ITO, WD-1(2), KOLKATA, Kolkata V. M/s Kaniksha Merchants Pvt. Ltd., Kolkata

ITA 927/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1407 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 9 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-03-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 03-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

ITA NO.927/KOL/2016 M/S. KANISHKA MERCHANTS (P)LTD A.Y.2012-13 1 IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH : KOLKATA [BEFORE HONBLE SRI N.V.VASUDEVAN, JM & SHRI WASE EM AHMED, AM] I.T.A NO. 927/KOL/2 016 ASSESSMENT YEAR : 2012 -13 I.T.O., WARD-1 (2) -VS.- M/S KANISHKA MER CHANTS PVT. LTD. KOLKATA KOLKATA [PAN : AACCK 0882 D] (APPELLANT) (RESPONDENT) FOR THE APPELLANT : SHRI SALLONG YADEN, ADDL. CIT FOR THE RESPONDENT : NONE DATE OF HEARING : 28.02.2018. DATE OF PRONOUNCEMENT : 01.03.2018. ORDER PER N.V.VASUDEVAN, JM THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 11.3.2016 OF CIT(A)- I, KOLKATA, RELATING TO AY 2012-13. 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE RE ADS AS FOLLOWS: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION U/S 14A SOLEL Y ON THE GROUND THAT NO EXEMPT INCOME WAS EARNED DURING THE YEAR, GIVEN THE FACT T HAT THE EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME FOR OTHER YEARS CANNOT BE USED TO REDUCE THE TAXABLE INCOME OF THE CURRENT YEAR. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION U/ S 14A SOLE LY ON THE GROUND THAT NO EXEMPT INCOME WAS EARNED DURING THE YEAR, WHILE IGN ORING THE DIRECTION OF THE CBDT CIRCULAR NO. 5/2014, WHICH CLARIFIED THAT EXPE NSES CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAX ABLE INCOME. 3. THE REVENUE SHALL CRAVE TO ADD OR AMEND ITS GROU ND ON OR BEFORE THE. DATE OF HEARING. ITA NO.927/KOL/2016 M/S. KANISHKA MERCHANTS (P)LTD A.Y.2012-13 2 3. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINE SS OF TRADING IN SHARES. THE ISSUE RAISED IN GROUND NO.1 IS WITH REGARD TO DISALLOWANC E OF EXPENSES INCURRED IN EARNING EXEMPT INCOME. THE ASSESSEE DID NOT EARN ANY DIVIDE ND INCOME DURING THE RELEVANT PREVIOUS YEAR. THE AO DISALLOWED A SUM OF RS.2,91, 79,775/- AS EXPENSES INCURRED TO EARN EXEMPT INCOME IN TERMS OF SEC.14A OF THE INCOM E TAX ACT, 1961 (ACT) R.W.RULE 8D(2)(II) & (III) OF THE INCOME TAX RULES, 1962 (RU LES), WHICH LAYS DOWN THAT ANY EXPENDITURE INCURRED TO EARN INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, SHALL NOT BE ALLOWED AS A DEDUCTION. 4. ON APPEAL BY THE ASSESSEE, THE CIT(A) DELETED T HE DISALLOWANCE MADE UNDER SEC.14A READ WITH RULE 8D(2)(II)& (III) OF THE RULE S BY HOLDING THAT SINCE THERE WAS NO EXEMPT INCOME EARNED, THERE CAN BE NO DISALLOWAN CE U/S.14A OF THE ACT. 5. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVEN UE HAS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. AS CAN BE SEEN FROM THE GROUN DS OF APPEAL OF THE REVENUE, THE REVENUE IS AGGRIEVED ONLY BY THE DELETION OF ADDITI ON MADE BY THE AO UNDER SEC.14A OF THE ACT READ WITH RULE 8D(2)(II) & (III) OF THE RULES. THE GRIEVANCE OF THE REVENUE AS PROJECTED IN THE GROUNDS OF APPEAL IS THAT THE C IT(A) OUGHT TO HAVE REJECTED THE CLAIM OF THE ASSESSEE BY PLACING RELIANCE ON THE CB DT CIRCULAR NO.5 OF 2014 DATED 11.2.2014 WHEREIN IT WAS HELD THAT THE DISALLOWANCE U/S 14A OF THE ACT CAN BE MADE EVEN IN THE YEAR WHERE THERE IS NO EXEMPT INCOME EA RNED OR RECEIVED BY THE ASSESSEE AND THE ITAT SPECIAL DECISION IN THE CASE OF CHEMIN VEST LTD. [2009] 121 ITD 318 (SB) (DELHI) WHEREIN IT WAS HELD DISALLOWANCE UNDER SEC.14A OF THE ACT CAN BE MADE EVEN WHEN THERE IS NO EXEMPT INCOME. BEFORE US IT WAS NOT DISPUTED BY THE REVENUE THAT THE CBDT CIRCULAR ON WHICH HAS BEEN REFERRED T O IN THE CBDT CIRCULAR AND THE DECISION OF THE SPECIAL BENCH IN THE CASE OF CHEMIN VEST LTD. (SUPRA) IS CONTRARY TO THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS CIT 317 ITD 33 (DELHI) WHEREIN IT WAS HELD THAT THERE CAN BE NO DISALLOWANCE OF EXPENSES U/S.14A OF THE ACT, IF THERE IS NO EXEMPT INCOME DURING THE RELEVANT PREVIOUS YEAR. IT WAS BROUGHT TO OUR NOTICE THAT THE HONBLE ITAT KOLKATA IN THE CASE OF REI AGRO LTD. VS. DCIT 144 ITD 141 (KOL-TRIB) HAS HELD THAT IT IS ONL Y THE INVESTMENTS WHICH YIELDS ITA NO.927/KOL/2016 M/S. KANISHKA MERCHANTS (P)LTD A.Y.2012-13 3 DIVIDEND DURING THE PREVIOUS YEAR THAT HAS TO BE CO NSIDERED WHILE ADOPTING THE AVERAGE VALUE OF INVESTMENTS FOR THE PURPOSE OF RULE 8D(2)( III) OF THE RULES. THE AFORESAID VIEW OF THE TRIBUNAL HAS SINCE BEEN AFFIRMED AS COR RECT BY THE HONBLE CALCUTTA HIGH COURT IN G.A.NO.3581 OF 2013 IN THE APPEAL AGAINST THE ORDER OF THE TRIBUNAL IN THE CASE OF REI AGRO LTD. (SUPRA). IN THE LIGHT OF THE AFORESAID DECISIONS, WE ARE OF THE VIEW THAT THE ORDER OF THE CIT(A) IS JUST AND PROPE R AND CALLS FOR NO INTERFERENCE. ACCORDINGLY THE APPEAL BY THE REVENUE IS DISMISSED. 6. IN THE RESULT, APPEAL BY THE REVENUE IS DISMISSE D. ORDER PRONOUNCED IN THE COURT ON 01.03.2018. SD/- SD/- [WASEEM AHMED] [ N.V.VAS UDEVAN ] ACCOUNTANT MEMBER JUDICIA L MEMBER DATED : 01.03.2018. [RG SR.PS] COPY OF THE ORDER FORWARDED TO: 1. M/S KANISHKA MERCHANTS (P)LTD., 33, C.R.AVENUE, 9 TH FLOOR, KOLKATA-700012. 2. I.T.O., WARD-1(2), KOLKATA. 3. CIT(A)-1, KOLKATA 4. C.I.T.-1, KOLKAT A. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER SENIOR PRIVATE SECRETARY HEAD OF OFFICE/ D .D.O., ITAT KOLKATA BENCHES