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Income Tax Appellate Tribunal, BENCH “C”, KOLKATA
Before: Shri Mahavir Singh, JM & Shri M.Balaganesh, AM]
ORDER
Per Shri M.Balaganesh, AM
The grounds raised in these two appeals are identical in nature and hence they are taken up together for disposal by way of a common order for the sake of convenience.
These appeals of the assessee arise out of the order of the Learned CITA in Appeal No. 228/CIT(A)-XXXIII/ACIT. Cir-Hal/10-11 dated 05.03.2012 against the order of the Learned AO framed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
Shri.Sanjay Bhattacharya, FCA , the Learned AR argued on behalf of the assessee and Shri. Niraj Kumar, CIT(DR), the Learned DR argued on behalf of the revenue. / 2013 – Asst Year 2008-09 4. The Learned AR during the course of hearing stated that the Ground Nos. 1 to 4 raised by the assessee are not pressed and the same is taken as the Statement from the Bar. Accordingly, the Ground Nos. 1-4 are dismissed as not pressed.
The brief facts of this issue is that the assessee is a co-operative bank engaged in the business of banking. During the course of assessment proceedings, the Learned .1747&1748/Kol/2013 Tamluk Ghatal Central Co-operative Bank Ltd.. A.Yrs.2008-09&2009-2010 AO found that the assessee had declared dividend income of Rs. 6,71,445/- and claimed exemption for the same u/s 10 of the Act. The Learned AO resorted to apply the provisions of Rule 8D(2) of Income Tax Rules and disallowed a sum of Rs. 90,685/- u/s 14A of the Act by applying the third limb of the disallowance mechanism stated in Rule 8D(2) of the Rules (i.e 0.5% of average value of investments). This disallowance was apparently made by considering only the investment in shares to the tune of Rs. 1,81,37,000/-. On first appeal, the Learned CITA sought to enhance the disallowance u/s 14A of the Act by applying the first and second limbs of disallowance mechanism stated in Rule 8D(2) of the Income Tax Rules. The Learned CITA found that the disallowance was made by the Learned AO by considering only the investment in shares ignoring the investment in mutual funds to the tune of Rs. 27,50,00,000/- which would also yield only tax free income in the form of dividend. Accordingly, he worked out the total disallowance u/s 14A of the Act to Rs. 1,00,22,376/-. Aggrieved, the assessee is in appeal before us on the following ground:- “5. For that the learned Commissioner of Income-tax (Appeals) erred in law in directing the authority below to enhance the disallowance of the expenditure to the tune of Rs.1,00,22,376/- from the sum of Rs.90,685 as appeared in the impugned assessment order in application of section 14A(2) of the said Act and Rules made there under, on the basis of computation made wrongfully and incorrectly made by him.”
5.1. The Learned AR argued that the entire issues have been addressed by the assessee , the Learned AO and the Learned CITA in the wrong perspective. For this , he stated that the dividend income derived by the assessee is from West Bengal State Co-operative bank and hence the same is not exempt u/s 10 of the Act as admittedly the dividend declared from domestic companies which had suffered dividend distribution tax alone are exempt in the hands of the recipient shareholder. He took us to page 2 of the Paper Book filed by him containing the details of investments, wherein the break up of the same is as below:-
Investment in Shares of Co-operative Institutions - West Bengal State Co-operative Bank 1,80,13,000 - IFFCO & KRIBCO 1,24,000 ---------------- 1,81,37,000 Investment in Mutual Funds 27,50,00,000 .1747&1748/Kol/2013 Tamluk Ghatal Central Co-operative Bank Ltd.. A.Yrs.2008-09&2009-2010 The Learned AR fairly stated that though the investment in mutual funds would yield dividend income which would be exempt u/s 10 of the Act and accordingly the provisions of section 14A of the Act would become applicable. However, he argued that the assessee had only invested in the growth oriented mutual funds where there is only capital appreciation in the form of increase in units and admittedly the subject mentioned mutual funds are not dividend oriented funds and hence accordingly any income thereon would not be exempt u/s 10 of the Act. He stated that this issue has neither been examined by the lower authorities nor explained by the assessee in the proper perspective and accordingly he requested for setting aside of this issue to Learned AO. In response to this, the Learned DR fairly conceded to the same.
