CALCUTTA HIG H COURT IN THE CASE OF MUKTI PROPERTIES PVT. LTD. VS. CIT IN ITA NO. 95 OF 2009. HOWEVER THE LD. CIT(A) OBSERVED THAT THERE ARE NUME ROUS KIND OF EXPENSES WHICH ARE INCURRED IN AN ORGANIZATION. THE PROVISIO NS OF SECTION 14A COVER ALL THOSE EXPENSES PROVIDED THEY HAVE THE CONNECTION WI TH THE EXEMPTED INCOME. THE ORGANIZATION REQUIRES LOT OF MANAGEMENT EXPERTI SE AS THE DECISION FOR MAKING THE INVESTMENTS ARE VERY COMPLEX IN NATURE. THERE IS LOT OF FUND INVOLVEMENT. MANY BOARD MEETINGS OF THE DIRECTORS A RE REQUIRED TO BE CONDUCTED IN WHICH LOT OF ADMINISTRATIVE EXPENSES A RE INCURRED. THE LD. CIT(A) RELIED ON THE FOLLOWING DECISIONS IN SUPPORT OF HIS CONTENTIONS : (A) ACIT VS. CHAMPION COMMERCIAL CO. LTD. ITAT KOLK ATA BENCH IN ITA NO. 644/KOL/2012 FOR A.Y 2008-09 (B) ISG TRADERS LTD. V. CIT IN 2011-TOIL-621-HC-KOL -IT DATED 29.05.2002 (C) DHANUKA & SONS V. CIT (2011) 339 ITR 319 (CAL) (D) TECHNOPAK ADVISORS (P) LTD. V. ACIT ITAT DELHI BENCH (E) CHEMINVEST LTD. V. ITO 121 ITD 318 (DEL) (SB) (F) SONATA INFORMATION TECHNOLOGY LTD. V. DCIT ITA NO.1507/MUM/2012 DATED 07.09.2012 (G) HINDUSTAN CONSTRUCTION CO. LTD. V. DCIT ITA NO. 6438 TO 6441/MUM/2008 DATED 28.09.2012 (H) DCIT V. M/S TRADE APARTMENT LTD. ITA NO. 1277/K OL/2011 DATED 31.03.2012 ITAT KOLKATA BENCH (I) M/S GILLETTE GROUP INDIA PVT. LTD. V. ACIT ITA NO. 267/DEL/2012 DATED 23.03.2012 (J) M/S SEARCH ENVIRO LTD. V. ACIT ITA NO. 3464/MUM /2011 DATED 02.03.2012. ITA NO.847/KOL/2013 A.Y. 2009-10 USHA MARTIN VENTURES LTD. V. DCIT CIR-6 KOL. PAGE 12 FINALLY THE LD. CIT(A) HAS WORKED OUT THE DISALLOWA NCE UNDER SECTION 14A READ WITH RULE 8D BY OBSERVING AS UNDER : 51. THE ASSESSING OFFICER HAS CALCULATED THE INTER EST UNDER RULE 8D(2)(II) BY TAKING THE VALUE OF THE NET ASSETS RATHER THAN THE GROSS ASSETS. THE APPELLANT HAS SUBMITTED THAT TOTAL ASSETS ARE TO BE TAKEN AS DENOMINATOR RATHER THAN THE NET ASSETS FOR CALCULATION OF DISALLOWANCE UNDER RU LE 8D(2)(II). THE PLEA OF THE APPELLANT IS HELD TO BE CORRECT SINCE THE RULE 8D(3 ) PROVIDES THAT FOR THE PURPOSES OF THIS RULE, THE TOTAL ASSETS SHALL MEAN, TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET EXCLUDING THE INCREASE ON ACCO UNT OF REVALUATION OF ASSETS BUT INCLUDING THE DECREASE ON ACCOUNT OF REV ALUATION OF ASSETS. IT DOES NOT PROVIDE THAT ONLY CURRENT ASSERTS, LOANS AND AD VANCES ARE TO BE TAKEN BUT IT PROVIDES THAT TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET ARE TO BE TAKEN FOR THE PURPOSES OF CALCULATION IN RULE 8D. T HE ASSESSING OFFICER IS DIRECTED TO TAKE THE TOTAL ASSETS AS APPEARING IN T HE BALANCE SHEET EXCLUDING ONLY THE INCREASE EON ACCOUNT OF REVALUATION OF ASS ETS BUT INCLUDING THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS WHILE