ACIT, Central Circle-3(3), Kolkata, Kolkata V. Smt. Madhu Devi Saraf, Kolkata

ITA 858/KOL/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 5962 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 27-04-2017
• Result in Favour of: Set Aside
• Court: TRIBUNAL
• Department Lawyers: A BHATTACHARJEE
• Assessee Lawyers: PARAS NATH KESHARI FCA LD
• Keywords: Business expenditure; Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : D BENCH , KOLKATA BEFORE : SHRI WASEEM AHMED , ACCOUNTANT MEMBER AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO. 858 /KOL/201 7 A. Y 20 13 - 14 A .C.I.T, C C. 3(3), KOLKATA VS. SMT. MADHU DEVI SARAF PAN: A LIPS 0989F [ APP ELLANT ] [ RESPONDENT ] APPELLANT / DEPARTMENT BY : SHRI A. BHATTACHARJEE, ADDL. CIT, LD.SR.DR RESPONDENT / ASSESSEE BY : SHRI PARAS NATH KESHARI, FCA , LD.AR DATE OF HEARING : 03 - 05 - 2018 DATE OF PRONOUNCEMENT : 31 - 0 7 - 2018 ORDER S HRI S.S.VISWANETHRA RAVI, JM: THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DT. 16 - 02 - 2017 PASSED BY THE CIT - A, 10, KOLKATA FOR THE A.Y 2013 - 14. 2. THE ONLY EFFECTIVE ISSUE IN THIS APPEAL IS TO BE DECIDED AS TO WHETHER THE CIT - A JUSTIFIED IN DELETING THE IMPUGNED ADDITION MADE U/S. 14A R.W.R 8D OF THE IT RULES, 1962 WITHOUT APPRECIATING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DHANUKA & SONS VS. CIT REPORTED IN (2011) 339 ITR 319 (CAL) IN THE FA CTS AND CIRCUMSTANCES OF THE CASE. 3. DURING THE ASSESSMENT PROCEEDINGS THE AO FOUND THAT THE ASSESSEE INVESTED LARGE FUND IN SECURITIES, INCOME ON WHICH IS NOT CHARGEABLE TO TAX. ON PERUSAL OF ACCOUNTS OF ASSESSEE THE AO FOUND THAT THE ASSESSEE HAS EARNE D DIVIDEND OF RS. 2,39,34,566/ - AND INTEREST O N PPF OF RS.7,46,233/ - AND LTCG ON SALE OF SHARES OF RS.8,48,41,144/ - . THE AVERAGE INVESTMENT OF ASSESSEE DURING THE YEAR UNDER CONSIDERATION OF RS. 54,62,03,080/ - . THE AO FOUND THAT THE ASSESSEE HERSELF OFFER ED A DISALLOWANCE OF RS.27,31,015/ - U/S. 14A OF THE ACT WITHOUT ANY BASIS OF ITA NO . 858/KOL/2017 SMT. MADHU DEVI SARAF 2 COMPUTATION . THE AO ASKED THE ASSESSEE TO EXPLAIN THE BASIS OF SUCH COMPUTATION OF DISALLOWANCE OFFERED BY HER, BUT, SHE FAILED TO DO SO. THE AO FOUND THAT THE ASSESSEE EARNED TOT AL INTEREST INCOME OF RS.8,47,90,897/ - AND INCURRED EXPENSES ON INTEREST OF RS. 2,45,80,137/ - . CONSIDERING THE SUBMISSIONS OF ASSESSEE, THE AO MADE DISALLOWANCE U/S. 14A OF THE ACT OF RS. 80,51,620/ - AND ADDED THE SAME TO THE TOTAL INCOME OF ASSESSEE BY AN ORDER DT. 21 - 12 - 2015 PASSED U/S. 143(3) OF THE ACT. 4. BEFORE THE CIT - A THE ASSESSEE HAS RELIED ON VARIOUS CASE LAWS IN SUPPORT OF HER CONTENTION/CLAIM. THE CIT - A DELETED THE IMPUGNED ADDITION MADE US/. 14A R.W.R 8D THOROUGHLY ANALYZING THE CASE LAWS AS R ELIED ON BY THE ASSESSEE. 