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Income Tax Appellate Tribunal, KOLKATA ‘A’ BENCH, KOLKATA
Before: Shri P.M. Jagtap & Shri S.S. Viswanethra Ravi
Per Shri P.M. Jagtap, A.M..: This appeal is preferred by the Revenue against the order of ld. Commissioner of Income Tax (Appeals)-XX, Kolkata dated 04.07.2013, whereby he restricted the disallowance of Rs.92,04,274/- made by the Assessing Officer under section 14A read with Rule 8D of the Income Tax Rules, 1962 to Rs.11,42,428/-.
The assessee in the present case is an individual, who is engaged in the business of investment and trading in shares. The return of income for the year under consideration was filed by him on 29.09.2008 declaring total income of Rs.2,15,71,714/-. In the said return, income earned by the assessee in the form of long-term capital gain amounting to Rs.7,23,41,305/-, dividend amounting to Rs.91,79,078/- and interest from ./2013 Assessment year: 2008-2009 Page 2 of 7 PPF amounting to Rs.58,152/- was claimed to be exempt by the assessee. In the assessment completed under section 143(3) vide an order dated 31.12.2010, expenditure incurred in relation to the said exempt income was worked out by the Assessing Officer at Rs.92,04,274/- by applying Rule 8D of the Income Tax Rules and disallowance to that extent was made by him under section 14A of the Act.
The disallowance made by the Assessing Officer under section 14A read with Rule 8D was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and the following submissions were made on behalf of the assessee before the ld. CIT(Appeals) in support of his case on the issue:- “Being aggrieved by the assessment order, passed by the Addl. CIT, Range 35, Kolkata on 31.12.2010 determining total income of the appellant at Rs. 3,07,77,086/· as against returned income of Rs.2,15,71,7J4/-, the appellant has preferred this appeal.
The appellant is an individual. The appellant is both, an investor and a dealer in shares and securities. Regular books of account are maintained by the appellant and the same are duly audited A copy of the accounts together with TAR, is enclosed and marked.
The appellant maintains two separate DEMAT accounts in respect of shares & securities held by way of investment and shares & securities in which the appellant carries on business as dealer.
For the assessment year und.er appeal, the appellant on 29.09.2008, submitted his return declaring total income of Rs.2,15,71,714/-. A copy of income so returned, is enclosed and marked B.
It will be seen from the computation of total income, as assessed by tile AO vide the assessment order that in determining the business income, the AO has disallowed a sum of Rs.92,04,274/- as against NIL by the appellant u/s 14A, read with rule 8D of the IT Rune, 1962. This is the only dispute in this appeal.
In connection with the above dispute, a statement showing computation of disallowance as per the AO and as per appellant's claim now made, under rule 8D read with sec. 14A, is enclosed and marked 'C.
Reference to the schedule P&L A/c will show that as per schedule has been, the appellant paid during the year interest of Rs ./2013 Assessment year: 2008-2009 Page 3 of 7 1,05,38,108.48. The same includes interest of Rs. 1,47,400/- by way of interest for car loan. The same was not incurred for earning any exempted income. The balance of the interest amounted to Rs. 1,03,90,708/- paid as follows: 1. Kotak Securities Rs.1,18,759/- 2. Kotak Mahindra Rs.52,27,502/- 3. CD Equi Finance Rs.11,61,286/- 4. Kotak Mahindra Prime Rs.2,82,853/- 5. Citi Crop Finance Rs.32,55,644/- 6. Bank Loan Rs.2,11,684/- 7. Unsecured loan Rs.1,32,981/- The above loans are as per schedule B of the balance sheet. These loans have been taken only for business purposes against pledge of shares. Therefore, the interest paid thereof, cannot be considered as expenditure for earning exempted income. Such expenditure was incurred on carrying on the business in trading in shares.
As per the balance sheet of the appellant as on 31.3.2008, the position of assets & liabilities is as follows: Opening balance Closing Balance Average (Rs.) (Rs.) (Rs.) Capital 28,26,20,238/- 36,43,11,594/- 32,34,65,916/- Secured loan 45,99,678/- 57,85,589/- 51,92,634/- Unsecured 39,35,000/- 19,67,500/- loan Book value of 4,86,187/- 18,87,214/- 11,86,701/- fixed assets Investment in 23,14,99,339/- 28,98,29,729/- 26,06,64,534/- shares Immovable 58,42,445/- 82,18,409/- 70,30,427/- property i.e. land & flat It will be seen from the above that the average credit balance in the capital account has been exceeded the average investments in shares, land & flat, income from which was exempted. Therefore, it can be reasonable assumed that the appellant had utilized the borrowed fund only for the purpose of business of dealing in shares and securities. Such business incidentally earned dividend income which was exempted u/s 10(38) of the Act.
The expenditure by way of interest was thus incurred for the purpose of business in dealing in shares and securities and not for Investment in shares. Hence, interest expenditure cannot be considered for disallowance under rule 8D(2)(ii) at all. Without prejudice to the above, it is submitted that such disallowance under the above clause, has to be restricted to the average value of investment which have yielded exempted income by way of dividend. Such value, as per ./2013 Assessment year: 2008-2009 Page 4 of 7 appellant's computation was Rs.18,78,392/-. Therefore, the amount disallowable under clause 8D(2)(ii) works out to only Rs.1,87,566/- as against Rs.8,41,540/- worked out by the AO.
