Income Tax Appellate Tribunal - Kolkata
M/S Williamson Magor & Company Limited, ... vs Acit, Circle - 6(2), Kolkata, Kolkata on 31 December, 2019
IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA 'C' BENCH, KOLKATA
(Before Sri J. Sudhakar Reddy, Hon. Accountant Member & Sri S.S. Godara, Hon. Judicial Member)
ITA No. 2258/Kol/2017
Assessment Year: 2012-13
&
C.O. No. 2/Kol/2018
Assessment Year: 2012-13
Asstt. Commissioner of Income Tax, Circle-6(2), Kolkata.................................................Appellant
Vs.
M/s. Williamson Magor and Company Limited..............................................................Respondent
4, Mango Lane
Kolkata - 700 001
[PAN : AAACW 2369 P]
Appearances by:
Dr. P.K. Srihari, CIT D/R, appearing on behalf of the Revenue.
Shri D.S. Damle, FCA, appeared on behalf of the assessee.
Date of concluding the hearing : November 27th, 2019
Date of pronouncing the order : December 31st, 2019
ORDER
Per J. Sudhakar Reddy, AM :-
This appeal filed by the revenue and the cross-objection filed by the assessee are directed against the order of the Learned Commissioner of Income Tax (Appeals)
- 2, Kolkata, (hereinafter the "ld.CIT(A)"), passed u/s. 250 of the Income Tax Act, 1961 (the 'Act'), dt. 04/08/2017, for the Assessment Year 2012-13.
2. The assessee is a non-banking financial company (NBFC) and filed its return on 29/09/2012, declaring total income of Rs.2,95,39,046/-. The Assessing Officer computed the total income of the company under the normal provisions at Rs.7,30,18,041/- interalia making a disallowance of Rs.6,68,64,159/- u/s 14A of the Act. He computed book profits u/s 115JB of the Act at Rs.20,69,62,805/-. Aggrieved the assessee carried the matter in appeal. The ld. First Appellate Authority granted relief by deleting the addition u/s 14A of the Act. While doing so, he followed the judgement of the Hon'ble Calcutta High Court in the case of CIT vs. Rajeev Lochan Kanoria [208 ITR 616] and held that, as the assessee company had acquired controlling interest by using borrowed funds for acquiring shares, the interest expenditure cannot be disallowed u/s 14A r.w.r. 8D(2)(ii). On disallowance of expenses under Rule 8D(2)(iii) of the Income Tax Rules, 1962 ('Rules'), he directed the Assessing Officer to recompute the 2 ITA No. 2258/Kol/2017 Assessment Year: 2012-13 & C.O. No. 2/Kol/2018 Assessment Year: 2012-13 M/s. Williamson Magor and Company Limited disallowance by taking into account only those shares which had yielded dividend income.
3. Aggrieved the revenue is in appeal before us on the following grounds:
grounds:-
"1. "Whether on the facts and in circumstances of the case, Ld. CIT(A) erred in deleting the addition u/s 14A Rule Rule-8D(2) of the LT. Act made by the AO and directed to re-compute compute the disallowance depending on the judicial pronouncement of Hon'ble ITAT, Kolkata without appreciating the fact that interest bearing loan fund was utilised in dividend earning investment made in group compani companies."
2. "Whether on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in not appreciating the fact as stated in CBDT's Circular No. 05/2014 that those investments may be taken into consideration for computation of Rule 8D which have not earned any exempt income during the year."
3. "That it is humbly requested to set aside the order of Ld. CIT(A) and restore back the assessment order passed by the AO."
4. "That the appellant craves for leave to add, delete, amend or modify any grou ground before or at the time of appellate proceedings."
4. The assessee filed cross cross-objection on the following grounds:-
"1. For that on the facts and in the circumstances of the case, the CIT (A) erred in directing the AO to re-compute compute the disallowance u/s 14 14AA read with Rule 8D(2)(iii) @ 0.5% of the average cost of Investments which had produced the tax free dividend income during the year; ignoring &/or overlooking the fact that Investments which had produced tax free dividend interalia included investments mmade ade by the assessee for strategic business purposes in its capacity as "Promoter" and therefore disallowance u/s 14A was not warranted.
