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Income Tax Appellate Tribunal, ‘A’BENCH,
Before: Shri M.Balaganesh & Shri S.S.Viswanethra Ravi
This appeal by the revenue is against the order dt: 16-04- 2012 passed by the Commissioner of Income Tax (Appeals), VIII, Kolkata for the assessment year 2008-09.
The appellant Revenue has raised two grounds of appeal i.e 1) challenging the order of the CIT(A) in not holding the amount of Rs.3,64,42,754/- arising from transactions in shares and securities as business income being taxable as short term capital gains and 2) the CIT-A erred in confirming the quantum of disallowance made by AO u/s. 14A of the Act.
3. The said appeal of Revenue was disposed off by this Tribunal on 15-04-2016, wherein the Tribunal answered the ground no.1 therein in favour of assessee as the amount arising from transaction of shares and securities taxable as short term capital gain and not as business income by relying on the judgment/order dated 12-05-2015 of the Hon’ble Calcutta High Court in of 2011, which upheld the order dated 09- 12-2010 passed in ITA No. 1407/Kol/2009 by the Kolkata Tribunal.
4. In respect of ground no. 2, this Tribunal restricted the addition to Rs.45,79,093/- as against the disallowance of Rs.34,67,355/- and disallowance of Rs.80,46,448/- u/s. 14A made by the assessee on its own and the AO respectively. Thereafter, the assessee filed MA No. 91/Kol/2016 [arising out of for the A.Y 2008-09] contending that the Tribunal decided the issue of disallowance u/s. 14A by wrong assumption that, the then AR of the assessee did not dispute the applicability of Rule 8D in computing such disallowance made u/s. 14A of the Act. Taking into consideration the affidavit filed in support of his contentions dt. 30-06-2016. The Tribunal vide order dated 25-01-2017 allowed the said misc. Application by directing the registry to fix the appeal to an extent of ground no.2 for hearing. Hence, the present appeal [ ITA No. 1034/Kol/2012 A.Y 2008-09 ] is before us for adjudication of ground no.2.
5. Ground No. 2 of in this appeal for A.Y 2008-09, the Revenue has challenged the action of CIT(Appeals) about the quantum of disallowance in restricting the disallowance of Rs.34,67,355/- 2 against Rs.80,46,448/- as made by the Assessing Officer under section 14A of the Act.
During the year under consideration, the assessee- Company had received exempt income in the form of dividend amounting to Rs.5,84,10,892/- and long-term capital gain for short LTCG hereafter amounting to Rs.25,77,90,442/-. The disallowance on account of expenses of Rs.34,67,355/- incurred in relation to the said exempt income, however, was offered by the assessee on its own as required by the provisions of section 14A. On verification of such computation made by assessee for making disallowance on its own, the AO found the direct expenditure of Rs.14,30,718/- was reasonable with reference to dividend.
On LTCG, considering the total receipts of Rs.43,30,71,742/- the AO arrived at disallowance of Rs.1,00,08,4311- and applying Rule 8D(iii) at 0.50% of average investment, he worked out the administrative expenditure incurred by the assessee in relation to the earning of exempt income at Rs.66, 15,730/-. Accordingly, the disallowance under section 14A was made by him to that extent of Rs.80,46,448/- consisting of expenditures of Rs.14,30,718/- on dividend and Rs.66,15,730/- being on LTCG.