Similarly, the disallowance under clause (iii ) of the above rule, at 0.5% of the average value of the investment, should have been restricted only to the value of such investment, which has yielded exempted income by way of dividend. It cannot be other investment which did not yield any dividend.
According to the appellant, therefore, such disallowance has to be restricted to 0.5% of Rs.18,78,34,292/-, i.e. Rs.9,39,171/-, as against Rs.13,47,043/-, worked out by the AO. The appellant, therefore, submits that the disallowance u/s 14A should have been restricted to Rs.11,42,428/- as per computation, enclosed as referred above. The AR of the appellant also submitted a chart of comparison showing calculation of disallowance of expense u/s 14A read with rule 8D as under:- As per AO Appellant’s claim 1. Direct expense 15691 15691 2. Expenditure by way of interest, not directly attributable computed by “A x B/C” 10046044 344665 240844148 + 180568413 + Amount of interest 2979731972 = 1951001702 Average value of investment 269408672 = 187834292 388157360 + 30213844332 = Average of total assets 345147896 = 345147896 7841540 x 7841540 187566 0.5% x 269408672 0.5% z A x B/C 187834292 3. 0.5% of average investment 1347043 939171 Amount disallowed 9204274 1142428
Keeping in view the submissions made by the assessee as above, the ld. CIT(Appeals) proceeded to restrict the disallowance of Rs.92,04,274/- made by the Assessing Officer under section 14A to Rs.11,42,428/- for the following reasons given in paragraph no. 3.2 of his impugned order:- “3.2. I have perused the assessment order and considered the submission of the appellant. The appellant filed comparative chart showing calculation of disallowance made by the AO and the appellant’s claim. After going through the facts and ./2013 Assessment year: 2008-2009 Page 5 of 7
circumstances of the case, following the decision of ITAT, Kolkata 'B' Bench, Kolkata delivered in A.Y. 2008-09 in the case of DCIT, Cir-6, Kolkata Vs. Gulshan Investment Co. l.td. in which it was held – “In view of the above discussions, while uphold the conclusions arrived at by the Ld. CIT(A).We also make it clear that, in our humble understanding, the provisions of section 14A are indeed attracted whether or not the shares are held as stock in trade or as investments, even though the provisions of Rule 8D(2)(ii) and (iii) cannot be invoked in such a case, and even though the provisions of rule 8D(2)(i) are much narrower in scope than the scope of section 14A simplicitor. With these observations, we confirm the conclusions of the ld. CIT(A) and decline to interfere in the matter”. Following the above decision, the calculation given by the appellant (supra) for disallowance to be made under Rule 8D is accepted and accordingly, the appellant gets relief of Rs.80,61,846/-. Thereby, the appeal is partly allowed”.
Aggrieved by the order of the ld. CIT(Appeals), the Revenue has preferred this appeal before the Tribunal.
We have heard the arguments of both the sides and also perused the relevant material available on record. As submitted by the ld. D.R., no finding whatsoever has been recorded by the ld. CIT(Appeals) in his impugned order while giving substantial relief to the assessee of Rs.80,61,846/- in respect of disallowance made by the Assessing Officer under section 14A read with Rule 8D. He has invited our attention to the concluding portion of the ld. CIT(Appeals)’s impugned order as contained in paragraph no. 3.2 and pointed out that the working furnished by the assessee showing the disallowance under section 14A read with Rule 8D at Rs.11,42,428/- has been accepted by the ld. CIT(Appeals) without giving any finding whatsoever on the various facts and figures furnished by the assessee in support of the said working. As submitted by the ld. D.R., the ld. CIT(Appeals) has simply relied on the decision of the Tribunal in the case of DCIT –vs.- Gulshan Investment Co. Limited (ITA No. 666/KOL/2012 for A.Y. 2008-09) to give relief to the assessee ./2013 Assessment year: 2008-2009 Page 6 of 7 without discussing the facts involved in the said case, vis-a-vis the facts involved in the case of the assessee and without pointing out how the said decision is applicable in the facts of the assessee’s case. He has also pointed out from paragraph no. 5 of the assessment order that the expenditure in relation to the exempt income was worked out by the assessee himself at Rs.13,73,272/- in the computation of income, but the same was also completely ignored/overlooked by the ld. CIT(Appeals) while sustaining the disallowance under section 14A only to the extent of Rs.11,42,428/- on the basis of working furnished by the assessee before him. As rightly contended by the ld. D.R., the issue involved in the case of the assessee relating to disallowance under section 14A read with Rule 8D thus has been decided by the ld. CIT(Appeals) vide his impugned order without considering and verifying the relevant facts and figures and the impugned order passed by the ld. CIT(Appeals) giving relief to the assessee on the issue of disallowance under section 14A read with Rule 8D thus is neither well discussed nor well reasoned. Even the ld. counsel for the assessee has not been able to rebut or controvert this position, which is clearly evident from record. We, therefore, set aside the impugned order passed by the ld. CIT(Appeals) and remit the matter back to him for deciding the issue involved in the case of the assessee relating to disallowance under section 14A read with Rule 8D afresh by passing a well reasoned and well discussed order after taking into consideration all the relevant facts and figures of the case.
In the result, the appeal of the Revenue is treated as allowed for statistical purposes.
Order pronounced in the open Court on May 12, 2017.