A.C.I.T., CIRCLE-12(2), KOLKATA, KOLKATA vs. M/S SARVOTTAM CAPS LTD., KOLKATA

This appeal is preferred by the revenue against the order of Ld. CIT (Appeals) – 15, Kolkata dated 11.08.2016 whereby he restricted the disallowance made by the A.O. under section 14A by applying Rule 8D(2)(iii) amounting to Rs. 64,95,145/- to Rs. 22,12,570/-.

The assessee in the present case is a Non-banking Financial Company. The return of income for the year under consideration was filed by it on 13.10.2010 declaring a total income of Rs. 5,81,77,716/-. In the said return, dividend income of Rs. 2,39,63,159/- and long term capital gain of Rs. 1,36,03,296/-/- received by the assessee company during the year under consideration was claimed to be exempt from tax. No disallowance on account of expenses incurred in relation to Assessment Year: 2010-11 Sarvottam Caps Ltd. the said exempt income, however, was offered by the assessee as required by the provisions of section 14A. The A.O., therefore, applied Rule 8D and made a disallowance, in addition to direct expenses on account of indirect expenses to the extent of Rs. 64,95,145/- as per Rule 8D(2)(iii) being 0.5% of the average investment. 3. The disallowance made by the A.O. under section 14A was challenged by the assessee in the appeal filed before the Ld. CIT(A) and after considering the submissions made by the assessee as well as the material available on record, the Ld. CIT(A) restricted the disallowance of Rs. 64,95,145/- made by the A.O. as per Rule 8D(2)(iii) to Rs. 22,12,570/- after taking into account only those investments which had actually earned dividend income during the year under consideration. Aggrieved by the order of the Ld. CIT(A), the revenue has preferred this appeal before the Tribunal. 4. At the time of hearing before the Tribunal, none has appeared on behalf of the assessee. This appeal of the revenue is, therefore, being disposed of ex-parte qua the respondent assessee after hearing the arguments of the learned DR and perusing the relevant material available on record. As agreed by the learned DR, the solitary issue involved in this appeal of the revenue is squarely covered in favour of the assessee by the decision of Hon’ble Kolkata High Court in the case of CIT vs REI Agro Ltd. (GA No. 3022 of 2013) wherein it was held that while computing disallowance to be made under section 14A by applying Rule 8D(2)(iii), only those investment which actually earned exempt income should be taken into account and not the entire