Hindustan Gum & Chemicals Ltd., Kolkata V. D.C.I.T.,Circle-12(1), Kolkata

MA 87/KOL/2020

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2047 (ITAT-KOLKATA)
• Duration Of Justice: 3 month(s) 1 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 03-12-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 01-09-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAYANTA KHANRA
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

1 MA NO.87/KOL/2020 HINDUSTAN GUN & CHEMICALS LTD., AY- 2015-16 , A , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH: KOL KATA () . . , .. !,' $) [BEFORE SHRI P.M. JAGTAP, VICE PRESIDENT (KZ) &SHRI A. T. VARKEY, JM] MA NO.87/KOL/2020 ITA NO.871/KOL/2019 ASSESSMENT YEAR: 2015-16 HINDUSTAN GUN & CHEMICALS LTD. (PAN: AAACH7214E) VS. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-12(1), KOLKATA. APPLICANT RESPONDENT DATE OF HEARING (VIRTUAL) 06.11.2020 DATE OF PRONOUNCEMENT 03.12.2020 FOR THE APPLICANT SHRI AKKAL DUDHEWALA, FCA FOR THE RESPONDENT SHRI JAYANTA KHANRA, JCIT ORDER PER A. T. VARKEY, JM: THIS IS A MISC. APPLICATION PREFERRED BY THE ASSES SEE AGAINST THE ORDER OF THIS TRIBUNAL C BENCH, KOLKATA IN ITA NO. 871/KOL/2019 FOR AY 2015-16 PASSED ON 26.02.2020. 2. THE ONLY ISSUE THAT HAS BEEN ASSAILED BY THE ASS ESSEE IS THAT WHILE ADJUDICATING THE GROUND NO. 5 OF THE APPEAL PREFERRED BY THE ASSESSE E WHICH WAS IN RESPECT OF COMPUTING DISALLOWANCE BY APPLYING SECTION 14A OF THE INCOME TAX ACT, 1961 ( IN SHORT THE ACT) READ WITH RULE 8D(2)(III) OF THE INCOME-TAX RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES). ACCORDING TO LD. AR, EVEN THOUGH THE LD. CIT(A) WHILE PASSING THE FIRST APPELLATE ORDER FOLLOWED THE DECISION OF THIS TRIBU NAL IN THE CASE OF REI AGRO LTD. VS. DCIT, 144 ITR 141 WHEREIN IT HAS BEEN HELD THAT THE AVERAGE VALUE OF INVESTMENT USED IN RULE 8 COMPRISED OF ONLY THOSE INVESTMENTS WHICH AC TUALLY YIELDED EXEMPT INCOME DURING THE YEAR AND, THEREFORE, THE DISALLOWANCE UNDER RUL E 8D(2)(III) SHOULD BE RESTRICTED TO THE AVERAGE OF THE OPENING AND CLOSING VALUE OF THOSE I NVESTMENTS APPEARING IN THE BALANCE SHEET AS ON 01.04.2014 AND 31.03.2015 WHICH ACTUALL Y YIELDED DIVIDEND INCOME DURING THE RELEVANT FINANCIAL YEAR. HOWEVER, IT WAS POINTED O UT BY THE LD. A.R THAT WHEN THE LD. 2 MA NO.87/KOL/2020 HINDUSTAN GUN & CHEMICALS LTD., AY- 2015-16 CIT(A) PASSED THE APPELLATE ORDER DATED 15.02.2019 AFTER RELYING ON THE DECISION OF THIS TRIBUNAL IN REI AGRO LTD. (SUPRA) OBSERVED THAT ONL Y INVESTMENTS WHICH YIELDED DIVIDEND INCOME SHOULD BE CONSIDERED FOR THE PURPOSE OF RULE 8D. HOWEVER, THE LD. CIT(A) DIRECTED THE AO IN RESPECT OF THREE SPECIFIC INVESTMENTS IN MUTUAL FUNDS TO CONSIDER THE MONTHLY AVERAGE OF SUCH DIVIDEND BEARING INVESTMENTS AS OPPOSED TO THE AVERAGE OF THE OPENING AND CLOSING VALUE OF SUCH INVESTMENTS AS APPEARING ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR WHICH DIRECTION ACCORDING TO LD AR IS ERRONEOUS. ACCORDING TO THE LD. AR, AGGRIEVED BY THIS SPECIFIC