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Facts
The assessee, a private limited company, filed its return of income and was selected for scrutiny. The Assessing Officer made additions regarding disallowance of expenses under Section 14A, general expenses, and travelling/conveyance expenses.
Held
The Tribunal set aside the orders of the revenue authorities and remitted the matter back to the Assessing Officer to examine documents and pass a speaking order after providing an opportunity of being heard to the assessee. The grounds raised by the assessee were partly allowed for statistical purposes.
Key Issues
Whether the disallowances made by the Assessing Officer under Section 14A and for general/travelling expenses were justified, and whether the assessee was denied a proper opportunity of being heard.
Sections Cited
14A, 143(2), 142(1), 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘SMC’ BENCH, KOLKATA
Before: Shri Duvvuru RL Reddy, Vice-(KZ)
Assessment Year: 2013-2014 Century Commotrade Pvt. Limited,.……..…Appellant 10B, Sikdar Para Street, Jorasanko, Kolkata-700007 [PAN:AABCC0694E] -Vs.- Income Tax Officer,……………………………..Respondent Ward-9(3), Kolkata Appearances by: Shri Nikhil Sharme, A.R., appeared on behalf of the assessee Shri Kallol Mistry, JCIT, appeared on behalf of the Revenue Date of concluding the hearing: December 08, 2025 Date of pronouncing the order: December 31, 2025 O R D E R
The present appeal is directed at the instance of assessee against the order of Id. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 21.04.2025 passed for Assessment Year 2013-2014.
Facts in brief are that the assessee is a Private Limited Company, which filed its return of income on 26.09.2013 declaring total income at Rs.17,08,950/-. The case was selected for Scrutiny (A.Y. 2013-2014) Century Commotrade Pvt. Limited through CASS. Accordingly statutory notices under sections 143(2) and 142(1) were issued and served upon the assessee calling for detailed particulars of it. From the submissions made and accounts of the assessee, it is seen that the assessee has earned dividend during the financial year. The assessee has invested in shares, which attracts the provision of section 14A of the Income Tax Act. During the relevant financial year, the assessee has paid Rs.64,00,000/- as interest on unsecured loan. The assessee was requested to furnish the detailed computation for disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. In response, the assessee filed submission. The ld. Assessing Officer treated it by taking incurred interest expenditure on loan i.e. Rs.64,00,000/- multiplying by average value of investment having exempted income, i.e. Rs.12,22,29,000/- divided by average total asset, i.e. Rs.42,70,47,774/-, which comes to Rs.18,31,798/- and thereafter disallowed half percent on the average value of investment, i.e. Rs.12,22,29,000/- which comes to Rs.6,11,145/-. Finally, ld. Assessing Officer disallowed the expenses under section 14A amounting to Rs.24,42,943/-. In respect of general expenses, the assessee in its profit & loss account debited Rs.18,93,337/- under the head ‘General Expenses’. During the course of assessment proceedings, the assessee could not produce entire bill related to this expenditure. The cash expenditure is made mostly on the basis of self-made vouchers. The assessee failed to substantiate the expenditure incurred. The ld. Assessing Officer disallowed 15% of cash expenditure of Rs.18,93,337/- i.e. Rs.2,84,000/- and added back to its total income. In regard to the travelling & (A.Y. 2013-2014) Century Commotrade Pvt. Limited conveyance, the assessee in its profit & loss account debited Rs.6,91,027/- under the head “travelling and conveyance’. During the course of assessment proceedings, the assessee could not produce entire bill related to this expenditure. In reply to the notices issued, the assessee expressed its inability to produce the same. The cash expenditure is mostly on the basis of self-made vouchers and the assessee failed to substantiate the expenditure to the fullest extent. The ld. Assessing Officer disallowed 15% of the expenditure of Rs.6,91,027, i.e. Rs.1,03,654/- in respect of travelling and conveyance and added to the total income of the assessee. The ld. Assessing Officer assessed the total income of the assessee at Rs.45,39,547/- (Rs.17,08,950/- + Rs.24,42,943/- + Rs.2,84,000/- + Rs.1,03,654/-) under section 143(3) of the Income Tax Act.
