Income Tax Appellate Tribunal - Kolkata
West Bengal Infrastructure Finance ... vs Acit, Cir.-6(2), Kolkata on 13 July, 2022
ITA No. 564/KOL/2020
Assessment Year: 2008-2009
West Bengal Infrastructure Development Finance Corporation Limited
IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA 'B' BENCH, KOLKATA
Before Shri Rajpal Yadav, Vice-President (KZ)
&
Shri Rajesh Kumar, Accountant Member
I.T .A. No. 564/KOL/2020
Assessment Year: 2008-2009
West Bengal Infras tructure Development Finance Corporation
Limited,...............................................................................................Appellant
36A, Hemanta Basu Sarani,
Kolkata-700001
[PAN:AAACW3432D]
-Vs.-
Assistant Commissioner of Income Tax,.... .......................................Respondent
Circle-6(2 ), Kolkata,
Aayakar Bhawan, 6 t h Floor,
P-7, Chowringhee Square,
Kolkata-700069
Appearances by:
Shri J.P. Kh aitan, Sr. Counsel & Sh ri Ananda Sen, Advocate, appeared o n beh alf of
the assessee
Shri Sudipta Guh a, CIT(DR), appeared on behalf of the Revenue
Date of concluding th e hearing : Ju ly 12, 2022
Date of pronouncing the order : Ju ly 13, 2022
O R D E R
Per Rajpal Yadav, Vice-President (KZ):-
The assessee is in appeal before the Tribunal against the order of ld. Commissioner of Income Tax (Appeals)-6, Kolkata dated 7 t h February, 2020 passed for Assessment Year 2008-09.
2. The assessee has taken four grounds of appeal, which contains sub- grounds. Out of these four grounds of appeal, Ground No. 4 is a general ground, which does not call for recording of any finding.
1 ITA No. 564/KOL/2020Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited
3. In Grounds No. 1 & 2 including their sub-grounds, the assessee is challenging reopening of assessment by issuance of notice under section 148 of the Income Tax Act. In the sub-grounds, it has taken peripheral arguments for challenging this issue.
4. In Ground No. 3, the assessee is challenging determination of amounts required to be disallowed with the aid of section 14A read with Rule 8D of the Income Tax Act as well as Rules.
5. First we take Grounds No. 1 & 2, whereby reopening of the assessment by issuance of a notice under section 148 has been challenged.
6. Brief facts of the case are that the assessee-company is a State Government Undertaking. It has filed its original return of income on 27.09.2008 declaring total income of Rs.16,11,02,610/-. An assessment order was framed under section 143(3) of the Income Tax Act on 21.12.2010.
7. Ld. Counsel for the assessee while taking up through the record drew our attention towards reasons recorded for reopening of the assessment. He submitted that copy of the reasons is available at pages no. 210 & 211 of the paper book, but these are hand-written, whereas typed copy has been placed on page 212. Such reasons read as under:-
"W.B. Infrast ructure Development Finance Corp. Limited PAN: AAACW3432D A.Y. 2008-09 "Return of income was filed on 27.09.2008 and subsequently revised return was also filed on 18.03.10. Tot al income was assessed u/s 143(3) at Rs.20,9 2,60,199/-.
It is seen from the assessment records th at the nature of business of the assessee was non-banking financial operation. The assessee earned dividend income of Rs.41,02,847/- which was exempt u/s 10 (34). Acco rdingly, t he assessee offered expenditure of Rs.5 2,92,896/- incurred by way of interest 2 ITA No. 564/KOL/2020 Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited related to exempted income and the same was considered as disallowance u/s 14 A in the co mputatio n of inco me. As per assessee's submission, short t erm loan was utilized fo r earning exempt inco me but the amount of interest attribut able to exempt inco me was arbitraril y comput ed. T he assessee incurred expenditure on account of interest of Rs.208,90,88,187/- o n short term loan. Hence, interest expenses rel ated to exempt income was required to be disallowed as per pro visio ns of section 14A read wit h Rule 8 D. However, no interest expense attributable to exempt inco me was considered for disallowance u/s 14A.
