TMI Blog2017 (3) TMI 1042X X X X Extracts X X X X X X X X Extracts X X X X ..... 15JB - Held that:- The additions made by the AO under rule 8D read with section 14A of the Act has been deleted by our order vide Para-11 to 11.2 of this order. Therefore, the instant issue does not require any adjudication. Hence, the ground raised by Revenue is not maintainable and hence dismissed. - ITA No.2774/Kol /2013 - - - Dated:- 15-3-2017 - Shri Aby.T Varkey, Judicial Member and Shri Waseem Ahmed, Accountant Member For The Appellant : Shri Subhro Das, JCIT-SR-DR For The Respondent : Manish Sheth, AR ORDER PER Waseem Ahmed, Accountant Member:- This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-IV, Kolkata dated 19.08.2013. Assessment was framed by JCIT(OSD), Circle-4, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 27.12.2011 for assessment year 2009-10. Shri Subhro Das, Ld. Departmental Representative represented on behalf of Revenue and Shri Manish Sheth, Ld. Authorized Representative appeared on behalf of assessee. 2. Grounds raised by Revenue per its appeal are as under:- 1. The Ld. CIT(A) erred in law as well as on facts in holdi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble Calcutta High Court in the case of AFT Industries Ltd (supra) have been approved by the Hon'ble Apex Court in the case of M/s Apeejay Tea Co Ltd in Civil Appeal No. 1105 of 2006 and accordingly agreed with the order of the ld CIT(A) in this regard. 6. We have heard the rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. We find that the issue is squarely covered by the decision relied upon (supra) in favour of the assessee and essence of the decision is already discussed in the facts above. Respectfully following the same, we dismiss the Ground No.1 raised by the Revenue. 7. The next issue raised by the Revenue in this appeal is that ld CIT(A) erred in deleting the addition made by the AO u/s 14A of the Act. 8. The assessee in the year under consideration has earned dividend income for ₹ 2,54,101/- only which was claimed exempted u/s 10(34) of the Act. The assessee, during the assessment proceedings has offered the disallowances of the expenses u/s 14A of the Act for ₹ 2,17,552/- in the relation to impugned exempted income. The ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activities. There was sufficient owned fund available with the assessee for such investments and there was no information suggesting that the borrowed fund has been utilized in the investments. 3. The assessee used the same basis for the disallowance under section 14A of the Act for the subsequent assessment year 2010-11 which was duly accepted by the assessing officer. 4. The assessee also submitted the details of investment made by the assessee during the year as detailed under : Sl.No Particulars Amount (Rs) 1 Purchase of 83,305 equity shares of ₹1/- each fully paid up of Celsia Hotels Pvt. Ltd. (earlier known as Amit Promoters Contractors Pvt.Ltd.) 12,50,00805 2 19,26,000 equity shares of ₹1/- each of PSK Hotels and Resorts Pvt. Ltd. 5,20,02,000 3 Other investments made during the year. 48,29,511 5. The major part of funding in respect of said investments were made out of the proceeds received by the company on issue of preferentia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owned funds and not loan funds. 4.4 The appellant has submitted detail reply in support of the same vide submission dated 07-08-2013. It is observed that the major investment made during the year was substantially funded out of proceeds of preferential allotment of equity shares to FIIs. The equity issue was made after obtaining approval from the Government of India, Ministry of Finance, Department of Economic affairs, as per which the proceeds of the issue were required to be utilized for downstream investment in Hotel/Restaurant business in India. It is further observed from the balance-sheet that the appellant had sufficient reserves and surplus and sale of investment during the year which went to fund balance investment. The appellant has also placed on record various evidences in support of the fact that the various loans raised were specific purpose loan to fund the working capital needs of the company or were raised to repay loan taken for acquisition of tea estate/car loan and did not anyway went in funding of investment. It is observed that the Assessing Officer could not bring any evidence on record that any loan funds were utilized in making investing out of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Rule 8D(2)(ii) is deleted. 