M/S. MKJ ENTERPRISES LTD.,KOLKATA vs. D.C.I.T., CIRCLE - 4(2), KOLKATA

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ITA 2516/KOL/2018Status: DisposedITAT Kolkata01 September 2020AY 2014-1520 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the disallowance under Section 14A read with Rule 8D cannot exceed the exempt income earned by the assessee. The Tribunal restricted the disallowance to the actual exempt income.

What were the facts?

The assessee claimed sales promotion expenses, including Rs. 1,80,000 for supplying alcohol to the Embassy of Ireland and Rs. 1,42,640 to Taj Bengal. The Assessing Officer disallowed these expenses and made an ad-hoc disallowance of 20% of total sales promotion expenses, which was confirmed by the CIT(A). The assessee argued these expenses were for business advancement.

What were the issues?

Whether sales promotion expenses incurred for hosting an event related to the Honorary Counsel of Ireland were for business purposes. Whether the disallowance under Section 14A read with Rule 8D can exceed the exempt income.

Which sections of the Income-tax Act were involved?

Section 37(1),Section 14A

AI-generated summary — verify with the full judgment below

ITA No. 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited IN THE INCOME TAX APPELLATE TRIBUNAL, KOLKATA 'A= BENCH, KOLKATA [Virtual Court Hearing] Before Justice P.P_ Bhatt, President & Shri P.M. Jagtap, Vice-President LTA. No. 2516/KOL/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited,, Sugar Estate, Unit-1, 3rd Floor, 2, Clive Ghat Street, Kolkata-700001 [PAN: AABCM7727L] Appellant Vs. Deputy Commissioner 0f Income Tax,_ Circle-4(2), Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700069 Respondent Appearances by: Shri S.K. Tulsiyan, Advocate, for the Appellant Shri Dhrubajyoti Roy , JCIT, Sr. D.R,, for the Respondent Date of concluding the hearing August 06, 2020 Date of pronouncing the order August 2020 Q sef 01 0RDER Per Bench: This appeal filed by the assessee is directed against the order of Id. Commissioner 0f Income Tax (Appeals)-2, Kolkata dated 12.10.2018. 2 _ The common and inter-linked issue relating to disallowance made by the Assessing Officer and confirmed by the Id. C(IT(Appeals) out 0f sales promotion expenses is raised by the assessee in Ground No. 1 & 2 , which read as under:- "(1) That, the Ld. C.I.T.(A) erred in upholding the disallowance of expenditure u/s.37 of the Act of Rs.1,80,000 / - incurred on supply of Alcohol to Ireland Embassy where the Director f the company was Honorary Member and payment of Rs.1,42,640/- made to Taj Bengal, both debited under the. head Sales Promotion Expenses ITA No. 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited aggregating to Rs.3,22,630/-, simply concurring with the A.0. about the appellant's alleged failure to establish the nexus with the business need and without giving any appropriate credence to the details of the expenditure with bills/vouchers and explanation of the appellant with supporting case laws. 2 That, the Ld. C.IT.(A) further erred in upholding the overall adhoc disallowance of Rs.1,68,773 / being 2 0 % of total Sale Promotion Expenses of Rs.8,43,863/-, which merely amounted to double addition on same account, without any proper reasoning for such disallowance and thus pivoted on surmise and conjecture 3 The assessee in the present case is a Company, which is engaged in the business of trading in goods and merchandise as well as dealing in shares and securities and real estates. The return of income for the year under consideration was filed by it on 21.09.2014 declaring a loss 0f Rs.11,00,69,298 / -. In the Profit & Loss Account filed along with the said return, a sum of Rs.8,43,863 / - was debited by the assessee on account 0f sales promotion expenses. During the course of assessment proceedings, it was noticed by the Assessing Officer that the said expenses claimed by the assessee included sum of Rs. 1,80,00 0 / - incurred on account 0f supply of Alcohol to Embassy of Ireland as one of the Directors of the assessee-company was Honorary Counsel 0f Ireland, He also found that a sum of Rs.1,42,630 /- claimed under the head sales promotion expenses' was paid to Hotel Taj Bengal. Since the assessee could not establish the business expediency of these two amounts claimed under the head sales promotion expenses the Assessing Officer disallowed the same. 3.1 On perusal of the relevant ledger account as well as the supporting bills/vouchers produced by the assessee, the Assessing Officer found that the expenses of Rs.8,43,863 /- claimed by the assessee on account 0f sales promotion expenses were partly personal in nature and the same were not incurred wholly and exclusively for the purpose of assessee S business. He, therefore, made a disallowance of Rs.1,68,773 /- being 2 0 % of the total sales promotion expenses of Rs.8,43,863 /- claimed by the ITA No_ 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited assessee He thus made a total disallowance of Rs.4,91,403 /- out of sales promotion expenses claimed by the assessee On appeal, the Id, CIT(Appeals) confirmed the said disallowance made by the Assessing Officer for the same reasons as given by the Assessing Officer. 