MAITREYI KANDOI,KOLKATA vs. ACIT, CIRCLE 29,, KOLKATA

Brief facts of the case are that the assessee had filed the return of income dated 26.09.2013 declaring total income of ₹40,91,530/- which was selected for complete scrutiny through Computer Assisted Scrutiny Selection (in short 'CASS'). Statutory notices u/s 143(2) and 142(1) of the Act were issued and subsequently the assessment was made u/s 143(3) of the Act on 29.03.2016 at the total income of ₹46,93,879/- by making addition of ₹6,02,349/- on account of disallowance u/s 14A read with Rule 8D of the Income Tax Rules, 1962. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. Addl/JCIT(A) who issued notices for hearing and after considering the reply of the assessee, the provision of section 14A(2) of the Act, Rule 8D of the IT Rules and the CBDT notification No.43/2016/F.no.370142/7/2016-TPL dated 02.06.2016 held as under: “It is clear from the discussions made above that AO has the authority to invoke Rule 8D if they are not satisfied with the correctness of the appellant's claim regarding expenditure incurred for exempt income and in doing so section 14A(2) read with rule 8D(2) have to be adhered to in accordance with the CBDT Notification No.43/2016/F.no.370142/7/2016- TPL Dated 02.06.2016. Since, the appellant failed to disallow the expenses in accordance with rule 8D the AO has rightly calculated the total amount disallowable u/s 14A of the act read with ruled 8D of the act.

In the result, the appeal is Dismissed.”

Aggrieved with the order of the Ld. Addl/JCIT(A), the assessee has filed the appeal before the Tribunal.

Rival contentions were heard and the submissions made have been examined.

We have considered the submissions made, gone through the facts of the case and perused the record and the order of Ld. Addl/JCIT(A).

Ground Nos. 2, 3 & 4 do not emanate from the assessment order and therefore, the same are dismissed.

Ground No. 1 relates to addition of ₹6,02,349/-. During the course of hearing before us, the assessee has filed the copy of audited balance sheet and profit and loss account, page 2 of which is the balance sheet showing capital of ₹1,78,30,405/-. It was submitted by the Ld. AR that the assessee had invested ₹1,56,19,426/- in shares and the investment was out of the capital contribution; therefore, no disallowance was called for. The shares were purchased for controlling interest and therefore, Rule 8D of the IT Rules was not applicable. The assessee drew our attention to page 3 of the order of the Ld. Addl/JCIT(A) in which the submissions were made, which are as under: “Ref: Appeal No: CIT(A), Kolkata-8/10118/2016-17 for the Assesment Year 2013-14 With reference to above appeal preferred by the humble appellant, It is most humbly submitted that the appellant assessee dutifully filed her return of Income and also duly paid tax due thereon. Further, in compliance to notice issued U/S 143(2) & 142(1), she duly appeared through her A/R and also produced and/or submitted all the requisitioned details and supporting bills and vouchers. The books of accounts and bank statement etc. were also produced and examined by the Ld. AO. The AO has passed an order making huge addition U/S 14A of Rs. 602349/- as deemed expenses attributable to exempt income earned by the assessee. The AO has himself mentioned in the assessment order that assessee has earned exempt income of Rs. 175268/- and thereafter has mechanically applied Rule 8D and has proceeded to make addition of Rs. 602349/-. It is well settled law that the addition/disallowance of expenses deemed to have been incurred cannot exceed the amount of exempted income. Since the amount proposed to be added in the assessment order is higher than the amount of exempted income. the humble petitioner is here in appeal. Your Honour is requested to ITA No(s). 3193/KOL/2025 Assessment Year(s) 2013-14 consider the matter in the light of facts and judicial pronouncements made in the subject and kindly arrange to pass an order granting relief in the matter. With Kind regards”

The Ld. Addl/JCIT(A) examined the submissions that the disallowance was more than the exempt income of ₹1,75,268/- and the same cannot exceed the exempt income earned but dismissed this ground of appeal by holding that the suo moto disallowance of ₹1,75,268/- was not adequate. Before us the Ld. AR requested to limit the disallowance to the exempt income.

The Ld. DR requested that the order of the Ld. AO may be confirmed. A perusal of the profit and loss account shows that the assessee had received dividend of ₹1,75,269/- and there was also long- term gain of shares of ₹3,66,565/- and profit from derivative trade of ₹,55,85,347/-. In the assessment order the Ld. AO has relied upon the decision of Cheminvest Ltd. vs. Income-tax Officer, Ward 3(3), New Delhi [2009] 121 ITD 318 (Delhi)/[2009] 124 TTJ 577 (Delhi)[05-08- 2009] in which it has been held that even if there is no exempt income, section 14A of the Act is applicable and also relied upon the CBDT circular No. 5/2014 dated 11.02.2014. Further, the Ld. AO had adopted 0.5% of ₹2,01,88,833/- to arrive at the amount of ₹85,729/- under Rule 8D(2)(iii) of the IT Rules and the total disallowance worked out to ₹6,02,349/-. The assessee also had profit of derivative shares and while the profit of ₹55,32,873/- is transferred to the capital account, however, the total income was shown at ₹40,91,530/-. Therefore, the possibility of other income also being claimed as exempt cannot be ruled out. [2018]

We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. Addl/JCIT(A). In the interest of justice and fair play it was considered that the request of the assessee to set aside the case before the Ld. AO may be allowed so that a proper opportunity of being heard may be provided. Therefore, the order of Ld. Addl/JCIT(A) on this issue is set aside and the matter is remanded before the Ld. AO who shall recompute the disallowance in view of the findings of the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. (supra) and the Hon'ble Delhi High Court in the case of Cheminvest Ltd. (supra) and the decision of Hon'ble Bombay High Court in support of Commissioner of Income-tax vs. SBI DHFL Ltd. [2015] 63 taxmann.com 345 (Bombay)/[2015] 376 ITR 296 (Bombay)[08-04- 2015] where the assessee had claimed that interest bearing borrowed funds were utilized entirely for the purpose of business and investment in tax free bonds had been made out of its own funds and the Assessing Officer having noticed that the assessee had kept all funds in one common pool partly disallowed interest paid on borrowed funds applying section 14A, disallowance of interest paid was not justified and limit the disallowance to the exempt income earned in view of the decision of the Hon’ble Delhi High Court in the case of Cheminvest Ltd. (supra). Hence, after examining the facts of the case, we set aside the order of the Ld. Addl/JCIT(A) and remit the matter back to the Ld. AO for making the reassessment de novo. Needless to say, the assessee shall be given a reasonable opportunity of being heard to make any further submission it wants to make in support of its grounds of appeal and shall not seek unnecessary adjournments. Accordingly, the grounds taken by the assessee in the appeal are partly allowed for statistical purposes.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 13th May, 2026. [Sonjoy Sarma] [Rakesh Mishra] Judicial Member Accountant Member Dated: 13.05.2026 Bidhan (Sr. P.S.)

Addl/JCIT(A)-1, Vadodara.

CIT-

CIT(DR), Kolkata Benches, Kolkata.

Guard File. //// By order