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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: Shri Rajpal Yadav, Vice-(KZ) & Shri Rajesh Kumar
Per Rajpal Yadav, Vice-President (KZ):- The assessee is in appeal before the Tribunal against the order of ld. Commissioner of Income Tax (Appeals)-6, Kolkata dated 7th February, 2020 passed for Assessment Year 2008-09.
The assessee has taken four grounds of appeal, which contains sub- grounds. Out of these four grounds of appeal, Ground No. 4 is a general ground, which does not call for recording of any finding. 1
ITA No. 564/KOL/2020 Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited
In Grounds No. 1 & 2 including their sub-grounds, the assessee is challenging reopening of assessment by issuance of notice under section 148 of the Income Tax Act. In the sub-grounds, it has taken peripheral arguments for challenging this issue.
In Ground No. 3, the assessee is challenging determination of amounts required to be disallowed with the aid of section 14A read with Rule 8D of the Income Tax Act as well as Rules.
First we take Grounds No. 1 & 2, whereby reopening of the assessment by issuance of a notice under section 148 has been challenged.
Brief facts of the case are that the assessee-company is a State Government Undertaking. It has filed its original return of income on 27.09.2008 declaring total income of Rs.16,11,02,610/-. An assessment order was framed under section 143(3) of the Income Tax Act on 21.12.2010.
Ld. Counsel for the assessee while taking up through the record drew our attention towards reasons recorded for reopening of the assessment. He submitted that copy of the reasons is available at pages no. 210 & 211 of the paper book, but these are hand-written, whereas typed copy has been placed on page 212. Such reasons read as under:- “W.B. Infrastructure Development Finance Corp. Limited PAN: AAACW3432D A.Y. 2008-09 “Return of income was filed on 27.09.2008 and subsequently revised return was also filed on 18.03.10. Total income was assessed u/s 143(3) at Rs.20,92,60,199/-. It is seen from the assessment records that the nature of business of the assessee was non-banking financial operation. The assessee earned dividend income of Rs.41,02,847/- which was exempt u/s 10(34). Accordingly, the assessee offered expenditure of Rs.52,92,896/- incurred by way of interest
ITA No. 564/KOL/2020 Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited
related to exempted income and the same was considered as disallowance u/s 14A in the computation of income. As per assessee’s submission, short term loan was utilized for earning exempt income but the amount of interest attributable to exempt income was arbitrarily computed. The assessee incurred expenditure on account of interest of Rs.208,90,88,187/- on short term loan. Hence, interest expenses related to exempt income was required to be disallowed as per provisions of section 14A read with Rule 8D. However, no interest expense attributable to exempt income was considered for disallowance u/s 14A. In view of the above, I have reason to believe that there was underassessment of income for the relevant assessment year. Issue notice u/s 148. Dated: 03.07.2021 Sd/- D. Roy, DCIT, Circle-6, Kol. Code:WBG-C-106-1”. Taking up through the reasons, he contended that grievance of the ld. DCIT for reopening of the assessment relates to non-disallowance of interest expenditure for earning tax-free income under section 14A of the Income Tax Act. He submitted that this reopening is being made on the basis of change of opinion only, otherwise the ld. Assessing Officer in the original round of assessment proceedings has gone through all these details and thereafter opted to work out the disallowance of Rs.48,68,050/-. This disallowance was worked out by taking ½ percent of average investment. The assessee has explained the issue in detail and also filed working and after going through the working, the ld. Assessing Officer did not deem it appropriate to work out a disallowance of interest expenditure under Sub-Rule (i) and (ii) of Rule 8D regarding interest expenditure. In order to buttress his contention, he drew our attention at pages no. 107 to 112 of the paper book, where on page no. 107, the letter of the DCIT is available exhibiting the fact that the details with regard to tax-free income, vis-a-vis expenditure relatable to those incomes as contemplated under section 14A read with Rule 8D were called upon. The
ITA No. 564/KOL/2020 Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited
assessee has filed detailed reply and the copies of such reply are available on pages no. 108 to 112. These pages read as under:- “Pages No. 108-109:- “FA&CAO/IT-9A/2010-11/1838 18.11.2020 The ld. DCIT, Circle-6/Kolkata, Aayakar Bhawan, 6t h Floor, P-7, Chowringhee Square, Kolkata-700069 Dear Sir, PAN:AAACW3432D Assessment Year :2008-09 This has a reference to your notice no. DCIT/Cir- 6/Kol/Scrutiny/2008-09/2010-11/ dated 9 t h November, 2010 received by us on 11th November, 2010 in connection with scrutiny assessment for the captioned assessment year. The company has a e-filed the original return on 27.09.2008 (e-filing acknowledgement no. 40845340270908). Thereafter, on computation of statutory audit by CAG appointed auditors on 26.06.2009, comments of the CAG u/s 619(4) of the Companies Act,1956 on 02.09.2009 and adoption of the audited accounts at the company’s Annual General Meeting held on 12.11.2009, the company has e-filed the revised return of income on 18.03.2010 (e-filing acknowledgement no. 111988190180310) based on audited accounts. As desired by you, we submit herewith the following documents/particulars for your kind perusal: 1. Copy of audited annual accounts alongwith auditor’s report, Director’s report and comments of the C&AG for the financial year 2007-08. 2. Copy of the Tax audit report dated 22.02.2010. 3. Copy of computation of taxable income and tax payable thereon. 4. Copy of e-return (revised) filed on 18.03.2010. 5. Copy of computation of fringe benefit tax with quartered break-up. 6. Original TDS certificates in 41 nos. 7. Bank Reconciliation Statement 31 nos. 8. The company has earned dividend income of Rs.41,02,847/- during the financial year 2007-08 from its investments in SBI Short Horizon Fund LIQUID Plus (Mutual Fund). In connection with above exempted income, the company has considered disallowance of Rs.55,92,896/- u/s 14A read with Rule 8D towards interest on borrowed funds, calculated @8.90% p.a. being average cost of borrowed funds of Rs. 25 crore for 92 days. This disallowance of Rs.55,92,896/- has
ITA No. 564/KOL/2020 Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited
been considered while computing taxable income for the captioned assessment year. 9. The Company is not engaged in the business of sale and purchase of shares and securities and has not claimed any deduction u/s 88E for Securities Transaction Tax during the captioned assessment year. Accordingly, submission of Form 10DB/10DC is not applicable to the Company. 10. The Company has not incurred any gain/loss on sale of investments during the captioned assessment year. As such the provisions of section 94(7) and explanation below section 73 are not applicable to the company.
We shall be pleased to offer any other particulars if required by you. Enclo: As above. Yours faithfully, Sd/- FA & CAO, WBIDFC
Pages No. 110-111:- A.K. Sen & associates Chartered Accountants
16.12.2010 The ld. DCIT, Circle-6/Kolkatqa, Aayakar Bhawan, 6t h Floor, P-7, Chowringhee Square, Kolkata-700069
Dear Sir, PAN:AAACW3432D Assessment Year :2008-09
This has reference to your letter no. DCIT/Cir- 6/Kol/Scrutiny/2008-09/2010-11 dated 9 th November, 2010 in connection with scrutiny assessment of West Bengal Infrastructure Development Finance Corporation Ltd., our client, for the captioned assessment year.
As desired by you, we submit herewith the following documents /particulars on behalf of our client for your kind perusal: 1. WBIDFC is a Government Company within the meaning of section 619 of the Companies Ac, 1956, wholly owned by the Government of West Bengal. It has e-filed its original return on 27.09.2008 for the assessment year 2008-09 with reference to the accounts, pending completion of audit by statutory auditors and CAG which was in progress at the time of submission of the said return. Thereafter on completion of statutory audit by CAG appointed auditors on 26.06.2009, comments of the CAG u/s 619(4) of the Companies Act, 1956 on 02.09.2009 and adoption
ITA No. 564/KOL/2020 Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited
of audited accounts at the Company’s AGM held on 12.11.2009, the company has e-filed the revised return on income on 18.03.2010. Thus, WBIDFC has computed the real income on completion of all requirements regarding audit and adoption of accounts and has filed the same before the ld. Assessing Officer for the purpose of assessment. It is pertinent to mention here that WBIDFC has filed similar revised return of income/computations for the earlier assessment years also and the same had been accepted by the ld. Assessing Officers. 2. Prior period items: In the revised return of income for the AY 2008-09, e-filed on 18.03.2010, WBIDFC has offered to tax interest income on short term deposit and recurring deposit from Union Bank of India, State Bank of Hyderabad, Vijaya Bank and HDFC Short considered in FY 2006-07 (accounted for as prior period income in FY 2007-08) aggregating to Rs.47117365. it has also claimed overprovision of interest income from interest on loan to CETP in FY 2006-07 (accounted for as prior period item in FY 2007-08) of Rs.2710085/- allowable as bad debt. Both the items have been disclosed in Schedule S as prior period items of the audited accounts for FY 2007-08 and also Annexure 5 to form 3CD dated 22.02.2010.
