DCIT, CC-1(4), KOLKATA, KOLKATA vs. JUPITER INTERNATIONAL LIMITED , KOLKATA

2. Additions under section 56(2)(viib) of the Act amounting to Rs. 3,29,48,640.

3. Additions on account of Provision for Interest on Unsecured Loan amounting to Rs.11,42,572.

3.1 Subsequently, the assessee company went into appeal against order u/s 153A/143(3) of the Act and the Ld. CIT(A) vide its order dated 14.07.2017 deleted all the above-mentioned additions relying on the ground that no incriminating documents or papers was found during search. Further, an appeal was filed by the department before the Hon’ble ITAT Kolkata, wherein the Hon’ble Tribunal vide its order dated Jupiter International Limited 01.03.2019 restored the issue to the file of the ld. CIT(A) with direction to decide on merits.

Jupiter International Limited “13. We note that the ld. Assessing Officer has observed that the assessee company has made allotment of 6,19,000 Equity Shares @ Rs. 42/- per share during the instant year at a price which exceeds fair market value of the share and thus the provisions of section 56(2)(viib) of the Act was violated. The fair market value on the basis of book value of company as on 31.03.2013 was calculated by ld. Assessing Officer at Rs. 25.55/- per share. We note that revaluation reserves need not be deducted while calculating the fair market value, as per rule 11UA(2) of the I.T. Rules. Considering these facts and circumstances of the case we do not find any infirmity in the order passed by the Ld. CIT(A) hence we dismiss the ground nos. 3, 4 and 5 raised by the revenue.” 7.1 We note that the ld. CIT(A) in his order has held that the said order of the Hon’ble ITAT attained finality and relying on the said order, the addition of Rs.3,29,48,540/- has been deleted. The relevant portion of the order of the ld. CIT(A) is hereby reproduced as under:

5.2 Ground No. 5: Appeal on ground no 5 is against the addition of Rs.3,29,48,640/- u/s 56(2) (viib) of the IT Act. In the instant case, Assessing Officer has observed that the appellant company has made allotment of 15,66,000 Equity shares @ Rs. 50/- per share during the instant year at a price which exceeds fair market value of the share and thus the provisions of section 56(2)(viib) of the Act was violated. The fair market value on the basis of book value of company as on 31.03.2012 was calculated by Assessing Officer at Rs. 28.96 per share. The appellant states that while calculating FMV of share, the Ld. Assessing Officer had decreased Revaluation Reserve of Rs. 23,10,13,765/- from the Reserve figure appearing in audited accounts. At the outset, it is submitted that the Assessing Officer has exceeded his jurisdiction in interpreting deeming provisions of section 56(2)(viib) of the Act. In this connection, reference was made to the audited accounts of the company, wherein Revaluation Reserve of Rs. 23,10,13,765/- is duly appearing as on 31.03.2013 (Refer Page 49 of Paper Book). Now, let us refer to Rule 11UA which clearly states that the assets figure for the calculation of Fair Market Value shall be the ‘book value’ of the assets in the Balance Sheet. Thus, the whole concept of section 56(2)(viib) is to determine the fair market value which should ideally be on arm’s length. Such fair value should be on the basis of actual fair value of the assets of the company. It is on record that the company was about 29 years old and has its own reputation in the market and that should be taken in to account as its intangible assets as per section 56(2)(viiib)(ii) of the Act. It may be relevant to mention that on similar issue in assessee’s own case for AY 2015-16, the Hon’ble ITAT vide its order dated 19.06.2019, has deleted the additions made under section 56(2)(viib) of the Act. Relevant para of the said order are reproduced below: Jupiter International Limited “11. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has deleted the addition observing the following: “I have considered findings of the AO in the assessment order and the written submission filed by the AR on this issue. I think the main reason for disagreement regarding valuation/ determination of fair market value of shares is because of difference of opinion in respect to interpretation of rule 11UA of the I T Rules 1962 and sub-clause (ii) of section 56(2)(viib). This sub-section is reproduced as under:

As may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature". I think while calculating the fair market value, the AO has not taken into account the intangible assets being goodwill, know-how, patents, copy rights, trade marks, licences etc into consideration. The AR has brought it on record that this company is 29 years old compariy and it has its own reputation in the market that should have been taken into account as its intangible assets as per section 56(2)(viib)(ii). Accordingly, it should also have been taken into consideration while calculating/ determining the fair market value of shares of this company. I think the AO has not considered the mechanism provided under rule 11UA, subclause (iii) in its totality. In my view, sub-clause (ii) of section 56(2)(viib) has to be taken into consideration, while determining the fair market value of shares. Accordingly, assessee’s appeal on ground no. 2 is allowed.”

