ACIT, CC-2(1), KOLKATA, Kolkata V. M/s S. L. Industries Pvt. Ltd., Kolkata

ITSSA 11/KOL/2016

• Counselvise Citation: [2017] 122 COUNSELVISE.COM (IT) 3275 (ITAT-KOLKATA)
• Duration Of Justice: 11 month(s) 17 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 12-04-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 11-05-2016
• Court: TRIBUNAL
• Keywords: Search and seizure; Earning of tax free income
• Section: 14A; 115JB; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B, BENC H KOLKATA BEFORE SHRI N.V.VASUDEVAN, JM & DR. A.L.SAINI, AM IT(SS)A NO.11&12/KOL/2016 ( / ASSESSMENT YEAR : 2012-13 & 2013-14) ACIT, CC-2(1), KOLKATA 3 RD FLOOR AAYAKAR BHAWAN POORVA E.M.BYE PASS, 110 SHANTI PALLY, KOLKATA- 700107 VS. M/S S.L.INDUSTRIES PVT. LTD., 17B&C, EVEREST HOUSE, 46C, CHOWRINGHEE ROAD, KOLKATA-700071 ./ ./PAN/GIR NO. : AADCS 8623 F ( /APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : SHRI NIRAJ KUMAR, CIT(DR) /ASSESSEE BY :SHRI A.K.TULSYAN, FCA / DATE OF HEARING : 12/04/2017 /DATE OF PRONOUNCEMENT 28/04/2017 / O R D E R PER DR. ARJUN LAL SAINI, AM: THE CAPTIONED TWO APPEALS FILED BY THE REVENUE, AR E DIRECTED AGAINST THE ORDER PASSED BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-20, KOLKATA, IN APPEAL NO.173/CIT(A)-20/C C-2(1)/14-15, DATED 24.02.2016, WHICH IN TURN ARISES OUT OF AN ORDER PA SSED BY THE ASSESSING OFFICER U/S.153A/143(3) OF THE INCOME TAX ACT 1961, (HEREINAFTER REFERRED TO AS THE ACT), DATED 30.03.2015. 2. THESE TWO APPEALS FILED BY THE REVENUE RELATE TO THE SAME ASSESSEE, DIFFERENT ASSESSMENT YEAR, SAME ISSUES IN VOLVED, THEREFORE, THESE HAVE BEEN CLUBBED AND HEARD TOGETHER AND A CO NSOLIDATED ORDER IS BEING PASSED FOR THE SAKE OF CONVENIENCE AND BREVIT Y. IN REVENUE APPEAL I.E. IT(SS)A NO.12/KOL/2016 IS TAKEN AS THE LEAD CA SE. 3. BRIEF FACTS OF THE CASE QUA THE ASSESSEE ARE THA T THE ASSESSEE IS A PRIVATE LIMITED COMPANY WHO DERIVED INCOME FROM INV ESTMENT AND TRADE IN IT(SS)A NO.11&12/16 M/S S.L.INDUSTRIES PVT. LTD. 2 SHARE AND SECURITIES. THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2013-2014 DISCLOSING TOTAL INCOME O F RS.1,51,55,960/-. A SEARCH AND SEIZURE ACTION U/S.132 OF THE ACT WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE AT 17B&C, EVERES T HOUSE, 46C, CHOWRINGHEE ROAD, KOLKATA-700071 ON 13.12.2012. ASS ESSEES CASE WAS SELECTED FOR SCRUTINY AND THE AO COMPLETED THE ASSESSMENT BY MAKING THE DISALLOWANCE U/S.14A R.W.RULE 8D AT RS.4 7,20,670/-. THE AO ALSO MADE ADDITION UNDER CLAUSE (F) TO EXPLANATION 1 OF SECTION 115JB AT RS.47,20,670/-. 