Tantia Financial Services Ltd., Kolkata V. DCIT, C.C-XIII, KOLKATA, Kolkata

ITSSA 46/KOL/2014

• Counselvise Citation: [2016] 122 COUNSELVISE.COM (IT) 2824 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s) 17 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 05-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 18-03-2014
• Court: TRIBUNAL
• Department Lawyers: NIRAJ KUMAR
• Assessee Lawyers: MANISH TIWARI
• Keywords: Search and seizure; Document seized; Earning of tax free income; Documents seized
• Section: 153A; 14A; 132

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B, BENC H KOLKATA BEFORE DR. A.L.SAINI, AM & SHRI K. NARASIMHA CHARY , JM IT(SS)A NO.46/KOL/2014 ( / ASSESSMENT YEAR :2009-2010) TANTIA FINANCIAL SERVICES LTD 25-27, NETAJI SUBHASH ROAD, KOLKATA-700001 VS. DCIT, CENTRAL CIRCLE-XIII, KOLKATA-700107 ./ ./PAN/GIR NO. : AABCT 0007 E ( /APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI MANISH TIWARI, FCA /REVENUE BY : SHRI NIRAJ KUMAR, CIT (DR) / DATE OF HEARING : 15/11/2016 /DATE OF PRONOUNCEMENT 05/12/2016 / O R D E R PER DR. ARJUN LAL SAINI, AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PERTAIN ING TO THE ASSESSMENT YEAR 2009-2010, IS DIRECTED AGAINST THE ORDER PASSED BY LD. COMMISSIONER OF INCOME TAX (APPEALS)-CENTRAL-II, KO LKATA, IN APPEAL NO.104/CC-XIII/CIT(A)C-II/11-12, DATED 27.01.2014, WHICH IN TURN ARISES OUT OF ASSESSMENT ORDER PASSED BY THE ASSESSING OFF ICER (AO) UNDER SECTION 153A/143(3) OF THE INCOME TAX ACT 1961, (IN SHORT THE ACT), DATED 06.06.2011. 2. BRIEF FACTS OF THE CASE QUA THE ISSUE ARE THAT A SEARCH AND SEIZURE OPERATION WAS CONDUCTED ON 17.03.2010 AT THE OFFICE PREMISES AT 25-27, NETAJI SUBHAS ROAD, KOLKATA-700001 AND PANCHANAMA W AS DRAWN. THE SEARCH WAS CONCLUDED ON 19.03.2010. CONSEQUENTLY, A NOTICE U/S.153A OF THE ACT WAS ISSUED TO THE ASSESSEE COMPANY ON 12.01 .2011, WHICH WAS DULY SERVED UPON THE ASSESSEE ON THE SAID DATE CALL ING FOR RETURN FOR IT(SS)A NO.46/14 TANTIA FINANCIAL SERVICES LTD 2 ASSESSMENT YEAR 2009-2010. IN RESPONSE TO SUCH NOT ICE, THE ASSESSEE FILED ITS RETURN OF INCOME ON 21.01.2011 DECLARING A TAXABLE INCOME AT NIL (LOSS OF RS.53,21,035/-). THE AO HAS COMPLETED THE ASSESSMENT BY MAKING ADDITION U/S.14A/RULE 8D (2) AT RS.42,73,432 /-. 3. AGGRIEVED FROM THE ORDER OF AO, THE ASSESSEE FIL ED APPEAL BEFORE THE LD. CIT(A), WHO HAS CONFIRMED THE ADDITION MADE BY THE AO BY OBSERVING THE FOLLOWINGS :- 5. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLA NT AND PERUSED THE ASSESSMENT ORDER. ON CAREFUL CONSIDERATION OF T HE FACTS AND IN LAW, I AM NOT INCLINED TO AGREE WITH THE SUBMISSION OF THE ASSESSEE THAT NO DISALLOWANCE U/S 14A SHOULD HAVE BEEN MADE BY THE AO IN THE PROCEEDINGS INITIATED U/S 153A OF THE ACT. IT I S OBSERVED THAT THE APPELLANT COMPANY FILED ITS RETURN OF INCOME U/S 13 9(1) FOR THE A.Y. 2009-10 ON 29.09.2009 AND LATER ON SEARCH OPERATION U/S 132 OF THE ACT WAS CONDUCTED IN THE CASE OF APPELLANT ON 17.03 .2010. BY THE TIME THE SEARCH OPERATION WAS CONDUCTED, THE TIME F OR ISSUING NOTICE U/S 143(2) OF THE ACT WAS NOT EXPIRED. BUT, IN CONSEQUENCE TO SEARCH OPERATION, THE AO INITIATED THE PROCEEDINGS U/S 153A OF THE ACT AND COMPLETED THE ASSESSMENT. IN THE SAID ASSES SMENT HE CONSIDERED BOTH THE REGULAR BOOKS OF ACCOUNT AND TH E SEIZED DOCUMENTS TO COMPLETE THE ASSESSMENT. UNDER THE CIR CUMSTANCES, I AM OF THE OPINION THAT THE AO WAS JUSTIFIED IN CONS IDERING THE ADDITIONS/DISALLOWANCE ON THE GROUNDS OTHER THAN ON THE BASIS OF SEIZED DOCUMENTS. FURTHER, THERE IS NO DISPUTE THAT IN THE YEAR UNDER CONSIDERATION THE PROVISIONS OF RULE 8D WERE APPLICABLE TO COMPUTE THE DISALLOWANCE U/S 14A. THOUGH, THE APPEL LANT COMPANY ITSELF MADE THE DISALLOWANCE OF RS.50,000/- U/S 14A BUT NEITHER IN THE COURSE OF ASSESSMENT PROCEEDINGS NOR IN THE APP ELLATE PROCEEDINGS, THE APPELLANT WAS ABLE TO EXPLAIN THE BASIS OF COMPUTATION OF DISALLOWANCE AT RS.50,000/-. IT APPE ARS THAT THE APPELLANT HAD MADE THE DISALLOWANCE OF RS.50,000/- ON AD-HOC BASIS. HOWEVER, THE QUANTUM OF DISALLOWANCE MADE BY THE APPELLANT CANNOT BE ACCEPTED BECAUSE IN THE YEAR UN DER APPEAL FOR THE PURPOSE OF CALCULATION U/S 14A, PROVISIONS OF R ULE 8D ARE APPLICABLE. IT IS OBSERVED THAT AS ON 31.03.2009, T HE APPELLANT COMPANY WAS HAVING 'SHARE CAPITAL' AND 'RESERVES & SURPLUS' AT RS.1,57,24,981/- AND THE 'UNSECURED LOANS' AT RS.5, 84,16,416/-. THE AMOUNT OF 'INVESTMENTS' WAS RS.6,20,26,176/-. T HUS, THERE CANNOT BE ANY DOUBT THAT THE APPELLANT COMPANY HAD UTILIZED THE BORROWED FUND FOR MAKING INVESTMENTS. IN FACT, THIS IS ADMITTED BY THE APPELLANT ITSELF IN THE SUBMISSION FILED IN THE COURSE OF APPELLATE PROCEEDINGS THAT THE INVESTMENTS WERE MADE OUT OF I TS OWN CAPITAL AS WELL AS THE BORROWED FUNDS. THUS, IT ITSELF ESTA BLISHES THE NEXUS IT(SS)A NO.46/14 TANTIA FINANCIAL SERVICES LTD 3 BETWEEN EXEMPT INCOME AND EXPENDITURE INCURRED ON A CCOUNT OF INTEREST. UNDER THE CIRCUMSTANCES, I AM OF THE OPIN ION THAT THE AO WAS JUSTIFIED IN COMPUTING THE DISALLOWANCE UNDER R ULE 8D(2)(II) ON ACCOUNT OF INTEREST. FURTHER, TO BE JUSTIFIABLE TO THE APPELLANT, THE AO HAS CONSIDERED ONLY THE NET INTEREST FOR THE PURPOS E OF DISALLOWANCE U/S 14A. IN VIEW OF ABOVE, THE ACTION OF THE AO MAK ING DISALLOWANCE U/S 14A READ WITH RULE 8D IS UPHELD. THE GROUND NO. 1 TO 3 ARE DISMISSED. 