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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI A.T. VARKEY, JM &DR. A.L.SAINI, AM
आदेश / O R D E R Per Dr. A. L. Saini:
The captioned appeal filed by the Assessee , pertaining to assessment year 2012-13, is directed against the order passed by the Commissioner of Income Tax (Appeal)-5, Kolkata in appeal no. 117/CIT(A)-5/Circle-13(1)/15-16/Kol, which in turn arises out of an assessment order passed by the Assessing Officer u/s143(3) of the Income Tax Act, 1961 (in short the ‘Act’) dated 26/03/2015.
2.The grounds of appeal raised by the assessee are as follows:
1. For that the orders passed by the lower authorities are arbitrary, erroneous, without proper reasons, invalid and bad-in-law, to the extent to which they are prejudicial to the interests of the appellant.
2. For that in the facts and circumstances of the case the Ld. CIT (A) ought to have properly appreciated the facts of the case and ought not to have confirmed the disallowance of interest of Rs.23,55,074/- on alleged grounds.
M/s HAC India Limited Assessment Year:2012-13
3. For that the Ld. CIT (A) ought to have appreciated the fact that there being no payment of interest, after netting with interest received, no disallowance u/s 14A read with Rule 8D (2)(ii) is required to be made.
4. For that the Ld. CIT (A), without prejudice, ought not to have confirmed the disallowance of interest exceeding the amount of exempt income by way of dividend of only Rs.5,50,388/- u/s 14A. 5. For that the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/or rescind any or all of the above grounds.
Brief facts qua the issue are that during the course of assessment proceedings it was noticed by the Assessing Officer that the assessee had claimed interest on loan amounting to Rs. 23,55,074/- paid to Kotak Bank as expenses while computing short term capital gain u/s. 111A of the I.T. Act, 1961. The said amount was offered for disallowance u/s. 14A by the assessee and was again reclaimed as expense while computing short term capital gain. The Assessing Officer was of the view that the amount of Rs. 23,55,074/- offered by the assessee for disallowance u/s 14A cannot be claimed again as expense while computing short term capital gain. Further, Assessing Officer noticed that the provision relating to short term capital gain provides for deduction in sale consideration of expenses purely in relation to transfer of capital asset and the said interest amount as claimed by the assessee emanates from the funding pattern of the assessee and has nothing to do with the transfer of capital asset. In view of the above the said amount of Rs. 23,55,074/- was disallowed by the Assessing Officer as admissible expense under the head capital gains.
Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has confirmed the addition made by the Assessing Officer.
Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
The ld. Counsel for the assessee submitted that the assessee took a loan from Kotak Bank for purchasing shares and sum of Rs. 23,55,074/- was paid as interest for the year. The assessee has claimed such interest against short term capital gain Page | 2
M/s HAC India Limited Assessment Year:2012-13 on sale of shares u/s 111A of the Act. Besides the assessee has also disallowed the amount suo moto u/s 14A of the Act. However, the Assessing Officer disallowed the amount of Rs. 23,55,074/- while computing the short term capital gain which is bad in law therefore the ld. Counsel requested the Bench that a suitable direction may be given to the Assessing Officer to consider the interest expenses of Rs. 23,55,074/- for computation short term capital gain. Also the ld. Counsel submitted that for the purpose of disallowance u/s 14A read with Rule 8D only the net interest amount should be disallowed.
On the other hand, the ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity.
We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. We note that ld. CIT(A) disallowed the claim of the assessee observing the following:
I have considered the submission of the appellant and perused the relevant assessment records. The A/R of the appellant in his written submission has admitted in calculating short term capital gain after deduction of interest on loan for acquisition of shares. The A/R also mentioned that the same amount was also offered for disallowance u/s 14A. This admission of the A/R indicates that the interest on loan was used for the acquisition of shares on which dividend income was earned which is exempt. Therefore, by claiming the same as a deduction while computing short term capital gain u/s 111A amounts claim of double deduction which is not permissible under the law. This view is fortified by the decision of Hon'ble Karnataka High Court in the case of Commissioner Of Income-Tax,... vs Maithreyi Pai reported in (1984) 43 CTR Kar 88, 1985 152 ITR 247 KAR, 1985 152 ITR 247 Kam, 1984 18 TAXMAN 75 Kar. The Hon'ble court has held that The interest paid on borrowings for the acquisition of a capital asset must fall for deduction under s.
48. But, if the same sum is already the subject-matter of deduction under other heads like those under s. 57, we cannot understand how it could find place again for the purpose of computation under s.
No assessee under the scheme of the I.T. Act could be allowed deduction of the same amount is already allowed under twice over. We are firmly of the opinion that if an amount is already allowed under s. 57while computing the income of the assessee, the same cannot be allowed as deduction for the purpose of computing the "capital gains" under s. 48." The appellant had claimed double Page | 3
M/s HAC India Limited Assessment Year:2012-13 deduction of interest u/s 111A of the Act while computing short term capital gain and at the same time disallowed the interest as relating to exempt income. As held by the Hon'ble Karnataka High Court in the case of Maithreyi Pai (supra) no double deduction can be allowed while computing capital gains. After a careful consideration of the decisions as foregoing, the assessment records and the submission of the appellant, this ground of appeal fails and therefore, dismissed. The Assessing Officer is directed accordingly.”
We note that the ld. CIT(A) have not considered the facts of the case in right perspective and made the disallowance of interest of Rs. 23,55,074/- under the head short term capital gain. We note that the assessee took a loan from Kotak Bank for purchasing the shares and a sum of Rs. 23,55,074/- was paid as interest for the year. Therefore, the assessee while selling these shares is entitled to deduct the interest cost towards expenses incurred for requisition of shares. We also note that the assessee has offered the said interest of Rs. 23,55,074/- for disallowance u/s 14A of the Act which is not as per relevant provision of the Act. We note that for the purpose of disallowance u/s 14A read with Rule 8D(2)(ii) of the Rules only the net interest (i.e. interest received – interest paid) should be considered. We are of the view that interest expenses of Rs. 23,55,074/- is incurred exclusively in connection with requisition of shares which the assessee has sold and claimed the short term capital gain therefore these interest expenses are allowable as a deduction under the head capital gain. If the assessee has received the interest as well as paid the interest then after netting the interest received / paid the disallowance u/s 14A read with Rule 8D(2)(ii) is to be computed. As per assessee there being no payment of interest, after netting with interest received, so no disallowance u/s 14A read with Rule 8D(2)(ii) is required to be made. In this scenario, we direct the Assessing Officer to examine the factual position and allow the interest expenses of Rs. 23,55,074/- while computing short term capital gain and also for computing disallowance under Rule 8D(2)(ii) after taking into account interest received / paid i.e. after netting the interest received and paid, if any. Therefore, we set aside the order of ld. CIT(A) and remand the matter back to the file of the Assessing Officer to reexamine the computation of total income for A.Y. 2012-13 and allow the claim of the assessee as per discussion made (supra), in accordance with law. Page | 4
M/s HAC India Limited Assessment Year:2012-13
In the result, statistical purposes the appeal of the assessee is treated to be allowed. Order pronounced in the Court on 10.01.2020