POONAM MOHTA,KOLKATA vs. ACIT, CENTRAL CIR-1(1), KOLKATA

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ITSSA 154/KOL/2023Status: DisposedITAT Kolkata30 November 2023AY 2014-155 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal decided the issues as follows: Regarding Ground No. 2 (Section 14A disallowance): The Tribunal noted that the assessee has its own sufficient funds to earn exempt income during the year, as evidenced by the balance sheet. After considering the submissions, the Tribunal restricted the disallowance of expenditure to Rs. 74,952/- in the hands of the assessee. This means the disallowance was partly allowed, reducing it from the amounts proposed by the AO and CIT(A). The ratio is that if an assessee demonstrates sufficient own funds, disallowance under Section 14A should be limited to the extent of exempt income earned. Regarding Ground No. 3 (Section 2(22)(e) deemed dividend): The Tribunal found that the provisions of Section 2(22)(e) of the Act do not attract in the assessee's case because the assessee has paid sufficient interest to the alleged company and the transactions were part of regular business. Accordingly, the addition made by the Assessing Officer was deleted, and this ground was allowed in full. The ratio is that if a transaction involves payment of interest and is part of regular business, it may not be treated as a deemed dividend under Section 2(22)(e). Grounds 1 and 4 were considered general and not adjudicated. The operative direction is the reduction of the Section 14A disallowance and deletion of the Section 2(22)(e) addition.

What were the facts?

This appeal by the assessee, Poonam Mohta, pertains to Assessment Year 2014-15 and challenges an order dated 31.07.2023 by the CIT(A)-20, Kolkata. The order arose from an assessment made under Section 143(3)/153A of the Income Tax Act, 1961, dated 25.11.2016. The assessee's income was assessed at Rs. 52,31,912/- after various additions, including Rs. 3,83,453/- under Section 14A and Rs. 4,77,576/- on account of deemed dividend under Section 2(22)(e). The assessee had filed a return of income of Rs. 43,70,880/- following a search and seizure operation under Section 132(1) and a notice under Section 153A. The CIT(A) partly allowed the assessee's appeal.

What were the issues?

1. Whether the CIT(A) deprived the assessee of a reasonable opportunity of being heard, as contended by the assessee under Section 250 of the Income Tax Act, 1961? 2. Whether the CIT(A) erred in revising the disallowance under Section 14A to Rs. 2,19,972/- and confirming the Assessing Officer's action of disallowing Rs. 3,83,453/-, when the assessee argued that it had sufficient own funds to earn exempt income and the disallowance should not exceed the exempt dividend income of Rs. 74,952/-? 3. Whether the CIT(A) was justified in upholding the Assessing Officer's addition of Rs. 4,77,576/- on account of alleged deemed dividend under Section 2(22)(e) of the Income Tax Act, 1961, when the assessee contended that the provision was inapplicable due to sufficient interest paid to the company and the transactions being part of regular business? Assessee's Contentions: - Ground 1: Violation of principles of natural justice by the CIT(A). - Ground 2: Disallowance under Section 14A is incorrect; assessee has sufficient own funds; disallowance should be limited to Rs. 74,952/-. Relied on own funds argument. - Ground 3: Section 2(22)(e) is inapplicable as sufficient interest was paid to M/s. Surajmal Mohta & Co. Pvt. Ltd. and transactions were regular business dealings. Relied on confirmation of accounts. Revenue's Contentions: - Supported the orders passed by the authorities below.

Which sections of the Income-tax Act were involved?

Section 143(3),Section 153A,Section 250,Section 14A,Section 2(22)(e)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, KOLKATA BENCH ‘B’, KOLKATA

Before: Dr. Manish Borad & Shri Sonjoy Sarma]

Hearing: 21.11.2023Pronounced: 30.11.2023

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH ‘B’, KOLKATA [Before Dr. Manish Borad, Accountant Member & Shri Sonjoy Sarma, Judicial Member] IT(SS)A No. 154/Kol/2023 Assessment Year : 2014-15 Poonam Mohta Vs ACIT, Central Circle-1(1), . Kolkata PAN: AEZPM 1243 A Appellant Respondent Date of Hearing 21.11.2023 Date of Pronouncement 30.11.2023 For the Assessee Shri P.K. Sanghai, AR For the Revenue Shri Abhijit Kundu, CIT ORDER Per Sonjoy Sarma, JM: This is an appeal filed by the assessee pertaining to the assessment year (in short ‘A.Y.’) 2014-15 is directed against the order of Ld. CIT(A)-20, Kolkata dated 31.07.2023 which is arising out of the assessment order passed u/s 143(3)/153A of the Income Tax Act, 1961(in short ‘the Act’) dated 25.11.2016. The assessee has raised the following grounds of appeal:

“1. That on the facts and circumstances of the case the ld. CIT(A) passed the order u/s 250 of the I.T. Act, 1961 without proper opportunity of being heard and thus the assessee was deprived of the reasonable and fair hearing in the matter being raised in the subsequent grounds of appeal.

2.

That the Ld. Commissioner of Income-tax (Appeals) erred in revising the amount of disallowance u/s 14A to Rs. 2,19,972/- which in a way confirming the action of the ld. Assessing Officer in making disallowance under that section who made an addition of Rs. 3,83,453/- by invoking section 14A of the Act which ought not to have been made by the Assessing Officer under the facts and circumstances of the case.

