ITO, WD-12(1), KOLKATA, Kolkata V. M/s Lyons & Roses Pvt. Ltd., Kolkata

ITA 989/KOL/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 1631 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 09-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: ASIM CHOUD HURY; TRI
• Keywords: Capital asset; Business income; Business expenditure; Opportunity of being heard; Earning of tax free income
• Section: 143(3); 14A; 154

Judgement Text

1 ITA NO.989/KOL/2016 M/S LYONS & ROSES (P)LTD. A.Y.2 005-06 IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH B KOL KATA [BEFORE HONBLE SHRI N.V.VASUDEVAN, JM & SHRI WAS EEM AHMED, AM ] ITA NO.989/KOL/2016 ASSESSMENT YEAR : 2005-06 I.T.O., WARD-12(1) -VERSUS- M/S LYONS & ROSES PV T. LTD. KOLKATA KOLKATA (PAN:AAACL 4729 N) (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI S.DASGUPTA, ADDL. CIT(D R) FOR THE RESPONDENT: SHRI ASIM CHOUDHURY, ADVOCATE & SHRI TRIDIB BOSE, ADVOCATE DATE OF HEARING : 23.01.2018. DATE OF PRONOUNCEMENT : 02.02.2018. ORDER PER N.V.VASUDEVAN, JM: THIS IS AN APPEAL BY THE REVENUE AGAINST THE ORDER DATED 29.02.2016 OF C.I.T.(A)-10, KOLKATA RELATING TO A.Y.2005-06. 2. GROUNDS OF APPEAL RAISED BY THE REVENUE READS A S FOLLOWS :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN ALLOWING EXPENSES OF RS.36,12,000/- CLAIMED BY THE ASSESSEE AS SERVICE CHARGES PAID TO BTC FOR TAKING PROFESSIONAL ADVICE FOR ITS ACTIVITY OF PURCHASE AND SALE OF SHARES WHICH WAS ALLOWED BY THE AO IN ASSESSMENT ON LY DUE TO TREATMENT OF INVESTMENT INCOME, AS OFFERED BY THE ASSESSEE, AS B USINESS INCOME WHEREAS, THE HON'BLE TRIBUNAL IN THE ASSESSEE'S CASE FOR THE ASS ESSMENT YEAR IN QUESTION HAS ACCEPTED THE SAID INCOME AS INVESTMENT INCOME AND H ENCE, THEREBY NO ALLOWANCE OF THE SAID CLAIM OF SERVICE CHARGES CAN BE GIVEN I N THE LIGHT OF SPECIFIC NOTING OF THE AO IN THE ORDER OF ASSESSMENT. 2. . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, TH E LD. CIT(A) HAS ERRED BY IGNORING THAT THE RESTRICTION OF DISALLOWANCE U/S.1 4A UPTO 1% OF DIVIDEND INCOME, I.E. EXEMPT INCOME, AS MADE BY THE HON'BLE ITAT FOR THE ASSESSMENT YEAR IN QUESTION, DOES NOT MEAN THAT THE SAID DISALLOWANCE COVERS UP ALL THE DISALLOWABLE EXPENDITURE IN RESPECT OF EARNING OF INVESTMENT INC OME ALSO SINCE, THE INVESTMENT INCOME IN QUESTION IS NOT FULLY EXEMPT INCOME AND H ENCE, CONTENTION AS MADE BY CIT(A) ON THE BASIS OF HON'BLE ITAT FOR ALLOWING TH E EXPENSE OF SERVICE CHARGES IS BASED ON WRONG APPRECIATION OF FACT. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED BY ALLOWING RELIEF TO THE ASSESSEE IN RESPECT OF EXPEN SES OF SERVICE CHARGES WITHOUT CONSIDERING THE FACT THAT THE ASSESSEE HAD ENOUGH O PPORTUNITY TO FILE CO- 2 ITA NO.989/KOL/2016 M/S LYONS & ROSES (P)LTD. A.Y.2 005-06 OBJECTION, IF ANY, TO THE APPEAL EFFECT ORDER PASSE D BY THE AO DATED 15.06.2009 BY NOT GIVING CREDIT OF CLAIM OF SERVICE CHARGES. 