ITO, Ward - 1(2), Kolkata, Kolkata V. JKS Infrastructure Pvt. Ltd., Kolkata

MA 77/KOL/2018

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 7108 (ITAT-KOLKATA)
• Duration Of Justice: 3 month(s) 23 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 24-08-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 01-05-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SOURAV KUMARADDL
• Assessee Lawyers: MIRAJ D. SHAH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D, BENCH KOLKATA BEFORE SHRI A. T. VARKEY, JM &DR. A.L.SAINI, AM M.A NO.77/KOL/2018 (ARISING OUT OF I.T.A NO.241/KOL/2016) ( / ASSESSMENT YEAR: 2010-11) ITO, WARD-1(2), KOLKATA VS. JKS INFRASTRUCTURE PVT. LTD. C/O. D.J. SHAH & CO. KALYAN BHAVAN, 2, ELGIN ROAD, KOLKATA 700 020. ./ ./PAN/GIR NO. :AABCJ 3408 M (APPELLANT) .. (RESPONDENT) APPELLANT BY :SHRI SOURAV KUMAR,ADDL. CIT, SR. DR. RESPONDENT BY :SHRI MIRAJ D. SHAH, FCA / DATE OF HEARING : 13/07/2018 /DATE OF PRONOUNCEMENT : 24/08/2018 / O R D E R PER DR. A. L. SAINI, AM: BY WAY OF THE CAPTIONED APPLICATION, THE REVENUE HAS SOUGHT TO POINT OUT THAT A MISTAKE APPARENT FROM RECORD WITHIN THE MEANING OF SECTION 254(2) OF THE INCOME TAX ACT, 1961( IN SHORT THE ACT) HAS CREPT IN THE ORDER OF THE TRIBUNAL DATED 05/01/2018,IN ITA NO.241/KOL/2016, FOR ASSESSMENT YEAR 2010-11 . 2. BEFORE WE ADVERT TO THE MERITS OF THE MISCELLANEOUS APPLICATION, CERTAIN FACTS AND CIRCUMSTANCES LEADING TO THE REVENUE PREFERRING THIS MISCELLANEOUS APPLICATION NEED TO BE UNDERSTOOD. WE NOTE THATIN THIS CASE, THE ASSESSEE, M/S JKS INFRASTRUCTURE PVT. LTD. HAD PREFERRED AN APPEAL BEFORE THE LD. CIT(A)-1, KOLKATA WHO HAD PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF THE LD. CIT(A), BOTH, THE ASSESSEE AS WELL AS REVENUE PREFERRED CROSS-APPEALS BEFORE THIS TRIBUNAL. HOWEVER, IT TRANSPIRES THAT ASSESSEE/AUTHORIZED REPRESENTATIVE WAS NOT AWARE OF THE FACT THAT REVENUE HAS PREFERRED CROSS-APPEAL AGAINST THE ORDER OF THE LD. CIT(A). WE NOTE THAT ASSESSEES APPEAL CAME BEFORE THIS TRIBUNAL AND WAS HEARD ON 16.11.2017 AND THE ORDER WAS PRONOUNCED ON 05.01.2018, WHEREAS THE REVENUES APPEAL WAS HEARD ON 28.11.2017 AND ORDER PRONOUNCED ON 31.01.2018. WE NOTE THAT AT THE TIME OF HEARING OF THE REVENUE APPEAL, THE ASSESSEE WAS NOT REPRESENTED. HOWEVER, ON JKS INFRASTRUCTURE PVT. LTD. M.A NO.77/KOL/2018 ASSESSMENT YEAR: 2010-11 PAGE | 2 PERUSAL OF THE LD. CIT(A)S ORDER, WE DISCERN THAT A/R OF THE ASSESSEE BEFORE THE LD. CIT(A) WAS MR. MIRAJ D. SHAH. FURTHER, WE NOTE THAT GROUNDS OF APPEAL PREFERRED BY THE REVENUE WAS ONLY IN RESPECT OF APPLICATION ON SECTION 14A OF THE ACT AND RULES. SINCE, THE ISSUE WAS SETTLED BY VARIOUS JUDICIAL PRECEDENTS AND AFTER TAKING NOTE THAT SHRI CHIRAG DESAI WHO USED TO ACCOMPANY MR. MIRAJ D. SHAH, WAS PRESENT IN THE COURT, WE TOOK THE APPEAL OF REVENUE AS HEARD WITHOUT HEARING/ASSISTANCE OF LD. A/R, SHRI MIRAJ D. SHAH FOR THE ASSESSEE. THEREAFTER, WE CONFIRMED THE ORDER OF THE LD. CIT(A) IN RESPECT TO DISALLOWANCE COMPUTED UNDER RULE 8D(2)(II) AND RULE 8D(2)(III) OF THE I.T. RULES. THIS IS THE BACKGROUND WHICH LEAD TO PASSING OF THE ORDER DATED 31.01.2018 IN ITA NO.986/KOL/2016( REVENUE APPEAL). 