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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Shri N.V.Vasudevan, JM & Hon’ble Shri M.Balaganesh, AM ]
ORDER Per M.Balaganesh, AM
These appeals by the Revenue arise out of the separate orders of the Learned Commissioner of Income Tax(Appeals)-Siliguri [in short the ld CIT(A)] in Appeal Nos.81to83/CIT(A)/SLG/2015-16 dated 05.05.2016 and Appeal No. 41/CIT(A)/SLG/2015-16 dated 04.05.2016 against the separate orders passed by the DCIT, Circle-1, Siliguri [ in short the ld AO] under section 143(3)/263/143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 31.03.2015 and 27.03.2015 respectively for the Assessment Years 2008-09, 2009-10, 2010-11 and 2012-13 respectively. As the issues involved are identical in all the years, these appeals are taken up together and disposed off by this common order for the sake of convenience.
2 M/s Gangadhar Developers Pvt. Ltd. A.Yrs. 08-09,09-10,10-11 & 12-13 2. The only common issue to be decided in these appeals is as to whether the Ld. CIT(A) was justified in deleting the disallowance made u/s 14A of the Act read with Rule 8D of the Rules, in the facts and circumstances of the case.
3. The brief facts of this issue is that the assessee is a private limited company carrying on business of real estate developers and builders, contract work and renting of immovable properties. During the course of assessment proceedings, the Ld. AO while going into details of ‘long term non-current investments’ as given in the notes to balance sheet observed, that the assessee had made investment in shares of sister concerns/private limited company. Accordingly, the Ld. AO concluded that the expenditure relatable to exempt income derived/to be derived from such investment are to be disallowed u/s 14A of the Act. In response thereto, the assessee replied that no dividend income on investment made by the assessee were indeed received by the assessee for the assessment years under appeal. It was also further pleaded that the assessee had not claimed any exempt income for the assessment years 2008-09, 2009-10 and 2010-11 so as to warrant invocation of provisions of Section 14A of the Act. With regard to assessment year 2012-13, the assessee however stated that it had claimed exempt income in respect of share of profit from partnership firm amounting to Rs. 124301/- and maturity proceeds of Keyman Insurance policy amounting to Rs. 1829676/-. The assessee stated that no expenditure has been incurred for the purpose of earning such exempt income. The Ld. AO however did not heed to the contentions of the assessee for all the years under appeal before us and proceeded to invoke the provisions of Rule 8D and made disallowances under 2nd and 3rd Limb of Rule 8D(2) of the Rules for all the assessment years under appeal. This action of the Ld. AO was deleted by the Ld. CIT(A) by making the following observations: 2
3 M/s Gangadhar Developers Pvt. Ltd. A.Yrs. 08-09,09-10,10-11 & 12-13 i) The assessee had sufficient own funds in order to make investments hence, there cannot be any disallowance under Rule 8D(2)(ii) of the Rules. ii) The investment made by the assessee in the group companies/subsidiary companies were all strategic investments and hence by placing reliance on the decision of the Co-ordinate Bench of this Tribunal in the case of DCIT vs. Binani Industries Limited in dated 02.03.2016, no disallowance u/s 14A of the Act read with Rule 8D of the Rules could be made thereon. iii)The Ld. AO had not recorded any satisfaction on the explanation given by the assessee that no expenditure was incurred for the purpose of earning exempt income for assessment year 2012-13. The Ld. CIT(A) placed reliance on the decision of Co-ordinate Bench of this Tribunal in the case of R.E.I. Agro Limited vs. DCIT reported in 35 taxmann.com 404 that no disallowance u/s 14A of the Act could be made read with Rule 8D(2) of the Rules without recording any satisfaction by the Ld. AO as to how the claim made by the assessee is incorrect. This is the mandate provided in Section 14A(2) of the Act read with Rule 8D(1) of the Rules. iv)The Ld. CIT(A) held that in any case only dividend bearing investment could be taken into account for the purpose of making disallowance u/s 14A read with Rule 8D of the Rules. Based on these observations, he deleted the disallowance made u/s 14A of the Act by the Ld. AO. Aggrieved the revenue is in appeal before us on the following grounds: 1.(a) The Ld. CIT(A) deleted the addition made u/s 14A treating the impugned investments as strategic investment in group companies by applying the ratio of decisions of the Hon’ble ITAT, Kolkata in different case without taking into 3
4 M/s Gangadhar Developers Pvt. Ltd. A.Yrs. 08-09,09-10,10-11 & 12-13 consideration the decision of the Hon’ble High Court of Delhi in the case of Maxopp Investment Ltd. Vs. CIT, New Delhi reported in 347 ITR 272(Delhi) (2012), wherein the addition made by the AO under provisions of sec. 14A of the Act, by disallowing interest expenses relatable to exempt income in respect of invest made in group companies has been upheld.