5. BEFORE US THE LD.DR SUBMITS THAT THE CIT - A HAS ERRED IN DELETING THE IMPUGNED ADDITION WITHOUT CONSIDERING THE VERDICT OF THE HONBLE JURISDICTIONAL HIGH COURT OF CALCUTTA. 6. ON THE OTHER HAND, THE LD. A R SUBMITS THAT THE IS SUE IN HAND IS COVERED BY THE ORDER DT. 26 - 12 - 2017 IN ASSESSEES OWN CASE, ITA NO. 1131/K/2015 FOR THE A.Y 2011 - 12 AND REFERRED TO RELEVANT PARAS OF THE ORDER DT. 26 - 12 - 2017 . 7. HEARD RIVAL SUBMISSIONS AND PERUSED THE RECORD INCLUDING THE SAID ORDERS OF THE CO - ORDINATE BENCH, ITAT, KOLKATA, IN ASSESSEES OWN CASE. ON PERUSAL OF ASSESSMENT ORDER, WE FIND THAT THE AO INVOKED RULE 8D AND MADE IMPUGNED ADDITION UNDER RULE 8D(2)(II) & (III) . WE FIND THAT THE CIT - A HELD THAT OWN CAPITAL OF ASSESSEE IS MORE TH AN THE INVESTMENTS MADE AND AS SUCH DELETED THE ADDITION MADE BY THE AO ON THIS ISSUE. WE FIND THAT THE ASSESSEE ON HER OWN DISALLOWED 25 LAKHS IN THE RETURN OF INCOME AND NO DISALLOWANCE UNDER RULE 8D(2)(III) IS NOT NECESSARY AND AS SUCH DELETED THE SAM E. WE FIND THAT IDENTICAL ISSUE ON IDENTICAL/SIMILAR FACTS IN ASSESSEES OWN CASE FOR THE A.Y 2011 - 12 HE TRIBUNAL DISCUSSED THE MATTER AS UNDER: - ITA NO . 858/KOL/2017 SMT. MADHU DEVI SARAF 3 7. NOW COMING TO DISALLOWANCE MADE BY THE AO UNDER RULE 8D(2)(III) OF L.T RULES, 1962. AT THE OUTSIDE, I T WAS OBSERVED THAT ASSESSEE HAS SUM MOTU MADE THE DISALLOWANCE OF RS. 15 LACS AGAINST THE EXEMPTED INCOME EARNED BY IT DURING THE YEAR. HOWEVER, THE A O HAS INVOKED THE PROVISION OF RULE 8D(2)(III) WITHOUT RECORDING THE SATISFACTION AS ENVISAGED UNDER THE PROVISION OF SECTION 14A OF THE ACT. WE ALSO FIND THAT IN SIMILAR FACTS AND CIRCUMSTANCE, THE HON'BLE CO - ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE IN IMMEDIATE PRECEDING AY 2010 - 11 HAS DELETED THE ADDITION BY OBSERVI N G AS UNDER: '5. DISALLO WANCE OF R S. 15,00,632/ - THE AO HAS ADDED RS.1 5 , 00, 632 / - OUT OF RS.41, 49, 216 / - DEBITED AS BUSINESS EXPENSES. THE A O HAS ARGUED THAT THE APPELLANT'S INCOME IS MAINLY INTEREST INCOME FROM VARIOUS INSTRUMENTS AND THERE F ORE DID NOT NEED SO MUCH OF EXPENS ES. GIVING CONSIDERATION TO THE DISALLOWANCE MADE BY THE AO U/S 14A OF RS.26,48,587/ - THE AO MADE THE DISALLOWANCE OF THE BALANCE SUM OF R.15,00,632/ - . 5. 1. IN THE SUBMISSION THE APPELLANT HAS CLAIMED THAT AFTER DISALLOWANCE OF RS.15,00,000/ - IN THE RETURN OF INCOME BY THE APPELLANT THE ONLY AMOUNT THAT REMAINED CLAIMED AS EXPENSE IN THE P & L A /C COMES TO ABUT RS. 26, 48, 000 / - . WHILE MAKING THE ADDITION THE A0 LOST SIGHT OF RS.1 5 ,00, 000 / - DISALLOWANCE ALREADY MADE BY THE APPELLANT IN ITS RETURN FOR THE PURPOSE OF SECTION 14A. THUS, IRRESPECTIVE OF THE MERIT ADVANCED BY THE ASSESSING OFFICER IN PARA 4 OF HIS ORDER THE PROPOSED DISALLOWANCE OF RS.15,00,6 , 432/ - AMOUNTS TO DOUBLE ADDITION BY THE SAID AMOUNT AS