AJAY KUMAR SHROFF,KOLKATA vs. ACIT, CIRCLE 29,, KOLKATA

That the Ld. Asst. CIT erred in law as well as in facts in passing the order appealed against and the Ld. CIT(A) erred in confirming the same, in as much as in view of the facts and circumstances of the case no such order was at all liable to be passed.

That the Ld. Asst. CIT erred in law as well as in facts in restricting the deduction claimed u/s 35(1)(ii) of IT Act, 1961 at Rs. 12,50,139/- being the business income as computed by the Ld. Asst. CIT as against the claim made by the appellant assessee of Rs. 1,57,50,000/- and the Ld. CIT(A) erred in confirming the same in as much as in view of the facts and ITA No(s). 291/KOL/2026 Assessment Year(s) 2014-15 circumstances of the case no such reduction/restriction was at all called for and the entire claim of Rs. 1,57,50,000/- was liable to be allowed.

That the Ld. Asst. CIT erred in law as well as in facts in disallowing the following expenses as claimed by the appellant while computing the Income from other sources :- The following table: S. NO. Expenses Head Amount (Rs.) 1 Bank Charges 5,947/- 2 Salary, Bonus & Leave Salary 30,000/- 3 Professional Fees 150/- 4 Professional Tax 2,400/- TOTAL 38,497/- and the Ld. CIT(A) erred in confirming the same in as much as in view of the facts and circumstances of the case no such disallowance was at all called for.

That the Ld. Asst. CIT erred in law as well as in facts in levying interests u/s 234A and 234B of IT Act, 1961 at Rs. 97,364/- and Rs. 16,06,506/- respectively, and the Ld. CIT(A) erred in upholding the levy of such compul interests in as much as in view of the facts and circumstances of the case no such interests were at all liable to be levied.

That the appellant craves leave to adduce additional grounds and/or amend or withdraw any of the aforesaid Grounds before or at the time of hearing of appeal."

Brief facts of the case are that assessee had filed the return of income for AY 2014-15 on 25.11.2014 declaring total income of ₹57,66,540/-. During the course of assessment proceedings, the Assessing Officer (hereinafter referred to as Ld. 'AO') observed that the assessee had claimed a weighted deduction of ₹1,57,50,000/- u/s 35(1)(ii) of the Act (being 175% of the expenditure of ₹90,00,000/- incurred towards approved scientific research) against the business income of ₹12,50,139/-, thereby resulting in the business loss of ₹1,44,99,861/- which was adjusted against the current year’s income from house property, capital gains, and other sources. The Ld. AO held that the deduction u/s 35(1)(ii) of the Act falls under Chapter IV of the Act and restricted the allowance to the extent of the business income earned of ₹12,50,139/-, thereby disallowing the balance claimed weighted deduction of ₹1,44,99,861/-. Furthermore, the Ld. AO noted an expenditure claimed of ₹38,497/- towards professional tax, employment expenses, professional fees, and bank charges against income from other sources. The Ld. AO disallowed the sum of ₹38,497/- determining that these expenses were not connected to the income received u/s 56 of the Act and completed the assessment u/s 143(3) of the Act on 20.12.2016. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A), who evaluated the statutory provisions and determined that section 35 of the Act is specifically embedded within Chapter IV of the Act and operates exclusively within the framework of computing business income, thereby upholding the Ld. AO's action of restricting the deduction u/s 35(1)(ii) of the Act to the extent of the business income of ₹12,50,139/- . The Ld. CIT(A) held that accepting the assessee's interpretation to create an artificial business loss for set-off against other heads of income would defeat the fundamental scheme of the Act. Regarding the disallowance of ₹38,497/-, the Ld. CIT(A) found that the assessee failed to establish the direct nexus that the administrative expenses were incurred wholly and exclusively for earning income from other sources, as mandated u/s 57 of the Act. Finding the Ld. AO's actions to be grounded in law rather than surmises or conjectures, the Ld. CIT(A) also upheld the mandatory and consequential levy of interest u/s 234A and 234B of the Act. Accordingly, the Ld. CIT(A) confirmed the action of the Ld. AO and dismissed the appeal of the assessee.

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

Rival contentions were heard and the submissions made have been examined. The Ld. AR submitted that the order of the Ld. CIT(A) is ex parte and the notices were sent on the wrong email ID. Therefore, no compliance could be made and requested that one more opportunity may be provided to the assessee. The copy of printout from the e-filing portal of the Department has also been filed before us in support of the claim that notices were sent on the wrong email ID.

The Ld. DR relied upon the order of the Ld. CIT(A) and requested that the same may be confirmed.

We have considered the submission made by both the sides and perused the record. Ground Nos. 1 and 5 being general in nature do not require any separate adjudication.