4. AGGRIEVED FROM THE ORDER OF THE AO, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A), WHO HAS DELETED THE ADDITIONS MA DE BY THE AO. THE LD. CIT(A) OBSERVED THAT THE AO HAD MADE THE ADDITI ON U/S.14A R.W.RULE 8D AT RS.47,20,670/- ON THE BASIS OF CIRCULAR NO.5 OF 2014 ISSUED BY THE CBDT. THE LD. CIT(A) ALSO OBSERVED THAT THE DISALLO WANCE TO BE MADE UNDER RULE 8D R.W.SECTION 14A OF THE I.T.ACT, 1961 CAN BE MADE IN THE CASE WHERE THE ASSESSEE HAS ACTUALLY INCURRED EXPEN DITURE TO EARN EXEMPT INCOME. THE LD. CIT(A) ALSO FOLLOWED THE JUD GMENT OF DELHI TRIBUNAL IN THE CASE OF JINDAL SAW PIPES LTD., 118 TTJ 228, WHEREIN IT WAS HELD THAT THE PROVISION CONTAINED IN SECTION 14A HA S NOT CONFERRED SPECIFIC POWERS ON ASSESSING OFFICER TO ESTIMATE EXPENDITURE WHICH ASSESSEE WOULD HAVE IN OPINION OF ASSESSING OFFICER, INCURRE D IN RELATION TO EXEMPT INCOME; THERE MUST EXIST NEXUS BETWEEN EXPENDITURE INCURRED AND EXEMPTED INCOME. THIS WAY LD. CIT(A) DELETED THE AD DITION MADE BY THE AO AT RS.47,20,670/-. LD. CIT(A) ALSO DELETED THE A DDITION MADE BY THE IT(SS)A NO.11&12/16 M/S S.L.INDUSTRIES PVT. LTD. 3 AO UNDER CLAUSE (F) TO EXPLANATION 1 OF SECTION 115 JB. THE LD. CIT(A) OBSERVED THAT FOR THE PURPOSE OF APPLICABILITY OF S ECTION 14A R.W.RULE 8D THE COMPUTATION OF TOTAL INCOME IS TO BE UNDER SOME HEADS IN CHAPTER IV OF THE INCOME TAX ACT, 1961. SECTION 14A CLEARLY SA YS THAT FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME UNDER THIS CH APTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THIS WAY, THE CIT(A) DELETED THE ADDITION MADE UNDER CLAUSE (F) TO EXPLANATION 1 OF SECTION 115JB OF THE ACT. 5. NOT BEING SATISFIED WITH THE ORDER OF THE CIT(A) , THE REVENUE IS IN APPEAL BEFORE US FOR BOTH THE ASSESSMENT YEARS UNDE R CONSIDERATION AND HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- (I) THAT THE LD. CIT(A) ERRED IN ALLOWING RELIEF O F RS.47,20,670/- ON ACCOUNT DISALLOWANCE MADE U/S 14A WITHOUT APPRECIAT ING THE FACT AND CIRCUMSTANCE OF THE CASE. (II) THAT THE LD. CIT(A) ERRED IN DELETING THE DISA LLOWANCE OF RS.47,20,670/- MADE U/S 115JB AS PER PROVISION OF C LAUSE (F) OF EXPLANATION I OF SEC.115JB WITHOUT APPRECIATING THE FACT. (III) THAT THE DEPARTMENT CRAVES THE RIGHT TO ADD, MODIFY OR ABROGATE THE GROUNDS OF APPEAL DURING THE COURSE OF HEARING OF THE CASE. 6. GROUND NO.1 OF IT(SS)A NO.11 & 12/KOL/16 RELATES TO DISALLOWANCE U/S.14A READ WITH RULE 8D. 6.1 LD. DR FOR THE REVENUE HAS SUBMITTED BEFORE US THAT THE ADDITION DELETED BY THE LD. CIT(A) IS NOT JUSTIFIED. LD. DR FOR THE REVENUE ALSO EXPLAINED THAT AS PER CIRCULAR NO.5/2014 ISSUED BY THE CBDT EVEN IF THE ASSESSEE DOES NOT EARN ANY EXEMPTED INCOME THE DISA LLOWANCE UNDER SECTION 14A READ WITH RULE 8D SHOULD BE REQUIRED. IT(SS)A NO.11&12/16 M/S S.L.INDUSTRIES PVT. LTD. 4 6.2 ON THE OTHER HAND, LD. AR FOR THE ASSESSEE HAS SUBMITTED BEFORE US THAT THE AO HAS FAILED TO ESTABLISH THE NEXUS BETWE EN THE EXPENDITURE INCURRED BY THE ASSESSEE AND