Itat/184/2014 Of Commissioner Of Income Tax , Kol - Iii, Kol v. M/S. Meenakshi Tea Co. Ltd

ITAT/184/2014 IA NO.GA/1/2014 (Old No.GA/3727/2014) IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction (Income Tax)ORIGINAL SIDE COMMISSIONER OF INCOME TAX, KOLKATA– III, KOLKATA -Versus- M/S. MEENAKSHI TEA CO. LTD. Appearance: Mr. Prithu Dudheria, Adv....for the appellant. Mr. Bodhayan Bhattacharya, Adv....for the respondent. BEFORE: -And- The Hon’ble JUSTICE T.S. SIVAGNANAM The Hon’ble JUSTICE HIRANMAY BHATTACHARYYA Date : 8[th] June, 2022. The Court : This appeal filed by the revenue underSection 260A of the Income Tax Act, 1961 (the ‘Act’ for brevity)is directed against the order dated 4[th] July, 2014 passed by theIncome Tax Appellate Tribunal, “B” Bench, Kolkata in ITANo.1511/Kol/2012 for the assessment year 2009-10. The revenue has raised for the following substantial question of law for consideration: (a)Whether on the facts and circumstances of the casethe Learned Income Tax Appellate Tribunal, ‘B’Bench Kolkata erred in law in upholding the order (b) (c) of the CIT(Appeals) – VIII, Kolkata in holding thatthe Assessee Company’s loss from purchase and saleof share to the tune of Rs.5,10,28,564/- was notcovered by the Explanation to provisions of section73 of the Income Tax Act, 1961 and the same is nonSpeculation Loss? Whether on the facts and circumstances of the casethe Learned Income Tax Appellate Tribunal, ‘B’Bench Kolkata erred in law in upholding the orderof the CIT(Appeals) – VIII, Kolkata in holding thatthe deployment of funds in the instant case is morein the business of money lending from where theinterest was earned and further the income earnedfrom sources other than share transactions and alsoin treating the loss so incurred by the assessee-company as non-Speculation Loss and Explanation toprovision of Section 73 of the Income Tax Act, 1961is not applicable in this case? Whether on the facts and circumstances of the casethe Learned Income Tax Appellate Tribunal, ‘B’Bench Kolkata erred in law in upholding the orderof the CIT(Appeals) – VIII, Kolkata in holding thatthe entire disallowance made by the AssessingOfficer Rule 8D(2)(iii) of the Income Tax ACt, 1961 is not applicable on this issue without assigningany findings as regards the inapplicability of theprovisions of section 14A of the Income Tax Act,1961 read with Rule 8D(2)(iii) of the Income TaxAct, 1961? We have heard Mr. Prithu Dudheria, learned standingcounsel appearing for the appellant/revenue and Mr. BodhayanBhattacharya, learned counsel appearing for the respondent/assessee. The appeal was heard by the Hon’ble Division Bench and byorder dated 17[th] December, 2014 the questions of law (a) and (b) assuggested above were dealt with and the Division Bench held thatthey are not substantial questions of law and they were rejected.The operative portion of the order is as follows : “Heard Mr. Bandopadhyay, learned Advocate for the appellant.He prays for admission of the appeal on the questions raised. The issue arising out of the first two questions relateto, whether the assessee’s loss from purchase and sale of sharesto the tune of Rs.5,10,28,564/- was or was not covered by theExplanation in Section 73 of the Income Tax Act, 1961? In the assessment order, it was held, inter ali8a, that :“The character of loss suffered by the assessee from itsshare trading and the provisions contained in Explanationbelow section 73 were specifically discussed with the A/R.From the details submitted by the A/R, it has emerged thatthe assessee has no income under the heads ‘interest on “Heard Mr. Bandopadhyay, learned Advocate for the appellant.He prays for admission of the appeal on the questions raised. The issue arising out of the first two questions relateto, whether the assessee’s loss from purchase and sale of sharesto the tune of Rs.5,10,28,564/- was or was not covered by theExplanation in Section 73 of the Income Tax Act, 1961? In the assessment order, it was held, inter ali8a, that :“The character of loss suffered by the assessee from itsshare trading and the provisions contained in Explanationbelow section 73 were specifically discussed with the A/R.From the details submitted by the A/R, it has emerged thatthe assessee has no income under the heads ‘interest on securities’, ‘income from other sources’ and ‘income fromhouse property’ respectively, though it has incurred a lossof Rs.54,83,881/- chargeable under head ‘capital gains(short term)’…….From the A/R’s submission noted above, it is amply clearthat the granting of loans and advances is not the principalbusiness of the assessee, rather the assessee had resorted tooccasionally granting such loans and advances in order tomaintain its corporate status as NBFC, thereby supplementingthe investment activity. From the accounts, it is evidentthat the assessee is actively engaged in capital markettransactions, viz. Share trading and derivative transactions.All these facts coupled with discussions made in para 2.1 and2.2 above clearly establish that the assessee’s case is notcovered by any of the exceptions mentioned in