D.C.I.T Cir - 3,kolkata, Kolkata V. M/s The Peerless General Finance & Investment Co Ltd, Kolkata

ITA 873/KOL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4879 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 19-04-2013
• Court: TRIBUNAL
• Keywords: Rule of consistency; Earning of tax free income; Additional evidence; Bad and doubtful debts; Commercial expediency
• Section: 143(3); 14A; 144

Judgement Text

I.T.A. NO. 873/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 1 OF 17 IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA B BENCH, KOLKATA BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A. NO. 873/KOL/ 2013 ASSESSMENT YEAR: 2009-2010 DEPUTY COMMISSIONER OF INCOME TAX,................. ...............................APPELLANT CIRCLE-3, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 -VS.- M/S. THE PEERLESS GENERAL FINANCE & INVESTMENT COMP ANY LTD......RESPONDENT 3, ESPLANADE EAST, KOLKATA-700 069 [PAN : AABCT 3043 L] APPEARANCES BY: SHRI SACHIDANANDA SRIVASTAVA, JCIT, SR. D.R., FOR T HE DEPARTMENT SHRI S.K. TULSIYAN, ADVOCATE, FOR THE ASSESSEE DATE OF CONCLUDING THE HEARING : FEBRUARY 08, 2016 DATE OF PRONOUNCING THE ORDER : MARCH 18, 2016 O R D E R PER SHRI P.M. JAGTAP :- THIS APPEAL IS PREFERRED BY THE REVENUE AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-I, KOLKATA DAT ED 29.01.2013. 2. THE ISSUE INVOLVED IN GROUND NO. 1 OF THE REVENU ES APPEAL RELATES TO THE DELETION BY THE LD. CIT(APPEALS) OF THE ADDI TION MADE BY THE ASSESSING OFFICER BY WAY OF A DISALLOWANCE UNDER SE CTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES. I.T.A. NO. 873/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 2 OF 17 3. THE ASSESSEE IN THE PRESENT CASE IS A NON-BANKIN G FINANCE COMPANY WITH ITS PRINCIPAL BUSINESS BEING TO ACCEPT DEPOSIT FROM PUBLIC AGAINST THE ISSUE OF ENDOWMENT CERTIFICATE UNDER ITS VARIOUS SM ALL SAVINGS SCHEMES AND INVEST THE SAME IN THE FINANCING BUSINESS FOR E ARNING INTEREST, DIVIDEND, ETC. IT ALSO PROVIDES SERVICES IN RELATIO N TO THE PROCESSING OF INSURANCE PROPOSALS ON BEHALF OF M/S. MAX NEW YORK LIVE AND M/S. IPCO TOKYO GENERAL INSURANCE. THE RETURN OF INCOME FOR T HE YEAR UNDER CONSIDERATION WAS FILED BY IT ON 23.09.2009 DECLARI NG TOTAL INCOME OF RS.1,96,66,57,700/-. IN THE SAID RETURN, INTEREST R ECEIVED ON TAX-FREE BONDS OF RS.2,44,,37,175/- AND DIVIDEND INCOME OF R S.7,87,11,626/- WAS CLAIMED TO BE EXEMPT BY THE ASSESSEE FROM TAX AND D ISALLOWANCE OF RS.68,02,166/- UNDER SECTION 14A WAS SUO MOTO OFFER ED ON ACCOUNT OF EXPENSES INCURRED IN RELATION TO THE SAID EXEMPT IN COME AS WORKED OUT BY APPLYING RULE 8D AS UNDER:- 01. AVERAGE INVESTMENT IN SHARES ON WHICH DIVIDEND WAS RECEIVED RS.87,11,01,435/- 02 AVERAGE INVESTMENT IN MUTUAL FUNDS ON WHICH DIVIDEND WAS RECEIVED RS.22,50,00,000/- 03 AVERAGE INVESTMENT IN BONDS ON WHICH TAX FREE INTEREST WAS RECEIVED RS.26,43,31,824/- RS.136,04,33,259/- 0.50% OF AVERAGE INVESTMENT RS.68,02,166/- 4. ACCORDING TO THE ASSESSING OFFICER, THE DISALLOW ANCE WORKED OUT BY THE ASSESSEE UNDER SECTION 14A AS ABOVE WAS NOT STR ICTLY ACCORDING TO THE METHOD LAID DOWN IN RULE 8D. HE, THEREFORE, REQUIRE D THE ASSESSEE TO OFFER ITS EXPLANATION IN RELATION TO THE SPECIFIC QUERIES RAISED IN THIS REGARD. IN REPLY, THE FOLLOWING SUBMISSION WAS FILED BY THE AS SESSEE: - (I) THE ASSESSEE COMPANY REVISED ITS COMPUTATION OF DISALLOWANCE UNDER RULE 8D(2)(III). THE REVISED DISALLOWANCE STA NDS TO THE TUNE OF I.T.A. NO. 873/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 3 OF 17 RS.68,18,668/-(BEING 0.5% OF AVERAGE VALUE OF INVES TMENT OF RS.136,37,33,620/-).THE ASSESSEE EXPLAINED THAT THI S MISTAKE IS ON ACCOUNT OF INCORRECT COMPUTATION OF AVERAGE INVESTM ENT IN SHARES FROM WHICH EXEMPT DIVIDEND INCOME WAS EARNED. (II) THE ASSESSEE EXPLAINED THAT THE AVERAGE VALUE OF INVESTMENT IN SHARES, MUTUAL FUNDS AND BONDS ON WHICH TAX FREE IN COME WERE EARNED HAS BEEN TAKEN INTO ACCOUNT AS THE EXEMPT INCOME DU RING THE PREVIOUS YEAR RECEIVED FROM THESE INVESTMENTS. (III) AS THERE WAS NO DIRECT EXPENSES FOR EARNING S UCH INCOME WERE INCURRED THE DISALLOWANCE UNDER RULE 8D(2)(I) HAS B EEN TAKEN AT 'NIL'. AS FAR AS THE QUESTION OF DEMAT CHARGES CONCERNED, THE ASSESSEE COMPANY HAS INCURRED DEMAT CHARGES OF RS.30,425/- D URING THE ASSESSMENT YEAR 2009-10. BUT ON APPEAL AGAINST THE SAID ORDER, THE LD. CIT(A)-I, KOLKATA HELD THAT THE DEMAT EXPENSES CANNOT BE TREATED AS A DIRECT EXPENSES FOR EARNING THE EXEMPT DIVIDEN D INCOME. (IV) THE ASSESSEE COMPANY VIDE ITS SAID EXPLANATION ANNEXURE '12(D)' EXPLAINED THAT THE INTEREST OF RS.153.46 CRORES DEB ITED TO THE P/L. A/C. FOR ASSESSMENT YEAR 2009-10 DOES NOT ATTRACT P ROVISION OF RULE 8D(2)(II) OF THE I.T RULES. AS BECAUSE ASSEESEE'S I NVESTMENTS IN BONDS AND SHARES IN COMPANYS AND UNITS OF MUTUAL FUNDS W HICH GENERATED ITS EXEMPT INCOME WERE MADE OUT OF ITS OWN FUNDS IN STEAD OF FUNDS BORROWED FROM CERTIFICATE HOLDERS. AS A RESULT NEIT HER THE FUNDS, BORROWED FROM THE CERTIFICATE HOLDERS NOR THE INTER EST OF RS.153.46 CRORES PAYABLE ON SUCH BORROWED FUND COULD BE ATTRI BUTED TO THE EXEMPT INCOME. 