DCIT ,Circle-10, Kolkata v. M/s. Neeraj Consultants Ltd
[Citation -2016-LL-1019-11]

Citation 2016-LL-1019-11
Appellant Name DCIT ,Circle-10, Kolkata
Respondent Name M/s. Neeraj Consultants Ltd.
Court ITAT-Kolkata
Relevant Act Income-tax
Date of Order 19/10/2016
Assessment Year 2006-07
Judgment View Judgment
Keyword Tags disallowance of interest • computing total income • interest expenditure • business purpose • exempted income • unquoted share • unsecured loan
Bot Summary: On the above submission the CIT(A) held as follows: ITA No.316/Kol/2014- M/s. Neeraj Consultants Ltd. A.Y.2006-07 3 I have carefully considered the submission put forth on behalf of the appellant along with the supporting details / documents furnished the judgments of the cases relied upon, perused the facts of the case including the findings of the AO in the impugned assessment order and other materials brought on record. At the same time, I agree with the contention of the AO that the provisions of section 14A of the Act are still applicable in the instant case as the appellant has earned dividend income amounting to Rs.83,13,550/- during the year under consideration and claimed exemption u/s.10(34) of the Act. Without prejudice to the appellant s contention that provisions of section 14A are not applicable to the appellant company. After considering the submission of the appellant along with the case laws relied upon perusing the entire facts of the case and particularly taking into consideration that fact that the AO himself in the assessment order passed u/s143(3) dated 17.11.2011 in the appellant s own case for AY 2009-10, has restricted the disallowance u/s.14A to the extent of dividend income earned, I am of the view that the AO was not justified in disallowing the expenses of Rs.1,20,82,774/- i.e. exceeding Rs.83,13,550/- being the dividend income earned during the year u/s.14A of the Act to the extent of Rs.83,13,550/- being the dividend income by the appellant company during the year under assessment. The AO has made the ITA No.316/Kol/2014- M/s. Neeraj Consultants Ltd. A.Y.2006-07 5 disallowance of the interest paid towards the loan and advances on pro-rata basis on account of non use of the fund for the purpose of business of the appellant since no benefit derived the appellant during the year out of the said loan amount. The A/ R of the appellant placed reliance on the following decision in support of the appellant s contention: 1.CIT Vs Rampur Timber Turnery Co. Ltd 129 ITR 58 2. After considering the submission of the appellant and the findings of the AO and perusing the entire facts of the case and keeping in view the principle of the judgments of the cases relied upon.


ITA No.316/Kol/2014- M/s. Neeraj Consultants Ltd. A.Y.2006-07 1 IN INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C , KOLKATA (Before Shri N. V. Vasudevan,J.M. & Shri M. Balaganesh, A.M.) ITA No.316/Kol/2014 : Asstt. Year :2006-07 Vs M/s. Neeraj Consultants DCIT ,Circle-10, Ltd. Hudco Niwas,15N, Kolkata. Neli Sengupta, Sarani, Lindesay street, Kolkata-700087. PAN: AABCN1000D (APPELLANT) (RESPONDENT) Assessee by :Sri Manoj Kataruka. Advocate Revenue by : Sri Rajat Kumar Kureel, JCIT, Sr.DR Date of Hearing : 22.09.2016 Date of Pronouncement : 19-10-2016 ORDER Per Shri N. V. Vasudevan, J.M. This is appeal by assessee against order dated 25/11/2013 of CIT(A)- XII,Kolkata relating to assessment year 2006-07. 2. Ground No.1 & 2 raised by Revenue read as under: 1. That is facts and in law of case Ld. CIT(A) erred in deleting additon made AO u/s 14A read with Rule 8D amoungint to Rs.12082774/- for earning exempted income. 2. That is facts and in law of case Ld. CIT(A) erred in restricting disallowance u/s. 14A to Rs.8313550/- in violation of calculation prescribed by Rule 8D of I. T. Act. 3. assessee is company it is engaged in business of making investments earning commission income and dealing in shares. In course of assessment ITA No.316/Kol/2014- M/s. Neeraj Consultants Ltd. A.Y.2006-07 2 proceedings u/s.143(3)of Act. AO noticed that assessee had earned exempt dividend income of Rs.83,13,550/- which is not chargeable to tax and is exempt. 4. In view of provisions of Section 14A of Income Tax Act, 1961 (Act), which lays down that any expenditure incurred in earning income which does not form part of total income under Act, shall not be allowed as deduction in computing total income of Assessee, AO had to disallow expenses that were incurred in earning exempt dividend income. AO computed disallowance u/s.14A of Act read as follows: In above situation provision of Section 14A read with Rule 8D applied and after applying same with reference to exempted income as claimed by assesee for Rs.83,13,550/- . disallowances work out to Rs.1,20,82,774/-. Rule 8D(2) (i) NIL Rule 8D((2)(ii) interest 1,29,16,413 X17,17,80,126+ 10,46,99,437/- 2 18,81,64,850+12,53,23,297 = 1,29,16,413+13,83,39,781 18,81,64,850+ 12,53,23,297 = 15,67,44,073 = 1,13,91,576 Rule 8D (2) (iii) % of Rs.13,82,39,781 6,91,198 Total 1,20,82,774/- In view of above provisions, necessary expenses pertaining to exempted income is calculated at Rs.1,20,82,774/- and same is being disallowed and added to total income . 