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06-09-2019, Stenly Securities, Section 36(1)(iii), 5, 43, 14A, Tribunal Kolkata

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5 days 5 hours ago #10760 by amit
Section - 36(1)(iii), 5, 43, 14A, 8D
Order Date - 06-09-2019
Favouring - Assessee Partly
Court - Tribunal Kolkata
Appellant - Stenly Securities Ltd.
Respondent - DCIT
Justice - A. T. VARKEY, JM & DR. A.L.SAINI, AM
Citation - 919Taxpundit81
Appeal No. - ITA No.1718/Kol /2017
Asstt. Year - 2008-09

Order

PER : Dr. A. L. Saini:

The captioned appeal filed by the Assessee, pertaining to assessment year 2008-09, is directed against the order passed by the Commissioner of Income Tax (Appeal)-2, Kolkata, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (in short the ‘Act’) dated 16/12/2010.

2.The appeal filed by the assessee for Assessment Year 2008-09, is barred by limitation by 16 days. The assessee has moved a petition requesting the Bench to
condone the delay.We heard the party on this preliminary issue. Having regard to the reasons given in the petition, we condone the delay and admit the appeal for hearing.

2. The grounds of appeal raised by the assessee are as follows:

1. a) That on the facts and in the circumstances of the case, the ld. CIT(A) has erred in dismissing Ground no. 1 without speaking order on arguments made on behalf of the appellant.

b) That on the facts and in the circumstances of the case, the ld. CIT(A) is unjustified in confirming the action of Assessing Officer who disallowed Rs. 1,45,034/- u/s 14A read with Rule 8D of Income Tax Rules, 1962.

2. a ) That on the facts and in the circumstances of the case, ld. CIT(A) has erred in dismissing ground no 2 without a speaking order on arguments made on behalf of the appellant.

b) That on the facts and in the circumstances of the case, ld. CIT(A) is wrong and unjustified in confirming the action of Assessing Officer who disallowed loss of Rs.19,39,257/- towards F & O derivatives as notional loss.

3. That on the facts and in the circumstances of the case, ld. CIT(A) is wrong in rejecting additional ground raised in course of appeal to contest the disallowance of STT of Rs. 4,50,677/ .

4. That the appellant craves leave to add, modify or amend any ground or grounds on or before the date of hearing.

3. Ground no. 1 raised by the assessee relates to disallowance u/s 14A read with Rule 8D to the tune of Rs. 1,45,034 -.

4. After giving our thoughtful consideration to the submission of the parties and perusing the judicial decisions relied upon by the Ld. AR, we find that the issue involved in the present appeal is no longer res integra.We note that where the assessee was having a common fund consisting of both own funds and borrowed funds and in case the own funds are sufficient to invest in non-business activities, a presumption is drawn that the said investment is made out of own funds. We note that assessee has its own funds which are sufficient to meet the investment therefore the disallowance under rule 8D(2)(ii) does not attract. To buttress this plea, we rely on the judgment of Bombay High Court in the case of CIT v. Reliance Utilities and Power Ltd. (313 ITR 340), wherein it was held as follows:

“The assessee claimed deduction of interest on borrowed capital. The Assessing Officer recorded a finding that the sum of Rs.213 crores was invested out of its own funds and Rs. 147 crores was invested out of borrowed funds. Accordingly, he disallowed interest amounting to Rs.4.40 crores calculated at 12 per cent per annum for three months from January, 2000 to March, 2000. The Commissioner (Appeals) found that the assessee had enough interest-free funds at its disposal for investment and accordingly deleted the addition of Rs.4.40 cores made by the Assessing Officer and directed him to allow the deduction under section 36(1)(iii). The order of the Commissioner (Appeals) was upheld by the Tribunal. On appeal to the High Court :

" Held, dismissing the appeal, that if there were funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest- free funds generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption was established considering the finding of fact both by the Commissioner (Appeals) and the Tribunal. The interest wasdeductible. " We note that Coordinate Bench of ITAT Kolkata in the case of REI Agro Ltd. Vs. DCIT 144 ITD 141 (Kol-Trib) has held that it is only the investments which yields
dividend during the previous year that has to be considered while adopting the average value of investments for the purpose of Rule 8D(2)(ii) & (iii) of the Rules.

The aforesaid view of the Tribunal has since been affirmed as correct by the Hon’ble Calcutta High Court in G.A.No.3581 of 2013 in the appeal against the order of the Tribunal in the case of REI Agro Ltd. (supra).

In the light of the aforesaid judicial pronouncements, we note that assessee has suomoto disallowed direct expenses of Rs.3,940/- under Rule 8D(2)(i), the saiddisallowance is hereby confirmed. So far Rule 8D(2) (iii) is concerned, we direct the AO to compute the disallowance taking into account dividend bearing securities as held by the Coordinate Bench in the case of REI Agro(supra). Hence, we allow the ground No. 1 raised by the assessee for statistical purposes.

5. Ground No. 2 raised by the assessee relates to addition on account of loss of Rs. 19,39,257/- incurred by the assessee on account of forward and option derivative contract.

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