5. THE ABOVE EXPLANATION OF THE ASSESSEE WAS NOT FO UND ACCEPTABLE BY THE ASSESSING OFFICER AND HE PROCEEDED TO RE-COMPUT E THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D AT RS.5,44,74,9 63/- AS UNDER:- DIRECT EXPENSES:- THE AMOUNT OF EXPENDITURE DIRECT LY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME IN THE PROFIT AND LOSS ACCOUNT, NO ITEM OF EXPENDITURE IS IDENTIFIED WHICH CAN BE DIRECTLY ATTRIBUTABLE TO EARNING OF SUCH INCOME OR MAKING OF THE LONG TERM INVESTMENTS. THE ASSESSEE HAS DEBITED AN AMOUN T OF RS.30,425/- AND THE ISSUE IS SEPARATELY EXPLAINED HEREUNDER IN POINT NO. B. (I)DISALLOWANCE OF INTEREST: = A X B/C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN POINT NO. (I) INCURR ED DURING THE I.T.A. NO. 873/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 4 OF 17 PREVIOUS YEAR. HERE THE ASSESSEE COMPANY VIDE ITS R EPLY DATED 20.12.2011 DISCLOSED AN AMOUNT OF RS.153,46,06,000/ -. HENCE, THE SAME FIGURE IS CONSIDERED FOR THIS PURPOSE. B= THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARI NG IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAS T DAY OF THE PREVIOUS YEAR. C= THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. HERE A = RS.153,46,06,000/- B = AVERAGE VALUE OF INVESTMENTS YIELDING IN THE EX EMPT INCOME AS SUBMITTED BY THE ASSESSEE BY LETTER DATED 20.12.201 1. NATURE OF EXEMPT INCOME AVERAGE VALUE TAX FREE INTEREST- RS.2,44,37,175/- DIVIDEND ..............RS.7,87,11,626/- RS.26,43,31,824/- RS.130,04,93,234/- AVERAGE VALUE OF INVESTMENT RS.156,48,25,058 /- C = RS.5147,58,15,000/- SO THE RESULTANT FIGURE OF A X B/C = RS.4,66,50,838/- (I) DISALLOWANCE OF % OF AVERAGE VALUE OF INVESTMENT: THE AVERAGE VALUE OF INVESTMENT, THE INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME IN ASSESSEES CASE, T HIS AMOUNT IS RS.156,48,25,058/-. THEREFORE, THIS COMPONENT OF DI SALLOWANCE WOULD BE RS.78,24,125/-. THEREFORE, TOTAL DISALLOWANCE U/R 8D OF THE I.T. RU LES READ WITH SEC. 14A OF THE I.T. ACT = (I) + (II) + (III) = RS. NIL + RS.4,66,50,838/- + RS.78,24,125/- = RS.5,44,74,963/ -. AS THE ASSESSEE-COMPANY HAD ALREADY OFFERED SUO MOTO DISALLOWANCE OF RS.68,02,166/- UNDER SECTION 14A, THE DIFFERENCE OF RS.4,76,72,798/- (RS.5,44,74,963/- MINUS RS.68,02,166/-) WAS FURTHER DISALLOWED BY THE ASSESSING OFFICER UNDER SECTION 14A READ WITH RULE 8D. I.T.A. NO. 873/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 5 OF 17 6. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER U NDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULE S WAS CHALLENGED BY THE ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT (APPEALS) AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECORD, THE LD. CIT(APPEALS) DELETED T HE SAID DISALLOWANCE MADE BY THE ASSESSING OFFICER FOR THE FOLLOWING REA SONS GIVEN IN HIS IMPUGNED ORDER:- ASSESSEE-COMPANY WAS NBFC AND ENGAGED IN THE BUSINESS OF SERVICE FOR INSURANCE COMPANY. THE ASSE SSEE- COMPANY EARNED TAX-FREE INTEREST AND DIVIDEND INCOM E FOR RS.2,44,37,175/- AND RS.7,87,11,626/- RESPECTIV ELY. THE AO DISALLOWED FURTHER A SUM OF RS.4,76,72,797/- ON ACCOUNT OF SECTION 14A READ WITH RULE 8D AS AGAINST A SUMO-MOTO OFFER OF RS.68,02,166/- (COMPUTED AS 1/2% OF THE AVERAGE INVESTMENT IN THE SHARES AND MUTUAL FUN DS FROM WHICH TAX-FREE INCOME WAS RECEIVED) DISALLOWAN CE IN THE COMPUTATION OF INCOME FILED BY THE COMPANY. THE APPELLANT DISPUTED THE DISALLOWANCE OF RS.4,66,50,8 38/- ON ACCOUNT OF INTEREST NOT DIRECTLY ATTRIBUTABLE UN DER RULE 8D(2)(II) READ WITH SECTION 144 AND ALSO DISPU TED THE FIGURE OF AVERAGE VALUE OF INVESTMENT TAKEN BY THE AO AT RS.150,48,25,058/- AND CONTENTED THAT THE COR RECT FIGURE OF AVERAGE VALUE OF INVESTMENT IN RELATION T O TAX- FREE INTEREST AND DIVIDEND INCOME WAS RS. 136,37,33,620/- WHICH WAS FURNISHED BEFORE THE AO O N 16.09.2011 ALONG WITH ANNEXURE 12A, 128 AND 12C. TH ERE IS NO DISPUTE REGARDING THE AVERAGE VALUE OF INVEST MENT IN BONDS HAVING TAX-FREE INTEREST INCOME. ASSESSEE ALSO FILED THE DETAILS