5. Aggrieved by order of AO, assessee has preferred appeal before CIT(A). submission of assessee before CIT(A) was that disallowance u/s.14A of Act was computed by AO at Rs.1,20,82,774/- whereas exempt dividend income earned by Assessee was only Rs.83,13,550/-. It was argued that disallowance of expenses u/s.14A of Act cannot exceed exempt dividend income. On above submission CIT(A) held as follows: ITA No.316/Kol/2014- M/s. Neeraj Consultants Ltd. A.Y.2006-07 3 I have carefully considered submission put forth on behalf of appellant along with supporting details / documents furnished & judgments of cases relied upon, perused facts of case including findings of AO in impugned assessment order and other materials brought on record. I. T. Rules are not applicable in relevant assessment year since same are applicable from AY 2008-09 and onwards in view of legal pronouncements relied upon in this regard. At same time, I agree with contention of AO that provisions of section 14A of Act are still applicable in instant case as appellant has earned dividend income amounting to Rs.83,13,550/- during year under consideration and claimed exemption u/s.10(34) of Act. Without prejudice to appellant s contention that provisions of section 14A are not applicable to appellant company. It is submitted disallowance u/s.14A cannot in case exceed amount of dividend income earned during year. Reliance is placed in this regard on decision of Hon ble ITAT, Chandigarh in case of ACIT vs. Punjab State Coop & Marketing wherein Hon ble Tribunal has held that disallowance u/s.14A cannot exceed exempt income. Further, it is stated that in appellant s own case for A. Y.2009-10, AO has vide his order u/s 143(3) dated 17.11.2011 restricted disallowance u/s14A to extent of dividend income earned. In support of this contention copy of assessment order for A.Y.2009-10 is furnished for ready reference. Thus, it is contended that disallowance in relevant year under appeal in case of appellant, therefore, cannot exceed Rs.83,13,550/- being dividend income earned during year. After considering submission of appellant along with case laws relied upon perusing entire facts of case and particularly taking into consideration that fact that AO himself in assessment order passed u/s143(3) dated 17.11.2011 in appellant s own case for AY 2009-10, has restricted disallowance u/s.14A to extent of dividend income earned, I am of view that AO was not justified in disallowing expenses of Rs.1,20,82,774/- i.e. exceeding Rs.83,13,550/- being dividend income earned during year u/s.14A of Act to extent of Rs.83,13,550/- being dividend income by appellant company during year under assessment. Thus, this ground of appeal is partly allowed. 6. Aggrieved by order of CIT(A) revenue has raised ground no. 1 and 2 before Tribunal. 7. At time of hearing it was brought to our notice that Hon ble Delhi High Court in case of Joint investments Pvt. Ltd. Vs. CIT ITA No.117/2015 Taxsutra.com, 372 ITR 694 (Del) has taken view that disallowance u/s 14A of Act cannot exceed exempt dividend income. In view of aforesaid judicial pronouncement, we are of ITA No.316/Kol/2014- M/s. Neeraj Consultants Ltd. A.Y.2006-07 4 view that there is no merit in ground nos.1 and 2 raised by Revenue. Accordingly same are dismissed. 8. Ground no.3 raised by Revenue read as under: 2. That is facts and in law of case Ld. CIT(A) erred in allowing interest on loan amounting to Rs.862668/- which was not utilized for business purpose. 9. AO disallowed interest expenses claimed by assessee for following reasons: DISALLOWANCE OF INTEREST assessee has debited Rs.1,29,16,413/- secured loan and unsecured loan for Rs.14,61,16,864/- and Rs.3,95,67,216. Examination of balance sheet also shows investment in unquoted share for Rs.57,51,120/- as per Sch. 5 and also loan and advance as per Sch,5 for Rs.88,35,187/-. assessee was asked to explain vide order sheet dated 08.02.2008 why interest debited to P/L a/e should not be disallowed on pro rata basis considering that investment and loan and advances are not used for business purpose, as no benefit is derive. assessee made written submission on 25.03.2008 as under:- investment made by assesee company in unquoted equity shares is detailed in schedule 4 of audited annual accounts. company has not derived any benefit from these investments during year under assessment. It is business of assessee company to invest in shares and to earn profit on same on account of appreciation in value of shares and also to earn dividend income. directors of assessee company had taken decision to invest in these unquoted shares with expectation of appreciation of their value and also to earn income by way of dividend at some point of time. Though assessee co. has not derived any benefit from these shares during year under assessment, but it expects to make profit on same in future. No disallowance out of interest paid is called for on this account. above explanation is not accepted as satisfactory, hence on pro rata basis i.e. Rs.8,62,668/- is being disallowed. 