4. THE APPELLANT CRAVE LEAVE TO MODIFY, ADD OR ALTE R THE GROUNDS OF APPEAL. 3. THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE BUSINESS OF MAKING INVESTMENTS. THE ASSESSEE FILED RETURN OF INCOME FO R A.Y.2005-06 SHOWING A TOTAL INCOME OF RS.32,21,523/-. AN ORDER OF ASSESSMENT U/ S 143(3) OF THE INCOME TAX ACT, 1961 (ACT) WAS PASSED BY THE AO ON 20.12.2007. ON E OF THE ISSUES THAT WAS CONSIDERED BY THE AO IN THE ASSESSMENT WAS AS TO WH ETHER THE INCOME DECLARED BY THE ASSESSEE UNDER THE HEAD LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN WAS TO BE REGARDED AS INCOME FROM BUSINESS OR INCOME UNDER HEAD CAPITAL GAIN . THE AO HELD THAT INCOME DECLARED UNDER THE HEAD CAPITAL G AIN HAS TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS . THE AO PASSED AN ORDE R OF ASSESSMENT ON 20.12.2007. WHILE CONCLUDING THE ASSESSMENT THE AO NOTICED THAT THE ASSESSEE HAD PAID A SUM OF RS.36,12,000/- AS SERVICE CHARGES TO BONANZA TRADIN G CO. PVT. LTD.(BTC) THE AO WAS OF THE VIEW THAT IF ULTIMATELY THE INCOME DECLA RED UNDER THE HEAD CAPITAL GAIN WHICH WAS TREATED BY HIM AS INCOME FROM CAPITAL GA IN THEN THE ASSESSEE SHOULD NOT BE ALLOWED DEDUCTION OF RS.36,12,000/- BEING SERVIC E CHARGES TO BTC FOR RENDERING ADVICE ON INVESTMENT, AS BUSINES IS HELD TO BE INCO ME UNDER THE HEAD BUSINESS EXPENSES. IN THIS REGARD IT IS ALSO WORTHWHILE TO M ENTION THAT THE ASSESSEE WAS ALSO IN THE BUSINESS OF PURCHASE AND SALE OF SHARES. THE AS SESSEE ALSO HELD THE SHARES AS INVESTMENTS WHICH WERE PURCHASED AND SOLD. THE GAIN ARISING FROM PURCHASE AND SALE OF SHARES WHICH WERE HELD AS STOCK IN TRADE OF BUSI NESS WAS DECLARED UNDER THE HEAD INCOME FROM BUSINESS. THE INCOME ARISING FROM PURCH ASE AND SALE OF SHARES HELD AS INVESTMENTS WERE DECLARED UNDER THE HEAD CAPITAL G AINS. SINCE THE AO TREATED ALL THE ACTIVITIES OF PURCHASE AND SALE OF SHARES AS GIVING RISE TO THE INCOME FROM BUSINESS, THE AO ALLOWED SERVICE CHARGES PAID TO BTC AS DEDUCTION IN THE ORDER OF ASSESSMENT. THE AO HAS MADE IT CLEAR THAT IF INCOME DECLARED UNDER THE HEAD CAPITAL GAIN WHICH WERE BEING TREATED BY HIM AS INCOME UNDER THE HEAD INCOM E FROM BUSINESS THEN SERVICE 3 ITA NO.989/KOL/2016 M/S LYONS & ROSES (P)LTD. A.Y.2 005-06 CHARGES PAID TO BTC SHOULD NOT BE ALLOWED. THE FOLL OWING WERE THE RELEVANT OBSERVATIONS OF THE AO IN THIS REGARD :- HOWEVER, IT MAY BE MENTIONED THAT IF THE ABOVE INC OME IS HELD AS INVESTMENT INCOME UNDER THE HEAD CAPITAL GAINS, THE ASSESSEE W OULD NOT BE ALLOWABLE HUGE EXPENSES CLAIMED ESPECIALLY SERVICE CHARGES PAID TO BTC AS BUSINESS EXPENSES. 