Ground No. 2 relates to the restriction on the deduction claimed u/s 35(1)(ii) of the Act to ₹12,50,139/- and disallowing the balance claim of ₹1,57,50,000/-. It was submitted by the Ld. AR that the assessee's mother is blind since a long time, and that is why he decided to donate for research and development work in the field of blindness, and had given donation during the relevant AY 2014-15 for an amount of ₹90 lakh to Vision Research Foundation, which is an approved organization for carrying out scientific research activity by itself and approved by the Central Government for the purpose of clause (ii) of sub-section (1) of section 35 of the Act. The copy of certificate and money receipt along with the bank statement were also filed before the Ld. AO, who did not dispute the same but restricted the deduction to ITA No(s). 291/KOL/2026 Assessment Year(s) 2014-15 the income earned from the business. It was stated by the Ld. AR that sub-section (4) of section 35 of the Act is part of chapter IV and is not part of chapter VI of the Act. The provisions of section 35 of the Act were misinterpreted by the Ld. AO and the disallowance has been confirmed by the Ld. CIT(A). It was submitted that the Ld. CIT(A) has merely reproduced the findings of the Ld. AO. The attention of the Ld. AR was drawn to the order of the Ld. CIT(A) and also to section 35(2AA) and section 35(2AB) of the Act in which it is mentioned that no deduction shall be allowed in respect of the expenditure mentioned in clause (i) of sub-section (1) under any other provision of this Act, and therefore the same cannot be carried forward as a loss to be set off in the subsequent years. The Ld. AR submitted that the assessee was claiming the weighted deduction and not claiming the set-off of carry-forward of loss, and the expenditure was being claimed under clause (ii) of sub-section (1) of section 35 of the Act.

The Ld. DR submitted that the assessee could not be allowed to claim loss on account of the weighted deduction. However, the Bench brought to his notice that sub-section (1) of section 35 of the Act mentions the deduction allowed in respect of any expenditure incurred, and since section 35 of the Act is part of Chapter IV, therefore, as in the case of other expenditure claimed, the weighted deduction may result in the loss, which, however, if the Act permits, may not be allowed to be carried forward for being set-off against the future income of the assessee unless specifically provided by the statute. The Ld. DR relied upon the orders of the Ld. AO and the Ld. CIT(A).

The assessee has also relied upon the decision of Dr. M. S. Swaminathan vs. DCIT, [1995] 55 ITD 135 (Madras)[09-06-1995].

Ground No. 3 relates to the confirmation of disallowance of the sum of ₹38,497/- out of the expenses claimed while computing income from other sources. The assessee had shown income from other sources at ₹2,02,44,604/- and had claimed deduction of a sum of ₹38,497/- towards professional tax, employment expenses, professional fees, and bank charges, which according to the Ld. AO were not connected with the income from other sources u/s 56 of the Act. Before us, the assessee stated that the disallowance confirmed by the Ld. CIT(A) is erroneous, as the same has been made on the ground that the assessee failed to demonstrate that these expenses were indispensable or directly attributable to earning income u/s 56 of the Act. The Ld. AR was required to explain as to why the deduction claimed on account of bank charges at ₹5,947/-, salary, bonus, and leave salary at ₹30,000/-, and ITA No(s). 291/KOL/2026 Assessment Year(s) 2014-15 professional fee and professional tax should be allowed, which have been disallowed by the Ld. AO, as the same do not relate to the income earned. Our attention was drawn to the written submission filed before the Ld. CIT(A), as also the computation of income from other sources shown at page 29 and it was also stated that the assessee had also received dividend from Indian companies, which was exempt u/s 10(24) of the Act, and the expenditure related to earning of the exempt income only could have been disallowed. The exempt income claimed is ₹36,091/-, and it was stated that at least to the extent of earning dividend income, the expenditure should have been allowed.

We have considered the submissions made. As per section 14A of the Act, no deduction is allowable in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act and the disallowance as per the prevailing law is restricted to the exempt income received. The assessee has shown under the head income from other sources interest of ₹2,14,46,70,505/- as well as interest from firm considered separately, and made disallowance of ₹80,265/-, being 0.5% of the exempted assets and had also disallowed direct expenses of demat charges of ₹900/-, and had suo moto disallowed a sum of ₹8,926/-. It has not been established how the employees' expenses are connected with the interest earned, and at the most bank charges of ₹5,947/- could have been allowed out of the interest earned in case the borrowings were utilized for earning of income. The Ld. AO is directed to examine the claim of the assessee in accordance with law after the assessee furnishes evidence in support of the claim that the expenses related to the income shown under the head income from other sources and were not related to the exempt income.

Ground No. 4 is consequential in nature and the Ld. AO is directed to recompute the tax after giving effect to this order.

In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 2nd July, 2026. [Yogesh Kumar US] [Rakesh Mishra] Judicial Member Accountant Member Dated: 02.07.2026 Bidhan (Sr. P.S.)

CIT-

CIT(DR), Kolkata Benches, Kolkata.

Guard File. //// By order