On being aggrieved, the assesese preferred an appeal before the ld. CIT(Appeals). The ld. CIT(Appeals) with regard to disallowance under section 14A amounting to Rs.24.42 lakhs upheld the order of ld. Assessing Officer by dismissing the ground of the assessee. In respect of expenditure under the head ‘general expenses’ of Rs.18,93,337/- made by the assssee, the ld. CIT(Appeals) disallowed 10% of such cash expenditure instead of 15% as made by the ld. Assessing Officer and upheld the action of ld. Assessing Officer in principle and allowed part relief to the assessee. In respect of disallowance under the head ‘travelling and conveyance expenses, the ld. CIT(Appeals) restricted the disallowance at 10% instead of 15% as made by the ld. Assessing Officer and relief allowed in part.
On being aggrieved, the assessee preferred an appeal before the Tribunal. At the outset, ld. Counsel for the assessee argued that the assessee filed all the documents as required, but the ld. Assessing Officer passed the impugned ex-parte order without considering the submission made by the assessee and without giving opportunity of being heard, which is bad in law. The ld. Counsel also pleaded that the ld. CIT(Appeals) did not consider it on merit and upheld the order of ld. Assessing Officer and partly allowed the appeal of assessee. The ld. counsel, therefore, prayed before the Bench to give one opportunity to the assessee to substantiate its case before the ld. Assessing Officer and remit the matter back to ld. Assessing Officer for fresh adjudication.
On the other hand, it was the submission of the ld. Departmental Representative that during the appellate proceedings, the ld. CIT(Appeals) dismissed the disallowance under section 14A by upholding the order of ld. Assessing Officer saying that the assessee could not bring any documentary evidence to show that no interest is payable by the assessee for acquiring old shares. In respect of disallowance under the head ‘general expenses’ and ‘travelling and conveyance expenses’, the ld. CIT(Appeals) restricted the disallowance in both the expenses at 10% instead of 15% as made by the ld. Assessing Officer and he pleaded to confirm the order of ld. CIT(Appeals).
I have heard both the sides and perused the material available on record. From the record, it is seen that the ld. (A.Y. 2013-2014) Century Commotrade Pvt. Limited CIT(Appeals) dismissed the disallowance under section 14A read with Rule 8D amounting to Rs.24.42 lacs on the ground that appellant could not bring any documentary evidence to show that no interest is payable by the assessee for acquiring those old shares by relying on the judgment of the Hon’ble Calcutta High Court in the case of Dhanuka & Sons reported in (2011) 339 ITR 319, wherein the Hon’ble Calcutta High Court observed as under: “...9. In our opinion, the mere fact that those shares were old ones and not acquired recently is immaterial. It is for the assessee to show the source of acquisition of those shares by production of materials that those were acquired from the funds available in the hands of the assessee at the relevant point of time without taking benefit of any loan. If those shares were purchased from the amount taken in loan, even for instance, five or ten years ago, it is for the assessee to show by the production of documentary evidence that such loaned amount had already been paid back and for the relevant assessment year, no interest is payable by the assessee for acquiring those old shares. In the absence of any such materials placed by the assessee, in our opinion, the authorities below rightly held that proportionate amount should be disallowed having regard to the total income and the income from the exempt source. In the absence of any material disclosing the source of acquisition of shares which is within the special knowledge of the assessee, the assessing authority took a most reasonable approach in assessment..."
Therefore, I am of the view that it should be examined by the ld. Assessing Officer the documents as well as bills and vouchers and pass the order on merit after providing opportunity of being heard to the assessee.
With regard to other issues, i.e. disallowance under the head ‘general expenses’ and ‘travelling & conveyance expenses’, the ld. CIT(Appeals) upheld the action of ld. Assessing Officer in principle but restricted to 10% instead of 15% of disallowance, but there is no basis of the disallowance. Therefore, considering the above finding of the ld. CIT(Appeals), I am of the view that it is a fit case 5 (A.Y. 2013-2014) Century Commotrade Pvt. Limited to set aside the orders passed by the revenue authorities since the assessee has filed relevant documents before the Tribunal. Therefore, I set aside the order passed by the ld. CIT(Appeals) and remit the matter back to the file of ld. Assessing Officer to examine the documents as well as the bills and vouchers relating the expenses made and to pass a detailed speaking order after providing one more opportunity of being heard to the assessee. At the same breath, I also hereby caution the assessee to promptly co-operate with the proceedings before the Ld. Assessing Officer failing which the Ld. Assessing Officer shall be at liberty to pass appropriate order in accordance with law and merits of the case, based on the materials available on the record. Thus, the grounds raised by the assessee in the appeal are partly allowed for statistical purposes.
In the result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 31/12/2025.