DCIT, CC-III, KOLKATA, KOLKATA vs. M/S APEEJAY HOUSE PVT. LTD., KOLKATA

IN THE INCOME TAX APPELLATE TRIBUNAL “A”, BENCH KOLKATA BEFORE SHRI N.V.VASUDEVAN, JM & DR. A.L.SAINI, AM आयकर अपील सं./ITA No.1319/Kol/2014 (�नधा�रण वष� /Assessment Year:2010-2011) DCIT, Central Circle-III, Vs. M/s Apeejay House Pvt. Ltd., Aayakar Bhawan Poorva, Apeejay House, 15- Park Street 110, Shanti Pally, (3rd Floor), Kolkata-700016 E.M.By Pass, Kolkata-700107 �थायी लेखा सं./जीआइआर सं./PAN/GIR No.: AACCA 1959 K .. (अपीलाथ� /Appellant) (��यथ� / Respondent) Revenue by : Shri Rajat Kumar Kureel, JCIT Assessee by : Shri Manish Tiwari, FCA सुनवाई क� तार�ख / Date of Hearing : 27/02/2017 घोषणा क� तार�ख/Date of Pronouncement 22/03/2017 आदेश / O R D E R Per Dr. Arjun Lal Saini, AM: The captioned appeal filed by the Revenue pertaining to the Assessment Year 2010-2011, is directed against the order passed by ld. CIT(A), Central-I, Kolkata in Appeal No.24/CC-III/CIT(A)C-I/13-14, dated 14.03.2014, which in turn arises out of an order passed by the Assessing Officer (AO) Under Section 143(3) of the Income Tax Act 1961, (hereinafter referred to as the ‘Act’), dated 14.03.2013. 2. Brief facts of the case qua the assessee are that the assessee filed its return of income disclosing total income of Rs.1,58,84,250/- on 28.09.2010. The return of income was processed u/s.143(1) on 29.06.2011. Later on, the assessee’s case was selected for scrutiny u/s.143(3) of the Act and the AO has completed the assessment by making disallowance u/s.14A at Rs.37,82,393/-.

2 ITA No.1319/14 M/s Apeejay House Pvt. Ltd 3. Aggrieved from the order of AO, the assessee filed an appeal

before the ld. CIT(A), who has partly allowed the appeal of the assessee

observing the followings :-

“3. Ground no 1 relates to the disallowance of Rs.37,82,393/- by applying the provisions of section 14A. The AO found that the assessee had earned dividend income of Rs.40,40,048/- which was claimed exempt. The AO noted that the assessee had made no disallowance u/s 14A in its return of income in as much as no expenditure was related to the earning of the exempt income. The assessee however offered disallowance of Rs.3,74,843/ - in course of the assessment proceedings. The AO held that the assessee had utilized borrowed fund for the purpose of acquiring shares in Apeejay Hotels (Panama) Inc; and then, made disallowance of Rs.22,99,100/- under Rule 8D(2)(ii). The AO also made disallowance of Rs.14,83,293/-under Rule 8D(2)(iii). The AO thus made total disallowance of Rs.37,82,393/ - by applying section 14A read with Rule 8D. The Ld AR has clarified that Apeejay Hotels (Panama) Inc is a foreign company. It was argued that the assessee has admittedly utilized the borrowed fund for acquiring shares in Apeejay Hotels (Panama) Inc; but then, the dividend income from a foreign company is not exempt; 'and consequently, the investment made therein would not attract section 14A. The Ld AR has further submitted that no dividend income was received during the relevant year from Apeejay Hotels (Panama) Inc. The jurisdictional ITAT has in the case of REI Agro Ltd in ITA No. 1331/Kol/2011 held that only those investments which have yielded tax- free income during the relevant year can be considered for diallowance under Rule BD(2)(ii). The Ld AR has thus argued that the income, from the foreign company Apeejay Hotels (Panama) Inc is not exempt; and consequently, such investment cannot be considered for disallowance u/s 14A. The Ld AR has also taken an alternative plea that no income was received during the year from Apeejay Hotels (Panama) Inc; and so, the investment made in Apeejay Hotels (Panama) Inc could not be considered for disallowance under Rule 8D(2)(ii) in view of the decision of the jurisdictional ITAT in the case of REI Agro Ltd. In so far as the disallowance under Rule 8D(2)(iii) is concerned, the Ld AR has again placed reliance on the decision of the jurisdictional ITAT in the case of REI Agro Ltd wherein it was held that only those investments which have yielded tax-free income during the year could be considered for disallowance under Rule 8D(2)(iii). I have considered the rival submissions. I agree with the argument that the dividend income from a foreign company is not exempt; and consequently, the investment for acquiring shares of a foreign company cannot fall within the ambit of section 14A. I also find merit in the alternative plea of the Ld AR that as no dividend income was received during the year from Apeejay Hotels (Panama) lnc, no disallowance in respect of the investment made therein can be made under Rule 8D(2)(ii) in view of the decision of the jurisdictional ITAT in the case of REI Agro Ltd. In view of the above, the disallowance of Rs.22,99,100/- made under Rule 8D(2)(ii) is deleted. The assessee has also contested the disallowance of Rs.14,83,293/-made under Rule 8D(2)(iii). I find that the AO has considered the entire investments for computing the disallowance under Rule 8D(2)(iii) which is not in conformity with the decision of the jurisdictional ITAT in the case of REI Agro Ltd. The AO is directed to re-compute the disallowance under