CALCULATING DISALLOWANCE OF EXPENSES AS PER RULE 8D(2)(II). ACCORDINGLY, LD. CIT(A) WORKED OUT THE DISALLOWANCE AS UNDER:- 8(D) (I) DIRECT EXPENSES : (A) DEMAT CHARGE RS.3,44 ,932 + (B) SHARE TRANSFER EXPENSES RS.738/- = TOTAL EXPENDITURE RS.3,45,670/- -------- A A IN CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST NET INTEREST PAID (NET) 14,38,16,937/- B THE AVERAGE OF THE VALUE OF INVESTMENT AS ON 01.04.08 : RS.67,72,23,027/- AS ON 31.03.09: RS.69,46,46,129/- AVERAGE VALUE OF INVESTMENTS RS.68,59,34,578/- C AVERAGE OF THE TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET ON THE FIRST DAY AND LAST DAY OF PREVIOUS YEAR AS ON 01.04.08: FIXED ASSETS. 3,60,73,135/- INVESTMENT: 67,72,23,027/- CURRENT ASSETS: 1,52,43,31,249/- TOTAL ASSETS= RS.2,23,76,27,411/- AS ON 31.03.09: FIXED ASSETS: 64,96,447 INVESTMENTS: 69,46,46,129/- CURRENT ASSETS: 33,12,97,078/- TOTAL ASSETS= RS.1,03,24,39,654/- 8(D) (II) = A X B/C = 14,38,16,937 X 68,59,34,578 = RS.6,03,34,549/-----C 1,63,50,33,532 /- 8(D) (III): AN AMOUNT EQUAL TO 0.5% OF THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AS ON 01.04.08: RS.67,72,23,027/- AS ON 31.03.09 RS.69,46,46,129/- AVERAGE VALUE OF INVESTMENTS RS.68,59,34,578 X 0.5% = RS.34,29,673/- ITA NO.847/KOL/2013 A.Y. 2009-10 USHA MARTIN VENTURES LTD. V. DCIT CIR-6 KOL. PAGE 13 8(D) (III) = RS.34,29,673/----------B TOTAL= A=B=C = 3,46,670 + 6,03,34,549 + 34,29,673+ = RS.66,41,09,892/- LD. CIT(A) HAS SUSTAINED THE DISALLOWANCE OF 6,41,09,892/- UNDER THE PROVISIONS OF SECTION 14A OF THE ACT. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) ASSESSE E CAME IN SECOND APPEAL BEFORE US. 10. BEFORE US LD. AR SUBMITTED THAT THE FINDING GIV EN BY THE LD. CIT(A) THAT THE AO HAD RECORDED HIS SATISFACTION IN TERMS OF RU LE 8D(1) OF THE IT RULES IS BASED ON INCORRECT FACTS. LD. AR FURTHER ARGUED THA T THE RECORDING OF SATISFACTION IN TERMS OF SEC. 14A OF THE ACT READ W ITH RULE 8D(1) OF THE IT RULES IS MANDATORY FOR THE AO BEFORE RESORTING TO R ULE 8D(2). IN THIS CONNECTION, LD AR RELIED ON THE FOLLOWING DECISIONS WITH REGARD TO HIS CONTENTIONS:- CIT VS ASHISH JHUNJHUNWALA IN GA NO. 2990 OF 2013 IN ITAT NO. 157 OF 2013 DATED 08.01.2014 RENDERED BY HONBLE JU RISDICTIONAL HIGH COURT CIT VS. R.E.I. AGRO LTD IN GA 3022 OF 2013 IN ITAT 161 OF 2013 DATED 23.12.2013 RENDERED BY HONBLE JURISDICTIONAL HIGH COURT LD. AR FURTHER ARGUED THAT INVESTMENTS WHICH HAVE N OT GIVEN ANY YIELD IN THE FORM OF DIVIDEND INCOME DURING THE YEAR NEEDS TO BE EXCLUDED FOR THE PURPOSE OF DISALLOWANCE U/S 14A OF THE ACT. THE INVESTMENT MADE IN GROUP COMPANIES SHOULD BE CONSTITUTED AS STRATEGIC INVESTMENT, HENC E, THE PROVISION OF SEC. 14A OF THE ACT SHOULD NOT BE APPLIED. 