OF AVERAGE VALUE OF SHARES WHICH DID NOT GENERATE ANY DIVIDEND INCOME AT PAGES 76 AND 77 OF THE PAPER BOOK. THE AO INCLUDED THE VALUE OF SHARES WHI CH HAD NOT YIELDED ANY DIVIDEND INCOME. AFTER EXCLUDIN G THESE NON-DIVIDEND YIELDING INVESTMENTS THE AVERAGE VALUE OF THE INVESTMENT IS DETERMINED AT RS.136,37,33,620/- IN RELATION TO EARNING OF EXEMPT INCOME. THEREFORE THE AO IS DIRECTED TO ADOPT THIS FIGURE OF RS.136,37,33,620/- RATHER THAN RS.156,48,25,058/ - WHILE COMPUTING THE DISALLOWANCE UNDER RULE 8D. THEREFORE GROUND NO. 1(A) IS ALLOWED. NEXT GROUND RELATES TO THE DISALLOWANCE UNDER RULE 8D REGARDING DEBIT OF INTEREST EXPENSES I.T.A. NO. 873/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 6 OF 17 RS.153,46,06,000/- IN P&L A/C. THE A/R CONTENDED TH AT SHARES AND TAX FREE BONDS WERE NOT PURCHASED OUT OF BORROWED FUNDS AGAINST WHICH INTEREST WAS PAYABLE A ND DETAIL NOTE REGARDING THIS CONTENTION WAS SUBMITTED BEFORE AO AS PER ANNEXURE 12D ALONG WITH LETTER DAT ED 16,.09.2011. THIS ANNEXURE 12D IS AS UNDER: NOTE EXPLAINING WHY THE INTEREST OF RS.153.46 CRS. DEBITED TO THE ASSESSEE'S P&L FOR A.Y. 2009-10 DOES NOT ATTRACT PROVISIONS OF RULE 8D(2)(II) OF THE IT. ACT . AS PER RULE-8D(2)(II) OF THE I.T. RULES, WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTERES T DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, PROPORTIONATE AMOUNT OF INTEREST COMPUTED IN ACCORDANCE WITH THE FORMULA A X B/C HAS TO BE DISALLOWED. IN THE CASE OF THE ASSESSEE, A SUM OF RS.153.46 CRS. HAS BEEN DEBITED TO ITS P & L A/C ON ACCOUNT OF INTEREST PAYABLE TO CERTIFICATE HOLDERS. THIS INTEREST DOES NOT HOWEVER ATTRACT THE PROVISION OF RULE 8D(2)(II) FOR THE REASONS DISCUSSED BELOW. THE ASSESSEE IS A RESIDUARY NON-BANKING FINANCE COMPANY. IN THE COURSE OF CARRYING ON ITS FINANCING BUSINESS, IT FLOATED SEVERAL SMALL SAVING SCHEMES I N WHICH THE PUBLIC (CERTIFICATE HOLDERS) DEPOSITED MO NEY WITH IT. AGAINST SUCH DEPOSITS, INTEREST ON ACCRUAL BASIS IS DEBITED TO ITS P&L A/C. THE INTEREST OF RS:.153. 46 CRS. DEBITED TO ITS P&L A/ C RELATES TO SUCH ACCRUED INT EREST. AS PER THE BALANCE SHEET OF THE ASSESSEE AS ON 31.3 .09, THE TOTAL AMOUNT OF DEPOSITS FROM THE PUBLIC (I.E. CERTIFICATE HOLDERS) IS RS.3934.99 CRS. WHICH INCLU DED UNPAID / UNCLAIMED MATURITY VALUE OF CERTIFICATES AMOUNTING TO RS.1467.90 CRS. SINCE NO INTEREST IS P AID OR PAYABLE ON UNPAID /UNCLAIMED MATURITY VALUE, INTERE ST OF RS.153.46 CRS. DEBITED TO P&L A/C RELATED TO TOT AL DEPOSIT OF RS.2467.09 CRS. (RS.3934.99 CRS. - RS.14 67.90 CRS.) FROM THE CERTIFICATE HOLDERS. IN THIS CONNECTION, IT IS SUBMITTED THAT THE ASSESSEE BEING A RESIDUARY NON-BANKING FINANCE COMPANY, ITS ACTIVITIES ARE DIRECTLY CONTROLLED BY THE RESERVE BANK OF INDIA. IN ORDER TO PROTECT THE INTE REST OF THE CERTIFICATE HOLDERS, THE RBI ISSUED GUIDELINES I.T.A. NO. 873/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 7 OF 17 DIRECTING THE ASSESSEE TO INVEST ITS FUND IN A PART ICULAR MANNER. SUCH GUIDELINES ARE CONTAINED IN 'RESIDUARY NON-BANKING COMPANIES (RESERVE BANK) DIRECTION 1987 ' (AS AMENDED FROM TIME TO TIME). AS THESE GUIDELINES WERE ISSUED BY THE RBI IN EXERCISE OF ITS STATUTORY POWERS CONFERRED BY SEC.451 AND 45K OF THE RBI ACT 1934, T HOSE WERE MANDATORY AND BINDING ON THE ASSESSEE. AS PER PARA 6 OF THIS DIRECTION, THE ASSESSEE WAS REQUIRED TO INVEST ITS FUND IN APPROVED SECURITIES, FIXED DEPOS ITS/ CERTIFICATE OF DEPOSITS OF SCHEDULED COMMERCIAL BAN KS/ FINANCIAL INSTITUTIONS, IN GOVERNMENT SECURITIES, B ONDS, DEBENTURES ETC. AN EXTRACT OF PARA-6 OF THE RESIDUA RY NON- BANKING COMPANIES (RESERVE BANK) DIRECTION, 19 87 IS ENCLOSED. THE RBI ALSO CLOSELY MONITORS SUCH INVESTMENTS AND THE ASSESSEE IS REQUIRED TO SUBMIT MONTHLY STATEMENTS CERTIFIED BY ITS AUDITORS TO THE RBI. COPIES OF ITS STATEMENTS ON STATUS OF INVESTMENT AS ON 10TH JUNE, 30TH SEPTEMBER, 3151 DECEMBER 2008 AND 3151 MARCH 2009 ARE ENCLOSED ILL ORDER TO SHOW THAT ITS TOTAL INVESTMENT IN THE TYPES OF SECURITIES PRESCRI BED IN PARA-E OF THE RBI DIRECTIONS ARC MORE DEPOSIT OF RS.2467.09 CRS. TAKEN FROM THE CERTIFICATE HOLDERS ON WHICH INTEREST OF 153.46 CRS. WAS PAYABLE. AS A RESULT, THE INTEREST OF RS.153.46 CRS. DEBITED TO ITS P&L A/C IS ATTRIBUTABLE TO ITS INCOME OR REC EIPT BY WAY OF INTEREST FROM INVESTMENTS MADE IN TERMS OF I OF RBI DIRECTION E.G. APPROVED SECURITIES FD / CDS FRO M COMMERCIAL BANKS AND CENTRAL ATE GOVERNMENT SECURITIES ETC. REFERRED TO ABOVE. IN THE ABOVE CIRCUMSTANCES, THE, ASSESSEE'S INVESTMENTS IN BONDS AND SHARES IN COMPANIES AND UN ITS OF MUTUAL