SALARURIA INVESTMENT PRIVATE LTD.,KOLKATA vs. D.C.I.T.,CIRCLE-1(2), KOLKATA

This appeal filed by the assessee is directed against the order of ld. Commissioner of Income Tax (Appeals)-16, Kolkata dated 25th April, 2019 and the grounds raised by the assessee therein read as under:- “(1) That on the facts and in the circumstances of the case, the AO was wholly wrong and unjustified in making disallowance of Rs.21,74,843/- u/s 14A read with Rule 8D(2)(ii) without appreciating the submission made and in view of the facts and in the circumstances the Ld. CIT(A) had grossly erred in confirming the said addition of Rs.21,74,843/- made by the Aa by wrongly and illegally invoking the provisions of sec. 14A read with Rule 8D(2)(ii) without appreciating the submission preferred before the AO and the Ld. CIT(A) that -

We have heard the arguments of both the sides and also perused the relevant material available on record. At the time of hearing before us, Assessment Year: 2013-2014 Salarpuria Investment Pvt. Limited the ld. Counsel for the assessee has not pressed Grounds No. 2, 3 & 4 and the same are accordingly dismissed as not pressed.

As regards the issue involved in Ground No. 1 relating to the disallowance of Rs.21,74,843/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) on account of interest under section 14A read with Rule 8D(2)(ii), the ld. Counsel for the assessee has invited our attention to the relevant portion of the annual accounts of the assessee-company placed at page no. 35 to show that interest earned by the assessee-company during the year under consideration at Rs.3,70,23,700/- was more than the interest paid amounting to Rs.3,43,43,713/- and the net interest of Rs.26,79,987/- earned by the assessee was shown as its income. By relying on the judgment of the Hon’ble Supreme Court in the case of ACG Associated Capsules Pvt. Limited –vs.- CIT (343 ITR 89), he has contended that the netting of interest should be done and there being no interest expenditure claimed by the assessee after netting, the question of disallowance on account of interest under section 14A read with Rule 8D(2)(ii) would not arise. It is observed that this contention raised by the ld. Counsel for the assessee is duly supported by the judgment of the Hon’ble Gujarat High Court dated 31.08.2017 in the case of Principal CIT vs Nirma Credit & Capital Pvt. Ltd. (Tax Appeal Nos. 409 and 514 of 2017), wherein it was held that for the purpose of applying Rule 8D(2)(ii) of the Income Tax Rules, 1962 prior to amendment with effect from 02.06.2016, what would be considered as amount of expenditure by way of interest would be the interest paid by the assessee on the borrowings minus the taxable income earned during the financial year. The benefit of netting of interest thus has been allowed by the Hon’ble Gujarat High Court while computing the disallowance made under section 14A as per Rule 8D and keeping in view the same, we are inclined to accept the contention of the ld. Counsel for the assessee that the interest earned by the assessee during the year under consideration being more than the interest paid, no disallowance on account of interest can be made under section 14A read with Rule 8D. We accordingly delete the disallowance made by the Assessing Officer and confirmed by the Assessment Year: 2013-2014 Salarpuria Investment Pvt. Limited ld. CIT(Appeals) on account of interest under section 14A read with Rule 8D and allow Ground No. 1 of the assessee’s appeal.

In the result, the appeal of the assessee is partly allowed. Order pronounced in the open Court on January 08, 2020.