4 The Id. Counsel for the assessee submitted that Mr. M.K. Jalan, Managing Director of the assessee-company was Honorary Counsel 0f Ireland and a party was organized at Taj Bengal to celebrate Ireland National Day in India He submitted that Shri Jalan as a Managing Director held vital position in the assessee-company and the celebration of Ireland National Day and inviting guests related to the business of the assessee- company to participate in the said event was for the advancement of the business 0 f the assessee-company He submitted that the expenses on hosting the said event thus were wholly and exclusively incurred for the purpose of business 0 f the assessee-company and the same not being personal or capital in nature are allowable as deduction under section 37(1) of the Income Tax Act, 1961. In support of this contention, he relied on the decision of this Tribunal in the case of M /s MKJ Tradex Ltd_ rendered vide its order dated 14.02.2018 passed in ITA No_ 1044/K0L/2016 and submitted that the expenses of similar nature were allowed by the Tribunal as business expenditure. 5 As regards the disallowance of 20% made by the Assessing officer and confirmed by the Id. CIT(Appeals) out of sales promotion expenses 0f Rs.8,23,863 /-, the Id Counsel for the assesese contended by relying on the provision of sub-section (2) of section 142 that the Assessing Officer was required to carry out the necessary enquiry to establish that part 0f the expenses claimed by the assessee on sales promotion were not for the purpose of its business. He contended that the adhoc disallowance made by the Assessing Officer out of the sales promotion expenses without making any such enquiry and purely in arbitrary manner was not sustainable and the d. CIT(Appeals) was not justified in confirming the 3 ITA No. 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited adhoc disallowance made by the Assessing 0fficer on this issue. Alternatively he als0 contended that since the expenditure 0f Rs.3,22,630 /- out of sales promotion expenses incurred by the assessee- company on celebration of Ireland National Day was fully disallowed by the Assessing Officer, the disallowance of 20 % should have been restricted out of the balance amount 0f sales promotion expenses 0f Rs.5,21,233 /- (Rs.8,43,863 /- minus Rs.3,22,630 /-). 6 The ld. D.R:, on the other hand, submitted that Shri M.K. Jalan was the Honorary Counsel 0f Ireland in his personal capacity and the expenses incurred to celebrate the National Day of Ireland not being incurred wholly and exclusively for the purpose of the business of the assessee- company, the same were not allowable as deduction as rightly held by the authorities below. He submitted that the assessee had clearly failed to establish the business expediency of the said expenses before the Assessing Officer in spite of sufficient opportunity given to it during the course of assessment proceedings. He invited our attention to the copies of relevant bills placed at page no_ 23 & 24 raised by the Embassy of Ireland and Hotel Taj Bengal to point out that the said bills for the expenses in question were raised in the individual name of the assessee with Care 0f Address 0f Keventer Agro Limited. 6.1 As regards the disallowance 0f 20% made by the Assessing officer and confirmed by the Id. CIT(Appeals) out of sales promotion expenses, the Id, D.R. submitted that the onus was on the assessee to establish on evidence that the expenses claimed on sales promotion were wholly and exclusively incurred for the purpose of its business. He submitted that the assessee, however, failed to discharge this onus and thus the claim of the assessee for sales promotion expenses could not be fully verified by the Assessing Officer. He contended that such unverifiable element involved in the claim of the assessee for sales promotion called for some disallowance and such disallowance of 20% made by the Assessing Officer ITA No. 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited being fair and reasonable, the Id. CIT(Appeals) was fully justified in confirming the same_ 7 We have considered the rival submissions and also perused the relevant material available on record. It is observed that Shri M.K Jalan, Managing Director 0f the assessee-company was Honorary Counsel 0f Ireland in his individual/personal capacity and an event was hosted by him at Hotel Taj Bengal to celebrate Ireland National Day in India in that capacity. Although the Id. AR has contended that the guests related to the business of the assessee-company were invited to participate in the said event, there is no evidence adduced by him to support and substantiate this contention. He has also not been able to establish on evidence that the said event in any way helped in the advancement of the business of the assessee-company. Even the decision of this Tribunal in the case 0 f M/s MKJ Tradex Ltd. (supra) cited by the Id. Counsel for the assessee in the assessee' s case on this issue is distinguishable on facts support of inasmuch as an award was conferred in that case by the President 0 f France to Shri Mahendra Kumar Jalan for promoting the trade and culture between France and India and expenditure incurred on the news of the said award as published in the local newspaper was held to be in the nature 0f an advertisement expenditure by the Tribunal which was connected to the business of the assessee-company. It was specifically observed by the Tribunal in this regard that the award conferred to the Managing Director was going to increase the image 0f the assessee- at national and international level in the area of the business company connection. Accordingly, the expenditure was held to be incurred by the assessee wholly and exclusively for the purpose 0 f business by the Tribunal in these facts and circumstances 0f that case which, in our opinion, are altogether different from the facts involved in the present Moreover, as rightly pointed out by the Id_ DR, the bills for the case: expenditure in question claimed to be incurred by the assessee on supply of alcohol issued by the Embassy of Ireland and for other expenses issued 5 ITA No. 