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Income Tax Appellate Tribunal, “B”, BENCH KOLKATA
Before: SHRI A. T. VARKEY, JM &DR. A.L.SAINI, AM
IN THE INCOME TAX APPELLATE TRIBUNAL “B”, BENCH KOLKATA
BEFORE SHRI A. T. VARKEY, JM &DR. A.L.SAINI, AM आयकरअपीलसं./ITA No.2201/Kol/2014 ("नधा"रणवष" / Assessment Year: 2009-10) Sri Manindra Mohan Vs. J.C.I.T, Range-1, Asansol Mazumdar Sahana Apartment Mother Teressa 19, Radhangar Road, Burnpur- 713325, Road, Lower Chelidanga, Asansol – Dist- Burdwan. 713304. "थायीलेखासं./जीआइआरसं./PAN/GIR No. :AELPM 0074 R (Appellant) .. (Respondent)
Appellant by :Shri Ravi Tulsiyan, FCA Respondent by :Shri S. Dasgupta, Addl. CIT(DR) सुनवाईक"तार"ख/ Date of Hearing : 14/03/2018 घोषणाक"तार"ख/Date of Pronouncement : 23/05/2018 आदेश / O R D E R Per Dr. A. L. Saini: The captioned appeal filed by the Assessee, pertaining to Assessment Year 2009-10, is directed against an order passed by the Ld. Commissioner of Income Tax (Appeals), Asansol, in appeal No.186/CIT(A)/Asl/JCIT/R-1/Asl/11- 12, dated 28.10.2014, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’),dated 15.12.2011. 2. In this appeal, however, the assessee has raised a multiple grounds of appeal but at the time of hearing the main grievance of the assessee has been confined to only two issues which are briefly narrated below: (i) Disallowance made by the Assessing Officer and confirmed by the ld. CIT(A) u/s 14A read with rule 8D to the tune of Rs.3,61,302/- is bad in law as the assessee paid interest and received interest and after netting off the Sri Manindra Mohan Mazumdar Assessment Year: 2009-10 interest paid and interest received,the resulted amount is net interest income, so no disallowance is warranted under Rule 8D (2) (ii) of the I.T. Rules, and disallowance under Rule 8D(2)(iii) should be computed by taking into account only dividend bearing securities.
(ii) The CIT(A) erred in not allowing TDS credit to the tune of Rs.60,004/- on mobilization advance and not entire contract receipts were received in the relevant Assessment Year.
Now, we shall take first grievance of the assessee, which relatesto disallowance made by the Assessing Officer and confirmed by the ld. CIT(A) u/s 14A read with rule 8D to the tune of Rs.3,61,302/-, which is bad in law, as the assessee paid interest and received interest and after netting off the interest paid and interest received, there is net interest income, and disallowance under Rule 8D(2)(iii) should be computed by taking into account only dividend bearing securities.
The brief facts qua the issue are that during the assessment proceedings, the Assessing Officer noted thatthe Assessee has claimed Dividend Income to the tune of Rs.5,91,832/- being exempt u/s 10(34) and 10(35) of the lncome Tax Act, 1961. An amount of Rs.22,52,923/- was claimed as exempt u/s 10(38) of the l.T. Act anddespite having exempt income, the assessee has not offered/computed any disallowance u/s 14A of the l.T. Act. Therefore, the Assessee was asked to furnish details of expenses incurred for earning exempt income and also requested to show cause as to why the expenses incurred and claimed in respect of exempt income should not be disallowed as per the provisions of Section 14A read with Rule 8D. The assessee was also required to establish that no interest bearing funds were utilized for makinginvestment in instruments that has given exempt income or that will give exempt income to the assessee. Sri Manindra Mohan Mazumdar Assessment Year: 2009-10 5. ln response, the assessee, vide his letter dated 09.11.2011 & 16.11.2011 has furnishedhis reply before the Assessing Officer stating that he has not incurred any expenses attributable to