2. For that on the facts and in the circumstances of the case, the AO be directed not to make disallowance u/s 14A read with Rule 8D(2)(iii) in relation to strategic investments made by the appellant in its associate & subsidiary companies.
3. For that on the facts and in the circumstances of the case, the CIT (A) erred in not adjudicating Ground No. 2(c) taken by the appappellant ellant objecting to the assessment of book profit u/s 115JB of the I. T. Act.
4. For that on the facts and in the circumstances of the case, the AO should not have made addition to the net profit, declared in the audited Profit & Loss Account, by the amount unt of disallowance of expenses; made as per formula prescribed in Rule 8D(2).
5. For that the appellant craves leave to file additional grounds and/or amend or alter the grounds already taken either before or at the time of hearing of the appeal."3 ITA No. 2258/Kol/2017
Assessment Year: 2012-13 & C.O. No. 2/Kol/2018 Assessment Year: 2012-13 M/s. Williamson Magor and Company Limited 4.1. The assessee filed additional grounds cross cross-objection, objection, which reads as follows:-
follows:
"1. For that on the facts and circumstances of the case, the manner of invocation of Section 14A(2) and application of Rule 80 by the AO was ab initio void & bad in law and in that view of the matter the disallowance of Rs.10,14,84,350/ Rs.10,14,84,350/- made by the AO u/s 14A read with Rule 8D deserves to be cancelled.
2. For that on the facts and circumstances of the case, the disallowance of Rs.10, 14,84,350/- made by the AO in terms of Rule 8D; without recording cogent satisfaction pointing out the incorrectness in the disallowance of Rs.3,46,20,191/ Rs.3,46,20,191/- suo moto offered by the assessee was in gross violation of the provisions of Section 14A(2) read with Rule 8D(1) and in that view of the matter the impugned disallowance made by the AO be held to be bad in law and accordingly deleted.
3. For that the appellant craves lea leave ve to submit additional grounds and/or amend or alter the grounds already taken either at the time of hearing of the appeal or before."
5. We have heard rival contentions. On careful consideration of the facts and circumstances of the case, perusal of the papers on record, orders of the authorities below as well as case law cited, we hold as follows:
follows:-
6. The assessee in this case has made a suo moto disallowance of expenditure of Rs.3,46,20,191/-,, in its computation u/s 14A of the Act. The Assessing Office Officer at page 2 of his order observed as follows:
follows:-
"However, However, on examination it was found that the calculation has not been done in accordance with Sec. 14A read with rule 8D. On being asked, the A/R furnished a written submission on 27/02/2015 27/02/2015.....", which is extracted e by the Assessing Officer at page 2 of his order as under:-
"The assessee is a Non Banking Financial Company earned income from dividend of Rs.8,46,40,354 Rs.8,46,40,354/- for the Financial Year 2011-12 12 and the same was credited to the Profit and Loss Account. The assessee earned dividend mainly from the group companies and their associates. The investments in these Companies were made long back with an intention to retai retain n control over them.
No brokerage or commission were payable by the assessee for making investment in these companies. We like to submit that the Assessee is not into the business of investment and the investments made by them are on account of business expediency.
pediency. Any dividend earned by the assessee from investment in associate group companies is purely incidental. Therefore, the investments made by the assessee in its associate group companies are not to be reckoned for disallowance u/s 14A read with Rule 8D. Dividend received by the Assessee was credited in the Bank account through ECS directly and the Assessee had no occasion to incur any expenditure for collection of the dividend warrant or 4 ITA No. 2258/Kol/2017 Assessment Year: 2012-13 & C.O. No. 2/Kol/2018 Assessment Year: 2012-13 M/s. Williamson Magor and Company Limited crediting of the same in the Bank Account. The expenditure debi debited in the Profit & Loss Account relates fully and exclusively for the purpose of running of the business of the Assessee. However, the Assessee has suo moto disallowed Rs.3,46,20,191/- (including proportionate salary of employee involved in investment decisions) isions) u/s 14A of the Income Tax Act, 1961. All other expenditure debited in the Profit and Loss Account relates fully and exclusively for the purpose of the running of the business of the assessee."