In view of the above, I h ave reason to believe that there was underassessment of inco me for the relevant assessment year.
Issue notice u/s 148.
Dated: 03.07 .2021 Sd/-
D. Ro y,
DC IT, Circle-6, Kol.
Code:WBG -C-106-1".
Taking up through the reasons, he contended that grievance of the ld. DCIT for reopening of the assessment relates to non-disallowance of interest expenditure for earning tax-free income under section 14A of the Income Tax Act. He submitted that this reopening is being made on the basis of change of opinion only, otherwise the ld. Assessing Officer in the original round of assessment proceedings has gone through all these details and thereafter opted to work out the disallowance of Rs.48,68,050/-. This disallowance was worked out by taking ½ percent of average investment. The assessee has explained the issue in detail and also filed working and after going through the working, the ld. Assessing Officer did not deem it appropriate to work out a disallowance of interest expenditure under Sub-Rule (i) and (ii) of Rule 8D regarding interest expenditure. In order to buttress his contention, he drew our attention at pages no. 107 to 112 of the paper book, where on page no. 107, the letter of the DCIT is available exhibiting the fact that the details with regard to tax-free income, vis-a-vis expenditure relatable to those incomes as contemplated under section 14A read with Rule 8D were called upon. The 3 ITA No. 564/KOL/2020 Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited assessee has filed detailed reply and the copies of such reply are available on pages no. 108 to 112. These pages read as under:-
"Pages No. 108-109:-
"FA&CAO/ IT-9A/2010-11/1838 18 .11.2020 The ld. DC IT , Circle-6/ Kolkata, Aayakar Bh awan, 6 t h Floor, P-7, Chowringhee Square, Kolkata-700069 Dear Sir, PAN:AAAC W3432D Assessment Year :2008-09 This has a reference to your notice no. DC IT/Cir- 6/Kol/Scrutiny/2008-09/2010-11/ dated 9 t h November, 2010 received by us on 11 t h November, 2010 in connection with scrut iny assessment for the captioned assessment year.
The company has a e-filed the original ret urn on 27.09 .2008 (e-filing acknowledgement no. 4 0845340270908). Thereafter, on comput ation of stat utory audit by C AG appointed audito rs o n 26.06 .2009, comments of th e C AG u/s 619(4) of the Companies Act ,1956 on 02.09.2009 and adoptio n of the audited account s at the company' s A nnual General Meeting held on 12.11.2009, the co mpany has e-filed the revised return of inco me on 18 .03.2010 (e-filing acknowledgement no. 111988190180310) based on audit ed account s.
As desired by yo u, we submit herewith the following documents/particulars for yo ur kind perusal:
1. Copy of audited annual accounts alongwit h auditor's repo rt, Director's repo rt and comments of th e C&AG for th e financial year 2007-0 8.
2. Copy of the T ax audit report dat ed 22.02.2010.
3. Copy of co mputat ion of taxable inco me and tax payable thereon.
4. Copy of e-ret urn (revised) filed on 18.03.20 10.
5. Copy of comput ation of fringe benefit t ax with quart ered break-up.
6. Original TDS certificates in 41 nos.
7. Bank Reconciliation Statement 31 nos.
8. The company h as earned dividend income of Rs.41,02 ,847/- during the financial year 2007-08 fro m it s investme nts in SBI Sho rt Horizon Fund LIQUID Plus (Mutual Fund). In connection with above exempt ed income, the co mpany has considered disallowance of Rs.55,92 ,896/- u/s 14A read with Rule 8D towards int erest on borrowed funds, calculat ed @8.90% p.a. being average co st of bo rrowed funds of Rs. 25 crore for 92 days. T his disallowance of Rs.55 ,92,896/- has 4 ITA No. 564/KOL/2020 Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited been considered while computing t axabl e income for th e captio ned assessment year.
9. The Company is not engaged in the business of sale and purchase of shares and securities and h as not claimed any deduct ion u/s 88E fo r Securities T ransactio n T ax during the captio ned assessment year. Acco rdingly, submission of Form 10DB/10DC is not applicable to th e Company.