3. NOW, THERE ARE TWO SEPARATE ORDERS OF THE SAME COMBINATIONS (MEMBERS) IN APPEAL PREFERRED BY THE REVENUE AS WELL AS ASSESSEE. IN THE ASSESSEES APPEAL( ITA NO.241/KOL/2016), ONLY THE ISSUE WAS IN RESPECT OF DISALLOWANCE OF SECTION 14A OF THE ACT AND THE TRIBUNAL HELD ON 05.01.2018 AS FOLLOWS: 2. THE ONLY ISSUE IN DISPUTE IS AGAINST THE ACTION OF LD. CIT(A) IN CONFIRMING THE DISALLOWANCE MADE U/S. 14A OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). THE LD. COUNSEL AT THE OUTSET ITSELF SUBMITTED THAT HE IS AGAINST THE ACTION OF THE LD. CIT(A) IN UPHOLDING THE WORKING OF RULE 8D(2)(II) OF THE INCOME TAX RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES) AND IS RESTRICTING HIS ARGUMENT ONLY IN RESPECT OF THE DISALLOWANCE MADE BY THE AO IN RESPECT TO WORKING OF RULE 8D(2)(II) OF THE RULES WHICH HAS BEEN UPHELD BY THE LD. CIT(A) IGNORING THE FACT THAT THE INTEREST EXPENDITURE OF THE ASSESSEE WAS ENTIRELY FOR THE PROJECT AT PANVEL. THE LD. COUNSEL IN ORDER TO BUTTRESS HIS ARGUMENT DREW OUR ATTENTION TO THE AUDITED ACCOUNTS IN SCHEDULE 16 POINT NO VII OF THE AUDITED ACCOUNTS. FROM A PERUSAL OF THE SAME, WE NOTE THAT THE ASSESSEE HAS INVESTED A SUM OF RS.64,82,03,535/- AS ON 31.03.2010 AND RS.45,43,06,704/- AS ON 31.03.2009 UNDER FIXED ASSETS. WE NOTE THAT THE SAID ASSET IS A BUSINESS ASSET FROM WHICH THE ASSESSEE HAD EARNED RENTAL INCOME OF RS.6,15,41,073/-. WE NOTE THAT THE ENTIRE INTEREST EXPENDITURE WAS ON THE SECURED LOAN TAKEN BY THE ASSESSEE FOR THE PROJECT AT PANVEL AND THE INTEREST EXPENDITURE WAS NOT USED FOR ACQUIRING THE INVESTMENT WHICH EARNED EXEMPT INCOME AND THEREFORE NO DISALLOWANCE IS CALLED FOR INVOKING RULE 8D(2)(II). HE RELIED ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF ACIT VS. CHAMPION COMMERCIAL CO. LTD. ITA NO. 644/KOL/2012 FOR AY 2008-09 WHEREIN IT HAS BEEN HELD THAT THE COMMON INTEREST EXPENSES WHICH ARE TO BE ALLOCATED IN TERMS OF THE FORMULA UNDER RULE 8D(2)(II) OF THE RULES WILL ONLY BE SUCH INTEREST EXPENSES AS ARE NEITHER DIRECTLY ATTRIBUTABLE TO BORROWINGS SPECIFICALLY USED FOR TAX EXEMPT INCOME OR RECEIPT, NOR ARE DIRECTLY ATTRIBUTABLE TO BORROWINGS SPECIFICALLY USED FOR TAXABLE INCOMES OR RECEIPTS. THE FOLLOWING ILLUSTRATION WAS PROVIDED BY THE TRIBUNAL IN CHAMPION COMMERCIAL (SUPRA), WHICH DEMONSTRATES THE INCONGRUITY: IN THE CASE OF A & CO. LTD., TOTAL INTEREST EXPENDITURE IS RS.1,00,000, OUT OF WHICH INTEREST EXPENDITURE IN RESPECT OF ACQUIRING SHARES FROM WHICH TAX FREE DIVIDEND