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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 2013-14, is directed against an order passed by the learned Commissioner of Income Tax (Appeals)-Siliguri (in short the ld. CIT(A)], which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 ( in short the Act) dated 30.03.2016.
The grounds of appeal raised by the assessee are as follows:
Himalayan Endeavour Pvt. Ltd. Assessment Year:2013-14 1. For that on the facts and in the circumstances of the case, the ld. CIT(A) was not justified in confirming the addition of Rs. 14,15,665/- made by the A.O. u/s 14A r. w. Rule 8D.
2. For that on the facts and in the circumstances of the case, the ld. CIT(A) was not justified in confirming the estimated addition of Rs. 1,87,69,881/- made by the A.O. on account of expenditure.
That the appellant craves leave to add, alter or delete all or any of the grounds of appeal.
3. Ground no. 1 raised by the assessee relates to disallowance u/s 14A read with rule 8D to the tune of Rs. 14,15,665/-.
4. The brief facts qua the issue are that under the head ‘other income’ the assessee has declared exempt dividend income of Rs. 51,10,571/- from investment in quoted / unquoted mutual funds and shares of subsidiary companies aggregating Rs. 30,76,61,281/-. No expense relatable to such exempt income was offered for taxation as per computation of income. The assessee was asked to explain why such expense should not be added back by invoking provisions of section 14A of the I.T. Act, 1961. No plausible explanation was offered by the assessee against the said query of Assessing Officer. Therefore, the Assessing Officer determined the disallowance by invoking provisions of section 14A read with Rule 8D of the I. T. Rules in the following manner: Component (i): Not applicable Component (ii): (A) x (B) / (C ) (A)- amount of expenditure by way of interest incurred during the year (B)- the average of value of investment, income from which does not form part of total income, as appearing in balance sheet on 1st date and last day of the previous year (C)- the average of total assets as appearing in balance sheet on 1st day and last day of the previous year =Rs. 23,553/- X Rs. 28,05,50,441/- divided by 51,17,11,553/- = Rs. 12,913/- Component (iii): the amount equal to ½ % of average of value of investment, income from which does not form part of total income as appearing in balance on Page | 2
Himalayan Endeavour Pvt. Ltd. Assessment Year:2013-14 1st day or last day of the previous year = ½% of Rs. 28,05,50,441/- = Rs. 14,02,752/- Therefore, the aggregate of expenses as per Component (ii) & (iii) deemed to be incurred for earning exempt income come to Rs. 14,15,665/-(14,02,752 + 12913). Accordingly, the said expense relatable to exempt dividend income was added back to the total income of the assessee.
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 order passed 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 reiterated the submissions made before the authorities below. On the other hand, the ld. The ld. DR has primarily reiterated the stands 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 the rival submissions and perused the material available on record. We note that the assessee has its own sufficient fund which is more than investment made by the assessee therefore disallowance under Rule 8D2(ii) does not attract. From the Balance Sheet of the assessee (vide Paper Book page no. 3), we note that assessee has own share capital land reserves to the tune of Rs. 46,09,97,955/- whereas total investment made in shares and securities is Rs. 32,74,82,635/-. Since the assessee has its own funds which is more than investments in shares and securities therefore there would be journal presumption that the investments were purchased out of its own free funds. Therefore the question of disallowance under Rule 8D2(ii) does not arise. For that we rely on the judgment of Hon’ble Bombay High Court in the case of CIT vs. Reliance Utilities Power Ltd. in 313 ITR 340 (Bom) wherein the Hon’ble Bombay High Court has held that if there were funds available, both interest free and overdraft which loans Page | 3
Himalayan Endeavour Pvt. Ltd. Assessment Year:2013-14 are taken, then the presumption would arise that investment would be out of interest free funds generated or available with the assessee. If the interest free funds are sufficient to meet the investment, the disallowance under Rule 8D(2)(ii) does not arise.
So far the disallowance under Rule 8D2(iii) is concerned, we note that the Co- ordinate Bench of ITAT Kolkata Benches in the case of REI Agro Ltd. in 144 ITD 141 (Kol) has held that it is only the investment which yields dividend is previous year that has to be considered while adopting the average value of investment for the purpose of Rule 8D2(ii) and 8D2(iii) of the Income Tax Rules. The Co- ordinate Bench view of Hon’ble Kolkata Tribunal has since been affirmed as correct by the Hon’ble Calcutta High Court in GA No. 3185 of 2013 in the appeal against the order of the Tribunal in the case of REI Agro Ltd. (supra). Therefore we direct the Assessing Officer that the disallowance under Rule 8D2(iii) if any, should be computed only with the reference to the dividend bearing securities. Statistical purposes the ground raised by the assessee is treated to be allowed.
Ground no.2 raised by the assessee relates to estimated addition of Rs. 1,87,69,88/- made by the Assessing Officer on account of expenditure.
We have heard both the parties and perused the material available on record. We note that Assessing Officer has disallowed assessee’s claim of expenditure under the head “other expenses” of Rs. 1,87,69,881/- as the assessee failed to produce bills, vouchers and other supporting evidences before the Assessing Officer. We note that the assessee also did not submit the bills and vouchers against these expenses and no relevant documents were produced by the assessee during the appellate proceedings . Therefore, the Assessing Officer has not examined the veracity of the expenses. We note that the ld. Counsel for the assessee as well as the ld. DR for the revenue, both have fairly agreed that this issue is to be examined by the Assessing Officer as the assessee failed to produce the relevant documentary evidence during the assessment proceedings. Even Page | 4
Himalayan Endeavour Pvt. Ltd. Assessment Year:2013-14 during the appellate proceedings, the assessee had failed to substantiate his claim so far these expenses are concerned. However, the ld. Counsel has submitted before the Bench that now assessee has expressed his willingness to furnish the bills, vouchers etc. before the Assessing Officer. Therefore we are of the view that this is a fit case to remit back to the Assessing Officer for his examination. Therefore we set aside the order of the Ld. CIT(A) and remit the issue back to the file of the Assessing Officer for fresh adjudication in accordance with law. Therefore, we allow this ground for statistical purposes.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Court on 29.03.2019