DIRECTION GIVEN BY THE L D. CIT(A) IN THE MEMO OF APPEAL WHICH THE ASSESSEE PREFERRED BEFORE THIS TRIBUNAL IN FORM NO. 36 THE ASSESSEE RAISED THE FOLLOWING GROUND OF APPEAL AS GROUND NO. 5: WITHOUT PREJUDICE TO THE GROUND NO. 3 & 4 ABOVE, THE LEARNED CIT(A) THOUGH FOLLOWED THE DECISIONS OF RE AGRO LTD. VS. DCIT (144 ITD 141) BU T ERRED IN DIRECTING THE DCIT TO CONSIDER THE MONTHLY AVERAGE VALUE OF CERTAIN SPECIFIC INVES TMENTS IN MUTUAL FUNDS INSTEAD OF YEARLY AVERAGE AS PRESCRIBED IN RULE 8D(2)(III). 3. ACCORDING TO LD. AR, AT THE TIME OF HEARING OF T HE APPEAL BEFORE THIS TRIBUNAL, THE LD. COUNSEL LATE SRI DILIP S. DAMLE, FCA HAD SPECIFICAL LY POINTED OUT ABOUT GROUND NO. 5 AND OBJECTED TO THE ABOVEMENTIONED ERRONEOUS DIRECTION ISSUED BY THE LD. CIT(A) IN RELATION TO CERTAIN SPECIFIC INVESTMENTS WHICH WAS NOT IN LINE WITH THE COMPUTATION AS SET OUT IN RULE 8D. ACCORDING TO HIM, THE LD. AR HAD IN FACT BROUGH T TO THE NOTICE OF THIS TRIBUNAL THAT THE COMPUTATION OF AVERAGE VALUE OF INVESTMENTS AS DEFINED IN CLAUSE (B) OF RULE 8D(2) WAS THE AVERAGE OF VALUE OF INVESTMENT OF INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR . THE LD. AR SUBMITTED THAT NOWHERE DID THE INSTAN T RULE PROVIDE FOR COMPUTING THE MONTHLY AVERAGE VALUE OF INVESTMENT IN THIS RELEVANT ASSESSMENT YEAR. THE LD. AR ALSO DREW THE TRIBUNALS ORDER I N ASSESSEES OWN CASE FOR AYS 2009-10 AND 2010-11 WHEREIN ON IDENTICAL FACTS AND CIRCUMST ANCES, THE TRIBUNAL HAD DIRECTED THE AO TO RESTRICT DISALLOWANCE UNDER RULE 8D(2)(III) TO T HE AVERAGE VALUE OF DIVIDEND BEARING INVESTMENTS IN CONSONANCE WITH THE DECISION IN REI AGRO LTD. (SUPRA). HOWEVER, ACCORDING TO LD. AR, IN THE ORDER IMPUGNED DATED 26.02.2020 T HOUGH THE TRIBUNAL AT PARA 11 HAS OBSERVED THAT WE NOTE THAT THE COORDINATE BENCH OF ITAT KOLKATA I N THE CASE OF REI AGRO LTD VS DCIT REPORTED IN 144 ITD 141 WHEREIN IT WAS HELD THAT ONLY THE DIVIDEND BEARING SECURITIES SHOULD BE CONSIDERED WHILE COMPUTING THE DISALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES,'; BUT IN THE LATTER PART OF THE IMPUGNED ORDER THE T RIBUNAL DID NOT SPECIFICALLY 3 MA NO.87/KOL/2020 HINDUSTAN GUN & CHEMICALS LTD., AY- 2015-16 ADJUDICATE GROUND NO. 5 TAKEN IN THE APPEAL AND CON FIRMED THE DIRECTIONS ISSUED BY THE LD. CIT(A) WHEREIN ALTHOUGH HE HAD DIRECTED THE AO TO C OMPUTE THE DISALLOWANCE UNDER RULE 8D(2)(III) ONLY WITH REFERENCE TO DIVIDEND BEARING INVESTMENTS BUT IN RELATION TO THREE SPECIFIC INVESTMENTS IN MUTUAL FUNDS HE REQUIRED TH E AO TO ADOPT THEIR MONTHLY AVERAGE VALUE AS OPPOSED TO THEIR OPENING AND CLOSING VALUE AS APPEARING IN THE BALANCE SHEET, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. T HEREFORE, ACCORDING TO LD. AR, THIS SPECIFIC GROUND NO. 5 HAS NOT BEEN EXPRESSLY ADJUDICATED AND SINCE THE TRIBUNALS ORDER DATED 26.02.2020 IS SILENT WITH REGARD TO THE ASSESSEES CLAIM THAT THE AVERAGE OF THE OPENING AND CLOSING VALUE AS APPEARING ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR OF SUCH DIVIDEND BEARING INVESTMENTS AND NOT THE MONTHLY AV ERAGE OF DIVIDEND BEARING INVESTMENTS OUGHT TO HAVE BEEN CONSIDERED FOR THE PURPOSE OF RU LE 8D(2)(III); WHICH ACCORDING TO LD. A.R ALSO SHOULD HAVE BEEN ALLOWED CONSIDERING THE S PECIFIC LANGUAGE USED IN CLAUSE (B) OF RULE 8D(2) AS ALSO THE DECISION RENDERED BY THE TR IBUNAL IN PETITIONERS OWN CASE FOR EARLIER AYS 2009-10 AND 2010-11. 