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited by Hotel Taj Bengal, Kolkata (copies placed at page no.23 and 25 of the book) were raised in the personal name of Shri M.K. paper Jalan as Honorary Counsel of Ireland with the Care of Address of Keventer Agro Limited. There was, thus, no evidence to establish the involvement of the assessee-company in the said expenditure. Having regard to all these facts of the case We are unable to accept the claim of the assessee that the expenditure in question incurred on organizing an event to celebrate the Ireland National Day in India by its Managing Director, Shri M.K Jalan in his individual capacity was wholly and exclusively incurred for the purpose of business of the assessee-company and the same, in our view, was rightly disallowed by the authorities below. 8 As regards the disallowance of 2 0 % made by the Assessing 0fficer and confirmed by the Id. CIT(A) out of the total sales promotion 0f expenses of Rs.8,43,863 /-, We are 0f the view that the onus was on the assessee-company to establish on evidence that the said expenses were wholly and exclusively incurred for the purpose of its business. It is observed that the assessee-company, however, failed to discharge the said onus successfully and satisfactorily inasmuch as the details and supporting bills and vouchers verified by the Assessing Officer revealed that unverifiable and personal element was involved in the said expenditure. As rightly contended by the Id . DR_ such personal and unverifiable event involved in the said expenses warranted disallowance out of such expenses to some extent and since the disallowance S0 made by the Assessing Officer and confirmed by the Id. CIT(A) at 20% of the sales promotion expenses is fair and reasonable, We d0 not find any justifiable reason to interfere with the same We , however, find merit in the alternative contention of the d. Counsel for the assessee that the expenses of Rs.3,22,630 /- incurred on organizing an event to celebrate Ireland National Day in India which was included in sales promotion having been entirely disallowed by the authorities below and the said disallowance having been confirmed by uS, the disallowance ITA No. 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited of 20% should be restricted 0ut of the balance amount of sales promotion expenses of Rs.5,21,233 / - (Rs.8,43,863 / - minus Rs.3,22,630 /-). Ground no.1 of the assessee's appeal is accordingly dismissed while ground no.2 is partly allowed. 9 The issue raised by the assessee in Ground No. 3 of this appeal relates to the disallowance of Rs.4,28,328 /- made by the Assessing Officer and confirmed by the Id. CIT(Appeals) out of miscellaneous expenses. 10 During the course 0f assessment proceedings, the claim of the assessee for miscellaneous expenses 0f Rs . 44,65,150 / - was examined by the Assessing Officer. On such examination, he found that general expenses and office expenses amounting to Rs.11,28,453 / - and Rs.10,13,186 / - were claimed by the assessee under the head 0f miscellaneous expenses. On verification of the ledger account as well as the supporting bills and vouchers, the Assessing Officer noted that the general expenses and office expenses claimed by the assessee totalling to Rs.21,41,639 / - were mostly paid in cash and the same were not fully verifiable. As further noted by him, the assessee als0 had failed to substantiate the business expediency of the said expenses. He, therefore, made a disallowance 0f Rs.4,28,328 /- being 20% 0f the general expenses and office expenses claimed by the assessee for the unverifiable element involved in the said expenses. On appeal, the Id. CIT(Appeals) confirmed the said disallowance made by the Assessing Officer keeping in view the unverifiable element involved in the expenses claimed by the assessee as specifically pointed out by the Assessing Officer. 11_ In support 0f the assessee' $ case on this issue relating to the disallowance of 20% made by the Assessing Officer and confirmed by the Id . CIT(Appeals) out of general expenses and office expenses claimed under the head miscellaneous expenses the Id. Counsel for the assessee reiterated the submissions made by him while arguing the issue involved ITA No. 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited in Ground No_ 2 relating to the similar disallowance of 20% made by the Assessing Officer and confirmed by the Id. CIT(Appeals) out of sales promotion expenses. 