CONSOLIDATED ENTERTAINMENT PVT. LTD.,KOLKATA vs. D.C.I.T., CIRCLE-11(1), KOLKATA

The assessee in the present case is a Company, which is engaged in the business of making investment in entertainment industry. The return of income for the year under consideration was filed by it on 30.09.2014 Assessment Year: 2014-2015 Consolidated Entertainment Pvt. Limited declaring a loss of Rs.38,38,607/-. During the course of assessment proceedings, it was noticed by the Assessing Officer that even though no exempt income in the form of dividend was earned by the assessee- company during the year under consideration, substantial investment was made by it in the equity shares of other companies. Since the whole activity of the assessee-company during the year under consideration was only to the extent of making such investment, the entire expenses claimed by the assessee on account of finance cost, administrative expenses and depreciation aggregating to Rs.38,38,142/- were treated by the Assessing Officer as the direct expenditure incurred by the assessee in relation to the earning of exempt income as per Rule 8D(2)(i) and the same was disallowed by him under section 14A in the assessment completed under section 143(3) vide order dated 30.11.2016.

Against the order passed by the Assessing Officer under section 143(3), an appeal was preferred by the assessee before the ld. CIT(Appeals). Keeping in view the decision of the Hon’ble Delhi High Court in the case of Principal CIT –vs.- Macdonald’s India Pvt. Limited (2018 SCC online Del.6617), the ld. CIT(Appeals) held that the disallowance made by the Assessing Officer under section 14A read with Rule 8D was not sustainable as there was no exempt income earned by the assessee-company during the year under consideration. He, however, held that the interest paid by the assessee-company to the various parties during the year under consideration amounting to Rs.37,74,969/- was required to be disallowed under section 40(a)(ia) as there was failure of the assessee to deduct tax at source from the interest so paid. He accordingly sustained the disallowance to the extent of Rs.37,74,969/- by invoking the provisions of section 40(a)(ia). Aggrieved by the order of the ld. CIT(Appeals), the assessee has preferred this appeal before the Tribunal.

I have heard the arguments of both the sides and also perused the relevant material available on record. As demonstrated by the ld. Counsel for the assessee on the basis of relevant documentary evidence placed on record in the form of copies of ledger account of interest and TDS as well as the copy of relevant TDS return filed by the assessee, tax at source was duly deducted by the assessee from the interest of Rs.37,74,969/- paid during the year under consideration. He has also invited my attention to page no. 2 of the assessment order, wherein a finding was recorded by the Assessing Officer to the effect that there was a proper compliance on the part of the assessee to the relevant provisions of TDS in respect of interest amount debited in the Profit & Loss Account. It is thus clear that the tax at source was duly deducted by the assessee as per the relevant provisions from the interest of Rs.37,74,969/- paid during the year under consideration and the ld. CIT(Appeals) was not justified in disallowing the said interest by invoking the provisions of section 40(a)(ia) on the wrong presumption that there was a failure on the part of the assessee to comply with the TDS requirement. I, therefore, delete the disallowance made on this issue and allow this appeal of the asseessee.

In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on December 18, 2019.