4.8 As regard the disallowance made in respect of Rule 8D(2)(iii), the appellant has argued that in computing any disallowance under Rule 8D(2)(iii) being numerator B in rule 8D(2)(ii), the Assessing officer ought to have considered only those investment from which the appellant earned dividend and not the total investment at the beginning of the year and at the end of the year. In case, in computing the average value of investment as provided in numerator B, average investment out of which no dividend income was earned is excluded, the disallowance under Rule 8D (2)(iii) would reduce to ₹ 1,06,531/- being a figure lower than the amount already offered to tax by the assessee. Reliance in this regard has been placed on the decision of jurisdictional Kolkata Tribunal in the case of Rei Agro Ltd. (Supra) wherein it has been held that only those investments on which dividend has been earned by the appellant should have been considered for computing 0.5% of Average value of investments and not all investments on which no dividend has been earned during the relevant financial year. 4.9 I have gone through the judgement of Kolkata Tribunal i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ims that no related expenses have been incurred. The observation of ld. CIT(A) that the assessee had funds from sell of investments is not correct as sale of investments are not separately reflected in balance sheet. Funds, if any, from such activity would be included in the reserves and surplus itself. At the same time it is to be stated that, it is fact that the assessee had substantial reserves and surplus. But it is also fact that there is no evidence to substantiate assessee's claim that the entire investment in shares of ₹ 7.84 crores as on 31/3/2008 and ₹ 22.73 crore as on 31/3/2009 was funded solely by such surplus fund. The assessee had borrowed funds of ₹ 16.57 crores as on 31/3/2008 and ₹ 21.51 crore as on 31/3/2009. There is also no evidence to prove that no part of such borrowed funds was utilized in acquiring the assets under investment. Most significantly, the borrowed funds included unsecured loans of ₹ 10.78 crores as on 31/3/2008 and ₹ 5 crores as on 31.03.2009. Schedule-4 appearing in page-35 of paper book reveals that such unsecured loans were obtained from other corporate and directors without any specific purposes, so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been brought out after this Tribunal's judgment in the Rei Agro case and therefore should be considered the present status. 10.1 At para-4.10, Ld. CIT(A) has observed that since Rule 8D was not invoked by AO in assessee's own case for the A.Y.201O-11, the same should also not be invoked for this year also. In this regard, it is well settled law that the doctrine of res judicata is not applicable in Income Tax proceedings. In fact, in several judgments, various Hon'ble High Courts and even Hon'ble Supreme Court has held that to err is human's nature. That does not mean that an incorrect judgment shall become the precedence. In this context, reliance was placed on the judgment delivered by Five Judge Bench of Hon'ble Supreme Court in Distributors (Baroda) Pvt. Ltd. Vs Union of India (1985) reported in 22 taxman 49. The issue was u/s 80M of the Act which is not relevant in the context of this argument but the intention can be drawn from the same as held that To perpetuate an error is no heroism. To rectify it is the compulsion of judicial conscience. In this we derive comfort and strength from the wise and inspiring words of Justice Bronson in Pier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 260 (Kol) Damodar Valley Corporation vs. ACIT (2016) 157 ITD 415 (Kol) ACIT vs. Champion Commercial Co. Ltd. (2013) 152 TTJ 241 (Kol) CIT vs. Taikisha Engineering India Ltd. (2015) 370 ITR 272 (Del) Maxopp Investments Ltd vs. CIT (2012) 347 ITR 272 (Del) CIT vs. Consolidated Photo Finvest Ltd. (2013) 358 ITR 310(Del) Auchtel Products Ltd. vs. ACIT (2012) 52 SOT 39 (Mum) Without prejudice to above, assuming though not admitting that Rule 8D of the IT Rules was at all applicable in the case of the respondent, the quantum of disallowance made by AO is incorrect owing to following reasons:- i) As regard computation of interest disallowed under Rule 8D(2)(ii) in computing the amount of disallowance of ₹ 45,93,305/- the AO was not justified in disallowing an amount of ₹ 38,28,749/- on account of interest cost by applying Rule 8D. ii) The AO failed to appreciate that there were sufficient own funds out of which the investment has been made and nothing has been brought on record to sow that the investment was made out of borrowed funds. The major part of funding in respect of said investments were made out of proceeds received by the company on is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT vs. Champion Commercial Co. Ltd. (2013) 152 TTJ 241 (Kol), DCT vs. REI Agro Ltd. (2013) 144 ITD 141 (Kol) and the decision of the Chennai ITAT in the case of ACIT vs. Best Crompton Engineering Ltd. (2013) 60 SOT 53 (Chennai). vi) Without prejudice to above, in case any interest expenditure is at all required to be disallowed, the same has to be netted off against the interest income and only the difference, if any, can be considered for disallowance of proportionate interest cost. [Rs.1,78,79,108/- (i.e. Interest Expenditure of ₹ 2,09,53,520/- (-) Interest Income of ₹ 30,74,412/-)]. Reliance in this regard is placed on the following judgment of Kolkata Tribunal in the case of DCIT vs. Trade Apartment Ltd.