4. AGGRIEVED BY THE AFORESAID ORDER OF THE AO THE A SSESSEE PREFERRED APPEAL BEFORE THE CIT(A). THE CIT(A)-XII, KOLKATA VIDE AN ORDER DATED 31.03.2009 HELD THAT INCOME DECLARED BY THE ASSESSEE UNDER THE HEAD CAP ITAL GAINS SHOULD BE ASSESSED UNDER THE HEAD CAPITAL GAIN AND NOT UNDER THE HEA D INCOME FROM BUSINESS. THE FOLLOWING WERE THE RELEVANT OBSERVATIONS OF THE CIT (A) : 5.2.15 DECISION IN THE LIGHT OF THE DISCUSSION HELD BOTH ON FACTS A ND LAW, I AM OF THE OPINION THAT THE ORIGINAL INTENTION OF THE APPELLANT WAS TO TREA T SHARES AS INVESTMENT AND NOT STOCK IN TRADE AS EVIDENT FROM THE ENTRIES MADE IN THE BOOKS OF ACCOUNT AND BALANCE SHEET. THE VOLUME OF TRANSACTIONS, FREQUENCY OF TRANSACT IONS, PERIOD OF HOLDING ETC. WOULD NOT ALTER THE NATURE OF TRANSACT ION FROM INVESTMENT TO TRADING WHEN THE INITIAL INTENTION OF APPELLANT WAS TO HOLD THE SHARES UNDER INVESTMENT AND ACCORDINGLY RECORDED IN THE BOOKS. THIS VIEW HA S BEEN CLEARLY HELD BY COURTS AND MORE SO THE JURISDICTIONAL KOLKATA TRIBUNAL. AS SUCH THE ASSETS (SHARES) CATEGORIZED UNDER THE HEAD 'INVESTMENT' ARE TO BE TREATED AS CAPITAL ASSETS AND THE PROFIT ON SALE OF SUCH ASSETS ARE TAXABLE UNDER THE HEAD 'CAPITAL GAINS'. AS OBSERVED BY THE HON'BLE ITAT, KOLKATA BENCH IN THE CASE OF RELIANC-9 TRADING ENTERPRISES LTD. (SUPRA) THE SHARES WERE PURCHASED WITH AN INTENTION OF EARNING DIVIDEND IN ADDITION TO THE PROSPECT OF MAKING PROF IT ON SALE OF SUCH INVESTMENT IN SHARES AT AN OPPORTUNE MOMENT WITHOUT MAKING ANY HURRY FOR SALE IGNORING DIVIDEND. THE TRANSACTIONS IN THE YEAR UNDER CONSID ERATION ON ACCOUNT OF SALE OF SHARES UNDER INVESTMENT HEAD IS SAME IN THE PRECEDI NG YEARS AND THE SAME MERITS TO BE ACCEPTED AS CAPITAL GAINS. RESPECTFULLY FOLLO WING THE RATIO LAID DOWN BY THE ITAT, KOLKATA BENCH IN THE CASE OF RELIANCE TRADING ENTERPRISES LTD. AND THE RATIOS LAID DOWN IN THE CASES DISCUSSED, I HOLD THE NET SURPLUS/PROFIT ON SALE OF SHARES/UNITS SHOWN UNDER 'INVESTMENT HEAD' IS TO BE TREATED' AS CAPITAL GAINS AS AGAINST BUSINESS INCOME ASSESSED BY THE A.O. IN THE RESULT. THE APPELLANT'S GROUND ON THIS ISSUE IS ALLOWED. 5. IT MAY BE RELEVANT TO POINT OUT THAT WITH REGARD TO THE SERVICE CHARGES PAID TO BTC THE ASSESSEE HAD TAKEN A SPECIFIC STAND BEFORE THE CIT(A) AS FOLLOWS :- 4 ITA NO.989/KOL/2016 M/S LYONS & ROSES (P)LTD. A.Y.2 005-06 5.2.15 IN THE LAST PAGE OF THE ASSESSMENT ORDER, TH E ASSESSING OFFICER RECORDED A NOTE DULY UNDERLINED TO STATE THAT IF THE ABOVE INC OME IS HELD AS INVESTMENT UNDER THE HEAD CAPITAL GAINS THE ASSESSEE WOULD NOT BE HE LD LIABLE TO ALLOWABLE HUGE EXPENSES CLAIMED SPECIALLY SERVICE