Hindustan Gum & Chemicals Ltd., Kolkata V. D.C.I.T.,Circle-12(1), Kolkata

ITA 871/KOL/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 4505 (ITAT-KOLKATA)
• Duration Of Justice: 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-02-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 22-04-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Proportionate interest; Rule 8D; Set aside
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENC H KOLKATA BEFORE SHRI A.T. VARKEY, JM &DR. A.L.SAINI, AM ./ITA NO.871/KOL/2019 ( / ASSESSMENT YEAR:2015-16) HINDUSTHAN GUM & CHEMICALS LTD. 4 TH FLOOR, BIRLA BUILDING, 9/1, R. N. MUKHERJEE ROAD, KOLKATA VS. DCIT, CIRCLE-12(1), KOLKATA ./ ./PAN/GIR NO.: AAACH 7214 E (APPELLANT) .. (RESPONDENT) APPELLANTBY : SHRI D.S. DAMLE, FCA RESPONDENT BY :SHRI SUPRIYO PAL, JCIT, SR. DR / DATE OF HEARING : 17/12/2019 /DATE OF PRONOUNCEMENT : 26/02/2020 / O R D E R PER DR. A. L. SAINI: THE CAPTIONED APPEAL FILED BY THE ASSESSEE , PER TAINING TO ASSESSMENT YEAR 2015-16, IS DIRECTED AGAINST THE ORDER PASSED BY TH E COMMISSIONER OF INCOME TAX (APPEAL)-4, KOLKATA IN APPEAL NO. 49/CIT(A)-4/C-12( 1)/17-18, WHICH IN TURN ARISES OUT OF AN ASSESSMENT ORDER PASSED BY THE ASSESSING OFFICER U/S143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) DATED 29. 11.2017. 2.THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE AS FOLLOWS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT(APPEALS) ERRED IN NOT HOLDING THAT PROVISION FOR LEAVE ENCAS HMENT OF RS.80,65,953/- IS NEITHER STATUTORY LIABILITY NOT CONTINGENT LIABILIT Y AND THEREFORE NOT TO BE HINDUSTHAN GUM & CHEMICALS LTD. ITA NO.871/KOL/2019 ASSESSMENT YEAR:2015-16 PAGE | 2 CONSIDERED FOR THE PURPOSE OF COMPUTING DISALLOWANC E U/S.43B(F) OF THE I.T.ACT 1961. 2. THAT ON THE FACTS AND WITHOUT PREJUDICE TO GROUND N O.L ABOVE, THE LEARNED CIT(APPEALS) SHOULD HAVE DIRECTED THE LEARNED DCIT TO ALLOW DEDUCTION FOR PROVISION FOR LEAVE ENCASHMENT OF RS.80,65,953 IF T HE HON'BLE SUPREME COURT UPHOLDS THE DECISION OF CALCUTTA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LIMITED. 3. THAT ON THE FACTS AND CIRCUMSTANCE OF THE CASE THE LEARNED CIT(APPEALS) ERRED IN NOT HOLDING THAT EXPENSES OF RS.6,87,156/- ONLY HAVE BEEN INCURRED TO EARN THE DIVIDEND INCOME. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LEARNED CIT(APPEALS) FURTHER ERRED IN NOT HOLDING THAT DCIT HAS COMPUTED THE EXPENSES IN A MECHANICAL MANNER BY APPLYING THE PROVISIONS OF RUL E 8D WHICH WAS AT AN EXCESSIVE FIGURE. 5. WITHOUT PREJUDICE TO THE GROUND NO. 3 & 4 ABOVE, TH E LEARNED CIT(A) THOUGH FOLLOWED THE DECISIONS OF REI AGRO LTD. VS. DCIT (144 ITD 141) BUT ERRED IN DIRECTING THE DCIT TO CONSIDER THE MONTHLY AVERAGE VALUE OF CERTAIN SPECIFIC INVESTMENTS IN MUTUAL FUNDS INSTEAD OF YEA RLY AVERAGE AS PRESCRIBED IN RULE 8D(2)(III). THAT THE APPELLANT CRAVE LEAVE TO ADD, ALTER, AMEND AND / OR WITHDRAW ALL OR ANY OF THE GROUND AT OR BEFORE THE HEARING OF THE APPEA L. 3. GROUND NOS. 1 AND 2 RAISED BY THE ASSESSEE RELAT ES TO DISALLOWANCE OF DEDUCTION FOR PROVISION OF LEAVE ENCASHMENT OF RS. 80,65,953/ -. 