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Income Tax Appellate Tribunal, KOLKATA ‘SMC’ BENCH, KOLKATA
Before: SRI SANJAY GARG & DR. MANISH BORAD
order
: October 16th, 2023 ORDER
Per Manish Borad, Accountant Member:
This appeal filed by the assessee pertaining to the Assessment Year (in short ‘AY’) 2015-16 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the ‘Act’) by ld. Commissioner of Income-tax (Appeals)-NFAC, Delhi [in I.T.A. No.: 631/KOL/2023 Assessment Year: 2015-16 Anupriya Consultants Pvt. Ltd. short ld. ‘CIT(A)’] dated 12.05.2023 arising out of the assessment order framed u/s 143(3) of the Act dated 13.12.2017.
The assessee is in appeal before the Tribunal raising the following grounds: “
1. That, the Ld. CIT(A) erred on facts in having stated while upholding the disallowance u/s 14A of the Act of Rs. 1,18,00,874/- that the A.O. was not satisfied that no expenditure was incurred to earn exempt income, when the A.O. has not recorded any dissatisfaction over the computation made for suo moto disallowance of expenditure of Rs. 19,44,098/- u/s ,14A of the Act which is as per settled law an essential condition for invoking the applicability of Rule 8D of the Rules.
2. That, the Ld. CIT(A) further erred in having upheld the disallowance of Rs. 1,18,00,874/- u/s 14A of the Act on the alleged observation that the assets which either yield or could yield exempted income should be considered for working out the disallowance under Rule 8D of the Rules when as per settled law decided by various courts only the investments generating exempt income shall be considered for disallowance u/s 14A of the Act and not all the investments appearing in the Balance Sheet.
3. That, the Ld. CIT(A) further erred in not having properly considered the recalculation of disallowance u/s 14A of the Act according to Rule 8D of the Rules submitted before him amounting to Rs.23,25,199/- in substitution of Rs. 19,44,098/- suo moto disallowed and on the facts of the case and in law no further disallowance over and above the said amount of Rs.23,25,199/-already disallowed is called for.
4. That the Ld. CIT(A) further erred in law in having opined that upon confirming the disallowance of Rs.98,56,776/- u/s 14A r.w.r. 8D of the Rules, the book profit u/s 115JB as a natural consequence will be simultaneously adjusted in spite of the settled position in law that computation under clause (f) of Explanation 1 to sec. 115JB(2) of the Act is to be made without resorting to the computation as contemplated u/s lw4A r.w.r. 8D of the Rules.
5. That, therefore, as the order of Ld. C1T(A), NF AC, Delhi on the above issues suffer from illegality and is devoid of any merit the same should be quashed and your appellant be given such relief(s) as prayed for.
6. That, the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/ or rescind any or all of the above grounds.”
I.T.A. No.: 631/KOL/2023 Assessment Year: 2015-16 Anupriya Consultants Pvt. Ltd.
Brief facts of the case as culled out from the records are that the assessee is a private limited company and declared loss of Rs. 73,19,738/- in the original return of income e-filed on 28.09.2015 for AY 2015-16 which was subsequently revised on 16.03.2017 revising loss at Rs. 71,55,258/-. Case selected for scrutiny through CASS followed by serving of notices u/s 143(2) & 142(1) of the Act. Ld. AO noticed that the assessee had made huge investment in equity shares and mutual funds. The assessee has suo moto offered disallowance at Rs. 19,44,098/- being incurred for earning exempt income. However, ld. AO calculated the disallowance u/s 14A of the Act by applying Rule 8D of Income Tax Rules, 1962 and computed the same at Rs. 1,18,00,874/- and accordingly after deducting the disallowance suo moto offered by the assessee made the addition of Rs. 98,56,776/-. Ld. AO also added the disallowance u/s 14A of the Act to the book profit for computing the book profit u/s 115JB of the Act.
Aggrieved, the assessee preferred appeal before ld. CIT(A) but failed to succeed as ld. CIT(A) after considering various decisions confirmed the action of the AO even though it was contended by the assessee that major portion of the investment is in mutual funds on which management fees stand already charged by the respective funds and that interest disallowance and 0.5% of the alleged investment to disallowed under Rule 8D(2) & 8D(2)(3) of the Rules respectively need to be computed only on the investments fetching exempt income.
Aggrieved, the assessee is now in appeal before this Tribunal. Ld. Counsel for the assessee vehemently argued referring to the I.T.A. No.: 631/KOL/2023 Assessment Year: 2015-16 Anupriya Consultants Pvt. Ltd. detailed written submission placed on record along with referring to various decisions including the one namely REI Agro Ltd. vs. DCIT reported in [2014] 160 TTJ 0107 (Kol). Ld. Counsel for the assessee also stated that interest disallowance if calculated on the investment fetching exempt income then the same would be at Rs. 8,30,552/- and similarly, 0.5% of the average investment fetching exempt income would amount to Rs. 2,26,091/-. It was thus, submitted that even if Rule 8D of the Rules is applied for the purpose of calculating disallowance u/s 14A of the Act the same would amount to Rs. 23,25,199/- and since the assessee had already offered Rs. 19,44,098/- the disallowance cannot be sustained more than Rs. 3,81,101/-. Further, as regards the adding of the disallowance for the purpose of computing book profit, though it has been contended based on various decisions that the same not to be added for the purpose of computing book profits but alternatively it was submitted that the same cannot exceed the maximum disallowance which can be sustained at Rs. 3,81,101/- since the assessee has already computed the book profit in its return of income after adding back the disallowance u/s 14A of the Act suo moto calculated by the assessee.
On the other hand, ld. D/R vehemently argued supporting the orders of both the lower authorities.