CHARGES PAID TO BONANZA TRADING COMPANY PRIVATE LIMITED AS BUSINESS EXPENSES. REGARDING THE ASSESSEE COMPANY'S 'ESTABLISHMENT COST AND SERVICE CHARGES PAID TO CAR RY OUT TRADING ACTIVITIES EFFICIENTLY, THE ASSESSEE SUBMITTED A COPY OF LETTE R OF BONANZA TRADING CO. PVT. LTD. TO WHOM THE ASSESSEE PAID SERVICE CHARGES WHIC H CLEARLY STATES THE INTENTION OF THE ASSESSEE THAT THEY WERE TAKING PROFESSIONAL ADVICE FOR ITS TRADING ACTIVITY OF PURCHASE AND SALE OF SHARES. HENCE, EMPLOYMENT O F SUCH INFRASTRUCTURE IS NECESSARY FOR BUSINESS ACTIVITY AND FOR WHICH NECES SARY EXPENSES HAS TO BE INCURRED. 6. THE CIT(A) DID NOT RENDER ANY DECISION ON THE A FORESAID SUBMISSIONS MADE BY THE ASSESSEE. 7. THE AO PASSED AN ORDER ON 15.06.2009 GIVING EFFE CT TO THE DIRECTIONS CONTAINED IN THE ORDER DATED 31.03.2009 OF CIT(A)-X II, KOLKATA. IN THE AFORESAID ORDER THE AO TREATED THE INCOME DECLARED BY THE ASSESSEE UNDER THE HEAD CAPITAL GAIN AS DECLARED BY THE ASSESSEE IN THE RETURN OF INCOME. T HE AO HOWEVER ADDED TO THE TOTAL INCOME SO DETERMINED BY HIM THE SERVICE CHARGES PAI D TO BTC. FOR DOING SO THE AO RELIED ON THE OBSERVATIONS MADE BY HIM IN THE ORDER OF ASSESSMENT IN WHICH HE HAD SPECIFICALLY MENTIONED THAT IF INCOME DECLARED BY T HE ASSESSEE UNDER THE HEAD CAPITAL GAIN WHICH IS TREATED BY THE AO AS INCOME FROM BUS INESS IS ULTIMATELY HELD TO BE INCOME FROM CAPITAL GAIN, THEN THE SERVICE CHARGES PAID TO BTC SHOULD BE DISALLOWED. THE FOLLOWING WAS THE RELEVANT OBSERVATIONS OF THE AO IN THE ORDER PASSED U/S 251 OF THE ACT DATED 15.06.2009. TOTAL INCOME AS PER RETURN RS.32,21,522/- ADD: DISALLOWANCE U/S 14A OPENING BALANCE OF INVESTMENT RS.1,61,36,538/- CLOSING BALANCE OF INVESTMENT RS.3,00,07, 426/- RS.4,61,43,964/- AVERAGE INVESTMENT RS.4,61,43,964/- RS.2,30,71,982/- 2 % OF AVERAGE INVESTMENT OF RS.2,30,71,982/- RS .1,15,360/- (AS PER RULE 8D(2)(III), % OF AVERAGE INVESTMENT IN THE BALANCE SHEET) SERVICE CHARGES PAID TO BTC RS.36,12,000/- (AS PER OBSERVATION OF THE A.O. IN HIS ORDER THAT IF THE INCOME IS HELD AS INVESTMENT INCOME UNDER THE HEAD 5 ITA NO.989/KOL/2016 M/S LYONS & ROSES (P)LTD. A.Y.2 005-06 OF CAPITAL GAINS, THE ASSESSEE WOULD NOT BE ALLOWA BLE HUGE EXPENSES CLAIMED ESPECIALLY SERVICE CHARGES P AID TO BTC AS BUSINESS EXPENSES, HENCE ADDED ). TOTAL INCOME AFTER ADJUSTMENT RS.69,48,882/- 8. ANOTHER ISSUE WHICH WAS CONSIDERED BY THE AO IN THE ORDER OF ASSESSMENT PASSED U/S 143(3) DT. 20.12.2007 WAS WITH REGARD T O THE DISALLOWANCE U/S 14A OF THE ACT. THE AO DISALLOWED 5% OF THE EXEMPT INCOME EARN ED BY THE ASSESSEE WHICH RESULTED IN ADDITION OF RS.23,195/-. AGAINST THE AF ORESAID ADDITION THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A) AND