4. AT THE OUTSET ITSELF, THE LD. COUNSEL BROUGHT TO OUR NOTICE THAT THE SIMILAR ISSUE HAD COME UP BEFORE THIS TRIBUNAL IN M/S. S. R . BATLIBOI & CO. VS. DCIT, ITA NO. 1598/KOL/2011 FOR AY 2007-08 WHEREIN THE TRIBUN AL VIDE PARA 4 HAS HELD AS UNDER: 4. AFTER HEARING RIVAL SUBMISSIONS AND GOING THROU GH THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE ORDER OF THE TRIBUNAL CITED SUPRA, WE FIND THAT THE ISSUE IS DEALT BY THE COORDINATE BENCH OF THIS TRIBUNAL AS UNDER: 3. AT THE OUTSET, LD. SENIOR COUNSEL FOR THE ASSES SEE SUBMITTED THAT IN ALL THESE THREE APPEALS, THE ISSUE RELATES TO ALLOWABILITY OF PROVISION FOR LEAVE ENCASHMENT IN TERMS OF SUB-SECTION (F) OF SECTION 4 3B OF THE INCOME TAX ACT. THE ASSESSEE HAD ADVANCED ITS CLAIM RELYING ON THE DECISION OF THE HONBLE KOLKATA HIGH COURT IN THE CASE OF M/S. EXIDE INDUST RIES LTD. REPORTED IN 292 HINDUSTHAN GUM & CHEMICALS LTD. ITA NO.871/KOL/2019 ASSESSMENT YEAR:2015-16 PAGE | 3 ITR 470. HOWEVER, THE ASSESSING OFFICER DID NOT ACC EPT THE ASSESSEES CLAIM OBSERVING THAT DEPARTMENT HAS PREFERRED A SPECIAL L EAVE PETITION BEFORE THE HONBLE SUPREME COURT AND STAY OF THE ORDER OF THE HONBLE KOLKATA HIGH COURT WAS GRANTED BY THE HONBLE APEX COURT. LD. SE NIOR COUNSEL SUBMITTED THAT UNDER IDENTICAL CIRCUMSTANCES, TRIBUNAL HAS RE STORED THE MATTER TO THE FILE OF ASSESSING OFFICER TO DECIDE THE ISSUE IN AC CORDANCE WITH THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF DCIT, CIRCLE- 8, KOLKATA VS.- M/S. ERNST & YOUNG PVT. LTD. IN ITA NO. 1787/KOL./2008. HE, THEREFORE, SUBMITTED THAT THE MATTER MAY BE RESTORED BACK TO THE FILE OF ASSESSING OFFICER. 4. LEARNED DEPARTMENTAL REPRESENTATIVE DID NOT RAIS E ANY OBJECTION. 5. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND HAVE PERUSED THE RECORDS OF THE CASE. WE FIND THAT TRIBUNAL ON I DENTICAL ISSUE IN ITA NO. 1787/KOL./2008 IN THE CASE OF M/S. ERNST & YOUNG PV T. LTD. HAS OBSERVED AT PARA 12 IN PAGE 6 AS UNDER :- 12. GROUND NO. 5 OF THE REVENUES APPEAL IS AGAINS T THE RELIEF ALLOWED BY THE CIT(A.) IN RESPECT OF PROVISION FOR LEAVE EN CASHMENT WHICH WAS DELETED BY THE CIT(A.) FOLLOWING THE DECISION OF TH E HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. EXIDE INDUSTRIES LTD. (SUPRA). IT WAS POINTED OUT BY THE LD. DR THAT THE HONBLE APEX COURT INSLP (CIVIL) 22889 OF 2008 HAS STAYED THE OPERATI ON OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT. IN VIEW O F THE ABOVE, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW ON THIS P OINT AND RESTORE THE MATTER BACK TO THE FILE OF THE AO WITH THE DIRECTIO N THAT HE WILL READJUDICATE THIS ISSUE AS PER DECISION OF THE HON BLE APEX COURT IN THE CASE OF M/S. EXIDE INDUSTRIES LTD. (SUPRA). RESPECTFULLY FOLLOWING THE SAME WE SET ASIDE THE OR DERS OF AUTHORITIES BELOW ON THIS POINT AND RESTORE THE MATTER BACK TO THE FI LE OF ASSESSING OFFICER FOR ADJUDICATION AS PER THE DECISION OF THE HONBLE APE X COURT IN THE CASE OF M/S. EXIDE INDUSTRIES LTD.