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 CIT(Appeals) and after considering the submissions made by the assessee as well as the material available on record, the CIT(Appeals) did not come 3 to a conclusion, but, however, observed that that proportionate expenses is required to be disallowed in earning of such exempt income and the following reasons given in page no- 12 of his impugned order:-
"In view of the findings and discussion above, after carefully considering the submission of the appellant, perusing the entire facts of the case including the impugned assessment order and other materials on record and respectfully following the judgement of the Hon'ble ITAT, Kolkata in the case of Balrampur Chini Mills Ltd. (supra), I am in agreement with the argument of the AR that the finding of the AO that long term capital gain was not chargeable to tax was factually incorrect as in the instant case, the total income of the appellant for A. Y. 2008-09 was assessed u/s 115JB of the Act at Rs.34,27,71,098/- which inter alia included income by way of long term capital gain and thereby suffered tax @ 10%. It is also seen that the AO did not point out any other infirmity in the appellant's working of the amount disallowable u/s 14A of the Act. In the light of the above findings and discussion, it is held that the disallowance u/s 14A made by the AO on the basis of the his reasoning was unwarranted and not justified and therefore the AO is directed to restrict the disallowance u/s 14A to the amount as per the working of the appellant for the purpose of the computing book profit U/S 115JB. However, I do not agree with the contention of the appellant that the disallowances u/s 14A be restricted to Rs.34,67,355/- under normal computation provisions as the Long Term Capital Gains is exempt from Income tax and therefore proportionate expenses is required to be disallowed relating to earning of such exempt income."
The ld.DR before us submits that the CIT-A did not agree with the submissions of the assessee in restricting the disallowance as made u/s. 14A by the assessee on its own to an extent of Rs.34,67,355/-. He argued that the finding of the CIT- A was wrong in respect of the long term capital gain is not chargeable to tax under normal provisions and as such proportionate expenses u/s. 14A is required to be disallowed. The ld.AR submits that the income of the assessee was determined under book profit in which the LTCG is part and parcel and suffered tax and again bringing the same for tax for computing the expenditure that may have incurred in earning the same for the purpose of Section 14A of the Act is unwarranted. The ld.AR submits that the assessment was completed on book profit u/s. 115JB of the Act and argued that income arising out of long term capital gain is exempted u/s. 10(38) under normal provisions of the Act. The said long term capital gain is part and parcel of assessment made u/s. 115JB for the book profit and section 14A of the Act had no application in computing the long term capital gain. He also submits the finding of the AO in respect of calculation of long term capital gain for the purpose of computing the expenditure u/s. 14A is wrong. Thus, he urged to restrict the disallowance of Rs.34,67,355/- as made by the assessee on its own.
Heard rival submissions and perused the material available on record. We find that the AO while examining the calculation filed by the assessee in support of its suo motu computation of expenditure, the AO found satisfied the determining of direct expenditure in respect of earning exempt income. The AO found not satisfied with the calculation of administrative expenses that was determined in respect of dividend income. It is also observed that the assessee earned income from long term capital gain of Rs.2,57,79,442/-. Basing on which, the AO found the same income that should have been considered for the purpose of determining the expenditure u/s. 14A of the Act. Admittedly, the said amount though it is exempted under normal provisions of the Act in pursuance to section 10(38) of the Act and has been considered for determining the total income of assessee under the book profit u/s. 115JB of the Act. In such circumstances, we find that the ld.AR of the assessee has rightly pointed out that the same cannot be considered against u/s.14A towards administrative expenses. Therefore, we 5 find force in the submissions of the ld.AR of the assessee and hold that section 14A has no application in computing the expenditure in earning such long term capital gain, which is not exempt u/s. 115JB. Therefore, we restrict the disallowance to Rs.34,67,355/- as computed and disallowed by the assessee on its own. Therefore, we find no infirmity in the order of the CIT-A and it is justified. The ground no.2 raised by the revenue is dismissed.
In the result, the appeal of the revenue is dismissed. ORDER PRONOUNCED IN OPEN COURT ON 06 /03/2017 Sd/- Sd/- M.Balaganesh S.S. Viswanethra Ravi Accountant Member Judicial Member Dated 06-03-2017 *PP/SPS: Copy of the order forwarded to: 1. The Appellant/Revenue: The Deputy Commissioner of Income Tax, Cir-7, 5th Floor, Room No.15, P-7 Chowringhee Square Kolkata-69. 2 The Respondent/Assessee: M/s. C. D Equifinance Pvt. Ltd 37 Shakespeare Sarani, 1st Fl., Kolkata-17. 3 The CIT(A) The CIT 4. DR, Kolkata Bench 5.