CIT(A) IN HI S ORDER DATED 31.03.2009 DIRECTED THAT THE DISALLOWANCE SHOULD BE MADE IN ACCORDANCE WITH RULE 8D (2)(III) OF THE RULES. IN THE ORDER GIVING EFFECT TO THE AFORESAID DIRECTI ONS OF THE CIT(A) PASSED BY THE AO ON 15.06.2009 THE AO MADE AN ADDITION U/S 14A OF TH E ACT OF RS.1,15,380/-. WE HAVE ALREADY GIVEN THE COMPUTATION OF TOTAL INCOME MADE BY THE AO IN THE ORDER PASSED U/S 251 OF THE ACT DATED 15.06.2009. 9. AGGRIEVED BY THE AFORESAID ORDER OF AO PASSED U/ S 251 OF THE ACT DATED 15.06.2009, THE ASSESSEE FILED AN APPLICATION DATED 15.07.2009 U/S 154 OF THE ACT. IN THIS APPLICATION U/S 154 OF THE ACT, THE ASSESSEE S UBMITTED THAT THE ACTION OF THE AO IN ADDING THE SERVICE CHARGES PAID TO BTC AND MAKING D ISALLOWANCE OF RS.1,15,380/- UNDER RULE 8D(2)(IIII) AS AGAINST THE ORIGINAL DISA LLOWANCE OF 5% OF THE EXEMPT INCOME MADE IN THE ORDER OF ASSESSMENT OF RS.23,195 /.- WAS AN APPARENT ERROR ON THE FACE OF RECORD . THE SUBMISSIONS OF THE ASSESSE WAS THAT AS FAR AS THE SERVICE CHARGES PAID TO BTC IS CONCERNED IT WAS NEVER THE SUBJECT M ATTER OF THE ADDITION MADE BY THE AO IN THE ORDER OF ASSESSMENT PASSED U/S 143(3) OF THE ACT DATED 20.12.2007. IN THE APPEAL FILED BY THE ASSESSE BEFORE CIT(A) THE ONLY ISSUE WAS WITH REGARD TO THE HEAD UNDER WHICH INCOME DECLARED BY THE ASSESSEE AS GIV ING RISE TO THE CAPITAL GAIN SHOULD BE ASSESSED. THE CIT(A) IN HIS ORDER DATED 31.03.20 09 HAS GIVEN ONLY A DIRECTION THAT INCOME DECLARED BY THE ASSESSEE UNDER THE HEAD CAP ITAL GAIN SHOULD BE ASSESSED UNDER THE HEAD CAPITAL GAIN NOT UNDER THE HEAD INCOME FROM BUSINESS . THE AO WHILE GIVING EFFECT TO THIS ORDER OF CIT(A) CANNOT MAKE DISALLOWANCE OF SERVICE 6 ITA NO.989/KOL/2016 M/S LYONS & ROSES (P)LTD. A.Y.2 005-06 CHARGES PAID TO BTC AS THAT WAS NOT THE SUBJECT MAT TER OF THE APPEAL AT ALL. WITH REGARD TO DISALLOWANCE U/S 1A OF THE ACT R.W.R. 8D (2)(III ) OF THE RULES THE SUBMISSION OF THE ASSESSEE WAS THAT THE EXPENDITURE WAS WHOLLY AND EX CLUSIVELY IN RELATION TO THE BUSINESS OF THE ASSESSEE. 10. THE AO DISMISSED THE APPLICATION OF THE ASSESSE E EVEN WITHOUT AN OPPORTUNITY OF BEING HEARD TO THE ASSESSEE SUMMARILY WITHOUT AN Y DISCUSSION BY AN ORDER DATED 29.01.2010. 11. AGAINST THE AFORESAID ORDER DATED 29.01.2010 PA SSED U/S 154 OF THE ACT THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). THE SU BMISSION MADE IN THE APPLICATION U/S 154 OF THE ACT WERE REITERATED BY THE ASSESSEE BEFORE CIT(A). THE CIT(A) HELD THAT THE ADDITION OF RS.36,12,000/- ON ACCOUNT OF S ERVICE CHARGES PAID TO BTC WAS BEYOND THE SCOPE OF THE DIRECTIONS OF THE CIT(A) IN THE ORDER DATED 31.03.2009 AND GAVE RISE TO A MISTAKE APPARENT IN THE FACE OF THE