SRIVARU AGRO PVT. LTD. (SUCCESSOR TO MANOJ MERCANTILE CREDIT PVT. LTD.),KOLKATA vs. A.C.I.T., CC-1(4), KOLKATA

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ITA 98/KOL/2025Status: DisposedITAT Kolkata22 October 2025AY 2016-2017Bench: SHRI SONJOY SARMA (Judicial Member), SHRI RAKESH MISHRA (Accountant Member)6 pages

AI SummaryRemanded

Facts

The assessee filed a NIL income return, but during scrutiny, the AO found investments in shares yielding exempt dividend income. The AO made an addition of ₹25,71,427 under Section 14A for expenses related to earning this exempt income, which was subsequently upheld by the CIT(A). The assessee argued that it had sufficient own funds and short-term borrowings were not utilized for investments.

Held

The Tribunal remanded the matter back to the CIT(A) to re-examine whether the assessee's own funds were higher than borrowed funds for investments, whether short-term borrowings were utilized for investment in shares, and if the disallowance under Section 14A should be limited to the maximum expenses debited in the profit and loss account, citing the Supreme Court's decision in *South Indian Bank Ltd. vs. CIT*.

Key Issues

Whether the disallowance under Section 14A for expenses related to exempt dividend income was justified, considering the availability of own funds and the utilization of borrowings.

Sections Cited

250, 143(3), 139, 143(2), 142(1), 14A, 234A, 234B, 234C

AI-generated summary — verify with the full judgment below

Cases cited in this judgment

Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.

South Indian Bank Ltd. v. CIT
10 SCC 153 · 2021 · SC
497 citing
REI Agro Ltd. v. DCIT
144 ITD 141 · 2013 · ITAT
346 citing

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

Before: SHRI SONJOY SARMA & SHRI RAKESH MISHRA

PER RAKESH MISHRA, ACCOUNTANT MEMBER:

This appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals)- 27, Kolkata [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2016-17 dated 14.11.2024, which has been passed against the assessment order u/s 143(3) of the Act, dated 28.12.2018. 2. The assessee is in appeal before the Bench raising the following grounds of appeal: I.T.A. No.: 98/KOL/2025 Assessment Year: 2016-17 Srivaru Agro Pvt. Ltd. (Successor to Manoj Mercantile Credit Pvt. Ltd.) “1. For that in the facts and circumstances of the case the appellate order passed was in violation of principals of natural justice hence is bad in law and be quashed.

For that in the facts and circumstances of the case the Learned CIT(Appeals) erred in upholding the addition of ₹25,74,427 on account of disallowance u/s 14A of the Income Tax Act, 1961 read with section (sic) Rule 8D of the Income Tax Rules, 1962. This addition is unjustified and the same be deleted.

For that the interest computed u/s 234 A/B/C of the IT Act 1961 is over charged and wrongly calculated and or is not applicable to the assessee case hence the interest be deleted and or correctly computed.

The appellant craves leave to produce additional evidences in terms of Rule 29 of the Income Tax (Appellate Tribunal) Rules 1963. 5. The appellant craves leave to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal.”

Brief facts of the case are that the assessee had filed the original return of income u/s 139 of the Act electronically on 14.10.2016 showing ‘NIL’ income showing the current year’s loss of ₹20,43,644/-. Further, the case was selected for complete scrutiny through Computer Assisted Scrutiny Selection (in short 'CASS'). Subsequently, the notices u/s 143(2) and 142(1) of the Act along with a questionnaire calling for various details and documents were issued on different dates which were also served upon the assessee. In response to the said notices, the Ld. AR of the assessee appeared and made submission. During the period under consideration, the assessee claimed to have income from business and profession. On perusal of the records available, the Ld. AO noted from the balance sheet that the assessee had investments in shares of various companies from which he derived dividend income which was exempt from tax. It was also noticed that the assessee had shown taxable as well as non-taxable income in the consolidated profit I.T.A. No.: 98/KOL/2025 Assessment Year: 2016-17 Srivaru Agro Pvt. Ltd. (Successor to Manoj Mercantile Credit Pvt. Ltd.) and loss account and common expenditure had been debited against various sources of income. Accordingly, the Assessing Officer (hereinafter referred to as Ld. 'AO') passed the assessment order u/s 143(3) of the Act determining the total income of the assessee at ₹5,29,490/- after making the additions viz. a) disallowance of ₹25,71,427/- u/s 14A of the Act and b) addition of ₹1,704/- in the form of interest of IT refund. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who, vide the impugned order, considered the facts of the case, the calculation by the Ld. AO as mentioned on page 4 of the appeal order and the submission of the assessee and held that the assessee had invested huge sums in variety of shares in various companies and there would be a certain element of expenses incurred towards managing of those shares and also a time cost involved for utilizing the funds invested to realize maximum profit. It was also noted by him that there were expenses such as printing and stationery, electricity, rent, bank charges, sundry expenses etc. which would be relatable to the earning of income from investment and it could not be denied that the assessee personally was involved and carried out those transactions. Therefore, the addition of ₹25,71,427/- made by the Ld. AO was upheld and the appeal filed by the assessee was dismissed.