THE EXEMPTED INCOME. T HE ASSESSEE UNDER CONSIDERATION HAS ITS OWN SUFFICIENT FUNDS TO INVES T IN SHARES AND SECURITIES. THE LD. AR FOR THE ASSESSEE HAS SUBMITT ED BEFORE US THAT THE CHART SHOWING THE DETAILS OF INVESTMENTS MADE BY TH E ASSESSEE ARE AS UNDER :- LD. AR FOR THE ASSESSEE HAS SUBMITTED BEFORE US WIT H THE HELP OF THE ABOVE CHART THAT THE ASSESSEE HAS ITS OWN SUFFICIEN T FUNDS TO MAKE THE INVESTMENTS IN VARIOUS SHARES AND SECURITIES. THERE FORE, THE AO CANNOT MAKE THE DISALLOWANCE U/S.14A R.W.RULE 8D2(II). SO FAR AS THE DISALLOWANCE UNDER RULE 8D(2)(III) IS CONCERNED THE LD. AR FOR T HE ASSESSEE HAS RELIED ON THE JUDGMENT OF KOLKATA TRIBUNAL IN THE CASE OF REI AGRO LTD., ITA IT(SS)A NO.11&12/16 M/S S.L.INDUSTRIES PVT. LTD. 5 NO.1331/KOL/11 & 1423/KOL/11, AY 2008-09, WHEREIN T HE TRIBUNAL HELD AS FOLLOWS :- IN THE ASSESSEE'S CASE, ADMITTEDLY, THE ASSESSEE HA D SUBSTANTIAL CAPITAL. THE INCREASE IN THE CAPITAL ITSELF WAS TO AN EXTENT OF RS.4 CRORES AND IN RESPECT OF RESERVES AND SURPLUS, THE INCREASE WAS RS.112 CRORES. THE LOANS TAKEN DURING THE YEAR ADMI TTEDLY WERE FOR THE LETTERS OF CREDIT AND THE ASSESSEE IS BOUND TO PROVIDE THE BANK STOCK STATEMENT AND OTHER DETAILS TO SHOW THE UTILI ZATION OF THE LOANS. NO BANK WOULD PERMIT THE LOAN GIVEN FOR ONE PURPOSE TO BE USED FOR MAKING ANY INVESTMENT IN SHARES. THE CIT(A ), IT WAS NOTICED THAT AFTER CONSIDERING THAT THE ASSESSEE HA D NOT USED ANY OF ITS BORROWINGS FOR PURCHASING THE SHARES, HAD .DIS ALLOWANCE. ASSESSEE HAD NOT INCURRED ANY EXPENDITURE BY WAY OF INTEREST DURING THE P. Y., WHICH WAS NOT DIRECTLY ATTRIBUTAB LE TO ANY PARTICULAR INCOME, THE FINDINGS OF CIT(A) ON THE ISSUE CONFIRM ED. REVENUE'S APPEAL DISMISSED. (PARA 7&7.1) NOT ALL INVESTMENTS BECOME SUBJECT-MATTER OF CONSID ERATION WHEN COMPUTING DISALLOWANCE U/S. 14A READ WITH RULE 8D. DISALLOWANCE U/S. 14A READ WITH RULE 8D HAD TO BE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. IT COULD BE DON E ONLY BY TAKING INTO CONSIDERATION INVESTMENT WHICH HAD GIVEN RISE TO SUCH INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. THUS, COM PUTATION OF DISALLOWANCE U/S. 14A READ WITH RULE 8D(2)(III), RE STORED TO FILE OF AO FOR RE-COMPUTATION. NO DISALLOWANCE U/S 14A READ WI TH RULE 8D(2)(I) AND (II) COULD BE MADE IN PRESENT CASE. ASSESSEE'S APPEAL PARTLY ALLOWED. (PARA 8&9) CONCLUSION BANK DOES NOT PERMIT LOAN GIVEN FOR ONE PURPOSE TO BE USED FOR MAKING ANY INVESTMENT IN SHARES. DISALLOWANCE U/S. 14A R/W RULE 8D CAN DONE ONLY BY TAKING INTO CONSIDERATION INVESTME NT WHICH HAS GIVEN RISE TO SUCH INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. BASED ON THE ABOVE CITED JUDGMENT, THE AO FOR THE P URPOSE OF DISALLOWANCE UNDER RULE 8D(2)(III) CAN TAKE INTO AC COUNT ONLY THOSE