DCIT, CC-XVI, KOLKATA, Kolkata v. Shri Ram Multicom Pvt. Ltd., Kolkata

ITA 1520/KOL/2014 | 2011-2012
Pronouncement Date: 19-10-2016

Appeal Details

RSA Number 152023514 RSA 2014
Assessee PAN AAECS5277N
Bench Kolkata
Appeal Number ITA 1520/KOL/2014
Duration Of Justice 2 year(s) 3 month(s) 5 day(s)
Appellant DCIT, CC-XVI, KOLKATA, Kolkata
Respondent Shri Ram Multicom Pvt. Ltd., Kolkata
Appeal Type Income Tax Appeal
Pronouncement Date 19-10-2016
Appeal Filed By Department
Bench Allotted SMC
Tribunal Order Date 19-10-2016
Assessment Year 2011-2012
Appeal Filed On 14-07-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL C BENC H KOLKATA BEFORE SHRI M. BALAGANESH AM & SHRI S.S.VISWANETHR A RAVI JM ITA NO.1520/KOL/2014 ( / ASSESSMENT YEAR :2011-2012) DCIT CC-XVI KOLKATA VS. SHRI RAM MULTICOM PVT. LT D. SHANTINEKETAN BUILDING 9 TH FLOOR 8 CAMAC STREET KOLKATA- 17 ./ ./PAN/GIR NO. : AAECS 5277 N ( /APPELLANT ) .. ( / RESPONDENT ) /REVENUE BY : NONE /ASSESSEE BY : SHRI K.K.CHAPARIA FCA / DATE OF HEARING : 13/10/2016 /DATE OF PRONOUNCEMENT 19/10/2016 / O R D E R PER M.BALAGANESH AM THIS APPEAL OF THE ASSESSEE ARISES OUT OF THE ORDE R OF LEARNED CIT(A)-II KOLKATA IN APPEAL NO.73/CC-XVI/CIT(A)C- II/1.3-14 DATED 19.05.2014 PASSED AGAINST THE ASSESSMENT FRAMED U/S .143(3) OF THE INCOME TAX ACT 1961 (HEREINAFTER REFERRED TO AS TH E ACT). 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL OF T HE REVENUE IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN RESTRICTING THE DISALLOWANCE MADE U/S.14A OF THE ACT R.W.RULE 8D OF THE RULES IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF CONSTRUCTION AND SALE OF FLATS RENTAL INCOME AND SALE OF ASSETS. THE ASSESSEE COMPANY DER IVES INCOME MAINLY FROM SALE OF REAL ESTATES INCOME FROM LOGISTIC BUS INESS INTEREST RECEIVED FROM PARTNERSHIP FIRM SHARE OF PROFIT FROM PARTNER SHIP FIRM RENTALS AND OTHER INCOME INCLUDING DIVIDEND. THE ASSESSEE DURIN G THE YEAR UNDER CONSIDERATION EARNED DIVIDEND INCOME TO THE EXTENT OF RS.16 74 830/- AND ITA NO.1520/14 2 SHARE OF PROFIT FROM PARTNERSHIP FIRM OF RS.13 39 9 39/- AND CLAIMED THE SAME AS FULLY EXEMPT U/S.10(34) AND 10(2A) OF THE A CT. THE ASSESSEE CLAIMED THAT NO EXPENDITURE WAS INCURRED IN RELATIO N TO EARNING OF EXEMPT INCOME OTHER THAN DEMAT CHARGES OF RS.2994/-. NO DI SALLOWANCE U/S.14A OF THE ACT WAS VOLUNTARILY MADE BY THE ASSESSEE IN RETURN OF INCOME. HOWEVER THE ASSESSEE OFFERED A SUM OF RS.9 104/- T O TAX DURING THE COURSE OF ASSESSMENT PROCEEDINGS U/S.14A OF THE ACT . LD. AO IGNORED THE WORKINGS OF THE ASSESSEE AND PROCEEDED TO MAKE DISA LLOWANCE U/S.14A R.W.RULE 8D AT RS. 35 75 823/- AND ADDED THE SAME I N THE ASSESSMENT. THE ASSESSEE EXPLAINED BEFORE THE LD. CIT(A) THAT T HE BASIS OF DISALLOWANCE OFFERED BY IT FOR THE SUM OF RS.9104/- IS AS FOLLOWS :- I) DIRECT EXPENSES IN THE FORM OF DEMAT CHARGES R S.2994/- II) DISALLOWANCE UNDER RULE 8D(2)(III) (INVESTMENT OF 0.5% OF RS.12 22 089/-) RS.6110/ - TOTAL RS.9104/- 4. BEFORE THE LD. CIT(A) THE ASSESSEE STATED THAT I T HAD CONSIDERED THE INVESTMENT MADE IN QUOTED SHARES FROM WHICH IT HAD EARNED THE DIVIDEND INCOME WHILE COMPUTING THE DISALLOWANCE UNDER RULE 8D(2)(III). IT WAS STATED THAT THE