[ITA No. 1277/Kol/2011]. Reliance is also placed on the decision of Hon'ble Ahmedabad Tribunal in the case of ITO vs. Karnavati Petrochem Pvt. Ltd. [ ITA No.2228/Ahd/2012 ] 4) Without prejudice to the above, it is further submitted that while considering the average value of investments for the purpose of applying Rule 8D(2)(ii) and 8D(2)(iii), the AO erred in considering all investments. i) It is humbly submitted that investments which have not earn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o deletion of addition of ₹ 45,93,305/- made under the provisions of rule 8D r.w.s. 14A of the Act. However, the same was deleted by the learned CIT(A). With regard to the allegation that no satisfaction was recorded by the AO before invoking the provisions of rule 8D read with section 14A of the Act, in this regard we find that the assessee in the year under consideration has earned dividend income but no expense was disallowed by the assessee in its return of income. The assessee has made the disallowance during the course of assessment proceedings when the issue was raised by the AO. It was also submitted that the assessee at the time of assessment has not furnished necessary details with regard to the source of investment. It was also observed by the AO that the investments have been made out of the mixed bank account of the assessee. However on perusal of the assessee s paper book,we find that all the necessary details with regard to the source of investment was duly furnished to the AO at the time of assessment proceedings and the necessary details are placed at page 178 179 of the paper book which read as under:- During the year there have been two major investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, Department of Economic Affairs, FIPB Unit as per their approval letter No.FC.I.225 (2008)/ 258(2008) dated November, 24, 2008. A copy of the said approval letter is enclosed. The said approval letter clearly indicated that the proceeds of the issue were required to be utilized for downstream investment in Hotel / Restaurant business in India. Thus, the proceeds of ₹ 10,25,00,000 were fully utilized for the above investments, which in the interim was financed out of Long term Internal Working Capital. This has also been stated in Not 3 in Schedule 18 to the Accounts. The proceeds against the above issue were received at our HDFC Bank Ltd. On August, 04, 2008 and December 03,2008 respectively. Copies of the relevant bank statement are enclosed. Thus, the net increase of ₹ 14,88,80,878 in investments was financed as under: 1. Proceeds of 10,25,000 equity shares of ₹10/-each Rs.10,25,00,000 2. Sale of investments made in earlier years and Internal accruals arising out of cash profits from Business operations ₹ 4,63,80,878 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od. The findings, therefore, that the assessee had sufficient interest free funds to make the investment yielding tax free returns cannot be faulted. The absence of bank books in these circumstances would not justify an adverse inference being drawn for whichever way the matter is viewed, the assessee had sufficient funds available to it on which no interest was payable. This brings us to the legal issue of a presumption to be made when there is a pool of funds which include interest bearing funds and interest free funds. In view of above, we find that no disallowance for the interest is warranted under the provisions of rule 8D read with section 14A of the Act. 11.2 Admittedly, the assessee made no disallowance in its return of income but during assessment proceedings the assessee has offered disallowances u/s 14A of the Act along with supporting documents. But on perusal of AO's order, we find that no defect has been made out by the AO in the amount of disallowance offered by the assessee. It is also important to note that on the same reasoning the disallowance made by the assessee in the subsequent assessment year i.e. 2010-11 was duly admitted by the AO. Thus, we f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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