12 . The Id, D.R on the other hand, reiterated the same arguments as raised by him while arguing the issue involved in Ground No. 2 in support 0f the Revenue' $ case on this issue. He invited our attention to the details of general expenses and office expenses claimed by the assessee as placed at page no.28 and 29 of the assessee'$ paper book and pointed out that the said details given in vague and general manner were not sufficient for the Assessing Officer to verify the claim of the assessee for the said expenses being the business expenses. 13_ We have considered the rival submissions and also perused the relevant material available on record As already observed by uS while dealing with the ground no.2 involving the issue relating to the similar disallowance of 20% made by the Assessing Officer and confirmed by the Id. CIT(A) out of sales promotion expenses, the position is well-settled that the onus is on the assessee to establish on evidence that the expenses claimed by him as deductible business expenses are wholly and exclusively incurred for the purpose of his business. In this regard, it is observed that the expenses claimed by the assessee under the head general expenses and office expenses' were mostly paid in cash as found by the Assessing 0fficer and the same were not fully verifiable in the absence 0f proper and sufficient supporting evidence in the form 0 f relevant bills /vouchers. As further noted by the Assessing Officer in the assessment order, the assessee had als0 failed to establish fully the business expediency of the said expenses. At the time of hearing before the Tribunal, the Id. DR has invited our attention to the details of the general expenses and office expenses claimed by the assessee as placed at page no.28 and 29 of the assessee S paper book which clearly show that the said details given by the assessee were very vague and general in 8 ITA No. 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited nature and it was difficult for the Assessing Officer to verify the business expediency of the same in the absence of sufficient details and supporting documentary evidence. Keeping in view 0f all these facts of the case, W e agree with the view taken by the authorities below that the expenses claimed by the assessee under the head general expenses and office expenses were not fully verifiable and the same being not fully established as wholly and exclusively incurred for the purpose of the assessee' $ business some disallowance out of the same was called for Since the disallowance S0 made at 2 0 % by the Assessing Officer and confirmed by the Id. CIT(A) in the facts and circumstances of the case is fair and reasonable W e d0 not find any justifiable reason to interfere with the same Ground no,3 0 f the assessee' s appeal is accordingly dismissed.

14.

The next issue relating to disallowance of Rs.1,16,90,694 /- made by the Assessing Officer and confirmed by the Id. CIT(Appeals) is raised by the assessee vide Grounds No. 4(a) to 4(f), which read as under:- "(4) (a) That, the Ld. C.IT.(A) erred in upholding the disallowance of Rs.1,16,90,694/- after adjustment of suo moto disallowance of Rs.45,11,497 /- offered by the appellant uls.14A rW.r. 80 of the Rules on exempt dividend income of Rs.8,88,566 / despite the fact that the dividend yielding investments were old investments and n 0 fresh investment wa $ made during the year. (b) That, the Ld. C.I.T.(A) erred in not having considered that direct expenses computed by the A.0. under Rule 80(2) (i) on account of Demat Charges of Rs.24,239 /- and SIT debited of Rs.66,032 / - aggregating to Rs.90,271 /-, should have been restricted to Rs.1,767 / - , inasmuch as Rs.22,472 /- out of Demat Charge represented share custody/registrar expenses and hence 0utside the ambit of sec.14A (c) That; the Ld. C.IT.(A) erred in not considering that during the year the interest expenditure was Rs.74,17,49,873 / as against interest received of Rs.65,21,94,408 / - and further interest expenditure comprised of interest on secured loans (Rs.41,73,770) , interest on trade payables (Rs.72,01,69,401) and other misc. Payments (Rs.50,694), aggregating to ITA No. 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited Rs.72,43,93,865 / - and these payments have n0 nexus with earning of exempt income (d) That, therefore, even if it is presumed to have any remote nexus with earning 0f exempt income, without accepting, the Ld. C.I.T.(A) at the most could have considered Rs.1,73,56,008 / - [Rs.74,17,49,873 minus Rs.72,43,93,865] being interest on unsecured loan for the purpose of sec.14A r.W.r. 8D (2)(ii) of the Rules and not Rs.8,95,14,830/- as taken by the A.0_ and in that case disallowance suo moto offered by the appellant of Rs.45,11,497 /- would meet the purpose. (e) That, the Ld. CLT.