11. ON THE OTHER HAND LD. DR SIMPLY RELIED ON THE O RDERS OF AUTHORITIES BELOW. 12. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE ABOVE DISCUSSION, WE FIND THAT THE ASSESSEE HAS DECLARED ITA NO.847/KOL/2013 A.Y. 2009-10 USHA MARTIN VENTURES LTD. V. DCIT CIR-6 KOL. PAGE 14 THE DIVIDEND INCOME AND HAS ALSO DISALLOWED THE EXP ENSES IN TERMS OF THE PROVISIONS OF SECTION 14A OF THE ACT. BUT THE AO DI SREGARDED THE CLAIM OF THE ASSESSEE AND IN INVOKED RULE 8D OF THE IT RULES WIT HOUT RECORDING THE SATISFACTION BY VIRTUE OF THE PROVISION OF SEC. 14A OF THE ACT AND EXAMINING THE ACCOUNTS OF THE ASSESSEE. WE UNDERSTAND THAT WHILE REJECTING THE CLAIM OF ASSESSEE WITH REGARD TO EXPENDITURE IN RELATION TO EXEMPT INCOME, AO HAS TO INDICATE COGENT REASONS FOR THE SAME. WE FIND THAT THE AO HAD STRAIGHT AWAY COMPUTED DISALLOWANCE UNDER RULE 8D(2) OF THE IT RU LES. WE FIND THAT THE CASE LAWS RELIED UPON BY LD AR ON THE DECISION OF T HE JURISDICTIONAL HIGH COURT ARE DIRECTLY ON THIS POINT AND IS IN FAVOUR OF ASSE SSEE:- CIT V. ASHISH JHUNJHUNWALA IN G.A. NO.2990 OF 2013 IN ITAT NO. 157 OF 2013 DATED 08.01.2014 RENDERED BY HON'BLE CALCUT TA HIGH COURT, WHERE HON'BLE COURT HAS HELD:- WHILE REJECTING THE CLAIM OF THE ASSESSEE WITH REGA RD TO EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAY BE, IN RELATION TO EXE MPTED INCOME, THE AO HAS TO INDICATE COGENT REASONS FOR THE SAME. FROM THE F ACTS OF THE PRESENT CASE, IT IS NOTICED THAT THE ASSESSING OFFICER HAS NOT CONSI DERED THE CLAIM OF THE ASSESSEE AND STRAIGHT AWAY EMBARKED UPON COMPUTING DISALLOWANCE UNDER RULE 8D OF THE RULES ON PRESUMING THE AVERAGE VALUE OF INVESTMENT AT % OF THE TOTAL VALUE. IN VIEW OF THE ABOVE AND RESPECTF ULLY FOLLOWING THE COORDINATE BENCH DECISION IN THE CASE OF J.K. INVESTORS (BOMBA Y0 LTD., SUPRA, WE UPHOLD THE ORDER OF CIT(A). CIT VS. R.E.I. AGRO LTD IN GA 3022 OF 2013 IN ITAT 161 OF 2013 DATED 23.12.2013 RENDERED BY CALCUTTA HIGH COURT. THE ASSESSING OFFICER ALSO DISALLOWED THE EXPENDIT URE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 WITHOUT FIRST RECORDING TH AT HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM AS REGARDS THE CLAIM T HAT NO EXPENDITURE WAS MADE BY THE ASSESSEE. CHALLENGING THE ORDER OF THE TRIBUNAL, THE PRESENT APPEAL HAS BEEN FILED. WE HAVE HEARD MR. BHOWMIK AND ARE OF THE OPINION TH AT NO POINT OF LAW HAS BEEN RAISED. THEREFORE, THIS APPEAL IS DISMISSED. THE AFORESAID TWO DECISIONS BY THE HONBLE JURISDIC TIONAL HIGH COURT ARE BINDING ON THIS TRIBUNAL. WE FIND THAT THE FACTS I N THE ABOVE-STATED CASE OF LAW ARE TOTALLY DIFFERENT FROM THE FACTS OF THE INSTANT CASE AND MOREOVER, WHEN ITA NO.847/KOL/2013 A.Y. 2009-10 USHA MARTIN VENTURES LTD. V. DCIT CIR-6 KOL. PAGE 15 THERE ARE TWO CONFLICTING DECISIONS OF THE SAME COU RT OR DIFFERENT COURTS ON THE SAME ISSUE, THEN THE DECISION FAVORABLE TO THE ASSE SSEE HAS TO BE FOLLOWED. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION O F THE HON'BLE SUPREME COURT IN THE CASE OF CIT V. VEGETABLE PRODUCTS (1973) 88 ITR 172 (SC) HENCE, WE HOLD THAT THE ACTION OF THE AO IN DIRECTLY EMBARKIN G ON RULE 8D(2) OF THE IT RULES IS NOT APPRECIATED AND HENCE NO DISALLOWANCE UNDER SECTION 14A OF THE ACT COULD BE MADE IN THE FACTS OF THE CASE. WE ALSO FIND THAT THE INVESTMENTS MADE IN THE GROUP COMPANIES BY THE ASSESSEE ARE ONL Y STRATEGIC INVESTMENTS AND WERE MADE WITH A PRIMARY OBJECT TO ACQUIRE CONT ROLLING INTEREST IN GROUP CONCERNS AND NOT FOR EARNING ANY INCOME OUT OF THAT INVESTMENT AND RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF CO-ORDI NATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS. SELVEL ADVERTISING PVT. LTD. ( 2015)58 TAXMANN.CON 196 (KOL) (TRIB.). WE HOLD THAT EVEN ON THIS COUNT, NO DISALLOWANCE U/S. 14A OF THE ACT COULD BE MADE BY THE AO. WE ALSO FIND THAT THE INVESTMENTS WHICH DID NOT YIELD ANY DIVIDEND INCOME NEEDS TO BE EXCLUDED FROM THE COMPUTATION OF DISALLOWANCE, IF ANY, U/S. 14A OF THE ACT READ WITH RULE 8D OF THE IT RULES AS THE BASIC INTENTION BEHIND INTRODUCTION OF SECTION 14A OF THE ACT ITSELF IS ONLY TO DISALLOW THE EXPENDITURE INCURRED FOR EARNING AN IN COME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. WHEN THERE IS NO INCOME W HICH IS CLAIMED AS EXEMPT, THEN THERE IS NO SCOPE FOR PROVISIONS OF SEC. 14A O F THE ACT OPERATE. WE AGREE WITH THE ARGUMENTS OF LD. AR IN THIS REGARD AND REL IANCE IN THIS REGARD IS PLACED ON THE FOLLOWING DECISIONS: ALLIANCE INFRASTRUCTURE PROJECTS PVT LTD. VS. DCIT IN ITA NO. 220 & 1043 (BNG.)/2013 FOR AY 2009-10 & 2010-11 DATED 1209.201 4 BANGALORE TRIBUNAL) CIT V. CORRECH ENERGY PVT LTD REPORTED IN 352 ITR 97 (GUJ) CIT VS. SHIVAM MOTOR IN ITA NO. 88 OF 2014 DATED 0 5.05.2014 RENDERED BY ALLAHABAD HIGH COURT. CIT VS LAKHANI MARKETING IN ITA NO. 970 OF 2008 RE NDERED BY PUNJAB & HARYANA HIGH COURT. ITA NO.847/KOL/2013 A.Y. 2009-10 USHA MARTIN VENTURES LTD. V. DCIT CIR-6 KOL. PAGE 16 CIT VS. DELITE ENTERPRISES IN ITA NO. 110 OF 2009 RENDERED BY BOMBAY HIGH COURT. WE FIND THAT THE DECISION OF SPECIAL BENCH OF THE T RIBUNAL IN THE CASE OF CHEMINVESTE LTD. V. CIT REPORTED IN 121 ITD 318 HAD HELD THAT DISALLOWANCE U/S 14A COULD BE MADE EVEN IN A YEAR IN WHICH NO EX EMPT INCOME WAS EARNED OR RECEIVED BY THE ASSESSEE. BUT THIS DECISION HAS BEEN OVERRULED BY BANGALORE TRIBUNAL, HONBLE GUJARAT HIGH COURT AND HONBLE ALLAHABAD HIGH COURT AS STATED SUPRA. MOREOVER, WE ALSO FIND THAT THE SPECIAL BENCH DECISION IN CHEMINVEST LTD . (SUPRA) HAS BEEN OVERRULED BY THE RECENT DECISION OF THE HONBLE DELHI HIGH