4. THE LD. DR VEHEMENTLY OPPOSED THE SUBMISSION OF THE LD. AR AND SUBMITTED THAT THERE IS NO ERROR APPARENT ON THE FACE OF THE RECOR D, THEREFORE, SHOULD NOT ADMIT THE MISC APPLICATION AND SHOULD BE DISMISSED AT THE THRESHOL D. 5. WE HAVE HEARD RIVAL SUBMISSIONS AND GONE THROUG H THE FACTS AND CIRCUMSTANCES OF THE CASE. WE NOTE THAT GROUND NO. 5 (SUPRA) RAISED BY THE ASSESSEE IN FORM NO. 36 HAS NOT BEEN SPECIFICALLY DEALT WITH. WE NOTE THAT FOR THE RELEVANT ASSESSMENT YEAR I.E. AY 2015-16 THE SETTLED LAW IN RESPECT OF COMPUTING DISALLOWANC E UNDER RULE 8D(2)(III) WAS THE DECISION OF THIS TRIBUNAL IN REI AGRO LTD. (SUPRA). THERE I S AN AMENDMENT IN LAW WHICH HAPPENED BY THE PASSAGE OF THE FINANCE ACT, 2016 WHICH IS AP PLICABLE FOR AY 2017-18 ONWARDS, SO THE AMENDED PROVISION OF SECTION 14A READ WITH RULE 8D OF THE RULES WOULD BE NOT BE APPLICABLE FOR THIS RELEVANT AY, SO THE DIRECTION B Y THE LD. CIT(A) FOR AY 2015-16, IS LEGALLY UNTENABLE. THEREFORE, THE LAW APPLICABLE O N THIS ISSUE WILL BE AS LAID IN REI AGRO LTD. (SUPRA) WHEREIN THIS TRIBUNAL HAS DIRECTED THA T ONLY INVESTMENTS WHICH YIELDED DIVIDEND INCOME SHOULD BE CONSIDERED FOR THE PURPO SE OF COMPUTING OF DISALLOWANCE UNDER RULE 8D(2)(III) OF THE RULE. THEREFORE, THE DIRECT IONS GIVEN BY THE LD. CIT(A) WITH REGARD TO THREE SPECIFIC INVESTMENTS MADE IN MUTUAL FUND TO A O TO CONSIDER THE MONTHLY AVERAGE OF SUCH DIVIDEND BEARING INVESTMENT HAVE NOT THE SANCTION OF LAW, SINCE IT MAY, IF APP LICABLE 4 MA NO.87/KOL/2020 HINDUSTAN GUN & CHEMICALS LTD., AY- 2015-16 ONLY FROM AY 2017-18 AND NOT BEFORE THAT, THEREFORE , WE MODIFY THE ORDER OF THE TRIBUNAL AND DIRECT THE AO TO CONSIDER THE DISALLOWANCE MAD E UNDER RULE 8D(2)(III) SHOULD BE RESTRICTED TO THE AVERAGE OF THE OPENING AND CLOSIN G VALUE OF THOSE INVESTMENTS APPEARING AS ON 01.04.2014 AND 31.03.2015 WHICH ACTUALLY YIELDED DIVIDEND INCOME DURING THE RELEVANT FY. WE MODIFY THE ORDER TO THIS EXTEND, ACCORDINGL Y AND THE ASSESSEE SUCCEEDS IN THIS MISC. APPLICATION. 6. IN THE RESULT, THE MISC. APPLICATION OF ASSESSEE IS ALLOWED AS DISCUSSED SUPRA . ORDER IS PRONOUNCED IN THE OPEN COURT ON 3 RD DECEMBER, 2020. SD/- SD/- (P. M. JAGTAP) (A. T. VARKEY) VICE PRESIDENT JUDICIAL MEMBER DATE: 3 RD DECEMBER, 2020 JD. SR. P.S COPY OF THE ORDER FORWARDED TO: 1. APPELLANT HINDUSTAN GUN & CHEMICALS LTD., 4 TH FLOOR, BIRLA BUILDING, 9/1, R. N. MUKHERJEE ROAD, KOLKATA-700 001. 2 RESPONDENT DCIT, CIRCLE-12(1), KOLKATA. 3. 4. 5. CIT(A)-4, KOLKATA. (SENT THROUGH E-MAIL) CIT- , KOLKATA DR, ITAT, KOLKATA. (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, ASSISTANT REGISTRAR ITAT, KOLKATA.