EARNED IS RS.10,000. OUT OF THE BALANCE RS.90,000, THE ASSESSEE HAS PAID INTEREST OF RS.80,000 FOR FACTORY BUILDING CONSTRUCTION WHICH CLEARLY RELATES TO THE TAXABLE INCOME. THE INTEREST EXPENDITURE WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR RECEIPT OR INCOME IS THUS ONLY RS.10,000. HOWEVER, IN TERMS OF THE FORMULA IN RULE 8D(2)(2), ALLOCATION OF INTEREST WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT WILL BE FOR RS. 90, 000 BECAUSE, AS PER FORMULA THE VALUE OF A(I. E. SUCH INTEREST EXPENSES TO BE ALLOCATED BETWEEN TAX EXEMPT AND TAXABLE INCOME) WILL JKS INFRASTRUCTURE PVT. LTD. M.A NO.77/KOL/2018 ASSESSMENT YEAR: 2010-11 PAGE | 3 BE 'A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) [I. E. DIRECT INTEREST EXPENSES FOR TAX EXEMPT INCOME] INCURRED DURING THE PREVIOUS YEAR. LET US SAY THE ASSETS RELATING TO TAXABLE INCOME AND TAX EXEMPT INCOME ARE IN THE RATIO OF 4: 1. IN SUCH A CASE, THE INTEREST DISALLOWABLE UNDER RULE 8D(2) (II) WILL BE RS.18,000 WHEREAS ENTIRE COMMON INTEREST EXPENDITURE WILL ONLY BE RS.10,000. 3. WE NOTE THAT THE DECISION IN CHAMPION COMMERCIAL (SUPRA) WAS TESTED BY THE HONBLE DELHI HIGH COURT IN CIT VS. BHARATI OVERSEAS PVT. LTD. ITA NO. 812 OF 2015 DATED 17.12.2015 WHEREIN THE PLEA OF THE REVENUE WAS THAT THE TRIBUNAL BEING THE CREATURE OF STATUTE (INCOME TAX ACT) CANNOT READ DOWN THE RULES FRAMED THEREIN I.E. IN THIS CASE RULE 8D(2)(II), AND THEREFORE, THE TRIBUNAL TRAVELLED BEYOND THE SCOPE OF ITS JURISDICTION AND POWERS, WAS REPELLED BY HONBLE HIGH COURT TAKING NOTE OF THE AFFIDAVIT FILED BY THE REVENUE BEFORE THE HONBLE BOMBAY HIGH COURT IN GODREJ &BOYCEE MFG. CO. LTD. VS. DCIT (2010) 328 ITR 81 (BOM) WHEREIN THE CONSTITUTIONALITY OF RULE 8D(2)(II) OF THE RULES WAS EXAMINED BY THE HONBLE HIGH COURT AND THE VIEW OF THE TRIBUNAL WAS THE STAND TAKEN IN CONSONANCE WITH THE AFFIDAVIT FILED BY THE REVENUE. WE, THEREFORE, FIND FORCE IN THE SUBMISSION OF THE LD. COUNSEL THAT THE SECURED FUNDS TAKEN BY THE ASSESSEE WERE IN FACT UTILIZED IN THE WAREHOUSING PROJECT AT PANVEL AND THE ASSESSEE HAS EARNED RENTAL INCOME OF MORE THAN RS. 6 CR. AND THE ENTIRE INTEREST EXPENDITURE WAS FOR THE SECURED LOAN AND NOT FOR ACQUIRING INVESTMENTS WHICH HAS EARNED EXEMPT INCOME. FROM A PERUSAL OF THE NOTES TO ACCOUNTS IT IS DISCERNED THAT THE LOAN WAS A SECURED BANK LOAN FOR WAREHOUSE PROJECT IN PANVEL. THUS THE CIT(A) TOTALLY IGNORED THE RELEVANT FACTS AND THE ACTION OF HIS IS THUS ERRONEOUS. WE NOTE THAT THE AO OR CIT (A) DID NOT BRING ON RECORD ANY EVIDENCE TO SUGGEST THAT THE LOANS WERE USED FOR PURCHASE OF SHARES/MUTUAL FUNDS, HENCE THE INTEREST COULD NOT BE DISALLOWED INVOKING RULE 8D(2)(II) OF THE RULES. 