THE AO DISALLOWED RS.26,48,587/ - U/S. 14A/RULE 8 D(2)(III) AND THE APPELLANT HAD ALREADY MADE ADDITION U/S.14A OF RS. 26,48,587/ - . THIS ADDITION, THEREFORE, CANNOT BE SUSTAINED. THE GROUND IN RESPECT OF THE ABOVE AMOUNT IS ALLOWED.' WE RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE TRIBUNAL DECLINE TO INTERFERE IN THE ORDER PASSED BY THE LD. CIT ON THIS ACCOUNT. ACCORDINGLY, THE GROUND TAKEN BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES.' 8. REGARDING THE ADDITION UNDER RULE 8D(2), THE TRIBUNAL VIDE THE SAME ORDER ON IDENTICAL ISSUE RE MANDED THE MATTER TO THE FILE OF AO WITH A DIRECTION TO VERIFY THE SOURCE OF INVESTMENT IN THE LIGHT OF DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DHANUKA & SONS SUPRA . RELEVANT PORTION OF SUCH DECISION/ORDER IS REPRODUCED HEREIN BE LOW: - 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND' PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE INSTANT CASE THE ADDITION HAS BEEN MADE BY THE AO U/S 14A R.W.S. 8D AS DETAILED UNDER: - RULE 8D(2(II) RS. 63,26,887/ - RULE 8D(2)(III ) RS.26,48,587/ - FIRST WE TAKE UP THE ADDITION MADE BY THE ASSESSING OFFICER UNDER RULE 8D(2)(II) OF IT RULES, 1962. IT IS UNDISPUTED FACT THAT OWN CAPITAL OF ASSESSEE EXCEED THE AMOUNT OF INVESTMENT MADE IN THE EQUITY SHARES AS WELL AS PPF. ON THE SAME BASIS THE HON'BLE CO - ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE OWN CASE (SUPRA) HAS DELETED THE ADDITION IN THE IMMEDIATE PRECEDING ASSESSMENT YEAR 2010 - 11. HOWEVER, ON PERUSAL OF THIS TRIBUNAL'S ORDER WE OBSERVE THAT NO REFERENCE WAS MADE TO THE JUDGME NT OF JURISDICTIONAL HIGH COURT IN THE CASE OF M/S DHANUKA & SONS VS. CIT IN ITA NO.633 (CAL)(2004) REPORTED IN 339 ITR 319 WHEREIN IT WAS HELD AS UNDER: - '9.LN THE CASE BEFORE US, THERE IS NO DISPUTE THAT PART OF THE INCOME OF THE ASSESSEE FROM ITS BUSI NESS IS FROM DIVIDEND WHICH IS EXEMPT FROM TAX WHEREAS THE ASSESSEE WAS UNABLE TO PRODUCE ANY MATERIAL BEFORE THE AUTHORITIES BELOW SHOWING THE SOURCE FROM WHICH SUCH SHARES WERE ACQUIRED. 10. IN OUR OPINION, THE MERE FACT THAT THOSE SHARES WERE OLD ONE S AND NOT ACQUIRED RECENTLY IS IMMATERIAL. IT IS FOR THE ASSESSEE TO SHOW THE SOURCE OF ACQUISITION OF THOSE SHARES BY PRODUCTION OF MATERIALS THAT THOSE WERE ACQUIRED FROM THE FUNDS AVAILABLE IN THE HANDS OF THE ASSESSEE AT THE RELEVANT POINT OF TIME WITH OUT TAKING BENEFIT OF ANY LOAN. IF THOSE SHARES WERE PURCHASED FROM THE AMOUNT TAKEN IN LOAN EVEN FOR INSTANCE/FIVE OR TEN YEARS AGO/ IT IS FOR THE ASSESSEE TO SHOW BY THE PRODUCTION OF DOCUMENTARY EVIDENCE THAT SUCH LOANED AMOUNT HAD ALREADY BEEN ITA NO . 