earning of the exempt income. However, the AO rejected the contention of the assessee and held that the Assessee Company has failed to bring anything on record to substantiate their claim of not incurring expenditure in earning the exempt income. From perusal of accounts it wasnoted by AO that the assessee has both borrowed funds and own funds. There has been investment in the past years also and the investment in the current year also. During the year also the assessee has purchased as well as sold shares and mutual funds. This isevident from the share transaction details. From examination of accounts it was evident that the assessee has utilized even borrowed funds for making investment. The AO noted that theprovisions of Rule 8D were on the statute book for the F.Y. 2008-09 andfor A.Y.2009-10, the disallowance can only be computed as per Rule 8D of the Income Tax Rules and this way the AO computed the disallowance as per Rule 8D as follows:
(i) Expenditure directly relating to exempt income = Rs. NIL
(ii) Interest paid
A × B÷C = X A = Interest = Rs.3,14,456/- B = Average value of Investment = Rs.3,80,09,828/- C = Average of Total Assets = Rs.6,97,93,860/- = Rs.1,71,253/- Instrument Last Year Current Year Share & Bonds 3,40,11,742/- 3,93,98,192/- Share (disclosed in 8,50,366/- 5,98,366/- VDIS) UTI MF 4,75,495/- 4,75,495/- Mutual Funds 1,05,000/- 1,05,000/- Total 3,54,42,603/- 4,05,77,053/- Sri Manindra Mohan Mazumdar Assessment Year: 2009-10 (iii) 0.5% of average value of investments 0.5% of Rs. 3,80,09,828/- Rs.1,90,049/- Aggregate of (i) + (ii) +(iii) 0+Rs.1,71,253 + Rs. 1,90,049 =Rs.3,61,302/-
Hence, an amount of Rs.3,61,302/- was treated by the AO as expenditure incurred for earning exempt income and the same was added u/s 14A of the Act.
On appeal by the assessee, the ld. CIT(A) 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 before us that in order to make the disallowance under Rule 8D(2)(ii) r.w.s 14A, there should be interest expenditure debited in the Profit & Loss Account. During the assessment year under consideration, the assessee has received interest and paid interest and after netting off the interest paid and interest received, the net result comes as interest income, therefore, no disallowance should be made under Rule 8D(2)(ii) of the I.T. Rules.
With regard to disallowance under Rule 8D (2) (iii) of the I.T. Rules, the ld Counsel submitted that only those investments which yield dividend income during the relevant assessment year, should be considered.
On the other hand, the ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in ourearlier para and is not being repeated for the sake of brevity.
We have given a careful consideration to the rival submissions and perused the material available on record, we note that total disallowance under section 14A made by the AO, of Rs. 3,61,302/-, includes Rs. 1,71,253/- under Rule 8D
(2) (ii), and Rs. 1,90,049/- under Rule 8D (2) (iii) of the Income Tax Rules, 1962. Sri Manindra Mohan Mazumdar Assessment Year: 2009-10 So far the disallowance of Rs. 1,71,253/- under Rule 8D (2) (ii) is concerned, it is the proportionate interest expenses which was computed by the assessing officer on the basis of prescribed formula. We note that assessee has claimed interest expenses to the tune Rs.3,14,456/- and offered interest income to the tune of Rs.55,68,925/- for taxation during the relevant assessment year. After setting off interest expenses with interest income, a net interest income comes to the tune of Rs.52,54,469/- ( that is, Rs.55,68,925 - Rs.3,14,456). The said net interest income of Rs.52,54,469/- has been offered by the assessee for tax during the relevant assessment year.