10. The Company h as not incurred any gain/loss on sale of investments during t he captioned assessment year. As such the pro visions of section 94(7) and explanat ion below section 73 are not applicable to the company.
We sh all be pleased t o offer any other part iculars if required by you.
Enclo: As above.
Yours faithfully, Sd/-
FA & CAO, WBIDFC Pages No. 110-111:-
A.K. Sen & associates Chartered Accountant s 16.12.2010 The ld. DC IT , Circle-6/ Kolkatqa, Aayakar Bh awan, 6 t h Floor, P-7, Chowringhee Square, Kolkata-700069 Dear Sir, PAN:AAAC W3432D Assessment Year :2008-09 This has reference to yo ur letter no. DC IT/Cir- 6/Kol/Scrutiny/2008-09/2010-11 dated 9 t h November, 2010 in connection with scrut iny assessment of West Beng al Infrastructure Devel opment Finance Co rporation Ltd., our client, for the captioned assessment year.
As desired by you, we submit herewith t he following documents /particul ars o n beh al f of our client for your kind perusal:
1. WBIDFC is a Government Company wit hin the meaning of section 619 of the C ompanies Ac, 1956, wholly owned by the Government of West Bengal . It h as e-filed its original return on 27.09.2008 for the assessment year 2008-09 with ref erence to the account s, pending completion of audit by st atutory audito rs and CAG which was in progress at the time of submissio n of th e said return. Thereaft er on completion of statutory audit by CAG appointed auditors o n 26.06.2009, comments of the CAG u/s 619(4) of the Companies Act , 1956 on 02.09.2009 and ado ption 5 ITA No. 564/KOL/2020 Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited of audited accounts at the Company's AGM held on 12.11.2009, the company has e-filed the revised return o n inco me on 18.03.2010. Thus, WBIDFC h as computed the real income on completion of all requirements regarding audit and adoptio n of account s and h as filed the same before the ld. Asse ssing Officer for the purpose of assessment . It is pert inent to mention here that WBIDFC h as filed simil ar revised return of income/co mputatio ns fo r the earlier assessment years also and the same had been accepted by the ld. Assessing Officers.
2. Prio r period items: In the revised return of income fo r the AY 2008-09, e-filed on 18.03.2010, WBIDFC has offered to tax interest income on short term depo sit and recurring deposit from Union Bank of India, State Bank of Hyderabad, Vijaya Bank and H DFC Short considered in FY 2006-0 7 (account ed fo r as prio r period inco me in FY 2007-0 8) aggregating to Rs.47117365. it has also claimed overprovision of interest income fro m int erest on loan to CETP in FY 2006-07 (accounted for as prio r period item in FY 2007-08) of Rs.2710085/- allowable as bad debt. Both the items h ave been disclosed in Schedule S as prior period it ems of the audited account s for FY 2007-08 and also Annexure 5 to fo rm 3CD dated 22.02.2010.
We submit that both the items have been considered by WBIDFC at the time of filing revised computat ion of taxable inco me on 23.06.2009 for the earlier assessment year 2007-08. However, t he same h as not been co nsidered at the time of assessment fo r the AY 2007-08 and as such, both the items h ave now been co nsidered in the AY 2008-09 as a matter of abundant precaution. Xerox copies of WBIDFC's letter dat ed 17.06.2009, revised computation of taxable income and assessment o rder dated 29 .12.2009 for AY 2007-08 are enclosed for yo ur perusal .
(3) Xerox copies of TR Form No. 7 fo r payment of guarantee commission of Rs.40 crore on 04.07.2007 and st amp dut y of Rs.7.40 crore (Rs.3 .70 cro re for earlier assessment years and Rs.3 .70 crore for the current assessment year) on 27.03 .2008 are enclosed.
