Income Tax Appellate Tribunal - Kolkata
Kali Kripa Agro Investment Pvt. ... vs Department Of Income Tax on 11 August, 2008
IN THE INCOME TAX APPELLATE TRIBUNAL
KOLKATA BENCH "B" KOLKATA
Before Shri N.S.Saini, Accountant Member and
Shri Mahavir Singh, Judicial Member
ITA No.1678-1679/Kol/2011
Assessment Years:2005-06 &
2006-07
Income Tax Officer बनाम M/s. Kali Kripa Agro
Ward-9(4), Aaykar / Investment Pvt. Ltd., 177,
Bhawan, 5 t h Floor, P-7, V/s . M.G. Road,
Chowringhee Sq., Kolkata - 700 007
Kolkata - 700 069 [PAN No.AABCK 1211 D]
अपीलाथȸ /Appellant .. ू×यथȸ /Respondent
आवेदक कȧ ओर से/By Assessee Shri Ravi Tulsiyan, FCA
राजःव कȧ ओर से/By Revenue Shri K.N. Jana, SR-DR
सुनवाई कȧ तारȣख/Date of Hearing 11-06-2013
घोषणा कȧ तारȣख/Date of Pronouncement 21-06-2013
आदे श /O R D E R
PER Mahavir Singh, Judicial Member:-
These are two appeals filed by Revenue are arising out of different orders of Commissioner of Income-tax (Appeals)-VIII, Kolkata ('CIT(A)' for short) in appeal No.101-1--/CIT(A)-VIII/Kol/08-09 dated14-10-2011 and 12-10-2011. The assessment was framed by ACIT, Circle-9, Kolkata u/s 143(3)/148 of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') all dated 11-08-2008 for the assessment years (AY) 2005-06 and 2006-07 respectively. Both the appeals are heard together and are being disposed of by way of common order for the sake of convenience. ITA No.1678-79/Kol/2011 A.Ys. 05-06 & 06-07 ITO Wd-9(4) Kol v. M/s. Kali Kripa Agro Invst. P. Ltd. Page 2
2. First common issue in these two appeals of Revenue is against the order of CIT(A) deleting the disallowance of expenditure made by Assessing Officer (AO) u/s. 14A of the Act. For this, Revenue has raised common ground and the ground as raised in ITA No. 1678/Kol/2011 for AY 2005-06 reads as under:-
"1. That on the facts and in the circumstances of the case Ld. C.I.T.(A) erred in deleting the disallowance of entire expenditure made u/s. 14A.
2. The Ld. C.I.T.(A) while deciding the appeal in favour of the assessee overlooked the fact that the depreciation on the assets used in deriving the agricultural income was not claimed as indirect expenditure in relation to agricultural income."
3. Briefly stated facts are that Assessing Officer during the assessment proceedings noted that assessee's principal business is that agriculture but no agricultural activities are carried out from Mumbai and Kolkata offices, hence, common expenditure incurred for earning agricultural income be disallowed by invoking the provisions of Section 14A of the Act. The AO computed the disallowance for AY 2005-06 as under:-
"5. On going through the records, it is has been observed that assessee's main source of income is agricultural income, hence contention of the assessee that no agricultural activities are carried out from Mumbai and Kolkata offices was not acceptable. Moreover, assessee's other income are interest, capital gain & Hire charges and all these are those income which does not require any establishment, hence, there is no reason to believe that expenses incurred at Kolkata & Mumbai offices have no connection with agricultural activities. As well contention of the assessee that Section 14A is not applicable is also not acceptable in the instant case due to the reason mentioned above.