We submit that both the items have been considered by WBIDFC at the time of filing revised computation of taxable income on 23.06.2009 for the earlier assessment year 2007-08. However, the same has not been considered at the time of assessment for the AY 2007-08 and as such, both the items have now been considered in the AY 2008-09 as a matter of abundant precaution. Xerox copies of WBIDFC’s letter dated 17.06.2009, revised computation of taxable income and assessment order dated 29.12.2009 for AY 2007-08 are enclosed for your perusal.
(3) Xerox copies of TR Form No. 7 for payment of guarantee commission of Rs.40 crore on 04.07.2007 and stamp duty of Rs.7.40 crore (Rs.3.70 crore for earlier assessment years and Rs.3.70 crore for the current assessment year) on 27.03.2008 are enclosed.
(4) WBIDFC is developing Housing project on its own land and the project is in progress. During the AY 2008-09 it has incurred expenses of Rs.184775254/- on this project (reference may be made to Schedule T of audited accounts) and the same has been debited to expenses. Similar amount has also been credited to profit & loss account under the head work-in-progress- Sankalpa Housing Project and the same is carried forward to subsequent year. Thus the effect of these adjustments is revenue neutral. A statement showing head-wise break-up of expenses of Rs.184775254/- is enclosed.
(5) A statement showing computation of disallowance u/s 14A read with Rule 8D is enclosed.
ITA No. 564/KOL/2020 Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited
Reconciliation of interest income with TDS list is being compiled and shall be submitted within next few days.
We shall be pleased to offer any other particulars, if required.
Yours faithfully, For A.K.Sen & Associates Chartered Accountants Sd/- Dipak Kumar Das, Partner and Authorized Representative Enclo. As above.
Page No. 112: West Bengal Infrastructure Development Finance Corporation Ltd. Financial Year 2007-08 Assessment Year: 2008-09
Computation of disallowance u/s 14A read with Rule 8D
Investment in SBI-SHF Liquid Plus (Mutual Fund) 11.12.2007 Investment made 250000000 7.3.2008 Investment realised along 250000000 with dividend upto 5.3.2008 0 28.03.2008 Investment made 250000000 31.03.2008 Accrued interest 172914 250172914 Dividend Realised 7.3.2008 Dividend upto 5.3.2008 Rs.3929933 (88 days) 6.52% p.s. 31.3.2008 Accrued Dividend Rs. 172914 (4 days) 6.31% p.a. 4102847
Average cost of funds for 2007-08 – 8.90% p.a. as per Director’s report
Interest on borrowed funds:- Rs.25,0000000 x (8.9 /100)x (92 days/366 days) = Rs.5592896”.
Ld. Counsel for the assessee further contended that though a notice under section 148 has been issued within four years from the end of the assessment year, but in the original scrutiny assessment, all these details have been gone into. Thereafter, the assessee carried the matter in appeal
ITA No. 564/KOL/2020 Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited
before the ld. 1st Appellate Authority, who changed the working of disallowance. Originally it was restricted to Rs.48,68,050/- by the ld. Assessing Officer. Further at the level of ld. 1st Appellate Authority, it enhanced to roughly Rs.68 lacs. Copy of the order of ld. CIT(Appeals) dated 01.06.2012 has been placed on page no. 122 of the paper book. Before ld. CIT(Appeals), under Grounds No. 1 & 2, the assessee has challenged the disallowance made under section 14A of the Income Tax Act and such grounds read as under:- “(1) For that the ld. Assessing Officer erred in added back a further sum of Rs.48,68,050/- on account of disallowance u/s 14A read with Rule 8D of the Income Tax Act, 1961 in respect of exempt dividend income when the appellant had computed such disallowance at Rs.5592896/- u/s 14A read with Rule 8D based on the average cost of funds.
(2) For that the ld. Assessing Officer had failed to consider and appreciate the basis of computation of disallowance of Rs.55,92,896/- u/s 14A read with Rule 8D by the appellant when such computation had been made with reference to the average cost of funds and erred in re-computing the disallowance at Rs.1,04,60,946/-“.
The ld. CIT(Appeals) decided these grounds and thus gone into the details on this issue. This order was challenged before the ITAT and ultimately issues are pending before the Hon’ble Calcutta High Court including the issue of 14A.
