Income Tax Appellate Tribunal - Kolkata
M/S Adhunik Metaliks Ltd, Kolkata vs Acit,Circle-1(1), Kol, Kolkata on 23 February, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL "B", BENCH KOLKATA
BEFORE SHRI A.T.VARKEY, JM & DR. A.L.SAINI, AM
IT(SS)A Nos.04 to 07/Kol/2016
( नधा रण वष /Assessment Year:2009-2010 to 2012-2013)
ACIT, Central Circle-1(1), Vs. M/s Adhunik Metaliks Ltd.,
Aayakar Bhawan Poorva, 14, Netaji Subhas Road,
110, Shanti Palli, 2nd Floor, Kolkata-700001
3rd Floor, Kolkata-700107
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No.: AABCN 5676 P
(अपीलाथ /Appellant) .. ( यथ / Respondent)
AND
Cross Objection Nos.94 & 95/Kol/2016
( नधा रण वष /Assessment Year:2009-2010 & 2010-2011)
M/s Adhunik Metaliks Ltd., Vs. ACIT, Central Circle-1(1),
14, Netaji Subhas Road, Aayakar Bhawan Poorva,
2nd Floor, Kolkata-700001 110, Shanti Palli,
3rd Floor, Kolkata-700107
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No.: AABCN 5676 P
(अपीलाथ /Appellant) .. ( यथ / Respondent)
Revenue by : Shri Niraj Kumar, CIT-DR
Assessee by : Shri A.K.Tulsyan, FCA
सन
ु वाई क तार ख / Date of Hearing : 20/02/2017
घोषणा क तार ख/Date of Pronouncement 23/02/2017
आदे श / O R D E R
Per Dr. Arjun Lal Saini, AM:
These captioned four appeals filed by the Revenue pertaining to the Assessment Years 2009-10 to 2012-2013 and two cross objections filed by the Assessee, pertaining to Assessment Year 2009-10 & 2010-11, are directed against the separate orders passed by ld. CIT(A)-20, Kolkata, which in turn arise out of order passed by the Assessing Officer (AO) Under Section 153A/143(3) of the Income Tax Act 1961, (hereinafter referred to as the 'Act'), dated 31.03.2014.
2. Since these four appeals and two cross objections filed by the Revenue and Assessee respectively, relate to same assesse, different 2 IT(SS)A No.04-07/16 & CO Nos.94&95/16 Adhunik Metaliks Ltd.
assessment years and common issues involved, therefore these have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. The facts mentioned in Revenue`s appeal in IT(SS)A No.04/Kol/2016 are taken into consideration for deciding all the appeals, that is, taken by us as a lead case.
3. In regard to appeals filed by the Revenue, we found that there is a delay of 15 days in filing the appeals by the Revenue. In this regard, an application for condonation of delay has been filed by the department. Considering the reasonable cause, we condone the delay in filing the present appeals and appeals are being heard on merits.
4. Brief facts giving rise to the appeals of the Revenue are that a search and seizure operation u/s.132 of the Act, was conducted on 19.09.2011 by the Investigation Wing, Jamshedpur, Jharkhand at the residence as well as various business premises in Jharkhand, Kolkata & other places in respect of Adhunik Group and others. In the process, search and seizure operation u/s.132 of the Act was conducted, among others, at the office premises of M/s Adhunik Metaliks Limited, 14 Netaji Subhas Road Kolkata-700001. Accordingly, notice u/s.153A dated 18.12.2012 was issued and duly served. In response to the above notice, return of income for the relevant assessment year was filed on 24.04.2013 declaring total loss of Rs.72,22,45,140/-. No assessment u/s.143(3) has been made. Thereafter, notices u/s.143(2) and 142(1) were issued and duly served. During the relevant year the assessee had 3 IT(SS)A No.04-07/16 & CO Nos.94&95/16 Adhunik Metaliks Ltd.
income from manufacturing of steel and trading of iron & steel products etc. He produced relevant evidences in support of the return of income filed by the him before the AO. The assessee company has not earned any dividend in the previous year under assessment. The Assessing Officer made addition of Rs.60,18,792/- under section 14A read with Rule 8D of the I.T. Rules.
5. Not being satisfied with the order of ld. AO, the assessee filed appeals before the ld. CIT(A), who has deleted the additions so made by the AO by observing as under :-
5. Appeal on ground no 2 is against the disallowance of Rs.60,18,792/- u/s 14A read with Rule 8D. In the assessment order the AO has disallowed this amount citing the circular No.5 of 2014 dated 11-02-2014. During the appellate proceeding the AR has brought on record the order of the jurisdictional Kolkata Tribunal in the case of REI Agro Ltd vs DCIT (2013) 144 ITD 141 (Kolkata) in which it was held that "for making disallowance u/s 14A read with rule 8D in respect of the income which is exempted & does not form part of the total income, the only investment which has given rise to the exempted income should be taken into consideration". The AR has also submitted that this order of the Kolkata Tribunal has been upheld by the jurisdictional Kolkata High Court vide order dated 23-
12-2013 in ITA No.16l/2013.