(4) WBIDFC is developing Housing pro ject on its own land and t he pro ject is in progress. During the AY 2 008-09 it has incurred expenses of Rs.184775254/- on this pro ject (referen ce may be made to Schedule T of audited accounts) and th e same h as been debited to expenses. Similar amount has al so been credit ed to profit & l oss account under the head work -in-progress- Sankal pa Housing Project and the same is carried fo rward t o subsequent year. T hus the effect of these adjustments is revenue neut ral . A statement showing h ead-wise break-up of expenses of Rs.184775254/- is enclosed.
(5) A stat ement showing comput ation of disallowance u/s 14A read with Rule 8D is enclosed.6 ITA No. 564/KOL/2020
Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited Reconciliation of int erest income with TDS list is being co mpiled and sh all be submitted within next few days.
We shall be pleased t o offer any other part iculars, if required.
Yours faithfully, For A.K.Sen & Associates Chartered Accountant s Sd/-
Dipak Kumar Das, Part ner and Authorized Represent ative Enclo. As abo ve.
Page No. 112:
West Bengal Infrast ructure Develo pment Finance Corporation Lt d. Financial Year 2007-08 Assessment Year: 2008-09 Comput ation of disall owance u/s 14A read with Rule 8D Invest ment in SBI-SH F Liquid Pl us (Mut ual Fund) 11.12.2007 Invest ment made 250000000 7.3.2008 Invest ment realised along 250000000 with dividend upto 5.3.2008 0 28.03.2008 Invest ment made 250000000 31.03.2008 Accrued interest 172914 250172914 Dividend Realised 7.3.2008 Dividend upto 5.3.200 8 Rs.3929933 (88 days) 6.52% p.s.
31.3.2008 Accrued Dividend Rs. 172914 (4 days) 6.31% p.a. 4102847 Average cost of funds for 2007-08 - 8.9 0% p.a. as per Director's report Interest on borrowed funds:-
Rs.25 ,0000000 x (8.9 /100)x (92 days/366 days) = Rs.5592896".
8. Ld. Counsel for the assessee further contended that though a notice under section 148 has been issued within four years from the end of the assessment year, but in the original scrutiny assessment, all these details have been gone into. Thereafter, the assessee carried the matter in appeal 7 ITA No. 564/KOL/2020 Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited before the ld. 1 s t Appellate Authority, who changed the working of disallowance. Originally it was restricted to Rs.48,68,050/- by the ld. Assessing Officer. Further at the level of ld. 1 s t Appellate Authority, it enhanced to roughly Rs.68 lacs. Copy of the order of ld. CIT(Appeals) dated 01.06.2012 has been placed on page no. 122 of the paper book. Before ld. CIT(Appeals), under Grounds No. 1 & 2, the assessee has challenged the disallowance made under section 14A of the Income Tax Act and such grounds read as under:-
"(1) For that the l d. Assessing Officer erred in added back a further sum of Rs.48,68,050/- on account of disallowance u/s 14A read with Rule 8 D of the Inco me Tax Act, 1961 in respect of exempt dividend income when the appellant h ad computed such disallowance at Rs.5592896/- u/s 14A read with Rule 8D based on the average cost of funds.
(2) For th at the ld. Assessing Officer had failed to consider and appreciate the basis of comput ation of disallowance of Rs.55 ,92,896/- u/s 14A read with Rule 8D by the appellant when such co mputation h ad been made with reference to the average cost of funds and erred in re-co mputing th e disallowance at Rs.1,0 4,60,946/-".
The ld. CIT(Appeals) decided these grounds and thus gone into the details on this issue. This order was challenged before the ITAT and ultimately issues are pending before the Hon'ble Calcutta High Court including the issue of 14A.
9. On the other hand, ld. D.R. relied upon the orders of Revenue Authorities and submitted that 14A was not considered with the angle of disallowance of interest expenses. He relied upon decision of Hon'ble Delhi High Court in the case of Honda Siel Power Products Limited -vs- DCIT (340 ITR 53).