RECORD. THEREFORE THE AO OUGHT TO HAVE DELETED THE SAID ADDITION BY ALLOWING THE APPL ICATION U/S 154 OF THE ACT ON THE ABOVE ISSUE. WITH REGARD TO THE DISALLOWANCE U/S 1 4A OF THE ACT THE CIT(A) WAS OF THE VIEW THAT IN SEVERAL DECISIONS RENDERED BY THE HONBLE ITAT 1% OF THE EXEMPT INCOME ALONE SHOULD BE DISALLOWED U/S 14A OF THE AC T WITH REFERENCE TO THE ASSESSMENT YEARS PRIOR TO A.Y.2008-09. THE CIT(A) W AS OF THE VIEW THAT THE AO THEREFORE OUGHT TO HAVE RESTRICTED THE DISALLOWANCE U/S 14A OF THE ACT TO 1% OF THE EXEMPT INCOME. 12. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A), THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD. CO UNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS WERE MADE BEFORE THE LOWER AUTHORITIES. THE LD. DR SUBMITTED THAT THE ISSUE SOUGHT TO BE RAISED IN THE APPLICATION OF THE ASSESSEE U/S 154 OF THE ACT BEFORE THE AO WERE HIGHLY DEBATABLE AND THEREFORE OUTSIDE THE PURVIEW OF THE PROCEEDINGS U/S 154 OF THE ACT. ACCORDING TO HI M THE AO WAS JUSTIFIED IN REJECTING THE APPLICATION U/S 154 OF THE ACT. 14. WE HAVE GIVEN A VERY CAREFUL CONSIDERATION TO T HE RIVAL SUBMISSIONS. AS FAR AS THE SERVICE CHARGES PAID TO BTC IS CONCERNED THIS W AS NEVER THE SUBJECT MATTER OF 7 ITA NO.989/KOL/2016 M/S LYONS & ROSES (P)LTD. A.Y.2 005-06 ADDITION IN THE ORIGINAL ORDER OF ASSESSMENT PASSED BY THE AO U/S 143(3) OF THE ACT DATED 20.12.2007. IN THE APPEAL BY THE ASSESSEE AG AINST THE ORDER OF THE AO THE ONLY ISSUE WAS WHETHER INCOME DECLARED BY THE ASSESSEE U NDER THE HEAD CAPITAL GAIN SHOULD BE ASSESSED UNDER THE SAID HEAD OR UNDER THE HEAD INCOME FROM BUSINESS. THE CIT(A) HELD THAT INCOME DECLARED BY THE ASSESSEE UN DER THE HEAD CAPITAL GAIN SHOULD BE ASSESSED UNDER THE HEAD CAPITAL GAIN . IF THE AO WAS AGGRIEVED BY THE ABSENCE OF DIRECTION BY CIT(A) IN HIS ORDER WITH REGARD TO SER VICE CHARGES PAID TO BTC, HE OUGHT TO HAVE FILED EITHER AN APPEAL AGAINST THE ORDER OF CIT(A) DATED 31.03.2009 OR AN APPLICATION U/S 154 OF THE ACT. THE AO DID NOT EVEN BRING TO THE NOTICE OF CIT(A) IN THE COURSE OF APPELLATE PROCEEDINGS THE ISSUE WITH REGARD TO SERVICE CHARGES PAID TO BTC. IN THESE CIRCUMSTANCES WHILE GIVING EFFECT TO THE DIRECTIONS OF CIT(A) IN HIS ORDER DATED 15.06.2009, THE AO COULD NOT HAVE DISAL LOWED THE SERVICE CHARGES PAID TO BTC. THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RE LIANCE ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF ITO VS RYAM SUGAR CO. LTD. 1905 ITR 819 (CAL). IN THE AFORESAID DECISION IT WAS HELD TH AT WHILE GIVING EFFECT TO THE ORDER OF THE FIRST APPELLATE AUTHORITY THE AO WAS NOT COMPET ENT TO TRAVEL BEYOND THE SUBJECT MATTER OF THE APPEAL BEFORE CIT(A). THE LD. COUNSEL HAS ALSO PLACED RELIANCE ON THE DECISION OF THE HONBLE ITAT, PUNE IN THE CASE OF B HGWANDAS ASSOCIATES VS ITO 229 ITD 1 (PUNE) WHEREIN IT WAS HELD THAT WHEN THE AO I N AN ORDER GIVING EFFECT TO THE APPELLATE ORDER COMMITS A MISTAKE BY TRAVELLING BEY OND THE SUBJECT MATTER OF THE APPEAL BEFORE CIT(A) IT GIVES RISE TO A MISTAKE APP ARENT ON THE FACE OF THE RECORD WHICH SHOULD BE RECTIFIED U/S 154 OF THE ACT. THE A FORESAID DECISION SUPPORT THE CONCLUSION OF CIT(A). THEREFORE WE DO NOT FIND MERI T IN GROUND NO.1 AND 3 RAISED BY THE REVENUE. 15. AS FAR AS GROUND NO.2 IS CONCERNED, THE DIRECTI ONS OF CIT(A) IN THE ORDER DATED 30.03.2009 ARE VERY CLEAR IN THAT THE CIT(A) HAS DI RECTED THE AO TO MAKE DISALLOWANCE U/S 14A OF THE ACT BY INVOKING RULE 8D (2)(III). THE AO IN THE ORDER PASSED U/S 251 OF THE ACT DATED 15.06.2009 HAS FOLL OWED THE DIRECTIONS OF CIT(A). THE CONTENTION IN THE APPLICATION FILED BY THE ASSESSEE U/S 154 OF THE ACT AGAINST THE ORDER DATED 15.06.2009 ON THIS ISSUE WAS THAT NO DISALLOW ANCE U/S 14A COULD BE MADE OVER 8 ITA NO.989/KOL/2016 M/S LYONS & ROSES (P)LTD. A.Y.2 005-06 AND ABOVE 5% OF THE EXEMPT INCOME AS WAS MADE IN TH E ORIGINAL ORDER PASSED U/S 143(3) OF THE ACT. IN OUR VIEW THIS ISSUE CANNOT BE THE SUBJECT MATTER OF PROCEEDINGS U/S 154 OF THE ACT. THE QUESTION WHETHER THE CIT(A) ENHANCED THE DISALLOWANCE U/S 14A OF THE ACT WITHOUT PROPER NOTICE OR ANY DISALLO WANCE COULD AT ALL BE MADE U/S 14A OF THE ACT CANNOT BE SUBJECT MATTER OF THE ORD ER DATED 15.06.2009 U/S 251 OF THE ACT PASSED BY THE AO. IF THE ASSESSEE IS AGGRIEVED WITH THE DIRECTIONS OF CIT(A) HE OUGHT TO HAVE FLED AN APPEAL AGAINST SUCH DIRECTION S. FILING THE APPLICATION U/S 154 OF THE ACT WAS NOT AN APPROPRIATE REMEDY AVAILABLE TO THE ASSESSEE. THE CIT(A) IN OUR VIEW ERRED IN DIRECTING THE AO TO RESTRICT THE DISA LLOWANCE U/S 14A OF THE ACT TO 1% OF THE EXEMPT INCOME. TO THIS EXTENT WE FIND MERITS IN GROUND NO.2 RAISED BY THE REVENUE. THUS GROUND NO.1 AND 3 RAISED BY THE REVEN UE ARE DISMISSED WHILE GROUND NO.2 RAISED BY THE REVENUE IS ALLOWED. 16. IN THE RESULT THE APPEAL RAISED BY THE REVENUE IS PARTLY ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON 02.02.2018. SD/- SD/- [WASEEM AHMED] [ N.V.VASUDEVAN ] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 02.02.2018. [RG SR.PS] COPY OF THE ORDER FORWARDED TO: 1.M/S. LYONS & ROSES PVT. LTD., B-103, RAI ENCLAVE, 7/1A, SUNNY PARK, KOLKATA- 700019. 2. I.T.O., WARD-12(1), KOLKATA. 3. CIT(A)-10, KOLKATA 4. C.I.T.-4, KOLKATA. 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER, SENIOR PRIVATE SECRETARY HEAD OF OFFICE/D.D.O., ITAT, KOLKATA BENCHES 9 ITA NO.989/KOL/2016 M/S LYONS & ROSES (P)LTD. A.Y.2 005-06