(A) further erred in not considering that as per Balance Sheet of the relevant year, addition to investment of Rs.9,09,11,895 / - was out of own funds of Rs.17,58,04,760/- and hence no part 0f interest paid on loan funds can be directly or indirectly attributed to the exempt income earning investment and hence the disallowance/addition ofRs.1,16,90,694/- u/s.14A rW.r. 8D of the Rules over and a bove offered by the appellant of Rs.45,11,497/- is liable to be deleted. (f) That, without any prejudice to the above, the impugned disallowance upheld by the Ld. CIT(A) is against the decision of Hon'ble L.TAT. Kolkata in the case of REI Agro Ltd. VS DCIT (144 ITD 141) duly confirmed by the Hon'ble Calcutta High Court holding that disallowance u/s. 14A r.W.r. 8D of the Rules is to be in relation to the exempt income out of average investment which yielded such exempt income, which was Rs.15,02,51,798 / - and not Rs. 90,19,45,950/- as taken by the A.0"_ 15 . During the course of appellate proceedings before the Tribunal, the assessee has raised the following additional grounds on this issue with a request to admit the same: "4(g) That admittedly the dividend received on the equity investment which wa $ exempt from tax u/$ 10(34) of the Income Tax Act being Rs.8,88,566/-, in view of the Judgment of Supreme Court in the case of Principal Commissioner of Income-tax-Z v Caraf Builders & Constructions (P.) Ltd. [2019] 112 taxmann.com 322 (SC)/[2020] 268 Taxman 317 (SC)], the disallowance u/s 14A should not exceed the amount of dividend received. (h) That, without prejudice to the addition in Ground 4(g) above even if; computation as per Rule 8D(2)(ii) and Rule 8D(2)(iii) of the Act, the disallowance at best can be worked out to Rs.19,32,765 / Rs.7,51,259 / - i.e_ Rs. 26,84,024 / - in light 0f the judgment of Calcutta High Court in the case of % 10 ITA No. 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited DCIT vs REI Agro Ltd. (GA No.3581 of 2013) the A0 erred in having made a disallowance 0f Rs.1,62,02.191 / -. 16_ In the return of income filed for the year under consideration, dividend income of Rs.8,88,566 / - was claimed to be exempt by the assessee under section 10(34) of the Income Tax Act, 1961, The assessee had als0 offered a disallowance of Rs.45,11,497 /- suo motu under section 14A of the Act read with Rule 8D in respect of the expenses incurred in relation to the earning of the said exempt income. During the course 0f assessment proceedings, it was noticed by the Assessing Officer that the net interest expenditure 0f Rs.8,95,14,830 /- was incurred by the assesee during the year under consideration_ As mentioned by the Assessing Officer in the assessment order, the assessee could not establish on evidence that no interest was paid /payable for acquiring the shares on which the exempt dividend income was earned during the year under consideration. He_ therefore, applied Rule 8 D and made a further disallowance of Rs.1,16,90,694 /- under section 14A as worked out as under:- Descriptions: Amount Direct expenses: (a) DMAT charges STT debited (24239 66032 (a) Interest debited 8,95,14,830 (b) Avg Value 0f 90,19,45,950 investment (856490002 687025585)/2 (c) Avg . Value of asset 695,88,18,727 (6931993680 6264272669)/2 (d)A x b/c 0.5 % of investment Amount to be disallowed under section 14A of the Act Amount already disallowed by the 90,271 HI 1,16,02,190 45,09,730 1,62,02,191 H. IV . V. 45,11,497 11 IA IVU, ZJIU/ RULI ZU1O Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited assessee Amount to be disallowed_now VL 1,16,90,694 17 . The disallowance made by the Assessing Officer under section 144 read with Rule 8 D was challenged by the assessee in the appeal filed before the Id. CIT(Appeals) and since the ld. CIT(Appeals) did not find merit in the submissions made by the assessee in support of its case on this issue he confirmed the said disallowance made by the Assessing Officer for the following reasons given in his impugned order: "[ have considered the grounds of appeal, statement of facts and submission of the authorized representative of the appellate company as well as the assessment order framed in the light of the materials available on record before the assessing officer during the assessment proceedings: The AR of the appellate has submitted that during the relevant A.Y._ the assessee earned dividend income of Rs.8,88,566/_ which was claimed exempt from tax under section 10(34) of the Act. In the computation of total income, the assessee had su0 mote offered a sum 0f Rs.45,11,497 / - u / s. 14A of the Act. It clearly indicated that the assessee has incurred the expenses for earning of the dividend or exempt income and for that he himself disallowed some expenses. Now the only issue is calculation of disallowance and in this regards the AO has made the disallowance as per rule 8D_ The AO has also observed that the assessee has paid interest (net) to the tune of Rs.8,95,14,830 / which als0 come under the preview of disallowances. Thereafter, A0 proceeded to make disallowance u/5.144 of expenditure incurred and exempt income earned during the relevant year. The AR in his submission further accepted that the interest expenditure to the tune of Rs.1,73,56,008 / - incurred on unsecured loans may be presumed to have nexus with earning 0f exempt income. It also clearly shows that the interest was incurred for the purpose 0f investment where exempt income wa $ earned. Again, the issue is only of calculation and the same has been calculated by the AO as per rule 8D. The AR or the appellate has also admitted that there is increase in investments during the relevant year was to the tune of Rs.9,09,11,895 /- The AR of the appellate has further submitted that even if it is assumed, without accepting, that disallowance u/s 144 read with 12 ITA No. 