10. We have duly considered the rival contentions and gone through the record carefully. A plain reading of section 147 would contemplate that if the ld. Assessing Officer has reasoned to believe that any income chargeable to tax has escaped assessment for any assessment year, he may 8 ITA No. 564/KOL/2020 Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited subject to the provisions of sections 148 to 153 assess or re-assess such income. In other words, there should be a live-link between formation of belief at the end of the ld. Assessing Officer exhibiting the fact that he is satisfied about the escapement of income from assessment, vis-a-vis the information possessed by him, which helped him in forming such belief. In the present case, a scrutiny assessment was undertaken. The ld. Assessing Officer raised all relevant queries about disallowance u/s 14A. He applied his mind and thereafter taken a view. This was again agitated before the higher appellate forum and the ld. CIT(Appeals) called for fresh information from the assessee and changed the ultimate quantum of disallowance made by the ld. Assessing Officer. It means that both the authorities have actively applied their mind on the issue. On reading of the reasons, we are unable to understand what is the fresh information possessed by the Revenue for forming the belief that income has escaped assessment. To our mind, there is no such information. The informations were already possessed by the Revenue and those were scrutinized. The ld. counsel for the assessee at the time of hearing made reference to the decision of the Hon'ble Supreme Court in the case of Kelvinator of India Limited reported in 320 ITR 561 and in this case, Hon'ble Supreme Court concurred to the decision of Full Bench of the Hon'ble Delhi High Court and has held that on mere change of opinion, assessment cannot be reopened. The ld. CIT (DR), on the other hand, relied upon the judgment in the case of Honda Siel Power Products Limited -vs.- DCIT reported in 340 ITR page 53. In this judgment, assessment year involved was A.Y. 2000-01. The assessee did not disclose the expenditure relatable to earning of tax-free income. The facts noticed by the Hon'ble High Court at Placitum 10 of the Report indicates that assessee has admitted about non- disclosure of the facts for proportionate expenses relatable to tax-free income. This paragraph reads as under:-
"10. Thus, the petitioner has accepted and admitted that he had not given details with regard to proportionate expenses relatable to tax free or exempt income, which were claimed as a deduction under the cumulative 9 ITA No. 564/KOL/2020 Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited head "expenditure". It is pleaded and stated that the petitioner was not required to disclose the said fact as when they had filed the return, Section 14A was not in the statute book. Sequitor, there was no omission and failure on the part of the assessee-petitioner to make full and true disclosure. The term "failure" on the part of the assessee is not restricted only to the income-tax return and the columns of the income-tax return or the tax audit report. This is the first stage. The said expression "failure to fully and truly disclose material facts" also relate to the stage of the assessment proceedings, the second stage. There can be omission and failure on the part of the assessee to disclose fully and truly material facts during the course of the assessment proceedings. This can happen when the assessee does not disclose or furnish to the Assessing Officer complete and correct information and details it is required and under an obligation to disclose. Burden is on the assessee to make full and true disclosure".
11. In the above background, Hon'ble High Court has upheld reopening of assessment, whereas contrary to the above facts in the case before us, a specific question was raised by the ld. Assessing Officer. During the original assessment proceedings, details were submitted. He has applied his mind and thereafter partially worked out the expenditure attributable to earning of tax-free income. These facts are quite distinguishable. The ld. CIT(DR) cannot draw any benefit from this decision.
12. In view of the above discussion, the re-assessment order is quashed.
13. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on July 13, 2022.
Sd/- Sd/-
(Rajesh Kumar) (Rajpal Yadav)
Accountant Member Vice-President (KZ)
Kolkata, the 13 t h day of July, 2022
Copies to : (1) West Bengal Infras tructure Development Finance
Corporation Limi ted,
36A, Hemanta Basu Sarani, Ko lkata-700 001 10 ITA No. 564/KOL/2020 Assessment Year: 2008-2009 West Bengal Infrastructure Development Finance Corporation Limited (2 ) Assistant Commissioner of Income Tax, Circle-6(2 ), Kolkata, Aayakar Bhawan, 6 t h Floor, P-7, Chowringhee Square, Kolkata-700069 (3) Commissioner of Inco me T ax (Appeals)-6, Kolkata (4) Commissioner of Income T ax- , Kolkata, (5) The Depart ment al Represent ative (6) Guard File TRUE COPY By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S. 11