4. NOT BEING SATISFIED WITH THE ORDER OF CIT(A), TH E ASSESSEE IS IN FURTHER APPEAL BEFORE US AND HAS TAKEN THE FOLLOWI NG GROUNDS OF APPEAL :- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSING OFFI CER WAS JUSTIFIED IN CONSIDERING ADDITION / DISALLOWANCE OTHERWISE TH AN ON THE BASIS OF SEIZED DOCUMENTS AND THEREBY CONFIRMING DISALLOWANC E U/S. 14A OF IT ACT, 1961. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CIT(A) IS WRONG AND UNJUSTIFIED IN CONFIRMING THE A CTION OF ASSESSING OFFICER WHO ERRONEOUSLY CONSIDERED EXCESS EXPENDITURE ON ACCOUNT OF INTEREST EARNED AS INDIRECTLY RELATED TO EXEMPT INCOME FOR THE PURPOSE OF RULE 8D(II) OF IT RULES 1962 ON A PROPORTIONATE BASIS. 3. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, LD. CIT(APPEALS) ACTED ARBITRARILY IN CONFIRMING DISALL OWANCE OF RS.42,73,432/ - U/ S.14A READ WITH RULE 8D OF IT RU LES, 1962. 4. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, A DDUCE OR AMEND ANY GROUND OR GROUNDS ON OR BEFORE THE DATE OF HEAR ING. 5. ALTHOUGH, IN THIS APPEAL, THE ASSESSEE HAS RAISE D FOUR GROUNDS OF APPEAL BUT AT THE TIME OF HEARING, THE MAIN GRIEVAN CE OF THE ASSESSEE HAS BEEN CONFINED TO GROUND NO.3 ONLY AND OTHER GROUNDS WERE NOT PRESSED BY THE ASSESSEE. 5.1. REGARDING GROUND NO.3, THE LD. AR FOR THE ASS ESSEE HAS SUBMITTED THAT THE ISSUE UNDER CONSIDERATION HAS ALREADY BEEN EXPLAINED BEFORE THE LD. CIT(A) THAT NO BORROWED FUNDS WERE INVESTED BY THE ASSESSEE FOR MAKING INVESTMENT FOR EARNING EXEMPT INCOME. LD. AR ALSO ARGUED THAT IT(SS)A NO.46/14 TANTIA FINANCIAL SERVICES LTD 4 DISALLOWANCE U/S.14A R.W.RULE 8D CANNOT EXCEED THE EXEMPT INCOME.. APART FROM THIS, LD. AR FOR THE ASSESSEE HAS RELIED ON JUDGMENT OF THE ITAT MUMBAI BENCH IN ITA NO.5592/MUM/2012, M/S DAGA GLOBAL CHEMICALS PVT. LTD, ORDER DATED 01.01.2015, WHEREIN IT HAS BEEN OBSERVED BY THE HON`BLE ITAT AS UNDER :- 2.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BRIEF A RE THAT THE ASSESSEE IS A LIMITED COMPANY, ENGAGED IN TRADING O F BULK AND FINE, CHEMICALS, SOLVENT AND PHARMACEUTICAL RAW MATERIALS DECLARED ITS INCOME AT RS.74,40,000/- ON 26/09/2009. THE ASSESSE E CREDITED DIVIDEND INCOME OF RS.1,82,262/ - IN ITS PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT INVO KE SECTION 14A R.W. RULE 8D BY CONTENDING THAT ASSESSEE CLAIMED VA RIOUS EXPENSES WHICH ARE RELATED TO EXEMPT INCOME IN ITS PROFIT & LOSS ACCOUNT AND DISALLOWED RS.14,58,412/-. ON APPEAL, B EFORE THE ID. COMMISSIONER OF INCOME TAX (APPEALS) BROADLY THE ST AND TAKEN IN THE ASSESSMENT ORDER WAS AFFIRMED AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBUNAL. THE TOTALIT Y OF FACTS