INVESTMENT MADE IN UNQUOTED SHARES HAVE NOT BEEN TAKEN INTO CONSIDERATION IN THE CALCULATION MADE UNDER R ULE 8D BECAUSE THE ASSESSEE IS IN THE REAL ESTATE BUSINESS WHEREIN IT IS COMMON TO FLOAT SPECIAL PURPOSE VEHICLE (SPV) FOR THE PURPOSE OF A CQUIRING ESTATES OUTSIDE. SUCH SPECIAL PURPOSE VEHICLE (SPV) ARE THE SUBSIDIARY COMPANIES OF THE ASSESSEE AND INVESTMENTS IN SUBSID IARY WERE MADE FOR THE PURPOSE OF BUSINESS AND NOT TO EARN DIVIDEND IN COME. FURTHER IT WAS SUBMITTED THAT THESE SUBSIDIARY COMPANIES HAVE NOT DECLARED ANY DIVIDEND. ACCORDINGLY IT WAS PRAYED THAT THE SAID INVESTMENTS SHOULD BE IGNORED WHILE COMPUTING THE DISALLOWANCE UNDER RULE 8D. 5. WITH REGARD TO THE INVESTMENT IN PARTNERSHIP FIR M IT WAS SUBMITTED THAT THE ASSESSEE HAD DERIVED BOTH INTEREST ON CAPITAL ( WHICH IS TAXABLE) AND SHARE OF PROFIT FROM PARTNERSHIP FIRM (WHICH IS EXE MPT). IT WAS ALSO ITA NO.1520/14 3 SUBMITTED THAT THE TERM LOANS TAKEN BY THE ASSESSEE COMPANY WERE FOR SPECIFIC BUSINESS PURPOSES AND NOT FOR MAKING INVES TMENTS IN ANY SHARES OR IN PARTNERSHIP FIRM. IT WAS ALSO SUBMITTED THAT THE LOAN AMOUNT GOT REDUCED FROM RS.10 CRORES AS ON 31.03.2010 TO RS.7. 57 CRORES AS ON 31.03.2011 WHEREAS THE INVESTMENTS INCREASED FROM RS.7.82 CRORES TO RS.29.18 CRORES IN THE SAME PERIOD THUS IT WOULD BE EVIDENT THAT THE INVESTMENTS WERE MADE OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS. ACCORDINGLY IT CLAIMED THAT NO DISALLOWANCE OF INT EREST SHOULD BE MADE IN TERMS OF RULE 8D(2)(III) OF THE RULES. IT WAS PRAYE D BEFORE THE LD. CIT(A) THAT THE INVESTMENTS WHICH HAD YIELDED EXEMPT INCO ME ALONE SHOULD BE CONSIDERED FOR THE PURPOSE OF WORKING OUT THE DISAL LOWANCE U/S.14A R.W.RULE 8D. 6. IT WAS ALSO SUBMITTED THAT WITH REGARD TO INVEST MENTS MADE IN UNQUOTED SHARES THESE INVESTMENTS WERE MADE IN SUBSIDIARY C OMPANIES (SPVS) AND THEY HAD NOT DECLARED ANY DIVIDEND AND MOREOVER THESE INVESTMENTS WHEN SOLD WOULD RESULT IN LIABILITY OF CAPITAL GAIN S AND HENCE THE SAME CANNOT BE TREATED AS INVESTMENTS YIELDING ANY EXEMP T INCOME. THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF TH IS TRIBUNAL IN THE CASE OF REI AGRO LTD. ITA NO.1331&1423/KOL/2011 ORDER DATED 19.06.2013 WHEREIN IT WAS HELD THAT ONLY THE INVESTMENTS WHICH YIELDED EXEMPT INCOME SHOULD BE CONSIDERED FOR THE PURPOSE OF COMP UTING DISALLOWANCE U/S.14A R.W.RULE 8D OF THE RULES. LD. CIT(A) OBSERV ED THAT THE DECISION OF REI AGRO LTD. (SUPRA) IS SQUARELY APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. HE OBSERVED THAT ASSESSEE HAD NOT CORRECTLY W ORKED OUT THE DISALLOWANCE U/S.14A IN ACCORDANCE WITH THE RULE 8D AS ADMITTEDLY IT HAS NOT CONSIDERED THE INVESTMENT MADE IN PARTNERSHIP F IRM FROM WHERE EXEMPT INCOME IN THE FORM OF SHARE OF PROFIT WAS EA RNED BY THE ASSESSEE. ACCORDINGLY LD. CIT(A) RECALCULATED THE DISALLOWAN CE U/S.14A R.W.RULE 8D AND ARRIVED AT THE FIGURE OF RS.1 72 737/- AS AGAIN ST RS.35 75 823/- DISALLOWED BY THE AO. ITA NO.1520/14 4 7. AGGRIEVED THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS :- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE DIS ALLOWANCE MADE U/S.14A R.W.RULE 8D. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) WAS NOT JUSTIFIED IN RESTRICTING THE DIS ALLOWANCE MADE U/S.14A READ WITH RULE 8D WITHOUT CONSIDERING THAT RULE 8D DOES NOT PROVIDE ANY EXEMPTION IN THE CASE OF INVESTMENT IN NON- DIVIDEND EARNING INCOME. 8. WHEN THE CASE WAS CALLED NO ONE APPEARED ON BEHA LF OF THE REVENUE AND EVEN THE ADJOURNMENT PETITION WAS NOT FILED BY THE REVENUE HENCE WE DECIDE TO DISPOSE OF THE APPEAL ON HEARING THE L D. AR AND ON MERITS OF THE CASE. 9. LD. AR REITERATED THE SUBMISSIONS MADE BEFORE TH E LD. CIT(A). IN ADDITION HE PLACED RELIANCE ON THE DECISIONS OF CO ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. K.B.CAPITAL MARKET S (P) LTD. [2016] 71 TAXMANN.COM 354 (KOLKATA TRIBUNAL) AND DCIT VS. TEE NLOK ADVISORY SERVICES (P) LTD [2016] 159 ITD 991 (KOLKATA TRIBU NAL) DATED 8.6.2016 IN SUPPORT OF HIS VARIOUS CONTENTIONS. 10. WE HAVE HEARD LD. AR. WE FIND THAT THE ISSUE RE GARDING CONSIDERATION OF INVESTMENTS YIELDING EXEMPT INCOME ALONE OUGHT T O BE CONSIDERED FOR THE PURPOSE OF COMPUTING THE DISALLOWANCE UNDER RUL E 8D IS WELL SETTLED BY THE DECISION OF THE TRIBUNAL AS RELIED ON BY THE LD. AR. THE FINDINGS GIVEN THEREON ARE NOT REITERATED HEREIN FOR THE SAK E OF BREVITY. HOWEVER WE FIND THAT THERE IS NO SPECIFIC FINDING RECORDED BY THE LOWER AUTHORITIES AS TO WHETHER THE INVESTMENTS WERE MADE BY THE ASSE SSEE OUT OF ITS OWN FUNDS OR OUT OF UTILIZATION OF BORROWED FUNDS. IN T HIS REGARD WE PLACE RELIANCE ON THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DHANUKA AND SONS (2011) 339 ITR 319 (CAL) WHEREIN IT WAS HELD THAT ONUS IS ON THE ASSESSEE TO PROVE THAT THE INVESTMEN TS WERE MADE OUT OF ITA NO.1520/14 5 OWN FUNDS OF THE ASSESSEE EVEN THOUGH THOSE INVESTM ENTS WERE MADE IN THE EARLIER YEARS. WE FIND THAT THIS FACTUAL FINDI NG IS ADMITTEDLY MISSING FROM THE RECORDS HENCE WE DEEM IT FIT AND APPROPR IATE IN THE INTEREST OF JUSTICE AND FAIR-PLAY TO SET ASIDE TO THE FILE OF LD. AO FOR GIVING FACTUAL FINDING WITH REGARD TO SOURCE OF MAKING INVESTMENTS IN QUOTED SHARES AND INVESTMENT IN PARTNERSHIP FIRM. LD. AO IS DIRECTED TO CONSIDER THE DISALLOWANCE UNDER RULE 8D(2)(II) BASED ON THE OUTC OME OF SUCH FACTUAL FINDING. IN OTHER WORDS THE LD. AO IS DIRECTED AS BELOW :- A) MAKE DISALLOWANCE UNDER RULE 8D(2)(III) BY CONSI DERING THE INVESTMENTS IN QUOTED SHARES AND THE INVESTMENTS IN PARTNERSHIP FIRM ALONE; AND B) MAKE VERIFICATION OF SOURCE OF MAKING INVESTMENT S I.E. WHETHER THE SAME HAS BEEN MADE OUT OF OWN FUNDS OR OUT OF BORROWED FUNDS IN RESPECT OF INVESTMENT IN QUOTE D SHARES AND INVESTMENTS IN PARTNERSHIP FIRM ALONE. B ASED ON THE OUTCOME OF SUCH VERIFICATION THE LD. AO IS TO DECIDE THE DISALLOWANCE UNDER RULE 8D(2)(II). ACCORDINGLY THE GROUNDS RAISED BY THE REVENUE ARE DISPOSED OF AS DIRECTED ABOVE. 11. IN THE RESULT APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19/10 / 2016. SD/ - (S.S.VISWANETHRA RAVI) SD/ - (M.BALAGANESH) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA ; $% DATED 19/10/2016 & ()*/PRAKASH MISHRA . / PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. 4 ( ) / THE CIT(A) KOLKATA. ITA NO.1520/14 6 / BY ORDER / ( ASSTT. REGISTRAR) & ' / ITAT 4. 4 / CIT 5. 567 8 8 / DR ITAT KOLKATA 6. 79 / GUARD FILE. 5 //TRUE COPY//