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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA
Before: Shri N.V.Vasudevan, & Shri M. Balaganesh
ORDER SHRI M.BALAGANESH, AM
These appeals of the assessee arise out of the separate orders of Learned CIT(A)-XXIV, Kolkata in Appeal No. 768/CIT(A)-XXIV/C-37/10-11 dated 1.3.2013 for the Asst Year 2008-09 and Appeal No. 983/CIT(A)-XXIV/C-37/11-12 dated 28.2.2013 for the Asst Year 2009-10 against the separate orders of assessment framed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
The only issue to be decided in both the appeals is as to whether the disallowance u/s 14A of the Act read with Rule 8D of the IT Rules, could be made in the facts and circumstances of the case. The assessee had raised the following grounds before us :-
1. That the CIT(A) erred in upholding the action of the AO that the appellant’s investment in Shares and in Mutual Fund have been made out of the borrowed funds and confirmed the disallowance of Rs. 7,17,219/- made by the AO u/s. 14A read with Rule 8D(2)(ii).
2. That the CIT(A) erred in law in confirming the disallowance of Rs.3,38,207/- u/s. 14A read with Rule 8D(2)(iii) without considering the argument advanced that the said clause does not hold the character of an expenditure and the investment in Shares and in Mutual Fund represents “Assets’ and not the expenditure as mentioned in Sub-Rule (2). 3. That the provisions of Rule 8D(2)(iii) read with Sec 14A of the Act are illegal levy of Wealth Tax under guise of Income- Tax as expenditure.”
A.Y 2008-09 (by the assessee):
That the CIT(A) erred in law in confirming the disallowance of Rs.3,68,466/- u/s. 14A read with Rule 8D (2)(iii) without considering the argument advanced that the said clause does not hold the character of an expenditure and the investment in Shares and in Mutual Fund represents “Assets’ and not the expenditure as mentioned in Sub-Rule (2). 3. That the provisions of Rule 8D(2)(iii) read with Sec 14A of the Act are illegal levy of Wealth Tax under guise of Income- Tax as expenditure.”
We find that the assessee had also raised the following additional ground before us :- Asst Year 2008-09 That the Ld. CIT(A) has erred in confirming the disallowance of Rs. 3,38,207/- u/s 14A read with Rule 8D(2) (iii) without considering the 0.5% of the average value of investment calculated only on the investment related to generating exempt income. – Asst Year 2009-10 That the Ld. CIT(A) has erred in confirming the disallowance of Rs. 3,68,466/- u/s 14A read with Rule 8D(2) (iii) without considering the 0.5% of the average value of investment calculated only on the investment related to generating exempt income.
We feel that the additional grounds raised by the assessee are part and parcel of the main ground raised by the assessee with regard to the disallowance u/s 14A of the Act and hence the same are admitted for both the asst years and taken up for adjudication.
The brief facts of this issue are that the assesee earned dividend on shares of Rs. 57,887/- and dividend on mutual funds of Rs. 17,11,308/- and claimed the same as exempt u/s 10(34) of the Act in the return of income for the Asst Year 2008-09. Similarly , he derived dividend income from mutual funds of Rs. 13,22,184/- and dividend on shares of Rs. 39,118/- and claimed exemption u/s 10(34) of the Act for the same in the return of income for the Asst Year 2009-10. The Learned AO observed that the assessee had made investment in shares and mutual funds and also found that he had unsecured loans in his balance sheet on which interest was paid. The Learned AO also recorded his satisfaction in terms of Rule 8D(1) of the IT Rules that the claim of the assessee that no expenditure has been incurred for the purpose of earning exempt income is incorrect as the bifurcation of funds is not possible in respect of utilization of borrowed funds which form the common kitty of usage in leather business and part utilization for investment in shares. Accordingly, he rejected the claim of the assessee and resorted to make disallowance u/s 14A of the Act by applying Rule 8D(2)(ii) and 8D(2)(iii) of the IT Rules. Accordingly, the Learned AO made disallowance u/s 14A read with Rule 8D(2)(ii) amounting to Rs. 7,17,219/- for the Asst Year 2008-09 and under Rule 8D(2)(iii) amounting to Rs. 3,38,027/- and Rs. 3,68,466/- for the Asst Years 2008-09 and 2009-10 respectively. The disallowance u/s 14A was upheld by the Learned CIT(A) on first appeal for both the asst years. Aggrieved, the assessee is in appeal before us for both the years.
The Learned AR argued that the assessee has got sufficient own funds under his kitty and the investments were made out of own funds of the assessee and hence the provisions of Rule 8D(2)(ii) are not applicable to the facts of the instant case. In support of this, he filed a statement containing the details of investment in shares, mutual funds & bonds ; unsecured loans and capital account balances from 31.3.2001 to 31.3.2008. He further argued that only investments bearing exempt income should be considered for the purpose of disallowance u/s 14A of the Act. He placed reliance on the decision of the co-ordinate bench of this tribunal in the case of REI Agro Ltd vs DCIT in / Kol / 2011 dated 19.6.2013. In response to this, the Learned DR argued that the statement produced by the assessee is filed before this tribunal for the first time and the Learned AO did not have an occasion to look into the same and vehemently relied on the order of the Learned AO.
We have heard the rival submissions and perused the materials available on record. We find that the Learned AR had produced a statement containing the availability of own funds together with the details of unsecured loans and investments made in various years commencing from 31.3.2001 onwards. From the bare perusal of the same, we find that the assessee seems to be having sufficient own funds for making investment in shares and mutual funds. However, we find that there is no finding in the orders of the lower authorities with regard to this fact and hence we deem it fit and appropriate , in the interest of justice and fair play , to set aside this issue to the file of the Learned AO to decide in accordance with law with the following directions :-
(i) If it is proved by the assessee that sufficient own funds are available for making investments in shares and mutual funds, then the provisions of Rule 8D(2)(ii) should not be invoked for making disallowance u/s 14A of the Act ; (ii) Only the investments bearing exempt income should be considered for making disallowance u/s 14A of the Act read with Rule 8D(2)(ii) of the Rules (Reliance placed on the decision of this tribunal in the case of REI Agro Ltd vs DCIT in dated 19.6.2013 in para 6 & 7 of the said judgement) ; (iii) Only the investments bearing exempt income should be considered for making disallowance u/s 14A read with Rule 8D(2)(iii) of the Rules.
Accordingly, the grounds raised by the assessee including the additional grounds for both the asst years are allowed for statistical purposes.
In the result, both the appeals of the assessee are allowed for statistical purposes. ORDER PRONOUNCED IN THE OPEN COURT ON 15-4-2016.