CLEARLY INDICATES, AS CLAIMED BY THE ASSESSEE THAT NO BORRO WED FUNDS WERE UTILIZED FOR EARNING THE EXEMPT INCOME BY THE ASSES SEE AND FURTHER THE DIVIDEND WERE DIRECTLY CREDITED IN THE BANK ACC OUNT OF THE ASSESSEE AND NO EXPENDITURE WAS CLAIMED. WHAT IT MA Y BE, WE FIND THAT THE ASSESSEE ONLY RECEIVED RS.1,82,362/- AS DI VIDEND INCOME, THEREFORE, THERE IS NO QUESTION OF DISALLOWANCE OF RS.14,58.412/- BY INVOKING SECTION 14A R.W. RULE 8D UNDER THE FACTS A VAILABLE ON RECORD. IT WAS ALSO EXPLAINED BY THE ID. COUNSEL FO R THE ASSESSEE THAT ON IDENTICAL FACT IN EARLIER YEARS, NO DISALLO WANCE WAS MADE. IN THE PRESENT ASSESSMENT YEAR ALSO, NO BORROWED FUNDS WERE INVESTED BY THE ASSESSEE FOR MAKING INVESTMENT IN S HARES OR FOR EARNING DIVIDEND INCOME. AT BEST, IF ANY DISALLOWAN CE COULD BE MADE THAT CAN BE RESTRICTED TO RS.1,485/- WHICH WER E CLAIMED AS DEMAT CHARGES. DISALLOWANCE U/S 14A R.W. RULE 8D CA NNOT EXCEED THE EXEMPT INCOME. IN VIEW OF THIS FACT, WE FIND ME RIT IN THE CLAIM OF THE ASSESSEE. THE APPEAL OF THE ASSESSEE IS THEREFO RE, ALLOWED. FINALLY, THE APPEAL OF THE ASSESSEE IS ALLOWED. 5.2. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRES ENTATIVE FOR THE REVENUE HAS PRIMARILY REITERATED THE STAND TAKEN BY THE AO, WHICH WE HAVE ALREADY NOTED IN OUR EARLIER PARA AND IS NOT B EING REPEATED FOR THE SAKE OF BREVITY. IT(SS)A NO.46/14 TANTIA FINANCIAL SERVICES LTD 5 5.3. HAVING HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIAL AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THERE IS MERIT I N THE SUBMISSIONS OF THE ASSESSEE, AS THE PROPOSITIONS CANVASSED BY THE LD. AR FOR THE ASSESSEE ARE SUPPORTED BY THE ORDER OF THE ITAT MUMBAI BENCH IN THE CASE OF M/S. DAGA CHEMICALS PVT. LTD., (SUPRA) AND THE FACTS REL IED ON BY HIM. LD. AR HAS SUBMITTED THAT DISALLOWANCE U/S.14A R.W.RULE 8D CANNOT EXCEED THE EXEMPT INCOME. CONSIDERING THE FACTUAL POSITION AND THE CASE LAW RELIED ON BY THE LD. AR OF THE ASSESSEE, WE ARE OF THE VIE W THAT THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LD CIT(A) SHOUL D BE DELETED. ACCORDINGLY, WE DELETE THE ADDITION. 5.4. IN THE RESULT, APPEAL FILED BY THE ASSESSEE ON GROUND NO.3 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 05/12 /2016. S D/ - (NARASIMHA CHARY) S D/ - (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA ; $% DATED 05/12/2016 & ()*/PRAKASH MISHRA , . / PS / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) & ' , / ITAT, 1. / THE APPELLANT-TANTIA FINANCIAL SERVICES LTD. 2. / THE RESPONDENT.-DCIT CC-XIII, KOLKATA 3. 4 ( ) / THE CIT(A), KOLKATA. 4. 4 / CIT 5. 567 8 , 8 , / DR, ITAT, KOLKATA 6. 79 / GUARD FILE. 5 //TRUE COPY//