ITO, WARD 2(1) , MUMBAI vs. M/S KUMUDINI ENGINEERING PVT LTD, MUMBAI

O R D E R

PER PAVAN KUMAR GADALE JM:

1. Whether the CIT(A) erred on the facts and in circumstances of the case and in law, in giving relief to Kumudini Engineering Pvt Ltd, Mumbai. - 2 - the assessee without giving any opportunity to the AO as the stand taken by the assessee that it has not earned any exempt income and has not made any expenditure to earn the said exempt income, is totally contradictory with the submission made by the assessee during the assessment proceedings.

2. Whether the CIT(A) erred on the facts and in circumstances of the case and in law, in deciding the case accepting the submission of the assessee 'contradictory' in nature without providing any opportunity to the AO.

3. Whether the CIT(A) erred on the facts and in circumstances of the case and in law, in non-adjudication on the issue of the method adopted by the AO to make addition u/s. 14A of the I. T. Act while giving relief to the assessee of Rs. 2,91,26,739/-.

4. The appellant craves leave to add, amend or alter any ground/grounds, which may be necessary.

2. The brief facts of the case are that the assessee company is engaged in the business of trading in iron & steel, poultry feed supplements and shares and securities. The assessee has filed the return of income for the A.Y 2017-18 on 31.10.2017 disclosing a total income of Rs.3,08,410/- and the return of income was processed u/s 143(1) of the Act. Subsequently the case was selected for scrutiny under CASS and notice u/s 143(2) and 142(1) of the Act along with questionnaire was issued. In compliance, the Kumudini Engineering Pvt Ltd, Mumbai. - 3 - assessee has filed the various details and explanations on 24.01.2019. On perusal of financial statements, the Asssesssing Officer (A.O) found that the assessee has investments of Rs.12,62,92,000/- and it was mentioned that the assessee has earned exempt income of Rs.7,71,106/- and filed the explanations referred at Para 3 of the assessment order. Whereas the A.O. was not satisfied with the explanations and the details and observed that the assessee has not made proper disallowance u/s 14A r.w.r 8D of the Act as the assessee has incurred expenses directly relating to the earning exempt income. Finally the A.O. has applied the provisions of Sec.14A r.w.r 8D of the Act and computed the disallowance after giving effect to the set off of amount disallowed earlier and worked out further disallowance of Rs.2,97,72,625/- and assessed the total income of Rs. 3,00,81,035/- and passed the order u/s 143(3) of the Act dated 28.12.2019.

Kumudini Engineering Pvt Ltd, Mumbai. - 4 - and facts with respect to exempted income earned and expenditure incurred for earning certain exempt income. The CIT(A) after considering the facts, submissions and judicial decisions has restricted the disallowance to the extent of Rs.6,99,842/- and partly allowed the assessee appeal. Aggrieved by the CIT(A) order, the revenue has filed appeal with the Hon’ble Tribunal.

Kumudini Engineering Pvt Ltd, Mumbai. - 5 - by the CIT(A) is not acceptable. The Ld. AR submitted that the assessee has cooperated in assessment proceedings and filed the details of expenditure incurred, dividend income received, information on su motto disallowance, and judicial decisions. We considered it appropriate to consider the findings of the CIT(A) at Page 3 Para 4.1 to 4.3 of the order read as under:

4.1 I have gone through the submissions of the appellant and the assessment order. The Assessing Officer has disallowed total expenses claimed in the Profit & Loss Account while making disallowance u/s. 14A classifying as directly related to earning of exempt income. There seems to be problem in the representation by the appellant before the Assessing Officer where in the submission filed before the Assessing Officer, the appellant put a heading over the expenses as "in respect of expenses debited to P&L a/c for earning exempt income" (page 31of paper book) and then appellant gave full expenses details which were claimed in the P&L account and the Assessing Officer considered the same as directly related to earning of exempt income which is not correct as summarized by the appellant on page No. 9 of its submission as under:- "22. In order to appreciate the facts of the case and the nature of expenses disallowed, the summary of the expenses debited to the profit and loss account is given below:

Sr No Particulars Amount debited to Amount

Kumudini Engineering Pvt Ltd, Mumbai. - 6 -

P&L account disallowed u/s 14A 1 Purchase of stock 3,04,56,755 7,72,231 in trade 2 Employee benefit 10,85,313 10,85,313 expenses 3 Finance Cost 2,69,01,803 2,69,01,803 4 Other expenses 11,39,623 11,39,623 Total 5,95,83,494 2,97,72,625

4.2 The appellant has further argued that it had not earned any exempt income because all the interest received by it was taxable. The details were given in the Statement of Facts which are reproduced above in the appeal order and accordingly it was contended that Section 14A should not be invoked in its case.

4.3 I notice that there was no dispute on the point whether Section 14A is to be invoked or not because in the Return of Income filed, the appellant had suo moto disallowed a sum of Rs. 1,90,402/- at the time of filing return. Once Section 14A is to be invoked, then, the disallowance cannot be as an arbitrary figure by disallowance is to be as per the prescribed procedure as amended in Section 14A(2) which states disallowance is to be made as per Rule 8D. This was also so held by Hon'ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. Vs. DCIT [394 ITR 449] where it held that Rule 8D is applicable from AY 2008-09, and it provides uniform basis for making the disallowance.

Accordingly, the disallowance as per Rule 8D is computed as under and the same considered by the Assessing Officer needs to be revised because it was noticed that the Assessing Officer has made calculation mistake in the same:

Kumudini Engineering Pvt Ltd, Mumbai. - 7 -

An amount equal to one percent of the annual average of the monthly average of the opening and closing balances of the value of investment income from which does not or shall not form part of total income.

Opening Balance Closing Balance Average of monthly opening and closing Balance Apr 16 71635244 71635244 71635244 May 16 71635244 71635244 71635244 Jun 16 71635244 71635244 71635244 Jul 16 71635244 90127244 80881244 90127244 90127244 90127244 Aug 16 90127244 90127244 90127244 Sep 16 90127244 90127244 90127244 Aug 16 90127244 90127244 90127244 Sep 16 90127244 90127244 90127244 Oct 16 90127244 90127244 90127244 Nov 16 90127244 90127244 90127244 Dec 16 90127244 90127244 90127244 Jan 17 90127244 90127244 90127244 Feb 17 Mar 17 90127244 193102244 141614744 Average of 89024369 average Monthly 1% 890244 Disallowance made suo-moto -190402 Addition to be confirmed 699842

Accordingly, the disallowance as computed above at Rs. 6,99,842/- is confirmed and balance disallowance is deleted. The ground is partly allowed.

Kumudini Engineering Pvt Ltd, Mumbai. - 8 - any infirmity in the order of the CIT(A) and uphold the same and dismiss the grounds of appeal of the revenue.

Order pronounced in the open court on 20.12.2022.