6.1. The Assessing Officer, thereafter held as follows:
follows:-
"I am neither satisfied with the explanation give by the A/R nor with the correctness of the claim made by the assessee in respect of such expenditure in relation to income which does not form part of total income under the Act."
6.2. Thereafter, he comp computed uted the disallowance u/s 14A r.w.r. 8D of the Act. The argument of the ld. Counsel for the assessee is that, the Assessing Officer could not have validly invoked Section 14A r.w.r. 8D and without demonstrating and explaining as to why, as per the Assessingg Officer, the voluntary disallowance made by the assessee was unreasonable and unsatisfactory. For this proposition, he relies on the judgment of the Hon'ble Jurisdictional High Court in the case of CIT vs. Ashish Jhunjhunwala in ITAT No. 157 of 2013, judgment gment dt. 08/01/2014 08/01/2014.
6.3. The ld. D/R submits that, there is no fixed format or mode suggested in the statute requiring the Assessing Officer to express is satisfaction or otherwise of the suo moto disallowance made by the assessee, prior to invoking Rule 8D of the Rules. It was submitted that the Assessing Officer was not satisfied and hence raised a query and thereafter considered the explanation and expressed his dissatisfaction for the same. Both the parties have relied on a number of case case-law in support rt of the same.
6.4. On consideration of these submissions, we are of the considered opinion that the Assessing Officer has recorded that he is not satisfied with the explanation given by the assessee on the suo moto disallowance. The assessee has also not given any working to justify the suo moto disallowance. He made certain claims without supporting the same with figures. Under these circumstances, we are of the considered opinion that the Assessing Officer has recorded orded satisfaction, that he is unable to accept the suo moto disallowance made by the assessee u/s 14A of the Act, prior to invoking Rule 8D of the Rules. Hence this argument of the assessee is hereby dismissed.
5 ITA No. 2258/Kol/2017Assessment Year: 2012-13 & C.O. No. 2/Kol/2018 Assessment Year: 2012-13 M/s. Williamson Magor and Company Limited 6.5. Coming to the finding of the ld. CIT(A CIT(A), ), relying on the decision of the Hon'ble Jurisdictional High Court in the case of CIT vs. Rajiv Lochan Kanoria (supra), (supra) we hold that this is no more good law, in view of the judgment of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. v. CI CIT ( 2018) 402 ITR 640. Hence, this part of the order of the ld. CIT(A), is hereby reversed and the ground of the revenue is allowed.
7. We now take up the disallowance under Rule 8D(2)(iii).
This issue is no more res integra in view of the decision of thi this Bench of the Tribunal in the case of Kolkata Bench of the ITAT in the case of REI Agro Ltd. v. Dy. CIT [2013] 144 ITD 141/35 taxmann.com 404 and the decision of the Delhi Special Bench of the Tribunal in the case of ACIT vs. Vireet Investments (P.) Ltd. [2017] 82 taxmann.com 415 (Delhi - Trib.) (SB).
The ratio of the decision in the case of Ratanlal Gaggar vs. DCIT in ITA No. 1512/Kol/2018; Assessment Year 2013 2013-14, order dt. 10/05/2019,, will not apply to the facts of the case on hand as in that case, the Assessing Officer did not apply his mind and went on a presumption that the assessee has not made any suo moto disallowance.
8. Consistent with the view taken therein we dismiss this ground of the revenue.
9. We now take up the cross cross-objection filed by thee assessee in C.O. No. 2/Kol/2018.
2/Kol/
10. Ground Nos. 1 & 2 are dismissed in view of the judgment of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. (supra).
11. Ground Nos. 3 & 4 are covered in favour of the assessee by the judgment of the Delhi lhi Special Bench of the ITAT in the case of ACIT vs. Vireet Investments (P.) Ltd. (supra).