INVESTMENTS WHICH GIVES RISE TO SUCH EXEMPTED INCOM E WHICH DOES NOT FORM PART OF TOTAL INCOME I.E. ONLY THOSE INVESTMEN TS WHICH YIELD THE TOTAL EXEMPTED INCOME SHOULD BE CONSIDERED FOR MAKING THE DISALLOWANCE UNDER RULE 8D(2)(III). IT(SS)A NO.11&12/16 M/S S.L.INDUSTRIES PVT. LTD. 6 7. HAVING HEARD THE SUBMISSIONS, PERUSED THE MATERI AL AVAILABLE ON RECORDS, WE ARE OF THE VIEW THAT THE ORDER PASSED B Y THE CIT(A) IS AS PER THE VARIOUS JUDICIAL PRONOUNCEMENTS SPECIALLY LD. C IT(A) RELIED ON THE CASE IN JINDAL SAW PIPES LTD. 118 TTJ 228, WHEREIN IT HA S BEEN HELD THAT THERE MUST EXIST NEXUS BETWEEN EXPENDITURE INCURRED AND E XEMPTED INCOME. HOWEVER, LATER ON THE KOLKATA TRIBUNAL HAS PASSED THE ORDER IN REI AGRO LTD. (SUPRA) WHICH HAS BEEN UPHELD BY THE HONBLE J URISDICTIONAL HIGH COURT, WHEREIN IT HAS BEEN HELD THAT NOT ALL INVEST MENTS BECOME SUBJECT- MATTER OF CONSIDERATION WHEN COMPUTING DISALLOWANCE U/S. 14A READ WITH RULE 8D (2) (III), ONLY THOSE INVESTMENTS SHOULD BE TAKEN INTO ACCOUNT WHICH YIELDED THE DIVIDEND (EXEMPTED) INCOME, BUT W E OBSERVED THAT NEITHER THE AO NOR THE CIT(A) HAS TAKEN INTO ACCOUN T WHILE MAKING THE DISALLOWANCE UNDER RULE 8D (2)(III). THEREFORE, THE DISALLOWANCE MADE BY THE AO SHOULD BE RESTRICTED TO 0.5% OF AVERAGE INV ESTMENTS, TAKING INTO ACCOUNT THOSE INVESTMENTS WHICH YIELD DIVIDEND INCO ME. HENCE, WE REMIT THE CASE BACK TO THE FILE OF ASSESSING OFFICER AND DIRECT HIM TO COMPUTE THE DISALLOWANCE UNDER SECTION 14A R.W.RULE 8D(2) ( III) BY TAKING INTO ACCOUNT THE THOSE INVESTMENTS WHICH YIELD DIVIDEND INCOME. WE ALSO DIRECT THE ASSESSING OFFICER THAT HE NEED NOT TO CO MPUTE THE DISALLOWANCE U/S.14A R.W.RULE 8D(2)(II) BECAUSE THE ASSESSEE HAS ITS OWN SUFFICIENT FUNDS TO MAKE INVESTMENTS IN SHARES AND SECURITIES AND THEREFORE THE DISALLOWANCE IS NOT REQUIRED. WE DIRECT THE AO ONLY TO COMPUTE THE DISALLOWANCE @0.5% TAKING INTO ACCOUNT ITS INVESTME NT WHICH YIELD THE IT(SS)A NO.11&12/16 M/S S.L.INDUSTRIES PVT. LTD. 7 DIVIDEND INCOME/EXEMPTED INCOME. ACCORDINGLY, WE AL LOW THE GROUND NO.1 RAISED BY THE REVENUE FOR STATISTICAL PURPOSES . 7.1 IN THE RESULT, GROUND NO.1 RAISED BY THE REVENU E IN BOTH THE APPEALS IT(SS)A NO.11 & 12/K/16) IS, ALLOWED FOR ST ATISTICAL PURPOSES. 8. GROUND NO.2 RAISED BY THE REVENUE RELATES TO DIS ALLOWANCE MADE BY THE AO AS PER CLAUSE (F) OF SECTION 1 TO SE CTION 115JB OF THE ACT. 8.1 LD. DR FOR THE REVENUE HAS SUBMITTED BEFORE US THAT SECTION 14A RELATES TO EXEMPTED INCOME, THEREFORE, DISALLOWANCE SHOULD BE JUSTIFIED UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT OF THE ACT. THE LD DR FOR THE REVENUE HAS ALSO RELIED ON THE JU DGMENT OF HON`BLE CALCUTTA HIGH COURT IN THE CASE OF JAYSHREE TEA & I NDUSTRIES LTD G.A. NO.1501 OF 2014, DATED 19.11.2014 