858/KOL/2017 SMT. MADHU DEVI SARAF 4 PAID BAC K AND FOR THE RELEVANT ASSESSMENT YEAR; NO INTEREST IS PAYABLE BY THE ASSESSEE FOR ACQUIRING THOSE OLD SHARES. IN THE ABSENCE OF ANY SUCH MATERIALS PLACED BY THE ASSESSEE/ IN OUR OPINION/ THE AUTHORITIES BELOW RIGHTLY HELD THAT PROPORTIONATE AMOUNT SHOULD BE DISALLOWED HAVING REGARD TO THE TOTAL INCOME AND THE INCOME FROM THE EXEMPT SOURCE. IN THE ABSENCE OF ANY MATERIAL DISCLOSING THE SOURCE OF ACQUISITION OF SHARES WHICH IS WITHIN THE SPECIAL KNOWLEDGE OF THE ASSESSEE, THE ASSESSING AUTHORITY TOOK A MOST REASONABLE APPROACH IN ASSESSMENT. THERE IS NO PRESUMPTION - PROVIDED IN THE 1NCOME TAX ACT 1961 THAT IF THE ASSESSEE HAS INTEREST FREE LOANS, HIS OWN CAPITAL AS SHARE CAPITAL, RESERVES AND SURPLUSES AND INTEREST BEARING LOANS AND IS EARNING EXEMPT AND TAXA BLE INCOME THEN IT SHOULD BE PRESUMED THAT THE EXEMPT INCOME IS OUT OF ITS OWN FUNDS. RULE 8D(2)(II) OF THE I.T. RULES, 1962 PROVIDES ANY EXPENDITURE BY WAY OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE PARTICULAR INCOME OR RECEIPT THEN THE INTEREST HAS T O BE CALCULATED AS PER FORMULA PROVIDED THEREIN. NOW, THE LAW HAS PROVIDED A SPECIFIC METHOD OF CALCULATION IN RULE 8D(2)(II) OF I. T. RULES, 1961 RELATING TO INTEREST EXPENDITURE ON EXEMPTED INCOME FROM A. Y 2008 - 09 AND IT IS APPLICABLE DIRECTLY IN THE CA SE OF THE ASSESSEE. ' FROM THE ABOVE JUDGMENT, WE NOTE THAT IT IS THE DUTY OF ASSESSEE TO JUSTIFY THE SOURCE OF INVESTMENT MAD BY THE ASSESSEE IN THE INVESTMENT / PPF IRRESPECTIVE OF FACT THAT THE OWN FUND OF ASSESSEE EXCEEDS THE IMPUGNED INVESTMENT IN THE LIGHT OF ABOVE JUDGMENT OF HON'BLE JURISDICTIONAL HIGH COURT (SUPRA). WE FIND THAT THE ISSUE OF DISALLOWANCE OF INTEREST WILL ACCORDINGLY BE DECIDED AFTER VERIFYING THE DETAILS WHETHER THE IMPUGNED INVESTMENT WAS MADE BY THE ASSESSEE OUT OF HER OWN FU ND OR BORROWED FUND. THUS, IN THE INTEREST OF JUSTICE AND FAIR PLAY WE ARE INCLINED TO RESTORE THE ISSUE BACK TO THE FILE OF AO WITH A DIRECTION TO VERIFY THE SOURCE OF INVESTMENT MADE BY THE ASSESSEE IN THE IMPUGNED EQUITY SHARES / PPF. IN TERMS OF ABOVE, THIS GROUND OF REVENUE'S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 9. IN VIEW OF ABOVE DISCUSSION, THE GROUNDS RAISED BY THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSE . 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 31 - 0 7 - 2018 SD/ - SD/ - WASEEM AHMED S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 31 - 0 7 - 2018 ** PP(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1. APP ELLANT/ DEPARTMENT: THE ASSISTANT COMMI SSIONER OF INCOME - TAX, CENTRAL CIRCLE - 3(3) , KOLKATA, AAYKAR BHAWAN POORVA, EM BYE PASS, 110 SHANTI PALLY, 4 TH FLOOR, KOLKATA - 107. 2 RESPONDENT / ASSESSEE: SMT. MADHU DEVI SARAF, JESMINE TOWER, SPACE NUMBER 405A - B, 4 TH FLOOR, 31 SHAKESPEARE SARANI, KOLKATA - 1 7. 3. THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER SR.P.S,H.O.O, ITAT.KOL ITA NO . 858/KOL/2017 SMT. MADHU DEVI SARAF 5