Based on these facts we note that there is no interest expenses debited in the profit and loss account. After setting off interest expense with interest income, the resulted amount of Rs.52,54,469/- comes as a net interest income which can not be disallowed under Rule 8D (2) (ii) of the Income Tax Rules. Therefore, we note that there is no interest expenditure in the assessee’s case under consideration, interest received is more than the interest paid and the net result is interest income, therefore, no disallowance should be made under Rule 8D(2)(ii) of the I.T. Rules.We note that disallowance u/s 14A can come into play only out of expenses claimed for deduction, but in the assessee`s case under consideration, after setting off interest income, the resulted amount comes as net interest income, hence there should not be any disallowance under Rule 8D (2) (ii), for that we rely of the judgment of the coordinate Bench Kolkata in the case of DCIT vs. M.S. Trade Apartment Ltd., ITA No.1277/Kol/2011, wherein it was held as follows:
“4. As learned CIT(A) has rightly observed, once there is no net interest expenditure, as is the case before us - upon setting off interest credited to profit and loss account, no part of interest debited can be disallowed as attributable to earning tax free dividend. The CIT(A) was thus quite justified in deleting the interest disallowance. We have also noted that entire expenses incurred by the assessee have been offered for disallowance, and once that happen, nothing remains for further disallowance u/s. 14A. The disallowance under section 14A can come into play only out of expenses claimed for deduction and expenses have been claimed for deduction, there cannot be any disallowance either. The conclusions arrived at by the CIT(A) are, therefore, correct and admit no interference by us. We, approve and confirm the order of the CIT(A).” Sri Manindra Mohan Mazumdar Assessment Year: 2009-10
With regard to the disallowance of Rs.1,90,049/- under Rule 8D (2) (iii) is concerned, we are of the view that only those investments which yielded the dividend income during the relevant assessment year, should be considered for the purpose of disallowance. For that we rely on the judgment of the Coordinate Bench of ITAT Kolkata in the case of REI Agro Ltd. Vs. DCIT 144 ITD 141 (Kol-Trib), wherein it was held that it is only the investments which yields dividend during the previous year that has to be considered while adopting the average value of investments for the purpose of Rule 8D (2) (iii) of the I.T. Rules. The aforesaid view of the Tribunal has since been affirmed as correct by the Hon’ble Calcutta High Court in G.A.No.3581 of 2013 in the appeal against the order of the Tribunal in the case of REI Agro Ltd. (supra).
Therefore, based of the facts and circumstances explained above, we delete the addition Rs. 1,71,253/- under Rule 8D (2) (ii). For addition of Rs. 1,90,049/- under Rule 8D (2) (iii) of the Income Tax Rules, 1962, we direct the assessing officer to compute the disallowance @0.5% only taking into account the investments which yield dividend income, during the previous year, as per the discussion made in the case of REI Agro Ltd. (supra).
Next grievance raised by the assesseeis as follows:
The CIT(A) erred in not allowing TDS credit to the tune of Rs.60,004/- on mobilization advance and not entire contract receipts were received in the relevant Assessment Year.
The brief facts qua the issue are that from the reconciliation of TDS certificates and advances received, it was observed by the AO that the assessee has claimed the TDS credit of Rs.60,004/- in respect of receipts which are accounted as advances. On queried, during the assessment proceedings, the assessee replied to the assessing officer as follows: Sri Manindra Mohan Mazumdar Assessment Year: 2009-10 “R.D. Division, Cuttack, the contractee has paid mobilization advance to the assessee of Rs.26,48,000/- as per agreement and income tax of Rs.60,004/- is being deducted therefrom.”
It was submitted thatas per agreement, the said mobilization advance is not contract receipts of theassessee and the advance shall be recovered from the bills raised by the contractee and Rs.6,00,000/- has been recovered in A.Y.2009-10 and no tax has been deducted there from. Therefore, the assessee has no other option other than claiming the benefit of credit of the entire T.D.S. of Rs. 60,004/- as it relates to A. Y. 2009-10 only.
The assessing officer rejected the contention of the assessee stating that as per the provision of section 199 of the Act, the credit for TDS certificates can only be given ifthe corresponding income is offered to tax. As the corresponding receipt is not accounted, as income, therefore no credit for TDS certificates amounting to Rs.60,004/- is granted
On appeal by the assessee, the ld CIT(A) confirmed the addition made by the Assessing Officer. Aggrieved by the order of ld CIT(A), the assessee is in appeal before us.
The ld. counsel for the assessee has submitted before us that theassessee received a mobilization advance of Rs. 26,48,000/- and out of such advance, an amount of Rs.6,00,000/- was offered to tax by the assessee, thereforethe proportionate credit of TDS should be given to the income offered. Section 199 of the Income Tax Act clearly provides that whenever the assessee offered income, the TDS credit has to be given to the assessee, therefore, proportionate TDS credit should be allowed in the assessment year under consideration and the balance TDS credit in relation to remaining sum of Rs.20,48,000/- (that is, Rs. 26,48,000 – Rs.6,00,000) should be allowed in subsequent years. Sri Manindra Mohan Mazumdar Assessment Year: 2009-10 13.On the other hand, the ld. DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer, which we have already noted in our earlier para and is not being repeated for the sake of brevity.
