SKP SECURITIES LTD.,KOLKATA vs. DCIT, C.C-2(2), KOL, KOLKATA

order : November 16, 2023 आदेश / ORDER संजय गग�, �या�यक सद�य �वारा / Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order dated 22.03.2023 of the National Faceless Appeal Centre (hereinafter referred to as the ‘CIT(A)’) passed u/s 250 of the Income Tax Act (hereinafter referred to as the ‘Act’). 2. The assessee in this appeal has taken the following grounds of appeal: “1. That the Ld. lower authorities erred in law and in fact by making an addition of INR 1,00,270 under section 14A when the assessee had sufficient fund to make investment out of own funds.

2. That the Ld. lower authorities erred in law and in fact by making an addition of INR 1,00,270 under section 14A when the assessee did not earn any exempted income in the first place.

Assessment year: 2014-15 SKP Securities Ltd 3. That the assessee craves leave to add, alter or amend any ground before or at the time of hearing.” 3. A perusal of the above grounds of appeal would reveal that the assessee in this appeal has agitated against the confirmation of addition made by the lower authorities on account of disallowance calculated on notional basis incurred for earning of tax exempt income.

4. The ld. counsel has made two fold submissions. Firstly, that the own funds of the assessee were sufficient to meet the investments. Secondly, that the assessee did not earn any exempt income during the year. The ld. counsel has demonstrated that the equity and reserves of the assessee for the year under consideration were at Rs.22.11 crores, whereas, the investment in equity instruments were at Rs.2 crores, the excess own funds of the assessee, therefore, at Rs.21.11 crores.

5. The issue is covered by the decision of the Hon’ble Supreme Court in the case of Commissioner Of Income Tax-LTU vs Reliance Industries Ltd reported in 410 ITR 466, wherein, the Hon’ble Supreme Court confirmed the proposition of law that if the own funds/interest free funds are available with the assessee to meet the investment, presumption will be that the assessee has used own interest free funds for the said investment.

6. The ld. AR of the assessee has further submitted that since the assessee did not earn any tax exempt income during the year under consideration, therefore, no disallowance is warranted u/s 14A of the Act. He in this respect has relied upon the following case laws:

Cheminvest Ltd. vs. CIT 378 ITR 33 (Del). CIT vs. M/s. Holcim India Pvt. Ltd. in and ITA no. 299/2014; Judgment dt. 5-9-2014 CIT v. Shivam Motors (P.) Ltd. [2015] 230 Taxman 63 Assessment year: 2014-15 SKP Securities Ltd CIT vs. Ashika Global Securities Ltd. (G.A. No. 2122 of 2014) dt. 11/06/2018 In these case laws, Hon’ble High Courts have been unanimous to hold that where the assessee has not derived any tax exempt income from investments, then no disallowance is attracted u/s 14A of the Act. The ld. D/R, however, has relied upon the newly inserted 7.1 explanations to Section 14A of the Act, which is extracted for the sake of ready reference:- “14A. [(1)] [Notwithstanding anything to the contrary contained in this Act, for the purposes of] computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.] ************************ *********************** [Explanation.—For the removal of doubts, it is hereby clarified that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where the income, not forming part of the total income under this Act, has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such income not forming part of the total income.]” 7.2 The ld. D/R has further relied on the decision of the Co-ordinate Bench of ITAT Guwahati in the case of ACIT vs. Williamson Financial Services Ltd. reported in [2022] 140 taxmann.com 164 (Guwahati - Trib.). (Judicial Member herein being party to the said decision), to submit that the said explanation to Section 14A of the Act is retrospectively applicable.