ORIENT PAPER & INDUSTRIES LIMITED,KOLKATA vs. DCIT, CIRCLE-6(1), KOLKATA, KOLKATA

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ITA 817/KOL/2017Status: DisposedITAT Kolkata27 June 2018AY 2011-123 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that disallowance of proportionate interest is not sustainable when the assessee has surplus non-interest bearing funds. The disallowance of administrative expenditure was restored to the Assessing Officer for fresh computation based on dividend-yielding investments.

What were the facts?

The assessee company derived exempt dividend income. The Assessing Officer disallowed proportionate interest and administrative expenses under Section 14A read with Rule 8D. The CIT(A) upheld the disallowance to the extent of proportionate interest and administrative expenditure.

What were the issues?

Whether disallowance under Section 14A read with Rule 8D is justified when the assessee has sufficient non-interest bearing funds? How should administrative expenditure disallowance be computed?

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, BENCH ‘D’ KOLKATA

Before: Hon’ble Shri S.S.Godara, JM & Shri M.Balaganesh, AM ]

ORDER

PER S.S.GODARA, JM:

1.

This assessee’s appeal for A.Y.2011-12 arises against the CIT(A)-17, Kolkata’s order dated 30.12.2016 passed in Appeal No.270/CIT(A)-17/Kol/15-16 upholding the Assessing Officer’s action making section 14A read with Rule 8D disallowance of proportionate interest of Rs.1,05,31,136/- in assessment order dated 27.03.2014 involving proceedings u/s 143 (3) of the Income Tax Act, 1961 (in short the ‘Act’).

2. We come to the above sole issue of correctness of section 14A read with Rule 8D disallowance. There is no dispute about the fact that the assessee has derived exempt income from dividends amounting to Rs.4,49,65,951/- in the relevant previous year. The Assessing Officer invoked section 14A read with Rule 8D clause (i) to (iii) of the Income Tax. Rules to compute the impugned disallowance in the nature of demat charges, proportionate interest and administrative expenditure involving sums of Rs.330, Rs.1,05,77,957/- and Rs.24,68,828/- respectively; coming to Rs.1,30,47,105/- as upheld in course of the lower appellate proceedings to the extent of proportionate and administrative expenditure in question of Rs.1,05,31,136/-.

Orient Paper & Industries Ltd. A.Y.2011-12 2

3. Learned counsel representing assessee files its balance sheet of the relevant previous year. Its non interest bearing funds therein read a figure of Rs.90262.24 lakhs whereas its total investments are of Rs.6631.54 lakhs. These crucial details have gone undisputed from the Revenue’s side. We therefore quote hon’ble Gujarat high court’s decision in PCIT vs Nima Credit & Capital Pvt. Ltd. [2018] 300 CTR 286 (Gujarat) as well as that of hon’ble Bombay high court in CIT vs Reliance Utilities and Power Ltd 313 ITR 340 to conclude that the impugned section 14A disallowance is not sustainable in case of an assessee having surplus non interest bearing funds thereby deriving net interest income and that the necessary presumption in this kind of factual back drop is that it had made investments out of non interest bearing funds only; respectively to delete the impugned proportionate expenditure disallowance of Rs.1,05,77,957/-.

4.

Coming to administrative expenditure disallowance of Rs.24,68,828/- @ ½ % of average value of investments, both parties are ad item that this tribunal coordinate bench in REI Agro Ltd vs DCIT 144 ITD 141 (Kol) has held that only dividend yielding investments are to be considered for the purpose of computation of the disallowance in question. There is no dispute that neither the Assessing Officer nor the CIT(A) has proceeded on the said assumption. We therefore restore the instant latter issue back to the Assessing Officer for consequential computation.

5.

This assessee’s appeal is partly allowed in the above terms.

Order pronounced in the Court on 27.06.2018.

Sd/- Sd/- [M.. Balaganesh ] [ S.S.Godhara ] Accountant Member Judicial Member Dated : 27.06.2018. [RG Sr.PS] Orient Paper & Industries Ltd. A.Y.2011-12 3 Copy of the order forwarded to:

1.Orient Paper & Industries Limited, 9/1, R.N.Mukherjee Road, Kolkata-700001.

2.

D.C.I.T., Circle-6(1), Kolkata.

3.

C.I.T.(A)- 17, Kolkata 4. C.I.T-2, Kolkata 5. CIT(DR), Kolkata Benches, Kolkata.

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