We have given a careful consideration to the rival submissions and perused the materials available on record, we note that assessee has received a mobilization advance of Rs.26,48,000/- from the contractee for execution of work. The assessee has offered to tax a sum of Rs.6,00,000/- during the relevant assessment year out of total sum of Rs. 26,48,000/-( on which TDS of Rs.60,004/- was deducted). As the assessee has offered Rs.6,00,000/- for tax purposes, therefore, he is entitled to take the proportionate credit in the Assessment Year under consideration. The credit for tax deducted should be allowed as per the provisions of section 199 of the Act. At this juncture, it is appropriate to quote the relevant provisions of section 199 of the Act, which reads as under:
“ Section 199: Credit for tax deducted.
(1) Any deduction made in accordance with the foregoing provisions of this Chapter and paid to the Central Government shall be treated as a payment of tax on behalf of the person from whose income the deduction was made, or of the owner of the security, or of the depositor or of the owner of property or of the unit-holder, or of the shareholder, as the case may be.” (2) Any sum referred to in sub-section (1A) of section 192 and paid to the Central Government shall be treated as the tax paid on behalf of the person in respect of whose income such payment of tax has been made. (3) The Board may, for the purposes of giving credit in respect of tax deducted or tax paid in terms of the provisions of this Chapter, make such rules as may be necessary, including the rules for the purposes of giving credit to a person other than those referred to in sub-section (1) and sub-section (2) and also the assessment year for which such credit may be given.]
We note that section 199 of the Income Tax Act clearly provides that whenever the assessee offered income, the TDS credit has to be given to the assessee, and the said section does not speak that proportionate TDS credit should not be allowed to the assessee. As per sub -section (3) of section 199 of the Act, the CBDT may make rules for the purposes of giving credit to a Sri Manindra Mohan Mazumdar Assessment Year: 2009-10 person in respect of tax deducted at source. The CBDT has issued a Circular No. 5/2001, dated 2nd March,2001, which reads as follows:
“Where advance rent is spread over more than one financial year and tax is deducted thereon, credit shall be allowed in the same proportion in which such income is offered for taxation for different assessment years based on the single certificate furnished for tax so deducted on the entire advance rent.”
However, the above cited Circular is in the context of advance rent, but general principle of the said circular applies to the assessee under consideration. Therefore, we direct the assessing officer to examine the income offered the tune of Rs.6,00,000/- in the Assessment Year under consideration, and allow the TDS credit proportionately to the amount of Rs.6,00,000/- and balance TDS credit on the remaining sum of Rs. 20,48,000/- (that is, Rs. 26,48,000 – Rs.6,00,000) should be allowed in subsequent years in accordance with law. Hence, we allow this ground of the assessee for statistical purposes.
In the result, the appeal filed by the assessee is partly allowed.
Order is pronounced in the open court on 23.05.2018. (A. T. VARKEY) (A. L. SAINI) "या"यक सद"य / JUDICIAL MEMBER लेखा सद"य / ACCOUNTANT MEMBER कोलकाता /Kolkata; "दनांक Date: 23/05/2018 (RS, SPS) Sri Manindra Mohan Mazumdar Assessment Year: 2009-10
आदेशक"""त"ल"पअ"े"षत/Copy of the Order forwarded to : 1. अपीलाथ"/ The Appellant- Sri Manindra Mohan Mazumdar 2. ""यथ"/ The Respondent-J.C.I.T, Range-1, Asansol 3. आयकरआयु"त(अपील) / The CIT(A), 4. आयकरआयु"त/ CIT 5. "वभागीय""त"न"ध, आयकरअपील"यअ"धकरण, कोलकाता/ DR, ITAT, Kolkata 6. गाड"फाईल / Guard file. स"या"पत""तBy Order
Senior Private Secretary, Head of Office/D.D.O, I.T.A.T, Kolkata Benches, Kolkata.