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited Rule 8D is applicable in the assessee'scase, then also only dividend yielding investments can be included in the com putation 0f disallowance as Iaid down in Rule 8D 0f the Rules while placing his reliance on RE Agro Led Case and also made a calculation in the submission and the disallowance amount has been calculated of Rs 11,27,769 /- only: Now if is S0 than why the appellate has disallowance/offered su0 motu disallowance of Rs.45,11,497/- in its computation of total income for the relevant assessment year. This clearly shows that the calculation made by the appellate is not correct as per rule 8 D and whatever calculation or disallowance as made by the A0 is as per rule 8D. The Hon 'ble Supreme Court in the case of Maxopp Investment Ltd reported under [2018] 9 1 taxmann com 154 (SC) has held that The expenditure which is in relation to earning dividends call be disallowed under section 14A and rule 8D. The object of section 144 of the Act is to disallow the direct and indirect expenditure incurred, in relation to income which does not form part of the total income. The expenditure (including interest paid on funds borrowed) in respect 0f investment in shares of operating companies for acquiring and retaining a controlling interest therein is hit by section 14A of the Income tax Act, 1961 in as much as the dividend received on such shares does not form part of the total income. In the first instance, it needs to be recognised that as per section 14A(1), deduction of that expenditure is not to be allowed which has been incurred by the assessee in relation to income which does not form part of the total income under this Act. Axiomatically, it is that expenditure alone which has been incurred in relation to the income which is includible in total income that has to be disallowed. 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 ag0, it is for the assessee to show by the production of documentary evidence that such Toaned 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 13 ITA No. 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited the absence of any such materials placed by the assessee, the assessing officer rightly held that proportionate amount should be disallowed having regard to the total income and the income from the exempt source. In the absence 0f any material disclosing the source 0f acquisition of shares which is within the special knowledge of the assessee, the assessing authority took a most reasonable approach in assessment Keeping in view of the facts as mentioned above, in the absence of any cogent material evidence, do not find any infirmity In the order of the assessing officer and the same is hereby upheld. In view of above, this ground of appeal is dismissed". 18_ The Id. Counsel for the assessee, at the outset, submitted that both the additional grounds raised by the assessee in support 0f the issue raised in Ground No_ 4 as originally taken relating to disallowance under section 144 0f the Act read with Rule 8D are preliminary legal issues and since the adjudication 0 f the same does not require investigation into new facts, the same may be admitted in the light of the decision 0f the Hon'ble Supreme Court in the case of National Thermal Power Co. Limited -VS_ CIT reported in 229 ITR 383 . On merit of the issue raised in additional Ground No. 4(g), he contended that the disallowance under section 144 cannot exceed the amount of exempt income actually earned by the assessee during the year under consideration as held by the Hon'ble Supreme Court in the case of Principal CIT -VS. Caraf Builders & Constructions (P) Limited [268 Taxman 317]_ He contended that since the dividend income actually earned by the assessee during the year under consideration was only Rs.8,88,566 / - the disallowance made by the Assessing Officer and confirmed by the Id. CIT(Appeals) under section 14A read with Rule 8D(2) amounting to Rs.1,62,02,191/- should be restricted to Rs.8,88,566 /-_ 19. As regards the issue raised in other additional ground 4(h), he contended that the same is related to the alternative claim 0f the assessee that the disallowance under section 14A read with Rule 8D has to be 14 ITA No. 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited worked out by taking into consideration only the investment on which the exempt income was earned by the assessee during the year under consideration as held by the Hon'ble Calcutta High Court in the case 0f DCIT -VS REI Agro Limited [G.A. No. 3581 of 2013]. He contended that the disallowance S0 worked out by taking into consideration only the investment which fetched the exempt income to the assessee during the year under consideration as against the total investment considered by the Assessing Officer as well as by the Id_ CIT(Appeals) works out to Rs.26,84,024 / - by applying Rule 8D (2) and the disallowance 0f Rs.1,62,02,191 /- made by the Assessing Officer and confirmed by the Id. CIT(Appeals) should be restricted alternatively to Rs.26,84,024 /- 2 0 . The Id, D.R: on the other hand, submitted that the Hon'ble Supreme Court in the case of Caraf Builders & Constructions (P) Limited (supra) relied upon by the Id_ Counsel for the assessee has merely dismissed the SLP filed against the decision of the Hon'ble Delhi High Court without passing any speaking order on merit and the said decision, therefore_ cannot be considered as the decision of the Hon'ble Apex Court on merit, which is binding: He als0 submitted that the disallowance of Rs.45,11,497 / - was made by the assessee-company su0 motu under section 14A thereby admitting that the expenses to that extent were actually incurred by it in relation to the earning of the exempt income in the form of dividend. He contended that the assessee-company, therefore_ now cannot claim that the disallowance under section 14A should be less than Rs.45,11,497 as offered by itself suo motu in the return of income. 