6. In the assessment order the AO has clearly mentioned that the assessee company has not earned any dividend income in the relevant assessment year. However, disallowance has been made invoking CBDT circular No.5 of 2014. The AR has submitted that as per the ruling of the jurisdictional Kolkata Tribunal as well as that of the jurisdictional Calcutta High Court in the case of REI Agro Ltd (supra), as no income which is exempted and does not form part of the total income has been earned during the relevant assessment year therefore there is no occasion to make a disallowance u/s 14A read with rule 8D in this case.
7. I have considered disallowance made by the AO in the assessment order and the case laws brought on record by the AR on this issue during the appellate proceeding. I find that this issue is squarely covered by the order of the jurisdictional Kolkata Bench of ITA T as well as by the Hon'ble Kolkata High Court order in the case of REI Agro (supra). Respectfully following the ratio decided 4 IT(SS)A No.04-07/16 & CO Nos.94&95/16 Adhunik Metaliks Ltd.
by the jurisdictional bench of ITAT as well as the jurisdictional Kolkata High Court on this issue, assessee's appeal on ground no. 2 is allowed."
Accordingly, the CIT(A) deleted the additions of Rs.60,18,792/- for the assessment year 2009-2010, Rs.80,17,280/- for the assessment year 2010-2011 and Rs.84,32,032/- for the assessment year 2012-2013, respectively.
However, the CIT(A) has given part relief of Rs.71,73,780/- out of the total disallowance made by the AO to the tune of Rs.1,03,28,580/- for the assessment year 2011-2012. Because in A.Y. 2011-12 the assesse had received exempted income (Dividend) at Rs.18,00,00,000/- therefore, the AO has disallowed the expenditure relates to exempted income at Rs.1,03,28,580/-
6. Being aggrieved by the order of ld. CIT(A), the Revenue is in appeals before us and has taken common grounds in all the appeals, as under :-
"The Ld. CIT(A) erred in appreciating the fact, that CBDT's Circular No.5 of 2014 clearly states that disallowance u/s 14A would still be attracted even in cases where exempt income has not been necessarily earned during the year.
The Circular states that If Thus, legislative intent is to allow only that expenditure which is relatable to earning of income and it therefore follows that the expenses which relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial year or not".
7. Ld. DR for the Revenue has primarily relied on the order of Assessing Officer and stated that disallowance u/s.14A is attracted even in cases where exempt income has not been necessarily earned during 5 IT(SS)A No.04-07/16 & CO Nos.94&95/16 Adhunik Metaliks Ltd.
the year. The assessee company has not earned any dividend in the previous year under assessment, even then there would be disallowance under section 14A of the Act. The Ld. DR relied on the Circular No.5/2014 issued on dated 11th February, 2014 which states that in case where corresponding exempted income has not been earned during the relevant previous year, the disallowance of expenses under section 14A of the I.T.Act, 1961 is attracted. The AO has made the disallowance U/s 14A as per the said circular. Therefore, the AO has rightly disallowed the expenditure as required by the provision of section 14A of the Act read with Rule 8D for the respective assessment years under consideration.
8. On the other hand, ld. AR for the assessee has submitted before us that the assessee has invested Rs.1781,11,00,000/- as on 31.03.2009 and no dividend was earned from investment made, which reveals from the balance sheet itself. He further stated that the assessee has not incurred any expenditure for the investment made in shares & securities as own fund was used for the same. Out of the total investments in shares of Rs. 1781,11,00,000/- as on 31.03.2009, no investments have yielded any dividend income. As such, the average value of investments that yielded the exempted income is nil. Hence, the disallowance under Rule 8D (2) (iii) @ 0.5% average of the value of the investment would also be zero.
In addition to this, ld AR for the assesse has relied on the following judgments:
6
IT(SS)A No.04-07/16 & CO Nos.94&95/16 Adhunik Metaliks Ltd.
i) Cheminvest Ltd., [2015] 61 taxmann.com 118(Delhi-HC) :
21. There is merit in the contention of Mr. Vohra that the decision of the Supreme Court in Rajendra Prasad Moody's case (supra) was rendered in the context of allowability of deduction under Section 57(iii) of the Act, where the expression used is 'for the purpose of making or earning such income'. Section 14A of the Act on the other hand contains the expression 'in relation to income which does not form part of the total income.' The decision in Rajendra Prasad Moody's case (supra) cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed under Section 14A of the Act.
22. In the impugned order, the ITAT has referred to the decision in Maxopp Investment Ltd's. case (supra) and remanded the matter to the AO for reconsideration of the issue afresh. The issue in Maxopp Investment Ltd's. case (supra) was whether the expenditure (including interest on borrowed funds) in respect of investment in shares of operating companies for acquiring and retaining a controlling interest therein was disallowable under Section 14A of the Act. In the said case admittedly there was dividend earned on such investment. In other words, it was not a case, as the present, where no exempt income was earned in the year in question. Consequently, the said decision was not relevant and did not apply in the context of the issue projected in the present case.