(SUPRA). IN VIEW OF THE ABOVE AND RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THE MATTER BACK TO TH E FILE OF ASSESSING OFFICER FOR ADJUDICATION AS PER THE DECISION OF HONBLE APEX CO URT IN THE CASE OF M/S. EXIDE INDUSTRIES LTD. (SUPRA). THIS GROUND OF APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 5. IN VIEW OF THE AFORESAID DECISION OF THE COORDIN ATE BENCH ON A SIMILAR ISSUE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTOR E THE MATTER BACK TO THE FILE OF THE AO FOR ADJUDICATION AND AO TO WAIT THE FINAL OU TCOME OF THE HONBLE APEX COURT IN SLP (CIVIL) 22889 OF 2008 IN M/S. EXIDE IN DUSTRIES LTD. CASE AND DECIDE THIS ISSUE AS PER THE DECISION OF HONBLE APEX COUR T IN M/S. EXIDE INDUSTRIES LTD., (SUPRA). THUS, THIS GROUND OF APPEAL OF ASSESSEE I S ALLOWED FOR STATISTICAL PURPOSES. HINDUSTHAN GUM & CHEMICALS LTD. ITA NO.871/KOL/2019 ASSESSMENT YEAR:2015-16 PAGE | 4 6. GROUND NOS. 3 TO 5 RAISED BY THE ASSESSEE RELATE TO DISALLOWANCE U/S 14A READ WITH RULE 8D OF THE INCOME TAX RULES. 7. BRIEF FACTS QUA THE ISSUE ARE THAT DURING THE AS SESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE COMPANY HAD SUO-MOTO DISALLOWED RS. 6,87,156/- U/S 14A READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. THE ASSESSEE SUBMITTED BEFORE ASSESSING OFFICER THAT ON LY RS. 6,87,156/- WAS INCURRED AS AN EXPENSE TO EARN THE EXEMPT INCOME OF RS. 6.91 CRORES. HOWEVER, ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE AND COMPUTED THE DISALLOWANCE U/S 14A READ WITH RULE 8D OF RULES AS FOLLOWS: 8D(I) : DIRECT EXPENSES FOR EXEMPTED INCOME - NIL 8D(II): PROPORTIONATE INTEREST EXPENSE - NIL 8D(III): ONE HALF PERCENTAGE OF AVERAGE OF INVESTME NT (INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME) = 0.5% OF RS.( 22,682.23 LACS +126450.27 LACS)/2 = RS. 372.83 LACS TOTAL DISALLOWANCE U/S RULE 8D = 8D(I) +8D(II) + 8D (III) = RS. 372.83 LACS = RS. 372.83 LACS LESS RS 6,87,156/- (CONSIDERED BY ASSESSEE) HENCE, THE DISALLOWANCE U/S 14A READ WITH RULE 8D W ORKS OUT TO RS. 372.83 LACS. HOWEVER, THE ASSESSEE COMPANY HAD SUO-MOTO DISALLOW ED RS.6,87,156/- IN ITS COMPUTATION OF TOTAL INCOME. ACCORDINGLY, THE BALAN CE AMOUNT OF EXPENSES AMOUNTING TO RS. 365.96 LACS [RS. 372.83 LACS - RS. 687156/-] IS NOW BEING DISALLOWED UNDER THE PROVISIONS OF SECTION 14A OF THE I.T. ACT, 1961 REA D WITH RULE 8D OF I.T. RULES, 1962, AND THE SAME IS NOW ADDED BACK TO THE TOTAL INCOME OF T HE ASSESSEE FOR THE A.Y. 2015-16 IN THE COMPUTATION OF NORMAL PROVISIONS OF THE INCOME TAX ACT AS-WELL-AS COMPUTATION OF BOOK PROFIT UNDER MAT PROVISIONS U/S 115JB OF THE ACT 8. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A) WHO HAS PARTLY ALLO WED THE APPEAL OF THE ASSESSEE. 9. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE AS SESSEE IS IN APPEAL BEFORE US. HINDUSTHAN GUM & CHEMICALS LTD. ITA NO.871/KOL/2019 ASSESSMENT YEAR:2015-16 PAGE | 5 10. THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED BEFORE US THAT ONLY DIVIDEND BEARING SECURITIES SHOULD BE CONSIDERED FOR DISALLO WANCE U/S 14A READ WITH RULE 8D(2)(III) OF THE RULES AND ON THE OTHER HAND THE L D. DR HAS PRIMARILY REITERATED THE STAND TAKEN BY THE ASSESSING OFFICER WHICH WE H AVE ALREADY NOTED IN OUR EARLIER PARA AND THE SAME IS NOT BEING REPEATED FOR THE SAKE OF BREVITY. 11. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY GO NE THROUGH THE SUBMISSION PUT FORTH ON BEHALF OF THE ASSESSEE ALONG WITH THE DOCU MENTS FURNISHED AND THE CASE LAWS RELIED UPON, AND PERUSED THE FACT OF THE CASE INCLUDING THE FINDINGS OF THE LD CIT(A) AND OTHER MATERIALS AVAILABLE ON RECORD. WE NOTE THAT THE AMENDMENT IN SECTION 14A OF THE ACT WAS MADE BY THE FINANCE ACT, 2016 WHICH IS APPLICABLE FOR A.Y. 2017-18. THEREFORE, THE AMENDED PROVISION OF S ECTION 14A READ WITH RULE 8D DOES NOT APPLY TO THE ASSESSEES APPEAL UNDER CO NSIDERATION. WE NOTE THAT IN ASSESSEES CASE UNDER CONSIDERATION, THE ASSESSMENT YEAR INVOLVED IS 2015-16 THEREFORE, THE SAME SHOULD BE ADJUDICATED BY APPLYI NG ALL THE PROVISION OF SECTION 14A I.E. PRIOR TO AMENDMENT IN SECTION 14A BY THE F INANCE ACT, 2016. WE NOTE THAT THE ASSESSEE COMPANY HAS EARNED DIVIDEND INCOM E OF RS. 6,91,26,474/-, WHICH IS EXEMPT U/S 10(34)/10(35) OF THE IT ACT. HO WEVER, THE LEARNED ASSESSING OFFICER BY APPLYING THE PROVISIONS OF RULE 8D HAS A LLOCATED A SUM OF RS.3,72,83,000/- TOWARDS EXPENSES ATTRIBUTABLE TO E ARNING DIVIDEND INCOME AND DISALLOWED A SUM OF RS. 365.96 LACS (RS. 372.83 LAC S LESS 6,87,156/-) WHILE COMPUTING THE TOTAL INCOME FOR THE YEAR. WE NOTE TH AT THE ISSUE INVOLVED IN THE ASSESSEES CASE IS NO LONGER RES INTEGRA . THE CO-ORDINATE BENCH OF ITAT KOLKATA IN THE CASE OF REI AGRO LTD. VS. DCIT REPORTED IN 144 ITD 141 WHEREIN IT WAS HELD THAT ONLY THE DIVIDEND BEARING SECURITIES SHO ULD BE CONSIDERED WHILE COMPUTING THE DISALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES. WE NOTE THAT LD. CIT(A) HAS ALSO CONSIDERED THE JUDGMENT OF THE CO-O RDINATE BENCH IN THE CASE OF REI AGRO (SUPRA) AND DIRECTED THE ASSESSING OFFICER TO COMPUTE THE DISALLOWANCE TAKING INTO ACCOUNT DIVIDEND BEARING SECURITIES. TH E FINDINGS OF THE LD. CIT(A) IS GIVEN BELOW: GROUND NOS. 3 & 4 RELATES TO DISALLOWANCE OF RS. 3 72.83 LACS COMPUTED BY ASSESSING OFFICER U/S 14A R.W.R 8D. ON THIS ISSUE T HE ASSESSEE HAS STATED THAT A DISALLOWANCE OF RS. 6,87,156/- HAS ALREADY BEEN MAD E BY THE ASSESSEE AGAINST THE DIVIDEND INCOME OF RS. 6.91 CRORE WHICH IS EXEMPT. ASSESSEE HAS ALSO CITED THE CASES OF REI AGRO LTD. VS. DCIT (144 ITD 141). A OF THE VALUE OF THE INVESTMENT FROM WHICH THE INCOM E HAS BEEN EARNED WHICH IS NOT FALLING WITHIN THE PART OF THE TOTAL INCOME THAT IS TO BE CONSIDERED. FOLLOWING THE ABOVE, THE ASSESSING OFFICER IS DIREC TED TO RECOMPUTED T DISALLOWANCE CONSIDERING THE FOLLOWING INVESTMENT THIS GROUND IS, THEREFORE, PARTIALLY ALLOWED. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO COMPU TE THE DISALLOWANCE UNDER RULE 8D(2)(III) [DISALLOWANCE @ INTO ACCOUNT THE DIVIDEND BEARING SECURIT OF LD. CIT(A) IN DIRECTING THE AO TO COMPUTE THE DISALLOWANCE BY TAKING INTO ACCOUNT THE DIVIDEND BEARING SECURITIES ONLY.THUS BY THE ASSESSEE FOR STATISTICAL PURPOSES. HINDUSTHAN GUM & CHEMICALS LTD. ITA NO. ASSESSMENT YEAR: DIVIDEND INCOME OF RS. 6.91 CRORE WHICH IS EXEMPT. ASSESSEE HAS ALSO CITED THE CASES OF REI AGRO LTD. VS. DCIT (144 ITD 141). A S PER THIS DECISION THE AVERAGE OF THE VALUE OF THE INVESTMENT FROM WHICH THE INCOM E HAS BEEN EARNED WHICH IS NOT FALLING WITHIN THE PART OF THE TOTAL INCOME THAT IS TO BE CONSIDERED. FOLLOWING THE ABOVE, THE ASSESSING OFFICER IS DIREC TED TO RECOMPUTED T DISALLOWANCE CONSIDERING THE FOLLOWING INVESTMENT THIS GROUND IS, THEREFORE, PARTIALLY ALLOWED. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO COMPU TE THE DISALLOWANCE UNDER [DISALLOWANCE @ 0.5% OF AVERAGE VALUE OF INVESTMENT] INTO ACCOUNT THE DIVIDEND BEARING SECURIT IES ONLY. THEREFORE, WE CONFIRM THE IN DIRECTING THE AO TO COMPUTE THE DISALLOWANCE BY TAKING INTO ACCOUNT THE DIVIDEND BEARING SECURITIES ONLY.THUS , WE ALLOW THESE GROUNDS RAISED BY THE ASSESSEE FOR STATISTICAL PURPOSES. HINDUSTHAN GUM & CHEMICALS LTD. ITA NO. 871/KOL/2019 ASSESSMENT YEAR: 2015-16 PAGE | 6 DIVIDEND INCOME OF RS. 6.91 CRORE WHICH IS EXEMPT. ASSESSEE HAS ALSO CITED THE S PER THIS DECISION THE AVERAGE OF THE VALUE OF THE INVESTMENT FROM WHICH THE INCOM E HAS BEEN EARNED WHICH IS NOT FALLING WITHIN THE PART OF THE TOTAL INCOME THAT IS TO BE CONSIDERED. FOLLOWING THE ABOVE, THE ASSESSING OFFICER IS DIREC TED TO RECOMPUTED T HE THEREFORE, WE DIRECT THE ASSESSING OFFICER TO COMPU TE THE DISALLOWANCE UNDER 0.5% OF AVERAGE VALUE OF INVESTMENT] BY TAKING CONFIRM THE ORDER IN DIRECTING THE AO TO COMPUTE THE DISALLOWANCE BY TAKING INTO WE ALLOW THESE GROUNDS RAISED HINDUSTHAN GUM & CHEMICALS LTD. ITA NO.871/KOL/2019 ASSESSMENT YEAR:2015-16 PAGE | 7 12. IN THE RESULT, STATISTICAL PURPOSES THE APPEAL OF THE ASSESSEE IS TREATED TO BE ALLOWED. ORDER PRONOUNCED IN THE COURT ON 26.02.2020 SD/- ( A.T.VARKEY ) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / DATE: 26/02/2020 ( SB, SR.PS ) COPY OF THE ORDER FORWARDED TO: 1. HINDUSTHAN GUM & CHEMICALS LTD. 2. DCIT, CIRCLE-12(1), KOLKATA 3. C.I.T(A)- 4. C.I.T.- KOLKATA. 5. CIT(DR), KOLKATABENCHES, KOLKATA. 6. GUARD FILE. TRUE COPY BY ORDER ASSIST ANT REGISTRAR ITAT, KOLKA TA BENCHES