5.2. We have heard the rival submissions and perused the materials available on record. We find that the entire gamut of transactions have not been understood by the lower authorities in the proper perspective. We also find that the assessee also had not bothered to explain the transactions to the lower authorities in the proper perspective. We find that the assessee had made investment in shares of cooperative bank and institutions , the dividend from which is not exempt u/s 10 of the Act and accordingly the provisions of section 14A would not be applicable. The dividend income derived from a co-operative bank and co-operative institutions are not exempt u/s 10 of the Act as they are not declared by domestic companies after suffering dividend distribution tax.
5.3. As regards the investment in mutual funds to the tune of Rs. 27,50,00,000/- are concerned, we are also in agreement with the arguments of the Learned AR that the assessee would not receive any dividend income from the growth oriented mutual funds, as, in the case of growth oriented mutual funds, the net asset value (NAV) would be increasing or decreasing depending upon the market conditions and the mixture of investments of the relevant mutual fund (i.e mixture of investment in debt funds – secured or unsecured and investment in equities) . The benefit of investment would be derived by the assessee only when the actual redemption of mutual funds .1747&1748/Kol/2013 Tamluk Ghatal Central Co-operative Bank Ltd.. A.Yrs.2008-09&2009-2010 take place and not otherwise, which in turn would only result in capital gains depending upon the period of holding. If it is a short term capital gain on redemption of mutual funds, then the provisions of section 14A would not be applicable. On the contrary, if it is a long term capital gain on redemption of mutual funds, the same would be exempt provided securities transaction tax (STT) is suffered on redemption of the said mutual funds, then in such scenario, the provisions of section 14A would come into operation.
5.4. Hence in the facts and circumstances, 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 for denovo adjudication with a direction not to apply the provisions of section 14A of the Act in respect of investment in shares of cooperative bank and cooperative institutions and in respect of investment in growth oriented mutual funds, the Learned AO is directed to follow the directions contained in the preceding paragraph.
In the result, the appeal of the assessee is allowed for statistical purposes. / 2013 – Asst Year 2009-10 6. The Learned AR stated that the Ground Nos. 1 -3 raised by the assessee are not pressed and the same is taken as the Statement from the Bar. Accordingly, the Ground Nos. 1-4 are dismissed as not pressed.
The brief facts of this issue is that the assessee is a co-operative bank engaged in the business of banking. During the course of assessment proceedings, the Learned AO found that the assessee had declared dividend income of Rs. 7,89,850/- and claimed exemption for the same u/s 10 of the Act. The Learned AO resorted to apply the provisions of Rule 8D(2) of Income Tax Rules and disallowed a sum of Rs. 1,07,425/- u/s 14A of the Act by applying the third limb of the disallowance mechanism stated in Rule 8D(2) of the Rules (i.e 0.5% of average value of investments). This disallowance was apparently made by considering only the investment in shares to the tune of Rs. 2,14,85,000/-. On first appeal, the Learned .1747&1748/Kol/2013 Tamluk Ghatal Central Co-operative Bank Ltd.. A.Yrs.2008-09&2009-2010 CIT(A) sought to enhance the disallowance u/s 14A of the Act by applying the first and second limbs of disallowance mechanism stated in Rule 8D(2) of the Income Tax Rules. The Learned CITA found that the disallowance was made by the Learned AO by considering only the investment in shares ignoring the investment in mutual funds to the tune of Rs. 30,51,00,000/- which would also yield only tax free income in the form of dividend. Accordingly, he worked out the total disallowance u/s 14A of the Act to Rs. 1,52,92,017/-. Aggrieved, the assessee is in appeal before us on the following ground:- “4. For that the learned Commissioner of Income-tax (Appeals) erred in law in directing the authority below to enhance the disallowance of the expenditure to the tune of Rs.1,52,92,017 in application of section 14A(2) of the said Act and Rules made there under, on the basis of computation made wrongfully and incorrectly made by himself and without giving reasonable opportunity to rebut his findings.”
The decision rendered by us in for Asst Year 2008-09 would apply with equal force for the issue in Asst Year 2009-10 also.
In the result, both the appeals of the assessee in / 2013 for Asst Year 2008-09 and ITA No. 1748 / 2013 for Asst Year 2009-10 are allowed for statistical purposes.
Order pronounced in the court on 18.09.2015.