FUNDS WHICH GENERATED ITS EXEMPT DIVIDEND INCOME OR TAX FREE INTEREST WERE MADE OUT OF! ITS O WN FUNDS INSTEAD OF FUNDS BORROWED FROM THE CERTIFICAT E HOLDERS. AS A RESULT, NEITHER THE FUND BORROWED FRO M THE CERTIFICATE HOLDERS NOR THE INTEREST OF RS.153.46 C RS PAYABLE ON SUCH BORROWED FUND COULD BE ATTRIBUTABLE TO THE EXEMPT DIVIDEND INCOME OR TAX FREE INTEREST AND HENCE NO PART OF THE INTEREST OF RS.153.46 CRS. COU LD BE DISALLOWED IN TERMS OF RULE 8D(II) OF THE I.T. RULE S. I.T.A. NO. 873/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 8 OF 17 THE A/R FURTHER RELIED UPON THE ORDER OF CIT(A)-I, KOLKATA DTD.25.10.2010 FOR AY 2008-09. AFTER CONSIDERING THE ABOVE SUBMISSIONS, MONTHLY STATEMEN TS CERTIFIED BY COMPANY AUDITORS TO THE RBI AND THE AN NUAL ACCOUNTS IT IS NOTICED THAT THE SHARE CAPITAL AND T HE RESERVES AND SURPLUSES AS ON 31.003.2009 WERE RS.10 11.8 CRORES WHICH WAS EXCEEDED THE VALUE OF INVESTMENT I N EARNING TAX FREE INTEREST AND DIVIDEND AND MOREOVER ASSESSEE HAD CREDITED AN INTEREST AND DIVIDEND OF RS.440.5 CRORES FROM THE APPROVED SECURITIES REFERR ED ABOVE AS PER RBI GUIDELINES IN P&L ETC AND THIS FOR MED A MAJOR PART OF THE NET TAXABLE INCOME OF RS.196.067 CRORES SHOWN IN THE RETURN OF INCOME FILED FOR THE AY- 2009-10. KEEPING IN VIEW THE ABOVE FACTS AND CIRCUMSTANCES AND AO IS DIRECTED TO DELETE THE ADDI TION MADE ON ACCOUNT OF INTEREST DEBITED IN P&L ETC AND REDUCE THE DISALLOWANCE U/S 14A/RULE 8D TO RS.68,18,668/-. THIS GROUND IS PARTLY ALLOWED. THE DEMAT EXPENSES OF RS.30,425/- WERE DIRECTLY RELATED TO EA RNING OF DIVIDEND INCOME FROM SHARES HELD AS INVESTMENT I N TERMS OF RULE 8D AND ACCORDINGLY ADDITION OF RS.30, 425/- IS CONFIRMED. AGGRIEVED BY THE ORDER OF THE LD. CIT(APPEALS) ON T HIS ISSUE, THE REVENUE HAS RAISED GROUNDS NO. 1(A) AND 1(B) IN ITS APPEAL, WHICH READ AS UNDER:- 1. (A) WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) IS CORRECT IN ALLOWING RELIE F TO THE ASSESSEE IN RESPECT OF DISALLOWANCE U/S. 14A WITHOU T TAKING INTO ACCOUNT THE VERDICT OF JURISDICTIONAL HIGH COU RT IN THE CASE OF DHANUKA & SONS VS. CIT (CENTRAL)-I, KOLKATA (2011) 12 TAXMAN. COM 227 (CAL) DATED 19.04.2011, WHERE THE H ON'BLE COURT HELD THAT IT IS TO THE ASSESSEE TO SHOW BY FL OW OF FUND THAT NO AMOUNT OF EXPENDITURES HAS BEEN INCURRED IN RELATION TO EXEMPT INCOME AND ASSESSEE COMPANY FAILED TO DIS CHARGE THE BURDEN. (B) WHETHER ON THE FACTS AND IN CIRCUMSTANCES OF TH E CASE AND IN LAW, LD. CIT(A) IS CORRECT IN DIRECTING THE AO T O EXCLUDE THE INVESTMENT FROM WHICH DIVIDEND WAS NOT EARNED DURIN G THE YEAR FROM THE AVERAGE VALUE OF INVESTMENT AND THERE BY IGNORED THE JUDGEMENT OF ITAT, DELHI(SB) IN THE CAS E OF CHEMINVEST LTD VS ITO [2009] 121 ITD 318 (DEL.) (SB ) WHERE IT WAS HELD THAT DISALLOWANCE U] S 14A IS TO MADE EVEN IF NO DIVIDEND IS EARNED DURING THE YEAR. I.T.A. NO. 873/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 9 OF 17 7. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AN D ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS REGARDS T HE ISSUE INVOLVED IN GROUND NO. 1(A) RELATING TO THE DELETION BY THE LD. CIT(APPEALS) OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOU NT OF INTEREST UNDER SECTION 14A, THE LD. COUNSEL FOR THE ASSESSEE HAS S UBMITTED THAT THE RELEVANT INVESTMENT, ON WHICH EXEMPT INCOME WAS REC EIVED, HAD BEEN MADE BY THE ASSESSEE IN THE EARLIER YEARS OUT OF IT S OWN FUNDS AND THIS POSITION WAS CONSISTENTLY ACCEPTED BY THE TRIBUNAL RIGHT FROM A.Y. 2000- 01. HE HAS INVITED OUR ATTENTION TO THE LATEST ORDE R PASSED BY THE TRIBUNAL FOR A.Y. 2008-09 VIDE ITS ORDER DATED 30.06.2014 IN ITA NO. 136/KOL/2011, WHEREIN THE ACTION OF THE LD. CIT(APP EALS) IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOU NT OF INTEREST UNDER SECTION 14A WAS UPHELD BY THE TRIBUNAL AFTER HAVING FOUND THAT THE RELEVANT INVESTMENT WAS ENTIRELY MADE BY THE ASSESS EE OUT OF ITS OWN FUNDS AND NOT FROM THE BORROWED FUNDS. IN THIS REGA RD, THE LD. D.R. HAS RELIED ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS VS.- CIT (2011) 12 TAXMAN.COM 227 T O CONTEND THAT EVEN THOUGH THE RELEVANT INVESTMENT WAS MADE BY THE ASSE SSEE IN THE EARLIER YEARS, IT IS FOR THE ASSESSEE TO SHOW ON EVIDENCE T HAT THE SAID INVESTMENT WAS ACQUIRED FROM ITS OWN FUNDS AVAILABLE AT THE RE LEVANT POINT OF TIME WITHOUT TAKING BENEFIT OF ANY LOAN. IT IS, HOWEVER, OBSERVED THAT A SIMILAR CONTENTION WAS RAISED ON BEHALF OF THE REVENUE BEFO RE THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF CIT VS.