4. MOREOVER, WE NOTE THAT THE ASSESSEE WAS HAVING OWN FUND OF RS. 35CR. AS ON 31.03.2010 AND RS.29.27 CR. AS ON 31.03.2009 WHEREAS THE INVESTMENT WAS OF RS.12,34,04,364/- AS ON 31.03.2010 AND RS.7,34,04,364/- AS ON 31.03.2009, THUS, THE ASSESSEES OWN FUNDS FAR EXCEEDED THE INVESTMENT MADE TO EARN EXEMPT INCOME. THUS APPLYING THE PRINCIPLES LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN RELIANCE UTILITY & POWERS LTD. VS. (2009) CIT 313 ITR 340 (BOM) WHEREIN THE HONBLE HIGH COURT HAS HELD THAT WHERE THE ASSESSEE IS POSSESSED OF MIXED FUNDS WHICH INCLUDE ITS OWN FUND IN SUFFICIENT QUANTITY, THEN A PRESUMPTION THAT ITS OWN FUNDS WERE UTILIZED FOR THE ADVANCES IS TO BE DRAWN. THEREFORE, LOOKING FROM ANY OF THESE ANGLES, WE FIND FORCE IN THE CONTENTION OF THE ASSESSEE THAT NO DISALLOWANCE APPLYING RULE 8D(2)(II) OF THE RULES OUGHT TO HAVE BEEN MADE AGAINST THE ASSESSEE WHEN CALCULATING THE DISALLOWANCE UNDER RULE 8D OF THE RULES. THEREFORE, WE ARE INCLINED TO RESTRICT THE DISALLOWANCE U/S. 14A OF THE ACT TO ONLY IN RESPECT OF RULE 8D(2)(III) OF THE RULES AND DIRECT THE AO TO DELETE THE DISALLOWANCE MADE UNDER RULE 8D(2)(II) OF THE RULES TO THE TUNE OF RS.37,30,951/-. THUS, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. 4. ON 31.01.2018 IN ITA NO.986/KOL/2016 IN REVENUES APPEAL, THE TRIBUNAL HELD ON THE SAME ISSUE AS UNDER: 7. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD, WE ARE OF THE VIEW THAT THE DISALLOWANCE U/S 14A R.W.R 8D SHOULD BE MADE ONLY TO THE EXTENT OF DIVIDEND BEARING INVESTMENTS, FOR THAT WE RELY ON THE JUDGMENT OF THE COORDINATE BENCH IN THE CASE OF REI AGRO LTD (SUPRA) WHEREIN IT WAS HELD THAT NOT ALL INVESTMENT BECAME THE SUBJECT MATTER OF CONSIDERATION WHEN COMPUTING DISALLOWANCE U/S. 14A READ WITH RULE 8D. THE DISALLOWANCE U/S. 14A READ WITH RULE 8D IS IN RELATION TO THE INCOME WHICH 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 FROM PART OF THE TOTAL INCOME. WE ALSO NOTE THE CONTENTION OF THE ASSESSEE THAT THE AO DID NOT SPECIFY WHICH PART OF THE EXPENDITURE WAS INCURRED FOR THE PURPOSE OF EARNING OF DIVIDEND INCOME WHERE THERE IS A MIXED ACCOUNT AND ASSESSEE IS CARRYING ON BUSINESS. IT WAS NOT PRACTICABLE TO SPECIFY WHICH PARTICULAR PROPORTION OF EXPENDITURE WAS INCURRED FOR THE PURPOSE OF EARNING DIVIDEND INCOME. FOR THIS PURPOSE, RULE 8D WAS INTRODUCED FOR ALLOCATING THE EXPENDITURE WHEN IT IS POSSIBLE TO ASCERTAIN WHICH PARTICULAR EXPENDITURE WAS INCURRED RELATING TO EXEMPT INCOME OR OTHER INCOME. THE ASSESSEE HAD INCURRED ADMINISTRATIVE EXPENSES, DIRECTORS REMUNERATION, PROFESSIONAL FEES AND LEGAL EXPENSES. THEREFORE, THE CONTENTION OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED FOR EARNING OF DIVIDEND INCOME IS NOT TENABLE, BEING CONTRARY TO TANGIBLE FACTS ON RECORD AND THE SATISFACTION OF THE AO THAT SOME EXPENDITURE WAS INCURRED FOR EARNING THE EXEMPT INCOME. AS MENTIONED ABOVE THAT VALUE OF INVESTMENT FROM WHICH THE ASSESSEE JKS INFRASTRUCTURE