COURT IN C HEMINVEST LTD. (SUPRA) CASE ITSELF AND HENCE IT IS NO LONGER GOOD LAW. HENCE, WE HOLD IN FAVOUR OF THE ASSESSEE THE ALTERNATIVE ARGUMENT OF THE LD. AR THAT ONLY INVESTMENTS YIELDI NG DIVIDEND INCOME DURING THE YEAR SHOULD BE CONSIDERED FOR DISALLOWANCE U/S. 14A OF THE ACT. RESPECTFULLY FOLLOWING THE AFORESAID JUDICIAL PRECE DENTS, WE HAVE NO HESITATION IN DIRECTING THE AO TO DELETE THE ADDITION MADE U/S . 14A OF THE ACT. ACCORDINGLY, THIS GROUND RAISED BY ASSESSEE IS ALLO WED. 13. COMING TO LAST GROUND RAISED BY ASSESSEE IS THA T WHETHER THE DISALLOWANCE U/S. 14A OF THE ACT SHOULD BE MADE TO BOOK PROFIT COMPUTED U/S.115JB OF THE ACT. 14. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US, LD. DR VEHEMENTLY RELIED ON T HE ORDERS OF AUTHORITIES BELOW. LD. AR SUBMITTED THAT RULE 8D OF THE IT RULE S IS MEANT ONLY FOR COMPUTATION OF INCOME UNDER NORMAL PROVISIONS OF TH E ACT AND NOT FOR BOOK PROFIT U/S. 115JB OF THE ACT. ON THE CONTRARY, LD. DR ARGUED THAT THE DISALLOWANCE U/S 14A OF THE ACT WOULD AUTOMATICALLY FALL IN CLAUSE (F) OF EXPLANATION TO SEC. 115JB OF THE ACT AND HENCE NEED S TO BE ADDED BACK FOR COMPUTATION OF BOOK PROFITS U/S. 115JB OF THE ACT. WE FIND LOT OF FORCE IN THE ARGUMENT OF THE LD AR THAT COMPUTATION OF DISALLOWA NCE UNDER RULE 8D OF THE ITA NO.847/KOL/2013 A.Y. 2009-10 USHA MARTIN VENTURES LTD. V. DCIT CIR-6 KOL. PAGE 17 IT RULES CAN BE USED ONLY FOR COMPUTATION OF INCOME UNDER NORMAL PROVISIONS OF THE ACT AND NOT FOR BOOK PROFITS U/S. 115JB OF T HE ACT. UNLESS AN ITEM IS DEBITED IN THE PROFIT AND LOSS ACCOUNT, THE SAME CA NNOT BE THE SUBJECT-MATTER OF ADDITION TO BOOK PROFITS UNDER CLAUSE (F) OF EXP LANATION TO SEC. 115JB OF THE ACT. THE DISALLOWANCE MADE U/S 14A OF THE ACT READ WITH RULE 8D OF THE IT RULES IS ONLY ARTIFICIAL DISALLOWANCE AND OBVIOUSLY THE SAME IS NOT DEBITED IN THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE AND SAM E CANNOT BE IMPORTED INTO CLAUSE (F) OF EXPLANATION TO SEC. 115JB OF THE ACT. WE HAVE ALREADY HELD THAT NO DISALLOWANCE U/S. 14A OF THE ACT WOULD OPERATE I N THE FACTS AND CIRCUMSTANCES OF THE CASE. ACCORDINGLY, WE REVERSE THE ORDERS OF AUTHORITIES BELOW AND ALLOW GROUND RAISED BY ASSESSEE. 15. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 29/ 02/2016 SD/- SD/- (MAHAVIR SINGH) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP !- 29 / 02 /201 6 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-USHA MARTIN VENTURES LTD., 24, R.N.MUKHE RJEE ROAD, 2 ND FLOOR KOL-01 2. /RESPONDENT-DCIT, CIRCLE-6, AAYKAR BHAWAN, P7, CHOW RINGHEE SQUARE, KOL-69 3. ) *+ , , - / CONCERNED CIT KOLKATA 4. , , -- / CIT (A) KOLKATA 5. 012 33*+, , *+ , / DR, ITAT, KOLKATA 6. 267 89 / GUARD FILE. BY ORDER/ , , /TRUE COPY/ / , *+ ,
Mehul