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Income Tax Appellate Tribunal, : ‘D’ BENCH, KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
This appeal by the Revenue is against the order dt. 16-02-2017 passed by the CIT-A, 10, Kolkata for the A.Y 2013-14.
The only effective issue in this appeal is to be decided as to whether the CIT-A justified in deleting the impugned addition made u/s. 14A r.w.r 8D of the IT Rules, 1962 without appreciating the decision of the Hon’ble Jurisdictional High Court in the case of Dhanuka & Sons Vs. CIT reported in (2011) 339 ITR 319 (Cal) in the facts and circumstances of the case.
During the assessment proceedings the AO found that the assessee invested large fund in securities, income on which is not chargeable to tax. On perusal of accounts of assessee the AO found that the assessee has earned dividend of Rs. 2,39,34,566/- and interest on PPF of Rs.7,46,233/- and LTCG on sale of shares of Rs.8,48,41,144/-. The average investment of assessee during the year under consideration of Rs. 54,62,03,080/-. The AO found that the assessee herself offered a disallowance of Rs.27,31,015/- u/s. 14A of the Act without any basis of computation. The AO asked the assessee to explain the basis of such computation of disallowance offered by her, but, she failed to do so. The AO found that the assessee earned total interest income of Rs.8,47,90,897/- and incurred expenses on interest of Rs. 2,45,80,137/-. Considering the submissions of assessee, the AO made disallowance u/s. 14A of the Act of Rs.80,51,620/- and added the same to the total income of assessee by an order dt. 21-12-2015 passed u/s. 143(3) of the Act.
Before the CIT-A the assessee has relied on various case laws in support of her contention/claim. The CIT-A deleted the impugned addition made us/. 14A r.w.r 8D thoroughly analyzing the case laws as relied on by the assessee.
Before us the ld.DR submits that the CIT-A has erred in deleting the impugned addition without considering the verdict of the Hon’ble Jurisdictional High Court of Calcutta.
On the other hand, the ld.AR submits that the issue in hand is covered by the order dt. 26-12-2017 in assessee’s own case, for the A.Y 2011-12 and referred to relevant paras of the order dt. 26-12-2017.
Heard rival submissions and perused the record including the said orders of the Co-ordinate Bench, ITAT, Kolkata, in assessee’s own case. On perusal of assessment order, we find that the AO invoked Rule 8D and made impugned addition under Rule 8d(2)(ii) & (iii). We find that the CIT-A held that own capital of assessee is more than the investments made and as such deleted the addition made by the AO on this issue. We find that the assessee on her own disallowed 25 lakhs in the return of income and no disallowance under Rule 8D(2)(iii) is not necessary and as such deleted the same. We find that identical issue on identical/similar facts in assessee’s own case for the A.Y 2011-12 he Tribunal discussed the matter as under:-
“7. Now coming to disallowance made by the AO under Rule 8D(2)(iii) of l.T Rules, 1962. At the outside, it was observed that assessee has sum motu made the disallowance of Rs. 15 lacs against the exempted income earned by it during the year. However, the AO has invoked the provision of Rule 8D(2)(iii) without recording the satisfaction as envisaged under the provision of Section 14A of the Act. We also find that in similar facts and circumstance, the Hon'ble Co-ordinate Bench of this Tribunal in assessee's own case in immediate preceding AY 2010-11 has deleted the addition by observing as under:
"5. Disallowance of Rs. 15,00,632/-
The AO has added Rs.15, 00, 632/- out of Rs.41, 49, 216/- debited as business expenses. The AO has argued that the appellant's income is mainly interest income from various instruments and therefore did not need so much of expenses. Giving consideration to the disallowance made by the AO u/s 14A of Rs.26,48,587/- the AO made the disallowance of the balance sum of R.15,00,632/-. 5.1. In the submission the appellant has claimed that after disallowance of Rs.15,00,000/- in the return of income by the appellant the only amount that remained claimed as expense in the P & L A/c comes to abut Rs. 26, 48, 000/-. While making the addition the A0 lost sight of Rs.15,00, 000/- disallowance already made by the appellant in its return for the purpose of Section 14A. Thus, irrespective of the merit advanced by the Assessing Officer in para 4 of his order the proposed disallowance of Rs.15,00,6,432/- amounts to double addition by the said amount as the AO disallowed Rs.26,48,587/- u/s. 14A/Rule 8D(2)(iii) and the appellant had already made addition u/s.14A of Rs. 26,48,587/-. This addition, therefore, cannot be sustained. The ground in respect of the above amount is allowed."