- M/S. R EI AGRO LIMITED (ITAT NO. 220 OF 2013 DATED 09.04.2014) BY RELYING ON THE DECISION OF THE COURT IN THE CASE OF DHANUKA & SONS (SUPRA), BUT THE SAME WAS NOT ACCEPTED BY THEIR LORDSHIPS ON THE GROUND THAT THE ASSESSEE IN THE CASE OF DHANUKA & SONS WAS UNABLE TO ESTABLISH ON EVIDENCE, THE SOURC ES FROM WHICH THE SHARES WERE ACQUIRED WHEREAS IN THE CASE OF REI AGR O LIMITED BEFORE IT, THERE WAS NO SUCH FINDING RECORDED BY THE ASSESSING OFFICER. IN OUR OPINION, THE ASSESSEE IN THE PRESENT CASE STANDS ON BETTER FOOTING, INASMUCH AS THE TRIBUNAL IN THE CASE OF THE ASSESSE E HAS CONSISTENTLY RECORDED A FINDING IN ALL THE EARLIER YEARS INCLUDI NG THE IMMEDIATELY PRECEDING YEAR, I.E. A.Y. 2008-09 THAT THE RELEVANT INVESTMENT ON WHICH I.T.A. NO. 873/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 10 OF 17 EXEMPT INCOME WAS EARNED BY THE ASSESSEE, HAD BEEN MADE IN THE EARLIER YEARS OUT OF THE OWN FUNDS OF THE ASSESSEE AND NOT FROM THE BORROWED FUNDS. WE, THEREFORE, RESPECTFULLY FOLLOW THE DECIS ION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF REI AGRO LIMITED (SUPRA) AND UPHOLD THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A ON ACCOUNT OF INTEREST. GROUND NO. 1(A) OF THE REVENUES APPEAL IS ACCORDIN GLY DISMISSED. 8. AS REGARDS THE ISSUE INVOLVED IN GROUND NO. 1(B) , IT IS OBSERVED THAT A SIMILAR ISSUE WAS DECIDED BY THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF REI AGRO LIMITED VS.- DCIT VIDE ITS OR DER DATED 19.06.2013 PASSED IN ITA NOS. 1331 AND 1423/KOL/2011 VIDE ITS PARAGRAPHS NO. 7.1, 8 AND 8.1, WHICH READ AS UNDER:- 7.1. IN ANY CASE, THE WORKING OF THE DISALLOWANCE UNDER SUB- PART (II) OF SUB-CLAUSE (2) OF RULE 8D AS MADE BY T HE AO ALSO SUFFERS FROM A SUBSTANTIAL ERROR IN SO FAR AS IN TH E SAID RULE IN REGARD TO THE NUMERATOR B, THE WORDS USED ARE THE A VERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT FORM OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARIN G IN THE BALANCE-SHEET AS ON THE FIRST DAY AND IN THE LAST D AY OF THE PREVIOUS YEAR. HERE THE AO HAS TAKEN INTO CONSIDERA TION THE INVESTMENT OF RS.103 CRORES MADE THIS YEAR, WHICH H AS NOT EARNED ANY DIVIDEND OR EXEMPT INCOME. IT IS ONLY TH E AVERAGE OF THE VALUE OF THE INVESTMENT FROM WHICH THE INCOME H AS BEEN EARNED WHICH IS NOT FALLING WITHIN THE PART OF THE TOTAL INCOME THAT IS TO BE CONSIDERED. THIS IS WHY THE QUESTION OF SATISFACTION IS PROVIDED IN SECTION 14A AND RULE 8D(1), THAT REL ATES TO THE ACCOUNTS OF THE ASSESSEE. THUS, IT IS NOT THE TOTAL INVESTMENT AT THE BEGINNING OF THE YEAR AND AT THE END OF THE YEA R, WHICH IS TO BE CONSIDERED BUT IT IS THE AVERAGE OF THE VALUE OF INVESTMENTS WHICH HAS GIVEN RISE TO THE INCOME WHICH DOES NOT F ORM PART OF THE TOTAL INCOME WHICH IS TO BE CONSIDERED. A QUEST ION MAY ARISE AS TO WHY THE TERM 'AVERAGE OF THE VALUE OF I NVESTMENT' IS THEN USED. THE, TERM AVERAGE OF THE VALUE OF INVEST MENT WOULD BE TO TAKE CARE OF CASES WHERE THERE IS THE ISSUE O F DIVIDEND STRIPING. IN ANY CASE, AS WE HAVE ALREADY HELD THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR, WHICH IS NOT DIRECTLY ATTRIBUTABLE T O ANY PARTICULAR INCOME, THE FINDINGS OF THE LD. CIT(A) O N THE ISSUE STAND CONFIRMED AND CONSEQUENTLY THE APPEAL FILED B Y THE REVENUE STANDS DISMISSED. I.T.A. NO. 873/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 11 OF 17 8. IN RESPECT OF PROVISIONS OF RULE 8D(2)(III), WHI CH IS THE SUBJECT-MATTER OF THE APPEAL IN THE ASSESSEE'S HAND , A PERUSAL OF THE SAID PROVISION SHOWS THAT WHAT IS DISALLOWAN CE UNDER RULE 8D(2)(III) IS THE AMOUNT EQUAL TO PERCENTAGE OF THE AVERAGE VALUE OF INVESTMENT THE INCOME FROM WHICH D OES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. THUS, UNDE R SUB-CLAUSE (III), WHAT IS DISALLOWED IS PERCENTAGE OF THE NU MERATOR B IN RULE 8D(2)(II). AGAIN THIS IS TO BE CALCULATED IN T HE SAME LINE AS MENTIONED EARLIER IN RESPECT OF NUMERATOR B IN RULE 8D(2)(II) OF THE ACT. 8.1. THUS, NOT ALL INVESTMENTS BECOME THE SUBJECT-M ATTER OF CONSIDERATION WHEN COMPUTING DISALLOWANCE UNDER SEC TION 14A READ WITH RULE 8D. THE DISALLOWANCE UNDER SECTION 1 4A READ WITH RULE 8D IS TO BE IN RELATION TO THE INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DONE ONLY BY TAKING INTO CONSIDERATION THE INVESTMENT WHICH HAS GIVEN RISE TO THIS INCOME WHICH DOES NOT FORM PART OF THE TOTA L INCOME. UNDER THE CIRCUMSTANCES, THE COMPUTATION OF THE DIS ALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2)(III), WHICH IS ISSUE IN THE ASSESSEE'S APPEAL, IS RESTORED TO THE FILE OF T HE AO FOR RE- COMPUTATION IN LINE WITH THE DIRECTION GIVEN ABOVE. NO DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2) (I) AND (II) CAN BE MADE IN THIS CASE. ALTHOUGH THE LD. D.R. HAS RELIED ON THE DECISION OF THE DELHI SPECIAL BENCH OF ITAT IN THE CASE OF CHEMINVEST LIMITED VS.