10. On appeal by assessee CIT(A) deleted disallowance made by AO observing as follows: I have carefully considered submissions put forth on behalf of appellant along with supporting details/documents furnished and judgments of cases relied upon, perused facts of case including findings of AO in impugned assessment order and other materials brought on record. AO has made ITA No.316/Kol/2014- M/s. Neeraj Consultants Ltd. A.Y.2006-07 5 disallowance of interest paid towards loan and advances on pro-rata basis on account of non use of fund for purpose of business of appellant since no benefit derived appellant during year out of said loan amount. However, in this regard, AR of appellant submitted that main business of appellant company is dealing in shares, leasing and finance in all kinds of goods and securities and making investments etc. During year under assessment, appellant company has purchased share of Apollo Tyres Ltd. sold shares of Sunlife Trade Links Pvt. Ltd. and secured loan taken from body corporate. It is further submitted that expenditure incurred by appellant company during year under assessment is expenditure which is necessary to keep company's business running. By referring to schedules 8, 9 & 10 of Annual Accounts, it is contended that expenditure incurred is by way of salaries, administrative expenses and interest expenditure. Thus it is stated that these expenditures are necessarily required to be incurred to keep company s business running. In respect of interest expenditure incurred, it is contended that same relates to loans availed by assessee company during year and preceding years for business purposes and appellant company is under obligation to pay interest on these loans. Further salaries are also necessarily required to be paid to staff who are required for day to day functioning of company and to meet statutory compliances. Therefore it is submitted that these expenses incurred by appellant company are, allowable expenditure. A/ R of appellant placed reliance on following decision in support of appellant s contention: 1.CIT Vs Rampur Timber & Turnery Co. Ltd (1981) 129 ITR 58 (AIL) 2. Nakodar Bus Service Pvt Ltd Vs Cll (1989) 179 ITR 506 (Punj. & Har.) In view of above, it is prayed that disallowance made by Assessing officer may deleted. After considering submission of appellant and findings of AO and perusing entire facts of case and keeping in view principle of judgments of cases relied upon. I am of view that AO was not justified in making impugned disallowance of interest paid towards loan and advances on pro-rata basis by holding that funds were not used for business purposes of 3 appellant. It is seen that one of main business activities of appellant has dealing in shares along with leasing and finance in all kinds of goods and securities and making investments. Therefore, I agree with contention of appellant that appellant company has not derived any benefit from investment of shares in relevant year under appeal cannot be sole reason for disallowance of interest expenditure Claimed towards loan fund so long as fund has been used for one of main purposes of business of appellant. In light of above discussion and findings and perusing facts and circumstances of case and respectfully following decisions of cases relied upon, AO is directed to delete disallowance made at Rs. 8,62,668/-on pro rata- basis on account of interest paid towards loan fund. Thus, this ground of appeal is allowed. ITA No.316/Kol/2014- M/s. Neeraj Consultants Ltd. A.Y.2006-07 6 11. Aggrieved by order of CIT(A), Revenue has raised Ground No.3 before Tribunal. We have heard rival submissions. learned DR relied on order of AO. learned counsel for Assessee relied on order of CIT(A). After considering rival submissions, we are of view that there is no merit in Gr.No.3 raised by Revenue. AO has accepted that investments made out of borrowed funds in quoted shares as use of borrowed funds for purpose of business of company. However to extent borrowed funds were used in making investments in unlisted/unquoted companies, AO has treated same as not for purpose of business of Assessee. Such distinction was rightly held by CIT(A) to be not proper. We therefore do not find any merit in Gr.No.3 raised by Revenue. same is accordingly dismissed. 12. In result, appeal by revenue is dismissed. Order Pronounced in Open Court on 19.10.2016 Sd/- Sd/- (M. Balaganesh) (N. V. Vasudevan) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 19 /10/2016 S. Sinha(PS) Copy of order forwarded to: 1. M/s. Neeraj Consultants Ltd., 15N, Nelie Sengupta Sarani,Kolkata-700087. 2 D.C.I.T., Circle-10, Kolkata 3. CIT-IV,Kolkata 4. CIT(A)-XII, Kolkata 5. DR, Kolkata Benches, Kolkata True Copy, By order, Asst. Registrar, ITAT, Kolkata Benches ITA No.316/Kol/2014- M/s. Neeraj Consultants Ltd. A.Y.2006-07 7 DCIT ,Circle-10, Kolkata v. M/s. Neeraj Consultants Ltd
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