12. We now take up the additional grounds raised in the cross cross-objections.
objections.
13. Additional Ground No. 1 is general in nature.
14. Additional Ground No. 2 has been dealt by us. Hence we dismiss the same.
6 ITA No. 2258/Kol/2017Assessment Year: 2012-13 & C.O. No. 2/Kol/2018 Assessment Year: 2012-13 M/s. Williamson Magor and Company Limited
15. Further additional grounds of appeal have been filed by the assessee which reads as follows:-
"1.
1. For that on the facts and in the circumstances of the case, the AO was unjustified in law and on facts m making ad addition dition of Rs.13,97,75,000/-
Rs.13,97,75,000/ to the net profit disclosed by the audited Profit & Loss A/c being "Provision for Diminution in Value of Investments" in computing the book profit assessable u/ s 115 JB of the Act.
2. For that on the facts and in the circumsta circumstances nces of the case, the appellant having netted off the provision for "Diminution in Value of Investments" against the cost of investments and having disclosed the cost of investments in the audited Balance Sheet; net-off off such provision the AO, was unjustifi unjustified ed in making the addition of the said amount in arriving at the book profit assessed u/ s 115 JB of the Act.
3. For that on the facts and in the circumstances of the case, the AO be directed to exclude from the "book profit" assessed u/s 115JB; the sum of Rs.13,97,75,000/-.
Rs.13,97,75,000/
4. For that the appellant craves leave to file additional grounds and/or amend or alter the grounds already taken either before or at the time of hearing of the appeal."
16. After hearing rival contentions, we find that the assessee ha has recorded to its profit and loss account, diminution in the value of investments. It was submitted that that net costs of investments was reflected in the profit and loss account and under those circumstances, this figure cannot be adjusted once again while le computing book profits assessed u/s 115JB of the Act. Reliance was placed on the decision of the Kolkata 'A' Bench of the Tribunal in the case of Philips Carbon Black Ltd. vs. ACIT in ITA No. 741/Kol/2012; Assessment Year 2007 2007-08, order dt. 29/01/2014.
16.1. We find that this bench of the Tribunal in the case of Philips Carbon Black Ltd. (supra), held as follows:-
"8.
8. We have heard the rival submissions and perused the material available on record. There are two items, which were added back by the Assessing Officer for computing profits under section 115JB of the Act.. The first of this is a sum of Rs.1,01,01,000/- for diminution in investment. The provision for diminution value of investment as on 31.03.2006 was Rs.150.00 lakhs and such provision as on 31.03.2007 was Rs.251.01 lakhs. Therefore, increase in provision, debited to the profit & loss account came to Rs.101.01 lakhs. Claim of the assessee is that such provisions were deducted from the tot total value of investments and onlyy the balance investment was reckoned for the purpose of its balance balance-sheet.
sheet. This claim is true
t as
seen from Schedule 5 of its balance
balance-sheet
sheet as on 31.03.2007. Total value of
investment as per Schedule 5 is Rs.3,056.53 lakhs from which the provision for 7 ITA No. 2258/Kol/2017 Assessment Year: 2012-13 & C.O. No. 2/Kol/2018 Assessment Year: 2012-13 M/s. Williamson Magor and Company Limited diminution Rs.251.01 lakhs has been reduced and the net figure of Rs.2805.52 lakhs alone has been en carried to the Balance Balance-sheet.
sheet. Hon'ble Karnataka High Court in the case of Yokogawa India Ltd. (supra) while dwelling on the applicability of Clause (i) of Explanation 1 to Section 115JB(2) of the Act to a claim made for provision against bad and doubtful debts, held at para 8 of its judgment dated 29.08.2011 as under:-
"8. In the present case, the debt is an amount receivable by the assessee and not any liability payable by the assessee and, therefore, any provision made towards irrecoverability of the debt cannot be said to be a provision for liability. Therefore it was held that Item (c) of the Explanation is not attracted to the facts of the case. Item (c) in Section 115J A and 115115-JB(1) are identical.. In order to attract the Explanation the debt which is doubtful or bad should satisfy the requirement contemplated in Item (c) of the Explanation. It is the amount or amounts set aside as provisions made for meeting the liability other than the ascertaine ascertained liabilities.