We respectfully following the consistent view of the Tribunal decline to interfere in the order passed by the Ld. CIT on this account. Accordingly, the ground taken by the Revenue is partly allowed for statistical purposes."
Regarding the addition under Rule 8D(2), the Tribunal vide the same order on identical issue remanded the matter to the file of AO with a direction to verify the source of investment in the light of decision of the Hon’ble Jurisdictional High Court in the case of Dhanuka & Sons supra. Relevant portion of such decision/order is reproduced herein below:- “6. We have heard the rival contentions of both the parties and" perused the material available on record. In the instant case the addition has been made by the AO u/s 14A r.w.s. 8D as detailed under:-
Rule 8D(2(ii) Rs. 63,26,887/- Rule 8D(2)(iii) Rs.26,48,587/-
First we take up the addition made by the Assessing Officer under Rule 8D(2)(ii) of IT Rules, 1962. It is undisputed fact that own capital of assessee exceed the amount of investment made in the equity shares as well as PPF. On the same basis the Hon'ble Co-ordinate Bench of this Tribunal in assessee own case (supra) has deleted the addition in the immediate preceding assessment year 2010-11. However, on perusal of this Tribunal's order we observe that no reference was made to the judgment of jurisdictional High Court in the case of M/s Dhanuka & Sons vs. CIT in (Cal)(2004) reported in 339 ITR 319 wherein it was held as under:-
"9.ln the case before us, there is no dispute that part of the income of the assessee from its business is from dividend which is exempt from tax whereas the assessee was unable to produce any material before the authorities below showing the source from which such shares were acquired.
10. In our opinion, the mere fact that those shares were old ones and not acquired recently is immaterial. It is for the assessee to show the source of acquisition of those shares by production of materials that those were acquired from the funds available in the hands of the assessee at the relevant point of time without taking benefit of any loan. If those shares were purchased from the amount taken in loan even for instance/five or ten years ago/ it is for the assessee to show by the production of documentary evidence that such loaned amount had already been paid back and for the relevant assessment year; no interest is payable by the assessee for acquiring those old shares. In the absence of any such materials placed by the assessee/ in our opinion/ the authorities below rightly held that proportionate amount should be disallowed having regard to the total income and the income from the exempt source. In the absence of any material disclosing the source of acquisition of shares which is within the special knowledge of the assessee, the assessing authority took a most reasonable approach in assessment. There is no presumption- provided in the 1ncome tax Act 1961 that if the assessee has Interest free loans, his own capital as share capital, reserves and surpluses and interest bearing loans and is earning exempt and taxable income then it should be presumed that the exempt income is out of its own funds. Rule 8D(2)(ii) of the I.T. Rules, 1962 provides any expenditure by way of interest which is not directly attributable particular income or receipt then the interest has to be calculated as per formula provided therein. Now, the law has provided a specific method of calculation in Rule 8D(2)(ii) of I. T. Rules, 1961 relating to interest expenditure on exempted income from A. Y 2008-09 and it is applicable directly in the case of the assessee. " From the above judgment, we note that it is the duty of assessee to justify the source of investment mad by the assessee in the investment / PPF irrespective of fact that the own fund of assessee exceeds the impugned investment in the light of above judgment of Hon'ble jurisdictional High Court (supra). We find that the issue of disallowance of interest will accordingly be decided after verifying the details whether the impugned investment was made by the assessee out of her own fund or borrowed fund. Thus, in the interest of justice and fair play we are inclined to restore the issue back to the file of AO with a direction to verify the source of investment made by the assessee in the impugned equity shares / PPF. In terms of above, this ground of Revenue's appeal is allowed for statistical purposes.
In view of above discussion, the grounds raised by the revenue are allowed for statistical purpose.
In the result, the appeal filed by the revenue is allowed for statistical purpose. Order pronounced in the open court on 31-07-2018
Sd/- Sd/- Waseem Ahmed S.S. Viswanethra Ravi Accountant Member Judicial Member Dated :31-07-2018 **PP(Sr.P.S.) Copy of the order forwarded to:
1. 1. Appellant/department: The Assistant Commissioner of Income-tax, Central Circle-3(3), Kolkata, Aaykar Bhawan Poorva, EM Bye Pass, 110 Shanti Pally, 4th Floor, Kolkata-107. 2 Respondent/assessee: Smt. Madhu Devi Saraf, Jesmine Tower, Space Number 405A-B, 4th Floor, 31 Shakespeare Sarani, Kolkata-17.
3. The CIT(A), Kolkata 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata