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Income Tax Appellate Tribunal, KOLKATA BENCH “D” KOLKATA
Before: Shri Waseem Ahmed & Shri S.S.Viswanethra Ravi
Shri S. Dasgupta, Addl. CIT-DR अपीलाथ� क� ओर से/By Appellant Shri H. Chakravorty, Sr General Manager ��यथ� क� ओर से/By Respondent 21-03-2018 सुनवाई क� तार�ख/Date of Hearing 14-06-2018 घोषणा क� तार�ख/Date of Pronouncement आदेश /O R D E R PER Waseem Ahmed, Accountant Member:- This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-9, Kolkata dated 21.06.2016. Assessment was framed by DCIT, Circle-12, Kolkata u/s 154 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) vide his order dated 08.04.2010 for assessment year 2002-03. The grounds raised by the assessee per its appeal are as under:-
1. That on the fact and in the circumstances of the case CIT(A) erred in deleting disallowance made by the AO u/s 14A of the Act r.w. Rule 8D of IT Rules thereby violating the provisions of section 14A of the Act.
DCIT, Cir-11(1) Kol. Vs. M/s Haldia Petrochemicals Ltd. Page 2 2. That on the fact and in the circumstance of the case order of the CIT(A) is also erroneous as it quotes order u/s. 143(3) of the Act though the issue of disallowance u/s. 14A of the Act came up in the rectification order passed by the AO u/s 154 of the Act. 3. That the appellant craves leave to add, alter/or amend any of the grounds of appeal during the course of hearing.” Shri S. Dasgupta, Ld. Departmental Representative appeared on behalf of Revenue and Shri H. Chakrvorty, Ld. Authorized Representative appeared on behalf of assessee.
2. At the outset, Ld. AR for the assessee brought to our notice that the appeal has been preferred by Revenue against the order passed by Assessing Officer u/s. 154 of the Act, however, Ld. CIT(A) inadvertently has mentioned u/s 143(3) of the Act. Accordingly, it was prayed by him that topographical error has been committed by Ld. CIT(A) while drafting order and therefore same can be ignored while adjudicating the issue on hand. On the other hand, Ld. DR agreed to the submission of the Ld. AR and conceded the fact of topographical error have been committed by Ld. CIT(A) while adjudicating the issue on hand. Therefore, we decided to adjudicate the issue ignoring the topographical error committed by Ld. CIT(A).
3. Sole issue raised by Revenue in this appeal is that Ld. CIT(A) erred in deleting the addition made by Assessing Officer for ₹30 lakh as per the provision of Section 14A r.w.s. Rule 8D of the Income Tax Rule, 1962.
4. Briefly stated facts are that assessee is a limited company and assessment was passed u/s. 143(3) of the Act vide order dated 31.03.2005. Subsequently, assessee vide letter dated 04.10.2007 submitted before AO that it has declared the divided income amounting to ₹23,99,86,159/- which was not claimed as exempt u/s. 10(34) of the Act inadvertently. As a result, same was offered to tax under the head “income from business and profession”. Accordingly, it was prayed to exclude the aforesaid dividend income from the total income of assessee. 4.1 AO after examining the rectification application u/s. 154 of the Act excluded the dividend income from the total income of the assessee. However, the AO observed DCIT, Cir-11(1) Kol. Vs. M/s Haldia Petrochemicals Ltd. Page 3 that no expenditure has been disallowed against the impugned exempted income of ₹23,99,86,159/-. As per the provision of Section 14A r.w.s. Rule 8D of the IT Rules. On being questioned, assessee replied that it has not incurred any expenditure in connection of such dividend income. However, the AO disregarded the contention of assessee and made the disallowance of ₹ 30 lakh. As per the provision of Rule 8D of IT Rules, 1962. The disallowance was added to the total income of assessee.
5. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before Ld. CIT(A) submitted that disallowance has been made mechanically by the AO without application his mind, therefore same should be deleted. The assessee also submitted that Rule 8D for the year under consideration is not applicable as it came into force with effect from 24.03.2009. The AO has not brought any evidence suggesting that assessee has incurred any expenditure in relation to dividend income. Learned. CIT(A) after considering the submission of assessee deleted the addition made by the AO by observing as under:- “4. Conclusion: The Hon'ble High Court of Bombay has held in the case of Godrej & Boyce Mfg. Co Ltd. v DCIT (2010) 328 ITR 81(Bom) that Rule 8D come into effect from 24/03/2008 and cannot be applied retrospectively. In view of this, the assessment order is cancelled.” Being aggrieved, by this order of Ld. CIT(A) Revenue is in appeal before us. The Learned. DR vehemently relied on the order of AO. On the contrary, before us Learned. AR submitted that disallowance u/s. 14A of the Act can be made if AO, after regard to the accounts of the assessee is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does norm part of total income under this Act. The Learned. AR also submitted that the provisions inserted under Rule 8D of IT Rule came into effect on 24.03.20008 and relevant year under appeal i.e AY 2002-03. Hence the rule 8D does not apply to the assessee. Learned AR finally prayed not to make any disallowance u/s 14A r.w.s Rule 8D of IT Rules.
DCIT, Cir-11(1) Kol. Vs. M/s Haldia Petrochemicals Ltd. Page 4 We have heard the rival contentions and perused the materials available on record. From the aforesaid discussions, we find that though the Rule 8D of IT Rule is applicable w.e.f. 24.03.2008, however, Sec. 14A is applicable since the beginning of income tax Act, 1961. Therefore, the disallowance u/s. 14A was very much applicable even for the AY under consideration i.e. 22002-03. However, several courts have decided to disallow the expense @ 1% of the total exempt income prior to insertion of Rule 8D of the IT Rule w.e.f. 01.04.2008. In holding so we rely on the order of Hon'ble jurisdictional High Court in the case of CIT Vs. R.R.Sen & Brothers Pvt Ltd. G.A. No.3019 of 2012, ITAT No. 243 of 2012 wherein the issue was decided by observing as under:- “The court:- The assessee did not show any expenditure incurred by him for the purpose of earning the money which is exempted under the income tax. The Tribunal has computed expenditure at 1 per cent of such dividend income which, according to them, is the thumb rule applied consistently. We find no reason to interfere.” Taking a consistent view and relying on the decision of this Hon'ble jurisdictional High Court in above cited case R.R. Sen & Brothers Pvt. Ltd. (supra) we find that there was no applicability of Rule 8D in the instant case as this Rule 8D came in force w.e.f. 24.03.2008. But the disallowance was very much warranted as per the provisions of section 14A of the Act.
We also note that the AO has derived his satisfaction by observing in his order as detailed under:- “At the same time it is seen that the assessee company did not claim any “expenditure u/s. 14A against its exempted dividend income of Rs.23,99,86,159.00/- The Learned. AR has also not submitted before us any details of the xpenditu9re suggesting/justifying that no expenditure was incurred by the assessee in connection with the impugned exempted income.
DCIT, Cir-11(1) Kol. Vs. M/s Haldia Petrochemicals Ltd. Page 5 In view of the above we direct the AO to restrict the disallowance of the expenses under section 14A of the Act to the extent of 1% of dividend income or Rs.30 lacs whichever is less. Thus the ground raised by Revenue allowed in terms of above.