WHEREIN THE HON`B LE COURT HAS OBSERVED AS FOLLOWS: WE FIND COMPUTATION OF THE AMOUNT OF EXPENDITURE RE LATEABLE TO EXEMPTED INCOME OF THE ASSESSEE MUST BE MADE SINCE THE ASSESSEE HAS NOT CLAIMED SUCH EXPENDITURE TO BE NIL. SUCH COMPUT ATION MUST BE MADE BY APPLYING CLAUSE (F) OF EXPLANATION 1 UNDER SECTI ON 115JB OF THE ACT. WE REMAND THE MATTER FOR SUCH COMPUTATION TO BE MAD E BY THE LEARNED TRIBUNAL. WE ACCEPT THE SUBMISSION OF MR. KHAITAN, LEARNED SENIOR ADVOCATE THAT THE PROVISION OF SECTION 115JB IN THE MATTER OF COMPUTATION IS A COMPLETE CODE IN ITSELF AND RESORT NEED NOT AN D CANNOT BE MADE TO SECTION 14A OF THE ACT. THUS, THE APPLICATION, APPE AL AND THE CROSS OBJECTION ARE DISPOSED OF 8.2 ON THE OTHER HAND, LD. AR FOR THE ASSESSEE HAS SUBMITTED THAT THE IMPORTANT AND RELEVANT THING TO NOTE HERE IS THAT F OR THE PURPOSE OF APPLICABILITY OF SECTION 14A READ WITH RULE 8D FOR COMPUTATION OF INCOME HAS TO BE UNDER SOME HEADS UNDER CHAPTER IV OF THE ACT. THE LD. AR FOR IT(SS)A NO.11&12/16 M/S S.L.INDUSTRIES PVT. LTD. 8 THE ASSESSEE POINTED OUT THAT SECTION 14A CLEARLY S AYS THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS C HAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THE COMPUTATION OF TOTAL INCOME U/S.115JB FAL LS UNDER CHAPTER XII-B OF THE ACT, THEREFORE, IT IS VERY MUCH CLEAR THAT A NY DISALLOWANCE OR COMPUTATION UNDER SECTION 14A R.W.RULE 8D WILL NOT BE APPLICABLE FOR THE PURPOSE OF CALCULATION OF INCOME U/S.115JB OF THE A CT. 8.3 HAVING HEARD THE SUBMISSIONS, PERUSED THE MATER IAL AVAILABLE ON RECORDS, WE ARE OF THE VIEW THAT DIVIDEND IS AN EXE MPTED INCOME AND THEREFORE IT MUST BE AN ITEM OF CLAUSE (F) UNDER SE CTION 115JB OF THE ACT AND SHOULD BE USED FOR COMPUTATION OF MINIMUM ALTER NATIVE TAX (MAT). BY FOLLOWING THE JUDGMENT OF HON`BLE CALCUTTA H.C. IN THE CASE OF JAYSHREE TEA & INDUSTRIES LTD (SUPRA), WE ALLOW THI S GROUND OF REVENUE FOR STATISTICAL PURPOSES AND DIRECT THE AO TO CONSI DER THE DISALLOWANCE UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB FOR THE PURPOSE OF COMPUTATION OF MAT. 8.4 IN THE RESULT, GROUND NO.2 RAISED BY THE REVENU E IN BOTH THE APPEALS ( IT (SS) 11 AND 12/K/16), IS ALLOWED FOR STATISTICAL PURPOSES. 9. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 28/04 /2017. SD/ - (N.V.VASUDEVAN) SD/ - (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA ; $% DATED 28/04/2017 & ()*/PRAKASH MISHRA ,SR.PS. IT(SS)A NO.11&12/16 M/S S.L.INDUSTRIES PVT. LTD. 9 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( ASSTT. REGISTRAR) % & , / ITAT, KOLKATA 1. / THE APPELLANT-ACIT, CC-2(1), KOLKATA 2. / THE RESPONDENT.-M/S S.L.INDUSTRIES PVT. LTD. 3. 4 ( ) / THE CIT(A), KOLKATA. 4. 4 / CIT 5. 567 8 , 8 , / DR, ITAT, KOLKATA 6. 79 / GUARD FILE. 5 //TRUE COPY//