Jupiter International Limited The appellant had submitted that there is no further appeal against the said ITAT order and thus, the principle laid down in the aforesaid ITAT order has become binding. Thus, respectfully following the aforesaid orders passed in the appellant’s own case referred above, the assessee's appeal on ground no 2 is allowed.” 7.2 Keeping in view the above discussion, we do not find any infirmity in the impugned order on the aforesaid issue.

8. Regarding the next issue of disallowance 28,28,624/-, we find that in this ground, there are two parts i.e. (i) addition on account of interest on unsecured loan of Rs.11,42,572/- and (ii) addition for discount of Rs.16,86,052/-. We note that before the ld. CIT(A), the assessee contended that the description as given in the list was a typographical mistake and pointed out that the aforesaid payment of interest was actually made through the assessee's bank Account with State Bank of India and the Assessee also gave a break of the parties to whom interest totalling Rs.11,45,572/- was paid which is mentioned in the order of the ld. CIT(A). The relevant part of the order of the ld. CIT(A) is hereby reproduced as under:

“5.3 Ground No. 3: Appeal on ground no 3 is against the action AO of allowing provision of interest on unsecured loan allowed of Rs. 11,42,572/-. During the instant year, the appellant has debited Rs.15,35,03,202/- towards Interest on unsecured Loan which was incurred during the normal course of business. However, the Assessing Officer has observed that Finance Charges includes provision for interest on unsecured loan of Rs. 11,42,572/- and added back the same to the total income of the assessee. The appellant submitted that the said additions of Rs. 11,42,572/- was made without providing any opportunity of being heard. The appellant further submitted that while providing details of Finance Charges (which includes interest expenditure incurred in unsecured loan) in response to notice issued under section 142(1) of the Act, the appellant has inadvertently mentioned “Provision” of Rs. 11,42,572/- (Sl. No.45) instead of showing Interest – party wise. The appellant has submitted that it has debited interest account and credited party account in the instant case. Further, party wise breakup of the said interest amount of Rs 11,42,572/- Jupiter International Limited was submitted. The Assessing Officer has failed to appreciate the fact that no provision for interest is appearing in the audited accounts, rather the same amount was credited to respective loan creditors account. Thus, I am of the view that the aforesaid amount of Rs. 11,42,572/- represent interest account and not provision. The same is allowable under section 36(1)(iii) of the Act. Accordingly, assessee's appeal on ground no 3 is allowed.” 8.1 We also find that the assessee pointed out that the report of the Auditor in the Tax Audit Report which has been filed in Pages 63 to 119 of paper book and submitted that the Assessee has claimed as deduction any amount which is in the nature of provision and not actual liability.

8.2 The second part of the addition i.e. disallowance of discount of Rs.16,86,052/-, we find that during the relevant previous year, the assessee had debited a sum of Rs.1,55,65,517/- towards discount allowed to customers during the normal course of business and the assessee submitted a list of creditors at Pages 230 to 260 of the paper book. The ld. CIT(A) in his order has discussed this issue as under:

“5.4 Ground No. 4: Appeal on ground no 4 is against the action AO of allowing provision for discount allowed of Rs. 16,86,052/-. During the instant year, the appellant has debited Rs. 1,55,65,517/- under discount allowed. However, the Assessing Officer has observed that discount allowed includes provision for discount allowed of Rs. 16,86,052/- and added back the same to the total income of the assessee. The appellant submitted that the said additions of Rs. 16,86,052/- was made without providing any opportunity of being heard. The appellant further submitted that while providing details of discount allowed in response to notice issued under section 142(1) of the Act, the appellant has inadvertently mentioned “Provision” of Rs.16,86,052/- (Sl. No. 418) instead of showing details of discount allowed to various parties. In this connection, it is submitted that some typographical mistake was occurred inadvertently. However, the Assessing Officer has observed that the appellant has made provision of discount. The appellant has submitted that it has debited discount allowed account and credited party account in the instant case. The Assessing Officer has failed to appreciate the fact that no provision for discount is appearing in the audited accounts, rather the same amount was deducted from respective debtors account. Thus, I am of the view that the aforesaid amount of Rs.16,86,052/- represent discount allowed and not provision. The same is allowable under section 37(1) of the Act. Accordingly, assessee's appeal on ground no 4 is allowed.” Jupiter International Limited 9. In respect of addition of Rs.4,78,76,015/- u/s 14A of the Act is concerned, we note that in the assessee’s own case in for assessment year 2015-16 has dealt with the matter and held that there can be no disallowance of expenditure u/s 14A r.w.r. 8D of the Rules, in a case where no exempt dividend income was earned by the assessee. We find that the assessee has relied the decision of Hon’ble Calcutta High Court in the case of PCIT vs. Shalimar Pellet Feeds Ltd. (2022) 138 taxmann.com 124. We also find that the Assessing Officer has accepted that the assessee did not earn any exempt income in the nature of dividend on those investments. We have gone through the order of the ld. CIT(A) and find that the ld. CIT(A) has discussed this issue as under:

“5.1 Ground No. 2 : I have considered the findings of the AO in the assessment order and the Written Submissions filed by the appellant on this issue. In the Witten Submissions, reference was drawn to the Investment Schedule of the appellant company as appearing in Note 38 of audited accounts (Refer Page 62 of Paper Book). As evident from the above, entire investments has been made in subsidiary company namely Jupiter Solar Power Limited. The Ld. Assessing Officer has applied section 14A read with Rule 8D on such investments by observing that such Investments are capable of generating exempt income. The appellant drew attention that even during the assessment proceedings attention was drawn that the said subsidiary company namely Jupiter Solar Power Limited has not declared any dividend in any year. Incidentally, the same Assessing Officer has passed assessment order simultaneously for A.Y. 2009-10 to A.Y. 2015-16 for both Jupiter Solar Power Limited and Jupiter International Limited. In the assessment order, the AO has discussed order of the Hon'ble Calcutta High Court in the case of CIT-III, Kolkata vs RKBK Fiscal Services Pvt Ltd 358 ITR 288 (Cal). The AR has brought it on record that in the case of M/s RKBK Fiscal Services Pvt Ltd, the company had earned dividend income but in the present case the assessee has not earned any dividend income. So, the ratio decided in the case of M/s RKBK Fiscal Services Pvt Ltd case (supra) is not applicable in the present case. The AR had also brought on record the case law of Principal Commissioner of Income-tax v. Shalimar Pellet Feeds Ltd. [2022] 138 taxmann.com 124 (Calcutta), wherein it Jupiter International Limited was held that disallowance u/s 14A can only be applicable on those shares which have yielded exempt income. I have considered various case laws brought on record by the AR. I have also considered ratio decided in different judicial pronouncements (both by Jurisdictional Calcutta High Court and different other High Courts). It is admitted on record that the appellant has not earned any exempted income during the assessment year in question. I also find from the records that on similar issue in assessee’s own case for AY 2015-16, the Hon’ble ITAT Kolkata vide its order dated 19.06.2019, has deleted the additions made under section 14A of the Act. Extracts of the said order is reproduced below: “7. We note that it is an admitted fact that the assessee company has not earned any dividend income during the year in respect of investments made as per the audited accounts. Since no exempt income earned by the assessee, therefore, there should not be any disallowance on account of section 14A of the Act. The said issue of the assessee is squarely covered by the judgment of the Hon’ble Delhi High Court in the case of CIT vs. Holcim India Pvt. Ltd. in wherein it was held that in the absence of any tax free income, the corresponding expenditure could not be worked out for making disallowance u/s. 14A of the Income Tax Act, 1961.The Hon’ble Delhi High Court in the case of Chemnivest vs. Commissioner of Income Tax-Vl, ITA 749/2014 order dated,02.09.2015 held that section 14A will not apply if no exempt income is received during the relevant previous year.

by the revenue is dismissed.” The appellant had submitted that there is no further appeal against the said ITAT order. Thus, respectfully following the aforesaid order passed in the appellant’s own case and various other orders of High Court including Jurisdictional High Court order referred above, I direct the Assessing Officer to delete the disallowance made under section 14A of the Act.”

10. Keeping in view the above discussion, we do not find any infirmity in the order of the ld. CIT(A) and the same is upheld.

Kolkata, the 21st January, 2026.