We have heard rival contentions and perused the records placed before us. The disallowance u/s 14A of the Act is in dispute before us. We notice that the assessee had suo moto offered disallowance at Rs. 19,44,098/-. Ld. AO has computed the disallowance after applying Rule 8D of the Rules at Rs. I.T.A. No.: 631/KOL/2023 Assessment Year: 2015-16 Anupriya Consultants Pvt. Ltd. 1,18,00,874/-. It has been contended before us by ld. Counsel for the assessee that dividend income earned during the year is Rs. 37,38,175/- and the same has been earned on the average investment of Rs. 4,52,18,287/-. The details of the same is mentioned below:
Dividend Sl. Opening value as on Closing Value as on No. Name of the Company Amount 01.04.2014 (A) 31.03.15(B) (Rs.) 1 Simplex 35,44,956/- 4,15,01,668.66 4,31,43,287.16 Infrastructures Ltd 2 WPIL Limited 1,92,634/- 28,89,510.00 28,89,510.00 Rural Electrification 585/- 6, 300.00 6,300.00 3 Corporation Ltd Total 37,38,175/- 4,43,97,478.66 4,60,39,097.16 8. Further, before us reliance has placed on the decision of Coordinate Bench Kolkata in the case of REI Agro Ltd. (supra) which has been subsequently confirmed by the Hon'ble Jurisdictional High Court. This Tribunal in the case of REI Agro Ltd. (supra) held as under: “In this connection, further reliance is placed on the judicial pronouncement in the case of REI Agro Ltd. vs. DCIT (ITAT Kolkata) (2014) 160 TTJ 0107 (Kol) wherein it was held that: “Thus, not all investments become the subject-matter of consideration when computing disallowance u/s 14A read with rule 8D. The disallowance u/s 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income." Under the circumstances, the computation of the disallowance under section 14A read with rule 8D(2)(iii), which is issue in the assessee's appeal, is restored to the file of the AO for re-computation in line with the direction given above.” Further, the appellant would like to submit that the Department had filed an appeal before the Hon’ble Calcutta High court against the order of the Hon’ble ITAT, Kolkata (order enclosed herewith at pages I.T.A. No.: 631/KOL/2023 Assessment Year: 2015-16 Anupriya Consultants Pvt. Ltd. 15-16 of the paper book of case laws) which was again decided in favour of the assessee on 9th April 2014 wherein it was held that: “The Revenue has once again come up in appeal before us. Mr. Bhowmick, learned Counsel appearing for the appellant /Revenue drew our attention to a judgment of this Court in the case of Dhanuka & Sons Vs. Commissioner of Income Tax reported in 339ITR 319. Mr. Khaitan, learned Senior Counsel appearing for the assessee submitted that the judgment in the case of Dhanuka & Sons has no manner of application to the facts and circumstances of this case. In that case, the assessee was unable to produce any material before the authorities showing the source from which the shares were acquired. He contended that no such finding has been recorded by the Assessing Officer in this case. The Assessing Officer, as a matter of fact, did not record his dissatisfaction with the correctness of the claim made by the assessee. Therefore, the judgment cited by Mr. Bhowmick has not manner of application. We have considered the rival submissions and are of the opinion that on the basis of the judgment cited by Mr. Bhowmick, it cannot be said that the appeal raises any question or substantial question of law. The appeal is, therefore, not admitted and is. consequently, dismissed.”
On perusal of the above decision of this Tribunal which has subsequently been affirmed by Hon'ble Jurisdictional High Court and also examining the details of exempt income, we notice that that the assessee has rightly computed the disallowance u/s 14A of the Act at Rs. 23,25,199/- based on the investments fetching exempt income in the following manner: “4.3 In view of the above, the disallowance u/s. 14A is recalculated as under according to Rule 8D of the Income Tax Rules, 1962:- (i) Expenditure directly related to earning exempt income (Management Fees) – Rs. 12,68,556 (ii) Interest (Net)*Average Value of investment from which dividend was received during the year / Average Value of Total assets (Rs. 65,34,338 * Rs. 4,52,18,287/Rs. 35,57,53,215) – Rs. 8,30,552 [Calculation of Average Value of Assets:
I.T.A. No.: 631/KOL/2023 Assessment Year: 2015-16 Anupriya Consultants Pvt. Ltd. Opening Value of assets as per Balance Sheet (A) - Rs. 34,92,75,761.03 Closing Value of assets as per Balance Sheet (B) - Rs. 36,22,30,668.86 Average Value of Assets - ((A) + (B))/2 = Rs.35,57,53,215/-] (iii) Average Value of investment from which dividend was received during the year * 0.5% (Rs. 4,52,18,287 *0.5%) – Rs. 2,26,091 Amount of expenditure in relation to income which does not form part of the total income -- Rs. 23,25,199”
We are thus, of the considered view that since the assessee has already offered disallowance of Rs. 19,44,098/- only a sum of Rs. 3,81,101/- needs to be further disallowed [Rs. 23,25,199/- (-) Rs. 19,44,098/-]. Accordingly, the assessee gets relief of Rs. 94,75,675/- and the disallowance u/s 14A of the Act is sustained at Rs. 3,81,101/-. Thus ground nos. 1, 2 & 3 raised by the assessee are partly allowed.
So far as ground no. 4 is concerned, considering the alternative submission made by the assessee, we notice that while computing the book profit the assessee had suo moto added back the disallowance u/s 14A of the Act for the purpose of computing book profit u/s 115JB of the Act. Considering the fact that a further sum of Rs. 3,81,101/- has been sustained over and above the disallowance suo moto offered by the assessee and as agreed by ld. CIT(A), we hold that the disallowance sustained u/s 14A of the Act at Rs. 3,81,101/- should be further added to the book profit for the purpose of computing book profit u/s 115JB of the Act. Thus, ground no. 4 raised by the assessee is partly allowed.