M/S. SURYAMANI FINANCING COMPANY LIMITED,KOLKATA vs. ITO, WARD - 7(3), KOLKATA, KOLKATA

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ITA 62/KOL/2018Status: DisposedITAT Kolkata27 June 2018AY 2011-123 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal found that the Assessing Officer had not considered the assessee's arguments and the relevant case law. Therefore, the matter was set aside to the Assessing Officer for fresh adjudication, considering the assessee's contentions and Supreme Court pronouncements.

What were the facts?

The assessee argued that the disallowance under Section 14A read with Rule 8D(2)(iii) was excessive. They contended that expenses were incurred for general administration and employee payments, and dividends were only earned on a few scrips, not justifying the disallowed amount.

What were the issues?

The primary issue was the correctness and reasonableness of the disallowance made under Section 14A read with Rule 8D(2)(iii) concerning expenditure incurred in relation to exempt income.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, “SMC” BENCH : KOLKATA

Before: Hon’ble Shri J.Sudhakar Reddy, AM]

Hearing: 06.06.2018Pronounced: 27.06.2018

This appeal by the Assessee directed against the order of the Learned Commissioner of Income Tax (Appeals)-3, Kolkata [ in short the ld CITA] dated 22.11.2017 passed under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) for the Assessment Year 2011-12.

2.

The sole issue that arises in this appeal, is the disallowance u/s 14A read with Rule 8D(2)(iii) of the Rule. The Ld. CIT(A) directed the assessing officer to apply the proposition of law laid down the decision of jurisdictional High Court in the case of REI Agro Limited and that while computing disallowance under Rule 8D(2)(iii), only those investments which have yielded dividend should be considered. This direction is upheld.

3.

The assessee’s case is that it has incurred expenditure towards payment of employees and administration expenses of Rs. 3,70,600/- and Rs. 4,06,296/- totaling to Rs.

M/s Suryamani Financing Company Ltd. A.Yr.2011-12 7,76,896/- only and disallowance of Rs. 4,44,808/- is excessive and unreasonable. He further submits that out of the total scrips held by the assessee, dividends were earned only in respect of three scrips and for this purpose, the assessee cannot be said to have spent the disallowed amount of Rs. 4,44,808/-.

4.

The ld. DR opposes the contentions of the assessee. I find that these arguments and facts have not been considered in this case by the Ld. AO. Hence, I deem it fit and appropriate to set aside the matter to the file of the ld. AO for fresh adjudication in accordance with law by taking into account all the contentions of the assessee and also applying the propositions of law laid down to the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. vs. CIT in 402 ITR 640 (SC), at para 31 and 32 held as follows: 31. We have given our thoughtful consideration to the argument of counsel for the parties on both sides, in the light of various judgments which have been cited before us, some of which have already been taken note of above. 32) In the first instance, it needs to be recognised that as per section 14A(1) of the Act, 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. If an expenditure incurred has no causal connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is exempted from tax, and such expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated as part of the total income.

5.

In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the Court on 27.06.2018

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