Total turnover of the business 42,22,386/-
Less:- Short Term Capital Gain 16,24,115/-
Net Turnover 25,98,271/-
Out of which Agricultural income i.e.,
67.58% of Rs.25,98,271/- 17,55,887/-
Expenses considered for Agro. Products 4,72,232/-
Less:- Indirect expenses 24,939/-
Direct expenses of Agro products 4,47,293/-
Total expenses 27,34,263/-
Less:- Direct expenses of Agro products 4,47,293/-
22,86,970/-
Less:- LTCG debited in P.L a/c. 7,10,392/-
ITA No.1678-79/Kol/2011 A.Ys. 05-06 & 06-07
ITO Wd-9(4) Kol v. M/s. Kali Kripa Agro Invst. P. Ltd. Page 3
Total indirect expenses 15,76,578/-
Indirect expenses which can be apportioned towards agro products (67.58% of Rs.15,76,578/-) ie. Rs.10,65,451/-
4. Thereby made disallowance u/s.14A of the Act at Rs.10,40,512/-. Aggrieved, assessee preferred appeal before CIT(A), who after considering the submissions of the assessee deleted the disallowance vide para-5.2 as under:-
"5.2 Ground No. 2.3 & 4: These grounds of appeal relate to disallowance of expenses under sec. 14A of the IT Act, 1961 purported to have been claimed against exempted income, i.e., agricultural income. I have carefully gone through the facts of the case, the grounds of appeal and the submissions put forth on behalf of the appellant. The brief facts are recapitulated for the sake of clarity. The appellant company has an agricultural farm unit at Sardarshahr, Rajasthan. It has also its offices at Mumbai and Kolkata. The claim of the appellant has been that the Rajasthan Farm unit is an independent unit and those in Mumbai and Kolkata were entirely separate doing separate business of financing and investment. The AO did not accept the submissions. He held that the Mumbai and Kolkata offices of the Company were only extensions of its activities and there was no business expediency in the direct and expenditure incurred for the two offices for earning the nature of income it had disclosed. The Assessing Officer worked out the total claim of direct and indirect expenses attributed to agricultural activities at Rs.15,12,744/- and after set off of agricultural expenses worked out by him at Rs.4,72,232/-, the remaining amount of Rs.10,39,251- has been added to the total income as expenditure claimed against exempted income under sec.14A of the Income-tax Act, 1961.
For attracting section 14A, there has to be a proximate cause for disallowance, which is in relationship with the exempt income. The scheme of section 14A is given below for the sake of clarity.
1. The taxpayer generates an income which is exempt from tax.
2. For earning such income some expenditure has been incurred. If no expenditure is incurred for earning income exempt from tax, then section 14A is applicable.
3. Having regard to the accounts of the appellant, the Assessing Officer is not satisfied with the correctness of the income of the tax payer in respect of the aforesaid expenditure which is incurred in relation income exempt from tax.
ITA No.1678-79/Kol/2011 A.Ys. 05-06 & 06-07 ITO Wd-9(4) Kol v. M/s. Kali Kripa Agro Invst. P. Ltd. Page 4
4. The Assessing Officer shall determine the quantum of such expenditure in accordance with the method prescribed by the Board which is given below -
Expenditure pertaining to income not chargeable to tax - Prescribed Mode:
The expenditure in relation to income which does not form part of total income shall be the aggregate of the following -
'1. Expenditure directly relating to such income
2. Expenditure by way of interest not attributable to any particular income or receipt (proportionate amount to be calculated as follows - A x B/C, where A is expenditure by way of interest not included in (1) (supra); B is average value of investment, income from which does not form part of total income on the basis of value appearing in balance sheet on the first and last day of the previous year. C is average total assets in the balance sheet on the basis of first and last day of the previous year (ignoring increase on account of revaluation but including decrease on account of revaluation)
3. Half per cent of the average value of investment which appears in B (supra). In the first place, I do not find that the AO has followed the prescribed mode for computing the disallowance of expenses under sec. 14A of the Act. Secondly, this is not a case where the appellant has shown exempted income against which no expenditure has been incurred. This is a case where the appellant company had separate business units, one for earning income from agricultural operations as independent unit, where separate set of accounts are maintained, and the other units engaged in other finance and investment activities. Having regard to the fact of the case, and the ratio laid down in the r3eported cases cited supra, I hold that the Assessing Officer is not justified in disallowing part of the expenses relatable to the finance and investment units attributing the same to agricultural income. The addition of Rs.10,39,251/- is hereby deleted."
Aggrieved, now Revenue filed appeal before the Tribunal. Similar are the facts in AY 2006-07.