2 IT(SS)A No. 154/Kol/2023 AY: 2014-15 Poonam Mohta 3. That the order passed by the Ld. Commissioner of Income-tax (Appeals) is against the law and on facts in as much as he was not justified to uphold the action of the Ld Assessing Officer in making addition of Rs. 4,77,576/-/- on account of alleged Deemed dividend U/s 2(22(e) of the Income Tax Act which under the circumstances was inapplicable considering the entire nature of such transactions.

4.

That the appellant craves leave to add, amend, alter or delete the ground or grounds of appeal.”

2.

Brief facts of the case are that a search and seizure operation u/s 132(1) of the Act was conducted in the case of assessee followed by notice issued u/s 153A of the Act. In response to the notice, assessee filed return of income declaring an income of Rs. 43,70,880/-. Subsequently, notice u/s 143(2) of the Act was issued and in response to the notice assessee appeared time to time before the AO. The ld. AO after hearing the matter has made following disallowances by assessing the income of the assessee as under:

“Income from salary Rs. 24,00,000/- Income from house property Rs. 5,43,416/- Income from other sources Rs. 15,52,467/- Add: Disallowance u/s 14A as discussed Rs. 3,83,453/- On A/c of deemed dividend as discussed Rs. 4,77,576/- Gross total income Rs. 53,56,912/- Less: deduction u/s 80C Rs. 1,00,000/- Deduction u/s 80TTA Rs. 10,000/- Deduction u/s 80D Rs. 15,000/- Rs. 1,25,000/- Net total income Rs. 52,31,912/- Rs. 52,31,910/-” Rounded off to

3 IT(SS)A No. 154/Kol/2023 AY: 2014-15 Poonam Mohta 3. Dissatisfied with the above order, assessee preferred an appeal before the ld. CIT(A) where the appeal of the assessee was partly allowed.

4.

Aggrieved by the above order, assessee is in appeal before the Tribunal raising various grounds.

5.

Ground no. 1 & 4 are general in nature therefore need not required to be adjudicated.

6.

In ground no. 2, the assessee stated that ld. CIT(A) while passing the impugned order was not justified by revising the disallowance u/s 14A to Rs. 2,19,972/- upholding the action of ld. AO who made the disallowance of Rs. 3,33,509/- made u/s 14A of the Act is not correct and not in accordance with law in terms of Rule 8D of the I.T. Rules. In this regard, the ld. AR submitted before the bench that the view taken by ld. CIT(A) by sustaining the view taken by the AO and by revising the disallowance to the extent of Rs. 2,19,972/- u/s 14A is not correct. Therefore, the addition made in the hands of assessee is liable to be deleted. In this regard, the ld. AR further contended that the assessee has its own sufficient funds to earn exempt income. Therefore, such calculation made by ld. AO is uncalled for and even it is disallowed it cannot be exceeded to Rs. 74,952/- which assessee has earned as exempt dividend income during the assessment year under consideration.

4 IT(SS)A No. 154/Kol/2023 AY: 2014-15 Poonam Mohta 7. On the other hand, ld. DR supported the order passed by the authorities below and oppose the prayer made by the AR of the assessee.

8.

We after hearing the rival submission of the parties and perusing the record placed before us. We notice that assessee has its own sufficient fund to earn exempt during the year from the balance sheet placed before us. After considering the submission of the parties and examining the facts of the case we restrict the disallowance of expenditure to the extent of Rs. 74,952/- in the hands of assessee and partly allow the grounds taken by the assessee.

9.

In ground no. 3, the assessee has challenged the order of ld. CIT(A) by upholding the action of ld. AO making the addition of Rs. 47,756/- on account of alleged deemed dividend u/s 2(22)(e) of the Act which is not applicable in the case of assessee. On this issue, the ld. AR submitted that assessee has paid sufficient interest to the company namely M/s. Surajmal Mohta & Co. Pvt. Ltd. by placing confirmation of accounts from the company in its paper book at page no. 6. Therefore, the view taken by the AO is uncalled for and the provisions of section 2(22)(e) of the Act does not attract in the case of assessee.

10.

We after hearing the rival submission of the parties and perusing the records as well as documents placed before us, we find that the provisions of section 2(22)(e) of the Act does not

5 IT(SS)A No. 154/Kol/2023 AY: 2014-15 Poonam Mohta attract in the case of present assessee since the assessee has paid sufficient interest to the alleged company and is part of regular business transaction. Accordingly, the addition made in the hands of assessee is hereby deleted and ground taken by the assessee is hereby allowed.

11.

In the result, the appeal of the assessee is partly allowed.

Order pronounced in the open court on 30.11.2023. Sd/- Sd/-

(Manish Borad) (Sonjoy Sarma) Accountant Member Judicial Member Dated: 30.11.2023 Biswajit, Sr. PS Copy of the order forwarded to: 1. Appellant- Poonam Mohta, 6/2, Queens Park, Ballygung, Kolkata-700019. 2. Respondent – ACIT, Central Circle-1(1), Kolkata. 3. Ld. CIT 4. Ld. CIT(A) 5. Ld. DR

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