21, In the rejoinder, the Id. Counsel for the assessee submitted that the decision of the Hon'ble Delhi High Court in the case 0f Caraf Builders & Constructions (P) Limited (ITA No. 1260 of 2018 dated 13.11.2018) was upheld by the Hon'ble Supreme Court by dismissing the SLP filed by the Department and since it was clearly held by the Hon'ble Delhi High Court that the disallowance under section 144 read with Rule 8D cannot exceed 15 ITA No. 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited the amount of exempt income actually earned by the assessee during the relevant year, the issue raised in additional ground 4(g) stands squarely covered in favour 0f the assessee_ He submitted that a similar view has been taken in certain other judicial pronouncements als0 and in the absence of any contrary decision in favour of the revenue pointed out by the ld. D.R the disallowance under section 14A read with Rule 8 D is liable to be restricted to the amount of exempt income. He submitted that the various Benches 0f this Tribunal have decided this issue in favour 0f the assessee by following the said judicial pronouncements. As regards the disallowance 0f Rs.45,11,497 /- Suo motu offered by the assessee under section 14A in the return f income, he contended that the same was offered by the assessee as per Rule 8D(2) and the working made by the assessee by applying Rule 8D (2) turned out to be wrong as per the decision of the Hon'ble Delhi High Court in the case of Caraf Builders & Constructions (P) Limited (supra) as Well as the decision 0f the Hon'ble Jurisdictional High Court in the case 0f REI Agro Limited (supra). He contended that since the tax is to be collected in accordance with law, the disallowance under section 14A is liable to be restricted as per the decision of the Hon'ble Delhi High Court in the case of Caraf Builders & Constructions (P) Limited, which is affirmed by the Hon'ble Supreme Court by dismissing the SLP filed by the Revenue: 22_ We have considered the rival submissions and also perused the relevant material available on record. In ground no.4 (a) to 4(f) as originally raised, the assessee has challenged the addition 0f Rs.1,16,90,694/- made by the Assessing Officer and confirmed by the Id. CIT(A) on account of disallowance u/s 144 of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 _ To further support and substantiate its case on the said issue, the assessee has raised two additional grounds i.e. ground no.4(g) and 4(h) which have been already extracted in the foregoing portion of this order. Since the issues raised by the assessee in the said additional grounds are legal in nature and the 16 ITA No. 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited adjudication of the same does not require investigation into new facts, the said additional grounds raised by the assessee are admitted by us by relying on the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Limited (supra). On merit, the issue raised by the assessee in ground no 4(g) is that the disallowance u/s 144 r.W Rule 8D cannot exceed the exempt income actually earned by the assessee during the year under consideration_ In support 0f this contention, Id, Counsel for the assessee has relied on the judgment of the Hon'ble Supreme Court in the case of Caraf Builders & Constructions (P) Limited (supra) wherein the decision of the Hon'ble Delhi High Court holding that the disallowance u/s 14A r.W_ Rule 8D cannot exceed the exempt income of that year was affirmed by the Hon'ble Supreme Court by dismissing the SLP filed by the Revenue. The Id, DR in this regard has contended that the SLP filed by the Revenue in the said case was dismissed by the Hon'ble Supreme Court without passing any order on merit and the same therefore is not a binding precedent. He_ however, has not disputed the fact that the decision 0f the Hon'ble Delhi High Court in the case of Caraf Builders & Constructions (P) Limited (supra) squarely covers this issue in favour of the assessee wherein it was held in paragraph no.25 by their Lordships that the disallowance u/s 144 rW Rule 8D cannot exceed the exempt income of that year. He has als0 not cited any decision of the Jurisdictional High Court or for that matter of any other Hon'ble High Court where a contrary view is taken on this issue which is in favour 0f the Revenue On the other hand, there is another decision of Hon'ble Delhi High Court in the case of Joint Investment Private Limited VS CIT 372 ITR 694 (Delhi) wherein a view favourable to the assessee was taken on this issue by holding that the disallowance u / $ 14A rW_ Rule 8 D cannot swallow the entire exempt income and the same cannot exceed the actual exempt income earned by the assessee during the relevant year.