5. We find from the above facts of the case that assessee is involved in the business of agriculture, finance and investment. From the accounts of the ITA No.1678-79/Kol/2011 A.Ys. 05-06 & 06-07 ITO Wd-9(4) Kol v. M/s. Kali Kripa Agro Invst. P. Ltd. Page 5 assessee, it is clear that assessee has considerable income from Short Term Capital Gains (STCG for short) at Rs.76,01,293/- speculation profit, dividend, income of Long Term Capital Gains (LTCG for short) as well as agricultural income. The assessee's agro firm is situated at Sardarshahr, Rajasthan exclusively, whereas finance and investment activities are carried out by assessee in Kolkata and Mumbai. The assessee for these two AYs filed return of income declaring total income of Rs.7,57,800/- and Rs.41,42,506/- respectively. The assessee has debited agricultural expenses in the profit and loss account for these two AYs as under:-
Assessment Year Agricultural expenses
A.Y. 2005-06 Rs.4,72,232/-
A.Y. 2006-07 Rs.4,31,686/-
In compliance to notice u/s. 143(2) of the Act assessee filed details and also details of agricultural income and other investments details and also explained that since its agricultural activity are exclusively carried out at Sardarshahr, Rajasthan. Accordingly, it is maintaining its separate income and expenditure account. The assessee is maintaining separate income and expenditure account for investment and finance business carried out by it at Kolkata and Mumbai. Although the assessee is maintaining separate accounts for agricultural income and investment business, but it is clubbing the income and expenditure at the end of the year for the purpose of preparing its annual account. From the above, it is clear that there are separate account and expenditure of agriculture is directly related to agricultural income and expenditure pertaining to investment business is directly relatable to investment business profit. From the above, it is clear that assessee's business activity being of agriculture, finance and investment are distinct from each other and hence functioning of in their own independent capacity and thus units at Sardarshahr, Rajasthan agricultural farm unit and unit at Kolkata and Mumbai i.e., investment and finance business have ITA No.1678-79/Kol/2011 A.Ys. 05-06 & 06-07 ITO Wd-9(4) Kol v. M/s. Kali Kripa Agro Invst. P. Ltd. Page 6 of each other and each unit carries out its own stipulated business activity. Since its units are independent from each other the assessee has been maintaining separate set of income and accounts for its respective business units. The assessee has filed complete details of agricultural expenses for both the years before authorities below and even now before us in its written submission. The assessee has relied on the decision of Hon'ble Supreme Court in the case of CIT v. Walfort Share and Stock Brokers P. Ltd. (2010) 326 ITR 1(SC); decision of Hon'ble Bombay High Court in the case of Godrej and Boyee Mgf. Co. Ltd. V. DCIT (2010) 328 ITR 81 (Bom) and decision of Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. V. CIT in Tax Appeal No. 67 of 2009. In view of the above decisions cited by Ld. Counsel for the assessee, we are of the view that the Legislative intent behind using the expression 'incurred' as appearing in Section 14A signify actual expenditure incurred by an assessee in relation to income which does not form part of the total income, whereas the expression 'in relation to' was to contemplate direct and proximate connection / dominant and immediate connection with the subject-matter. Therefore, it means that disallowance of expenditure by invoking of provisions of Section 14A of the Act can be made only when there is dominant and immediate connection between the expenditure incurred and the income not forming part of the total income. In the present case before us,, there is no connection whatever with the expenditure incurred at Kolkata and Mumbai offices for investment and finance business with that of agricultural activity carried out by assessee at Sardarshahr, Rajasthan.
6. We find that the another issue raised by Revenue which is inter- connected with the first issue is that the CIT(A) has overlooked the fact that depreciation on asset used in deriving the income was not claimed as indirect expenditure in relation to agricultural income. We here only say that depreciation is not an expenditure rather charge on asset and this charge is to be ITA No.1678-79/Kol/2011 A.Ys. 05-06 & 06-07 ITO Wd-9(4) Kol v. M/s. Kali Kripa Agro Invst. P. Ltd. Page 7 allowed on the claim of the assessee irrespective of the fact that whether the income is exempt or not. Further, there is no such issue in the assessment order or in the order of Ld. CIT(A). Hence, we need not answer because we have answered the main issue. Accordingly, the disallowance made by Assessing Officer in both years has already been deleted by CIT(A) and we confirm the same.
7. In the result, both the appeals of Revenue are dismissed.
Order is pronounced in open court on 21st June, 2013 Sd/- Sd/-
(N.S.Saini) (Mahavir Singh)
Accountant Member Judicial Member
Kolkata,
*Dkp
Date: 21st June, 2013
Ǒदनांकः- कोलकाता
आदे श कȧ ूितिलǒप अमेǒषत / Copy of Order Forwarded to:-
1. अपीलाथȸ / Appellant
2. ू×यथȸ / Respondent
3. संबंिधत आयकर आयुƠ / Concerned CIT
4. आयकर आयुƠ- अपील / CIT (A)
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण कोलकाता / DR, ITAT, Kolkata
6. गाड[ फाइल / Guard file.
By order/आदे श से, उप/सहायक पंजीकार आयकर अपीलीय अिधकरण,