(b) Reliance is also placed on the decision of the Hon’ble High Court of Kerala in the case of Commissioner of Income Tax, Thrissur vs. Catholic Syrian Bank Ltd. reported in (2011) 237 CTR 164 (Kerala) wherein it has been held that the Department is entitled to make disallowance of expenditure incurred for earning tax free income in cases where assessee do not maintain separate accounts for the investment and other expenditure incurred for earning tax free income.
(c ) Reliance is placed on the ratio of judgment in the case of Dhanuka & Sons vs. CIT [244 CTR 511 (Cal)]/
(d) Chem Invest Ltd. vs. ITO, ITAT No. 87/Del/2008, (2009) 317 ITR (At 86 (Delhi) (SB): It was held there is dividend income or not interest paid for on borrowing for trading in shares cannot be allowed.
(e) DCIT vs. Philips Carbon Black Ltd., Kolkata ‘B’ (Third Member) (2012) 146 TTJ (Kol)(TM) 175.
The Ld. CIT(A) deleted the addition u/s 14A on the ground that no dividend was earned from the impugned investment which is in violation of Circular No. 5 of 2014 of the CBDT.
That the Department reserves the right to add, delete, review, change or modify any ground in the course of hearing.
We have heard the rival submissions. We find similar grounds were raised by the revenue for all the years under appeal before us. At the outset, we find that the assessee had not received any dividend income or had not claimed any exempt income for the assessment years 2008-09, 2009-10 and 2010-11. Hence, there cannot be any invocation of the provisions of section 14A of the Act warranting any disallowance of expenditure thereon. Hence, the disallowance made u/s 14A read with Rule 8D of the Rules for the assessment years 2008-09, 2009-10 and
With regard to assessment year 2012-13, though the assessee had not received any dividend income during the year under appeal, it had however claimed exempt income in the form of share of profit from firm and maturity proceeds of insurance policy. The Ld. CIT(A) had categorically given a finding that the assessee had sufficient own funds for the purpose of making investments which fact had not been controverted by the Revenue before us by bringing evidences against the same. Hence, we hold that no disallowance could be made under Rule 8D(2)(ii) of the Rules. However, we find that the disallowance is to be made on the third limb of Rule 8D(2)(iii) of the Rules being 0.5% of the average value of the investments. In this regard we hold that the investments made by the assessee in its sister concerns/subsidiary companies are to be considered as strategic in nature and hence to be ignored for the purpose of computing the disallowance. The Ld. AO is hereby directed to re-compute the disallowance under third limb of Rule 8D(2) by taking into account the investments made in the partnership firm as well as investment made in the insurance policy and consider any other investments, if any.
With regard to other arguments advanced by the ld. AR that no decision in terms of Section 14A(2) of the Act read with Rule 8D(1) of the Rules have been recorded by the Ld. AO, we hold that the Ld. AO had elaborately discussed the entire issue of the disallowance u/s 14A of the Act together with the response given by the assessee thereon in the assessment order, we find that the Ld. AO had placed reliance on the CBDT Circular No. 5 of 2014 for proceedings to make 5
6 M/s Gangadhar Developers Pvt. Ltd. A.Yrs. 08-09,09-10,10-11 & 12-13 disallowance under 14A of the Act, hence, no fault could be attributed on the part of the Ld. AO in this regard. Hence, this argument of the AR is dismissed. Accordingly, grounds raised by the Revenue for the assessment year 2012-13 are allowed for statistical purposes subject to direction given hereinabove. Grounds raised by the Revenue for the assessment years 2008-09, 2009-10 and 2010-11 are dismissed as stated hereinabove.
In the result, the appeals of the revenue for assessment years 2008-09, 2009-10 and 2010-11 are dismissed and appeal of the revenue for assessment year 2012-13 is allowed for statistical purposes.
Order pronounced in the Court on 10.01.2018
Sd/- Sd/- [N.V. Vasudevan] [ M.Balaganesh ] Judicial Member Accountant Member Dated : 10.01.2018 SB, Sr. PS Copy of the order forwarded to:
1. 1. DCIT, Circle-1, Siliguri, Aayakar Bhawan, Paribahan Nagar, Matigara, Siliguri, Pin- 734010.
2. M/s Gangadhar Developers Pvt. Ltd., Kapil Centre, 2nd Mile, Sevoke Road, Siliguri- 734001. 3..C.I.T.(A)- , Kolkata 4. C.I.T.- Kolkata.
5. CIT(DR), Kolkata Benches, Kolkata.