- ITO REPORTED IN 121 ITD 318 IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE, IT IS OBSERVED THAT THE DECISION RENDERED BY THE COORDINATE BENCH OF THIS T RIBUNAL IN THE CASE OF REI AGRO LIMITED (SUPRA) HAS BEEN AFFIRMED BY THE H ONBLE CALCUTTA HIGH COURT VIDE ITS ORDER DATED 09.04.2014 PASSED IN ITA T NO. 220 OF 2013 (SUPRA). WE, THEREFORE, RESPECTFULLY FOLLOW THE SAI D DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT AND UPHOLD THE IM PUGNED ORDER OF THE LD. CIT(APPEALS) GIVING RELIEF TO THE ASSESSEE ON T HIS ISSUE. GROUND NO. 1(B) IS ACCORDINGLY DISMISSED. 9. THE ISSUE INVOLVED IN GROUND NO. 2 OF THE REVENU ES APPEAL RELATES TO THE DELETION BY THE LD. CIT(APPEALS) OF THE ADDI TION OF RS.9,58,22,500/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BAD DEB TS WRITTEN OFF AND THE SPECIFIC GRIEVANCE OF THE REVENUE AS PROJECTED IN T HE GROUND OF APPEAL IS I.T.A. NO. 873/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 12 OF 17 THAT THE LD. CIT(APPEALS) HAS GIVEN RELIEF TO THE A SSESSEE ON THIS ISSUE WITHOUT ALLOWING ANY OPPORTUNITY TO THE ASSESSING O FFICER THEREBY VIOLATING RULE 46A OF THE INCOME TAX RULES. 10. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF BAD DEBTS WRIT TEN OFF WAS EXAMINED BY THE ASSESSING OFFICER. ON SUCH EXAMINATION, HE, INTER ALIA, FOUND THAT THE FOLLOWING THREE DEBTS WRITTEN OFF BY THE ASSESS EE APPARENTLY DID NOT SATISFY THE CONDITIONS LAID DOWN UNDER SECTION 36(1 )(VII) READ WITH SECTION 36(II):- (I) LOAN TO M/S. SREEJI REAL PROPERTIES........... ...........RS.9,50,00,000/-; (II) AMOUNT PAID TO UNITED BANK OF INDIA.......... .......RS.58,06,00,500/- (III) ADVANCE TO M/S. ESSARS FURNITURES........... ........RS. 2,35,000/-. THE ASSESSEE, THEREFORE, WAS CALLED UPON BY THE ASS ESSING OFFICER TO JUSTIFY ITS CLAIM FOR DEDUCTION ON ACCOUNT OF ABOVE BAD DEBTS WRITTEN OFF IN TERMS OF SECTION 36(1)(VII) READ WITH SECTION 36 (II). IN REPLY, IT WAS SUBMITTED BY THE ASSESSEE THAT ALL THE THREE AMOUNT S IN QUESTION WERE GIVEN IN CONNECTION WITH ITS BUSINESS AND THE SAME HAVING BECOME IRRECOVERABLE ARE LIABLE TO BE ALLOWED ALTERNATIVEL Y AS BUSINESS OR TRADING LOSS. THIS EXPLANATION OF THE ASSESSEE WAS NOT FOUN D ACCEPTABLE BY THE ASSESSING OFFICER AND KEEPING IN VIEW THAT THE RELE VANT PROVISIONS OF SECTION 36(1)(VII) READ WITH SECTION 36(II) WERE NO T SATISFIED BY THE ASSESSEE, HE DISALLOWED THE CLAIM OF THE ASSESSEE F OR DEDUCTION OF RS.9,58,22,500/- ON ACCOUNT OF BAD DEBTS WRITTEN OF F. 11. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON ACCOUNT OF ITS CLAIM OF BAD DEBTS WRITTEN OFF WAS CHALLENGED BY TH E ASSESSEE IN THE APPEAL FILED BEFORE THE LD. CIT(APPEALS) AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AS WELL AS THE MAT ERIAL AVAILABLE ON I.T.A. NO. 873/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 13 OF 17 RECORD, THE LD. CIT(APPEALS) DELETED THE ADDITION M ADE BY THE ASSESSING OFFICER FOR THE FOLLOWING REASONS GIVEN IN HIS IMPU GNED ORDER:- THE MAJOR COMPONENT OF BAD DEBT OF RS.9.50 CRORES BEING IRRECOVERABLE LOAN WAS RELATING RA MLS SHREEJ I REAL PROPERTIES PVT. LTD., BOMBAY WHICH WAS ADVANCED IN THE MONTHS OF MARCH TO MAY' 1991. THE AO DISALLOWED THE CLAIM ON THE BASIS OF REPLY RECEIVED ON 05.10.2011 IN RESPONSE TO ENQUIRY NOTICE U/S 133(6). ASSESSEE HAD PRODUCED BY WAY OF EVIDENCES, COPIES OF CONFIRMATIO N LETTER DTD.31.05.1993 AND 09.02.1993 RECEIVED FROM M/S. SHREEJI REAL PROPERTIES PVT. LTD., BOMBAY CONFIRMIN G THE RECEIPT OF THE LOANS AND COPY OF LETTER DATED 03.07 .1992 ENCLOSING TDS CERTIFICATE FROM INTEREST PAID BY IT. THE AO DISALLOWED THE CLAIM AS M/S SHREEJI REAL PROPERTIES PVT. LTD., BOMBAY COULD NOT FURNISH THE DETAILS PERTAINI NG TO ABOVE TRANSACTIONS AS THE MATTER WAS ALMOST 20 YEAR S OLD. THE A/R FURTHER RELIED UPON THE JUDGMENT OF HON'BLE SUPREME COURT IN THE CASE TRF LTD. REPORTED IN 323 ITR 397. IT IS ADMITTED THAT LOAN GIVEN TO THE ABOVE PA RTY WAS GENUINE AND THE M/S SHREEJI REAL PROPERTIES PVT. LT D., BOMBAY DEDUCTED TDS FROM INTEREST PAID BY IT TO THE APPELLANT WHO ACCOUNTED FOR THIS INTEREST INCOME IN THE RELEVANT ASSESSMENT YEAR IN ITS BOOKS OF ACCOUNTS A ND SUBSEQUENTLY THE PARTY COULD NOT PAY INTEREST TO TH E APPELLANT BECAUSE OF FINANCIAL PROBLEMS AND THE APP ELLANT HAD WRITTEN-OFF THE ABOVE LOAN AFTER 20 YEARS AS IRRECOVERABLE IN ITS