In the instant case also the bad and doubtful debt for which a provision Is made which is in the nature of diminution in the value of any asset would not fall within item (c) of Explanation (i). It is in that context the appellate Commission Commissioner as well as the Tribunal has granted relief to the assessee. Realising the fatality of the said argument, it is contended now that item (i) cannot amount to satisfaction as provision for diminishing in the value of assets is substituted, in case of the assessee ssessee falls under Item (c). In meeting the aforesaid case, the learned counsel for the assessee brought to our notice the judgment of the Apex Court in the case of Vijaya Bank ( supra) where the Apex Court had an occasion to consider his explanation. It accepted the argument on behalf of the Revenue to the effect that the explanation makes it very clear that there is a dichotomy between actual write off on the one hand and provision for bad and doubtful debt on the other. A mere debit to the profit and lo loss ss account would constitute a bad and doubtful debt, but it would not constitute actual write off and that was the very reason why the explanation stood inserted. Prior to the Finance Act,, 2001 many assessees assess used to take the benefit of deduction under Section 36(1)(vii) of the 1961 Act by' merely debiting the impugned bad debt to the profit and loss account and, therefore, the Parliament stepped in by way of Explanation to say that a mere reduction of profits by debiting the amount to the profit and loss account per se would not constitute actual write off. The Apex Court accepted the said legal position. However it was clarified that besides debiting the p profit rofit and loss account and creating a provision for bad and doubtful debt, the assessee correspondingly/simultaneously obliterated the said provision from its accounts by reducing the corresponding amount from loans and advances/debtors on the assets side of the balance sheet and, consequentially, at the end of the year, the figure in the loans and advances or the debtors on the assets side of the balance sheet was shown as net of the provision for the impugned bad debt. Then the said amount representing ba badd debt or doubtful debt cannot be added in order to compute book profit. Therefore, after the Explanation the assessee is now required not only to debit the profit and loss account but simultaneously also reduce the loans and advances or the debtors from tthe he assets side of the balance sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of the provisions for the Impugned bad debt. Therefore, in the first place if the bad de debt bt or doubtful debt is reduced from the loans and advances or the debtors from the assets side of the balance sheet the Explanation to Section 115JA or JB is not at all attracted. In that context even if aamendment mendment which is made retrospective the benefit given b the Tribunal and the appellate Commissioner to the assessee is in no way affected. In that view of the matter, we do not see any merit in this appeal".8 ITA No. 2258/Kol/2017
Assessment Year: 2012-13 & C.O. No. 2/Kol/2018 Assessment Year: 2012-13 M/s. Williamson Magor and Company Limited Once assessee has reduced amount shown by it a ass a provision for diminution of investment from its total value of investment, it no longer remained a provision. Effectively it was a write off. This view is supported by the decision of the Hon'ble Apex Court in the case of Vijaya Bank -vs.- CIT(2010) (2010) 323 ITR 166. Therefore, the claim of assessee with regard to diminution in value of investment has to succeed.
succeed."
17. Consistent with the view taken therein, we allow this additional grounds of the assessee are allowed.
18. In the result, the revenue's appeal and the assessee's cross cross-objection objection are allowed in part.
Kolkata, the 31st day of December, 2019
9.
Sd/- Sd/-
[S.S. Godara] [J.
J. Sudhakar Reddy]
Reddy
Judicial Member Accountant Member
Dated : 31.12.2019
{SC SPS}
Copy of the order forwarded to:
1. M/s. Williamson Magor and Company Limited 4, Mango Lane Kolkata - 700 001
2. Asstt. Commissioner of Income Tax, Circle Circle-6(2), Kolkata
3.CIT(A)-
4. CIT- ,
5. CIT(DR), Kolkata Benches, Kolkata.
True copy By order Assistant Registrar ITAT, Kolkata Benches