Explanationmentioned below section 73. That is (a) the gross totalincome of the assessee does not consist mainly of incomewhich is chargeable under the heads “Interest on Securities”,“Income from house property”, “Capital gains” and “Incomefrom other sources”; or (b) the principal business of theassessee is not the business of banking or the granting ofloans and advances.” On appeal preferred, the CIT (Appeals) held as follows : “As per the gross total income worked out above, the businessincome of the appellant will be 11.5% of total gross income,if the loss on sale of investment is considered separatelyand if loss on sale of investment is deducted from incomefrom other source than the percentage of business income ofthe appellant will be nearly 19.09% of gross total income.To sum up the gross total income of the appellant whencomputed in accordance with the Hon’ble Special Benchdecision I the case of Concord Commercials (P) Ltd. (supra)it will consist mainly of income chargeable under the head“Interest on securities”. “Income from house property”, “Capital gains” and “Income from other sources” hence theexplanation to Section 73 will not be applicable to the caseof the appellant and accordingly the loss on trading of sharecannot be termed as speculation loss”. The Tribunal confirmed such finding of the CIT (Appeals) made onfacts. In the circumstances, we find no substantial question of lawarises on the said two questions. In so far as the third question is concerned, hearing isnecessary. Learned Central Government Advocate is directed to serve copyof the Stay Application and Memorandum of Appeal along with a copy ofthis order on the Respondent by speed post by 24.12.2014 to enable it toappear and make its submissions on the adjourned date. List this matter appear under the heading “For Order” on15.1.2014 when the appellant shall file Affidavit-of-Service. “ From the above order it is seen that only in respect ofthird question which has been suggested by the revenue, notice wasdirected to be issued to the respondent/assessee. We haveconsidered the submissions on either side and perused the findingsrendered by the learned tribunal on the third question. Thetribunal has recorded the following factual finding with regard tothe said question: List this matter appear under the heading “For Order” on15.1.2014 when the appellant shall file Affidavit-of-Service. “ From the above order it is seen that only in respect ofthird question which has been suggested by the revenue, notice wasdirected to be issued to the respondent/assessee. We haveconsidered the submissions on either side and perused the findingsrendered by the learned tribunal on the third question. Thetribunal has recorded the following factual finding with regard tothe said question: “9.We have heard rival submissions and gone throughfacts and circumstances of case. We find that assessee has notspent any amount on interest on borrowing as at 01.04.2008 andborrowing taken this year was not utilised in investment. Assesseehas erred big income from derivative transactions at Rs 5,42,61,231/- and suffered loss on investment at Rs. 1,22,81,662/-i.e. total expenses claimed are only Rs. 1,42,48,311/-. Dividendincome being only 1.5% of gross income Rs 2,13,724/- being 1.5% ofexpenses can be attributed to dividend against which the companyhas offered Rs. 2,41,126/-. Further, there are direct expenses atRs 56,023/- as calculated A.Y. will apply in view of theprovisions of Section 14A r.w.r 8D of the rules. In assessee’scase only Rule 8D(2)(i)is applicable and not 8D(2)(iii). Clause(ii), which clearly provides that formula giving therein is to beevoked only in a case where assessee has incurred expenditure byway of interest during the previous year which is not directlyattributable to any particular income or receipt. In this caseInterest payment is only Rs 4,801/-. This interest is attributableto loans not utilised for investment but for giving loans toShakti Sugar Ltd. i.e. Rs 3,00,000/- and Rs 7,00,000/- paid assecurity deposit to SKP Securities. Rs 37,00,000/- taken fromParkview Properties Pvt. Ltd. and Rs 3 lacs and Rs 7 lacs fromBikanna Commercial Pvt. Ltd. and Shahjahanpur Electric Co. Ltd.respectively. In view of the above facts, we have no alternativeexcept to confirm the order of CIT(A) and this issue of Revenue’sappeal is dismissed”. Reading of the above finding of the tribunal which hadapproved the finding of the Commissioner of Income Tax (Appeals),we find that the tribunal has rightly taken note of the factualposition and rejected the appeal filed by the revenue. That apart,the law under issue has been well-settled and under whatcircumstances the provision available under Rule 8D(2) can be madeapplicable and mechanical exercise of such power was held to bebad in law. Therefore, we find that no question of law much less substantial question of law arises for consideration on the thirdissue as well. Hence, the appeal is dismissed.With the dismissal of the appeal, the connectedapplication (IA No.GA/1/2014) stands closed. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.)Pkd/S.Das