BOOK OF ACCOUNTS. KEEPING IN V IEW THESE FACTS AND CIRCUMSTANCES GROUND NO.3 RELATING TO M/S SHREEJI REAL PROPERTIES PVT. LTD., BOMBAY IS ALLOWE D AS ADVANCE GIVEN DURING THE COURSE OF BUSINESS AS NBFC WRITTEN-OFF BEING IRRECOVERABLE AFTER 20 YEARS. THE AO IS ALSO DISALLOWED A SUM OF RS.5,87,500/- AS ADVANCE G IVEN TO UNITED BANK OF INDIA ON 29.12.1991 IN CONNECTION WITH LAND DEAL WHICH WAS CLAIMED AS BAD DEBT BY THE APPE LLANT IN AY-2009-10. IT WAS INFORMED VIDE LETTER DATED 01.08.2011 BY DGM UNITED BANK OF INDIA(UBI) THAT A TOTAL SUM OF RS.21,42,906/- CONSISTING OF PRINCIPAL SUM A ND INTEREST ACCRUED WAS RETURNED TO APPELLANT. THE APP ELLANT REQUESTED THE AO TO ALLOW BUSINESS LOSS IN THIS YEA R AND ACCRUED INTEREST ALONG WITH THE RECOVERED AMOUNT CO ULD BE SHOWN AS INCOME OF THE FY-2011-12 RELEVANT TO AY - 2012-13. KEEPING IN VIEW, THESE FACTS AND CIRCUMSTA NCES ADDITION OF RS.5,87,500/- MADE BY AO ON ACCOUNT OF ADVANCE GIVEN TO UBI ON 29.12.1991 AND WRITTEN-OFF IN THE CURRENT FINANCIAL YEAR DUE TO NON-RECOVERY FOR 20 Y RS. IS DELETED AS THIS AMOUNT ALONG WITH THE INTEREST RECO VERED IN FY 2011-12 IS TAXABLE IN AY-2012-13 U/S 41 OF TH E I.T. I.T.A. NO. 873/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 14 OF 17 ACT,1961. THE AO FURTHER DISALLOWED A SUM OF RS.2,35,OOO/- GIVEN TO M/S ESSARS FURNITURES, VIJYA VADA AS THE NOTICE WAS RETURN UNSERVED. THE ASSESSEE HAD FILED A COPY OF TENDER DTD. 29.11.1993 SUBMITTED BY M/S E SSARS FURNITURES, VIJYAVADA FOR INTERIOR DECORATION OF TH E COMPANY OFFICE AT VIJYAVADA. IT WAS CONTENDED THAT ADVANCE PAYMENT WAS GIVEN TO THIS PARTY ABOUT 16 YE ARS AGO FOR THE PURPOSE OF INTERIOR DECORATION COULD NO T BE RECOVERED AND SHOULD BE ALLOWED AS TRADING LOSS. KE EPING IN VIEW THESE FACTS AND CIRCUMSTANCES ADDITION OF RS.2,35,OOO/- IS DELETED. 12. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES A ND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS ALREADY M ENTIONED, THE SPECIFIC GRIEVANCE OF THE REVENUE ON THIS ISSUE AS PROJECTED IN THE GROUND OF APPEAL IS THAT THE LD. CIT(APPEALS) HAS ALLOWED THE CLAIM OF THE ASSESSEE FOR BAD DEBTS WRITTEN OFF BY RELYING ON THE ADDITIO NAL EVIDENCE FILED BY THE ASSESSEE FOR THE FIRST TIME BEFORE HIM WITHOUT GIVING ANY OPPORTUNITY TO THE ASSESSING OFFICER TO VERIFY THE SAME, WHICH IS IN CONTRAVENTION OF RULE 46A OF THE INCOME TAX RULES. IN THIS REGARD, W HEN THE LD. D.R. WAS ASKED TO POINT OUT SUCH ADDITIONAL EVIDENCE RELIED UPON BY THE LD. CIT(APPEALS), HE HAS INVITED OUR ATTENTION TO THE R ELEVANT PORTION OF THE IMPUGNED ORDER OF THE LD. CIT(APPEALS) AND STATED T HAT THE CONFIRMATION LETTERS DATED 31.05.1993 AND 09.02.1993 ISSUED BY M /S. SREEJI REAL PROPERTIES PVT. LIMITED CONFIRMING THE RECEIPTS OF LOAN AS WELL AS THE LETTER DATED 03.07.1992 ISSUED BY THE SAID PARTY EN CLOSING THE TDS CERTIFICATE FOR INTEREST PAID BY THEM TO THE ASSESS EE CONSTITUTED ADDITIONAL EVIDENCE, WHICH WAS FILED BY THE ASSESSE E FOR THE FIRST TIME BEFORE THE LD. CIT(APPEALS). IN THIS REGARD, THE LD . COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE COPY OF L ETTER DATED 12.09.2011 FILED BEFORE THE ASSESSING OFFICER DURING THE COURS E OF ASSESSMENT PROCEEDINGS ALONG WITH ANNEXURES PLACED AT PAGE NO. 120 TO 128 OF THE PAPER BOOK TO POINT OUT THAT THE COPIES OF CONFIRMA TION LETTERS DATED 31.05.1993 AND 09.02.1993 RECEIVED FROM M/S. SREEJI REAL PROPERTIES PVT. LIMITED AND A COPY OF LETTER DATED 03.07.1992 RECEI VED FROM THE SAID I.T.A. NO. 873/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 15 OF 17 PARTY ENCLOSING THE TDS CERTIFICATE FOR INTEREST PA ID WERE DULY FILED BY THE ASSESSEE EVEN BEFORE THE ASSESSING OFFICER DURING T HE COURSE OF ASSESSMENT PROCEEDINGS AND THIS POSITION CLEARLY EV IDENT FROM THE RELEVANT DOCUMENTARY EVIDENCE PLACED ON RECORD IS N OT DISPUTED BY THE LD. D.R. IT IS THUS CLEAR THAT THERE WAS NO ADDITIO NAL EVIDENCE FILED BY THE ASSESSEE DURING THE COURSE OF APPELLATE PROCEEDINGS BEFORE THE LD. CIT(APPEALS) AND IT IS NOT A CASE WHERE THE LD. CIT (APPEALS) CAN BE SAID TO HAVE GIVEN RELIEF TO THE ASSESSEE ON THIS ISSUE BY RELYING ON SUCH ADDITIONAL EVIDENCE, WHICH IS IN CONTRAVENTION OF R ULE 46A AS ALLEGED BY THE REVENUE. WE, THEREFORE, FIND NO MERIT IN GROUND NO. 2 RAISED BY THE REVENUE AND DISMISS THE SAME. 13. THE ISSUE RAISED IN GROUND NO. 3 RELATES TO THE DELETION BY THE LD. CIT(APPEALS) OF THE ADDITION OF RS.82,78,301/- MADE BY THE ASSESSING OFFICER BY WAY OF DISALLOWANCE OUT OF INTEREST ON A CCOUNT OF LOAN GIVEN BY THE ASSESSEE TO ITS SUBSIDIARY COMPANY. 14. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE-COMPANY HAS GIV EN INTEREST-FREE LOAN OF RS.16.55 CRORES TO ITS SUBSIDIARY COMPANY M/S. P EERLESS DEVELOPERS PVT. LIMITED. HE, THEREFORE, REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY INTEREST PAID BY IT TO THE EXTENT ATTRIBUTABLE TO S UCH LOAN GIVEN FOR NON- BUSINESS PURPOSE SHOULD NOT BE DISALLOWED. IN REPLY , IT WAS SUBMITTED BY THE ASSESSEE THAT THE LOAN TO ITS SISTER CONCERN WA S GIVEN OUT OF OWN FUNDS AND THEREFORE, THERE WAS NO REASON TO DISALLOW THE INTEREST PAID EVEN ON PROPORTIONATE BASIS. RELIANCE WAS ALSO PLACED BY TH E ASSESSEE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F S.A. BUILDERS LIMITED REPORTED IN 288 ITR 1 TO CONTEND THAT THE LOAN ADVA NCED TO THE SUBSIDIARY WAS JUSTIFIED EVEN ON THE TOUCH-STONE OF COMMERCIAL EXPEDIENCY. THIS EXPLANATION OF THE ASSESSEE WAS NOT FOUND ACCEPTABL E BY THE ASSESSING OFFICER. ACCORDING TO HIM, THERE WAS NO COMMERCIAL EXPEDIENCY IN THE I.T.A. NO. 873/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 16 OF 17 LOAN GIVEN BY THE ASSESSEE-COMPANY TO ITS SUBSIDIAR Y AND SINCE THE ASSESSEE HAD FAILED EVEN TO ESTABLISH THAT THE SAID LOAN WAS GIVEN OUT OF ITS OWN FUNDS, IT WAS THE CASE OF DIVERSION OF THE BORROWED FUNDS BY THE ASSESSEE FOR NON-BUSINESS PURPOSE. HE ACCORDINGLY W ORKED OUT THE INTEREST ATTRIBUTABLE TO THE LOAN GIVEN BY THE ASSE SSEE-COMPANY TO ITS SUBSIDIARY BY APPLYING THE INTEREST RATE OF 5% AT R S.82,78,301/- AND MADE A DISALLOWANCE TO THAT EXTENT OUT OF INTEREST EXPEN DITURE. 15. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER OUT OF INTEREST EXPENDITURE WAS CHALLENGED BY THE ASSESSEE IN THE A PPEAL FILED BEFORE THE LD. CIT(APPEALS) AND AFTER CONSIDERING THE SUBMISSI ON MADE BY THE ASSESSEE AS WELL AS THE MATERIAL AVAILABLE ON RECOR D, THE LD. CIT(APPEALS) DELETED THE SAID DISALLOWANCE AFTER HAVING FOUND TH AT THE LOAN TO ITS SUBSIDIARY WAS GIVEN BY THE ASSESSEE OUT OF ITS OWN FUNDS, WHICH FAR EXCEEDED THE AMOUNT OF LOAN OF RS.16.55 CRORES. 16. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES O N THIS ISSUE AND ALSO PERUSED THE RELEVANT MATERIAL AVAILABLE ON REC ORD. ALTHOUGH THE LD. COUNSEL FOR THE ASSESSEE HAS AGAIN RELIED ON THE DE CISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS ( SUPRA) IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE TO CONTEND THAT TH E ONUS IS ON THE ASSESSEE TO SHOW THAT THE AMOUNT IN QUESTION WAS AD VANCED TO ITS SISTER CONCERN FREE OF INTEREST OUT OF ITS OWN FUNDS, IT I S OBSERVED THAT A SIMILAR DISALLOWANCE MADE ON ACCOUNT OF INTEREST ATTRIBUTAB LE TO THE INTEREST-FREE LOANS GIVEN TO THE SUBSIDIARIES HAS BEEN CONSISTENT LY DELETED BY THE TRIBUNAL IN ASSESSEES OWN CASE UPTO A.Y. 2003-04 A FTER HAVING FOUND THAT THE INTEREST-FREE LOANS WERE GIVEN BY THE ASSESSEE- COMPANY TO ITS SUBSIDIARY COMPANIES OUT OF ITS OWN FUNDS AND NOT O UT OF INTEREST BEARING BORROWED FUNDS. AS FURTHER SUBMITTED BY THE LD. COU NSEL FOR THE ASSESSEE, EVEN THOUGH THE DISPUTES INVOLVED IN A.Y. 2004-05 T O A.Y. 2007-08 IN ITS CASE WERE SETTLED BY THE ASSESSEE-COMPANY BEFORE TH E SETTLEMENT I.T.A. NO. 873/KOL./2013 ASSESSMENT YEAR: 2009-2010 PAGE 17 OF 17 COMMISSION, NO SUCH DISALLOWANCE ON ACCOUNT OF INTE REST ATTRIBUTABLE TO THE INTEREST-FREE ADVANCES GIVEN TO ITS SUBSIDIARY COMPANIES WAS MADE BY THE ASSESSING OFFICER IN THE SAID YEARS AND EVEN IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) FOR A.Y. 2008-09 VID E ITS ORDER DATED 20.07.2010, NO SUCH DISALLOWANCE WAS MADE BY THE AS SESSING OFFICER. KEEPING IN VIEW ALL THESE FACTS OF THE CASE AND APP LYING THE RULE OF CONSISTENCY, WE UPHOLD THE IMPUGNED ORDER OF THE LD . CIT(APPEALS) DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFF ICER ON ACCOUNT OF INTEREST ALLEGEDLY ATTRIBUTABLE TO THE INTEREST-FRE E LOANS GIVEN BY THE ASSESSEE-COMPANY TO ITS SUBSIDIARY COMPANIES AND DI SMISS GROUND NO. 3 OF THE REVENUES APPEAL. 17. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 18, 201 6. SD/- SD/- (S.S. VISWANETHRA RAVI) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER KOLKATA, THE 18 TH DAY OF MARCH, 2016 COPIES TO : (1) DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3, KOLKATA, AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700 069 (2) M/S. THE PEERLESS GENERAL FINANCE & INVESTMENT COMPANY LTD., 3, ESPLANADE EAST, KOLKATA-700 069 (3) COMMISSIONER OF INCOME-TAX (APPEALS)-XXIV, KOL KATA (4) COMMISSIONER OF INCOME TAX, KOLKATA (5) THE DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, KOLKATA BENCHES, KOLKATA LAHA/SR. P.S.