23.

The Id. DR has als0 raised a contention that the assessee-company itself having offered the disallowance of Rs.45,11,497 / - u / s 14A, the 17 ITA No. 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited quantum of expenses incurred to that extent in relation to the exempt income was admitted by the assessee-company and, therefore, the disallowance to be made u/s 144 r.W Rule 8D cannot be less than the said amount. We are unable to accept this contention of the Id, DR. It is observed that the disallowance of Rs.45,11,497 /- u/s 14A was worked out by the assessee-company artificially by applying the formula given in Rule 8D and it, therefore, cannot be said that there was any admission on the part of the assessee-company that the expenditure of Rs.45,11,497 /- was actually incurred by it in relation to the earning of exempt income. As already noted by uS , Hon'ble Delhi High Court in the case of Joint Investment Private Limited (supra) and Caraf Builders & Constructions (P) Limited (supra) has clearly held that a disallowance u/s 144 as may be worked out by applying the formula given in Rule 8 D cannot exceed the exempt income actually earned by the assessee during the relevant year which in the present case is Rs.8,88,566 / - and simply because disallowance u/s 14A r.W Rule 8D was offered by the assessee wrongly at Rs.45,11,497 /-, the assessee, in our opinion, cannot be prevented from contending that the disallowance u / s 14A r.W Rule 8 D should be restricted to lower figure than that offered by the assessee wrongly. 24 , It is observed that a similar issue had come for consideration before the Co-ordinate Bench of this Tribunal in the case 0f ACIT VS Sharmila Kumar (ITA No.678 / Kol/2016) cited by the Id. Counsel for the assessee wherein this aspect was considered by the Tribunal in the light of the relevant provisions of the Income Tax Act as well as the judgement 0f the Hon'ble Calcutta High Court in the case of CIT VS . Britannia Industries Ltd. 396 ITR 677 and that of Hon'ble Gujarat High Court in the case 0 f Milton Laminates Pvt. Ltd. 218 Taxman 108 . In the said judgments, the assessee on redemption of mutual fund investment had wrongly offered even the principal sum of investment to tax and when the Id. CIT(A) directed the Assessing Officer to exclude the principal amount from the total income of the assessee, the income finally assessed became 18 ITA No. 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited lower than the income returned by the assessee_ This issue was taken up by the Revenue in appeal before the Tribunal and it was held by the Tribunal vide its order dated 14.05.2018 passed in ITA No.678 /Kol/2016 by relying o the relevant provisions of the Income Tax Act as well as the judgment of the Hon'ble Calcutta High Court in the case of CIT VS_ Britannia Industries Ltd, and that of Hon'ble Gujarat High Court in the case 0f Milton Laminates Pvt: Ltd. that the direction of the Id. CIT(A) even though it resulted in assessment below the returned income was valid as per Iaw_ A reference was als0 made by the Tribunal in this regard to the CBDT Circular No.14 dated 11.04.1955 wherein it was instructed that the officers 0f the Department must not take advantage of ignorance of the assessee as to his rights and it is one of their duties to assist the taxpayer in every reasonable way, particularly in the matter 0f claim ing and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him_ 25 . Keeping in view the legal position emanating from the judicial pronouncements discussed above and having regard to all the facts of the case, We hold that the disallowance 0 f Rs.1,62,02,191 /- made by the Assessing Officer and confirmed by the Id. CIT(A) u/s 14A rW. Rule 8D is liable to be restricted to Rs.8,88,566/- being the exempt income actually earned by the assessee during the year under consideration. We order accordingly and allow the additional ground no. 4(g) raised by the assessee. 26, In view of our decision rendered on additional ground no.4(g) as above, other grounds originally raised by the assessee on this issue i,e grounds no.4(a) to 4(f) as well as additional ground no.4(h) have become infructuous and W € d0 not consider it necessary on expedient to adjudicate upon the same_ 19 ITA No 2516/K0L/2018 Assessment Year: 2014-2015 M/s. MKJ Enterprises Limited 27 . In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on Aigtstk 01, 2020. (Justice P.P. Bhatt) President fekml Kolkata, the Ijr day of August, 2020_0 (P.M fagtap) Vice-President Copies to (1) M/s. MKJ Enterprises Limited, Sugar Estate, Unit-1, 3rd Floor, 2, Clive Ghat Street, Kolkata-700001 (2) Deputy Commissioner of Income Tax, Circle-4(2), Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700069 (3) Commissioner 0f Income Tax (Appeals)-2, Kolkata; (4) Commissioner of Income Tax - Kolkata (5) The Departmental Representative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. PS; . . 20

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