23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression 'does not form part of the total income' in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.
24. Consequently, the impugned order of the ITAT is set aside and the appeal is allowed in the above terms. This Court should not be understood to have expressed any opinion on the issue of whether for the AY in question the interest expenditure incurred by the Assessee would be allowable as business expenditure under Section 36 (1)(iii) of the Act.
ii) M/s Compact Finstock Pvt. Ltd., ITA No.1141/Kol/2015, order dated 06.01.2016:
4. I have heard the arguments of both the sides and also perused the relevant material available on record. Although the ld. D.R. has 7 IT(SS)A No.04-07/16 & CO Nos.94&95/16 Adhunik Metaliks Ltd.
relied on the same CBDT's Circular, which was relied upon by the Assessing Officer to make a disallowance under section 14A, it is observed that the position of law as settled in the various judicial pronouncements is that no disallowance under section 14A can be made in the year where the assessee has not earned any exempt income. In one of such decisions rendered in the case of Cheminvest Limited -vs.- CIT (ITA No. 749 of 2014 dated 02.09.2015), Hon'ble Delhi High Court has held that section 14A envisages that there should be an actual receipt of income which is not includible in total income and the said section will not apply where no exempt income is received or receivable during the relevant year. It is also well settled that the Circulars issued by the CBDT are binding on the revenue authorities and not on the Courts. I, therefore, uphold the impugned order of the ld. CIT(Appeals) deleting the disallowance made by the Assessing Officer under section 14A and dismiss this appeal of the Revenue."
9. Having heard the rival submissions, pursed the material available on record, we are of the view that there is merit on the submissions of the assesse, as the propositions canvassed by the ld AR for the assesse are supported by the Judgments cited by him (supra). As the Ld AR for the assesse has submitted before us that there should be an actual receipt of income which is not includible in total income and the said section will not apply where no exempt income is received or receivable during the relevant year. It is also well settled that the Circulars issued by the CBDT are binding on the revenue authorities and not on the Courts. Therefore, considering the judgments cited by the ld AR of the assessee and facts narrated by him, we do not find any reason to interfere in the order passed by the ld.CIT(A). Accordingly, we confirm the order passed by the ld CIT(A) in respect of assessment years 2009-10, 2010-11 and 2012-13. Regarding the Assessment year 2011-12 where the assesse has received dividend income at Rs.18,00,00,000/- and AO has disallowed the 8 IT(SS)A No.04-07/16 & CO Nos.94&95/16 Adhunik Metaliks Ltd.
expenditure U/s 14A at Rs.1,03,28,580/-, but the ld CIT (A) has deleted the addition by Rs. 71,73,780/- by following the judgment of hon`ble jurisdictional Kolkata Tribunal in the case of REI Agro Ltd. Vs. DCIT (2013),144 ITD 141. As per this judgment, only investment which has given rise to the exempted income should be taken into consideration. The average investment which gives rise to exempted income should be considered for disallowance under Rule 8D (2) (iii) which comes at Rs. 31,54,800/- ( Rs.63,09,60,000 x 0..5%). This way, ld CIT(A) has deleted the addition partly by Rs. 71,73,780/- out of the total addition of Rs.1,03,28,580/-, and therefore, the order passed by the ld CIT(A) is a reasoned order and does not require any interference. Accordingly, we confirm the order passed by the ld CIT (A) in respect of Assessment Year 2011-12 also.
10. In the result, the appeals filed by the Revenue ( For A.Y. 2009-10, 2010-11, 2011-12, and 2012-13), are dismissed.
11. The ld. AR for the assessee has submitted before us that the assesse wants to withdraw the cross objections filed by him. Ld DR for the Revenue even did not object for this. Considering the submissions of the ld AR for the assessee, we dismiss the cross objections ( CO.Nos.94 & 95/Kol/2016) filed by the assessee as withdrawn. 9
IT(SS)A No.04-07/16 & CO Nos.94&95/16 Adhunik Metaliks Ltd.
12. In the result, the appeals filed by the Revenue are dismissed and cross objections filed by the assesse are also dismissed.
Order pronounced in the open court on this 23/02/2017.
Sd/- Sd/-
(A.T.VARKEY) (DR. A.L.SAINI)
या यक सद य / JUDICIAL MEMBER लेखा सद य / ACCOUNTANT MEMBER
कोलकाता /Kolkata; दनांक Dated 23/02/2017
काश $म&ा/Prakash Mishra,0न.स/ PS
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant-
2. यथ / The Respondent.-
3. आयकर आय1
ु त(अपील) / The CIT(A), Kolkata.
4. आयकर आयु1त / CIT
5. 2वभागीय 0त0न5ध, आयकर अपील य अ5धकरण, कोलकाता / DR, ITAT, Kolkata ु ार/ BY ORDER, आदे शानस
6. गाड8 फाईल / Guard file.
स या2पत 0त //True Copy// उप/सहायक पंजीकार (Asstt. Registrar) आयकर अपील%य अ&धकरण, कोलकाता / ITAT, कोलकाता