On the other hand, ld. D.R. relied upon the orders of Revenue Authorities and submitted that 14A was not considered with the angle of disallowance of interest expenses. He relied upon decision of Hon’ble Delhi High Court in the case of Honda Siel Power Products Limited –vs- DCIT (340 ITR 53).
We have duly considered the rival contentions and gone through the record carefully. A plain reading of section 147 would contemplate that if the ld. Assessing Officer has reasoned to believe that any income chargeable to tax has escaped assessment for any assessment year, he may
ITA No. 564/KOL/2020 Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited
subject to the provisions of sections 148 to 153 assess or re-assess such income. In other words, there should be a live-link between formation of belief at the end of the ld. Assessing Officer exhibiting the fact that he is satisfied about the escapement of income from assessment, vis-a-vis the information possessed by him, which helped him in forming such belief. In the present case, a scrutiny assessment was undertaken. The ld. Assessing Officer raised all relevant queries about disallowance u/s 14A. He applied his mind and thereafter taken a view. This was again agitated before the higher appellate forum and the ld. CIT(Appeals) called for fresh information from the assessee and changed the ultimate quantum of disallowance made by the ld. Assessing Officer. It means that both the authorities have actively applied their mind on the issue. On reading of the reasons, we are unable to understand what is the fresh information possessed by the Revenue for forming the belief that income has escaped assessment. To our mind, there is no such information. The informations were already possessed by the Revenue and those were scrutinized. The ld. counsel for the assessee at the time of hearing made reference to the decision of the Hon’ble Supreme Court in the case of Kelvinator of India Limited reported in 320 ITR 561 and in this case, Hon’ble Supreme Court concurred to the decision of Full Bench of the Hon’ble Delhi High Court and has held that on mere change of opinion, assessment cannot be reopened. The ld. CIT (DR), on the other hand, relied upon the judgment in the case of Honda Siel Power Products Limited –vs.- DCIT reported in 340 ITR page 53. In this judgment, assessment year involved was A.Y. 2000-01. The assessee did not disclose the expenditure relatable to earning of tax-free income. The facts noticed by the Hon’ble High Court at Placitum 10 of the Report indicates that assessee has admitted about non- disclosure of the facts for proportionate expenses relatable to tax-free income. This paragraph reads as under:- “10. Thus, the petitioner has accepted and admitted that he had not given details with regard to proportionate expenses relatable to tax free or exempt income, which were claimed as a deduction under the cumulative
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head "expenditure". It is pleaded and stated that the petitioner was not required to disclose the said fact as when they had filed the return, Section 14A was not in the statute book. Sequitor, there was no omission and failure on the part of the assessee-petitioner to make full and true disclosure. The term "failure" on the part of the assessee is not restricted only to the income-tax return and the columns of the income-tax return or the tax audit report. This is the first stage. The said expression "failure to fully and truly disclose material facts" also relate to the stage of the assessment proceedings, the second stage. There can be omission and failure on the part of the assessee to disclose fully and truly material facts during the course of the assessment proceedings. This can happen when the assessee does not disclose or furnish to the Assessing Officer complete and correct information and details it is required and under an obligation to disclose. Burden is on the assessee to make full and true disclosure”.
In the above background, Hon’ble High Court has upheld reopening of assessment, whereas contrary to the above facts in the case before us, a specific question was raised by the ld. Assessing Officer. During the original assessment proceedings, details were submitted. He has applied his mind and thereafter partially worked out the expenditure attributable to earning of tax-free income. These facts are quite distinguishable. The ld. CIT(DR) cannot draw any benefit from this decision.
In view of the above discussion, the re-assessment order is quashed.
In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on July 13, 2022.
Sd/- Sd/- (Rajesh Kumar) (Rajpal Yadav) Accountant Member Vice-President (KZ) Kolkata, the 13th day of July, 2022 Copies to : (1) West Bengal Infrastructure Development Finance Corporation Limited, 36A, Hemanta Basu Sarani, Kolkata-700001
ITA No. 564/KOL/2020 Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited
(2) Assistant Commissioner of Income Tax, Circle-6(2), Kolkata, Aayakar Bhawan, 6th Floor, P-7, Chowringhee Square, Kolkata-700069
(3) Commissioner of Income Tax (Appeals)-6, Kolkata (4) Commissioner of Income Tax- , Kolkata, (5) The Departmental Representative (6) Guard File