PVT. LTD. M.A NO.77/KOL/2018 ASSESSMENT YEAR: 2010-11 PAGE | 4 COMPANY HAS EARNED DIVIDEND INCOME WAS RS.1,29,46,675/-, THEREFORE, IN VIEW OF THE DECISION OF THE COORDINATE BENCH IN REI AGRO LTD (SUPRA), THE LD CIT(A) HAS RIGHTLY DIRECTED THE AO TO RECOMPUTE THE DISALLOWANCE UNDER RULE 8D(2)(II) AND RULE 8D(2)(III). THE CONCLUSIONS ARRIVED AT BY THE CIT(A) ARE, THEREFORE, CORRECT AND ADMIT NO INTERFERENCE BY US. WE APPROVE AND CONFIRM THE ORDER OF THE CIT(A). 5. NOW REVENUE AGGRIEVED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES APPEAL (ITA NO.241/KOL/2016), WHEREIN THE TRIBUNAL DELETED THE DISALLOWANCE MADE UNDER RULE 8D(2)(II),HAS PREFERRED THIS MISCELLANEOUS APPLICATION, BECAUSE ACCORDING TO THE REVENUE, THE DISALLOWANCE UNDER RULE 8D(2)(II) AS CONFIRMED BY THE TRIBUNAL IN REVENUES APPEAL (ITA NO.986/KOL/2016) IS CORRECT AND, THEREFORE, THERE IS AN ERROR APPARENT ON THE FACE OF THE RECORD IN RESPECT OF THE ORDER PASSED IN ITA NO.241/KOL/2016 IN ASSESSEES APPEAL. 6. WE HAVE GIVEN A CAREFUL CONSIDERATION TO THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE NOTE THAT ASSESSEE HAD ITS OWN FUND WHICH WAS MUCH MORE THAN THE INVESTMENT MADE FOR EARNING EXEMPT INCOME. AT THE TIME OF HEARING OF REVENUES APPEAL AS STATED IN THE BACKGROUND PARA 1 & 2 (SUPRA), WE DID NOT GET THE ASSISTANCE OF THE LD. AR, SO THE FACTS NARRATED IN THE ORDER OF THE TRIBUNAL DATED 05.01.2018 COULD NOT BE TAKEN NOTICE AT THE TIME OF HEARING OF REVENUE APPEAL. 7. AFTER HAVING HEARD BOTH THE SIDES, WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO ERROR IN THE ORDER PASSED IN ASSESSEES APPEAL IN ITA NO.241/KOL/2016. IN PECULIAR FACTS AND CIRCUMSTANCES AND IN THE INTEREST OF JUSTICE, WE NOTE THAT, THE ORDER IN THE REVENUES APPEAL( ITA NO. 986/KOL/2016) IN RESPECT TO DISALLOWANCE UNDER RULE 8D(2)(II) SHOULD BE READ AS UNDER: JKS INFRASTRUCTURE PVT. LTD. M.A NO.77/KOL/2018 ASSESSMENT YEAR: 2010-11 PAGE | 5 IN THE LIGHT OF THE ORDER PASSED IN ASSESSEES APPEAL IN ITA NO.241/KOL/2016,ORDER DATED 05.01.2018, ON THE SAME ISSUE, THE DISALLOWANCE UNDER RULE 8D(2)(II) IS ORDERED TO BE DELETED. THE DISALLOWANCE U/S 14A R.W.R 8D IS RESTRICTED TO THE COMPUTATION UNDER RULE 8D(2)(III) OF THE I.T. RULES. WE ORDER ACCORDINGLY. 8. IN THE RESULT, THE MISCELLANEOUS APPLICATION FILED BY THE REVENUE IS DISPOSED OF AS DISCUSSED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 24/08/2018. SD/- (A. T. VARKEY) SD/- (A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA /DATED 24/08/2018 RS, SR.PS / COPY OF THE ORDER FORWARDED TO : //TRUE COPY// BY ORDER SENIOR PRIVATE SECRETARY, HEAD OF OFFICE/D.D.O, I.T.A.T, KOLKATA BENCHES, KOLKATA . 1. / THE APPELLANT ITO, WARD-1(2), KOLKATA 2. / THE RESPONDENT-JKS INFRASTRUCTURE PVT. LTD. 3. ( ) / THE CIT(A), :KOLKATA. 4. / CIT 5. , , / DR, ITAT, KOLKATA 6. / GUARD FILE.