3 ITA No.1319/14 M/s Apeejay House Pvt. Ltd Rule 8D(2)(iii) by considering only those investments which have yielded tax-free income during the relevant year. Ground no 1 is partly allowed.” 4. Not being satisfied with the order of ld. CIT(A), the Revenue is in appeal before us and has taken the following grounds of appeal : i) That on the facts and circumstances Ld CIT(A) erred in deleting the disallowance made u/s.14A read with Rule 8D of Rs.37,82,393/-. ii) That the appellant craves leave to add, alter, adduce or amend, any ground or grounds of appeal on or before the date of hearing of the appeal.

AO, which we have already noted in our earlier para and is not being

repeated for the sake of brevity.

the loan specially to invest in Apeejay Hotels(Panama). It is a strategic

investment and the interest on the said loan should not be considered to

compute the disallowance under rule 8D and Section 14A of the Act.

Moreover, the company M/s Apeejay Hotels(Panama) did not declare

dividend, therefore, no disallowance should be made u/s.14A. The Ld AR

has clarified that Apeejay Hotels (Panama) Inc is a foreign company. It was

argued that the assessee has admittedly utilized the borrowed fund for

acquiring shares in Apeejay Hotels (Panama) Inc; but then, the dividend

income from a foreign company is not exempt; and consequently, the

investment made therein would not attract section 14A. Since no dividend

income was received by the assessee during the year from Apeejay Hotel

(Panama) no disallowance in respect of investment made therein may be

made under rule 8D(2)(ii) in view of the decision of the jurisdictional ITAT

in the case of REI Agro Ltd., ITA No.1331/Kol/2011. In addition to this, the

4 ITA No.1319/14 M/s Apeejay House Pvt. Ltd assessee has also contested the disallowance made under rule 8D(2)(iii) as the AO has considered the entire investment for computing the disallowance under rule 8D(2)(iii) which is not conformity with the decision of jurisdictional ITAT in the case of REI Agro Ltd.(supra).That is, only those investments which have yielded tax-free income during the year could be considered for disallowance under Rule 8D(2)(iii). In fact, these investments under consideration, have not yielded tax fee income therefore, no any disallowance can be made. 7. Having heard the rival submissions, perused the material on record, we are of the view that there is merit in the submissions of the assessee, as the proposition canvassed by ld. AR for the assessee are supported by the facts narrated by him above and the case laws cited by him above. As Ld. AR for the assessee has pointed out that the assessee’s case is covered under REI Agro Ltd., ITA No.1331/Kol/2011(supra). In view of the above facts and circumstances of the case and respectfully following the judicial precedents of the Kolkata Bench of the Tribunal, we do not see any reason to interfere in the findings given by the ld CIT(A) in this regard. Accordingly, we upheld the order of the CIT(A). 8. In the result, the appeal filed by the Revenue, is dismissed. Order pronounced in the open court on this 22/03/2017. Sd/- Sd/- (N.V.VASUDEVAN) (DR. A.L.SAINI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER कोलकाता /Kolkata; �दनांक Dated 22/03/2017 �काश �म�ा/Prakash Mishra,Sr.PS.

5 ITA No.1319/14 M/s Apeejay House Pvt. Ltd आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant-DCIT, Cen.Cir-III, Kolkata 2. ��यथ� / The Respondent.- M/s Apeejay House Pvt. Ltd. 3. आयकर आयु�त(अपील) / The CIT(A), Kolkata. 4. आयकर आयु�त / CIT आदेशानुसार/ �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, कोलकाता / DR, ITAT, Kolkata 5. BY ORDER, 6. गाड� फाईल / Guard file. स�या�पत ��त //True Copy// सहायक पंजीकार (Asstt. Registrar) आयकर अपील�य अ�धकरण, कोलकाता / ITAT, Kolkata