MADHU JAYANTI INTERNATIONAL LIMITED,KOLKATA vs. DCIT, CENTRAL CIRCLE-4(1), KOLKATA, KOLKATA

First we take up the appeal of the Revenue being ITA No. 1982/KOL/2016, which involves a solitary issue relating to the deletion by the ld. CIT(Appeals) of the addition of Rs.49,62,570/- made by the Assessing Officer on account of disallowance under section 40(a)(i) of the Act on account of commission paid to non-resident parties.

The assessee in the present case is a Company, which is mainly engaged in the business of procurement, processing and shipment of tea and jute. The return of income for the year under consideration was originally filed by it on 25.09.2010 declaring loss of Rs.2,15,95,472/-. Thereafter a revised return was filed by the assessee-company on 27.01.2012 declaring a loss of Rs.1,93,61,561/-. In the said return, deduction was claimed by the assessee on account of commission paid, inter alia, to Kwok Hon Chung (Hongkong) and Zornix Solutions Limited (British Virgin Islands based) amounting to Rs.46,04,640/- and Rs.3,57,930/- respectively. Since there was no Double Tax Avoidance Agreement between India and Hongkong as well as between India and British Virgin Islands, the Assessing Officer held by relying on the decision of Authority for Advance Rulings in the case of SKF Boilers and Driers Pvt. Limited (A.A.R. No. 983-984 of 2010 dated 22.02.2012) that the commission payable by the assessee-company to its non-resident agents based in Hongkong and British Virgin Islands was taxable in India in their hands as per the specific provision contained in section 5(2)(b) read with section 9(1)(i) of the Act being the income deemed to have

The disallowance made by the Assessing Officer under section 40(a)(i) on account of commission paid to non-resident agents was challenged by the assessee in the appeal filed before the ld. CIT(Appeals) and following the decision of Tribunal in assessee’s own case on a similar issue for A.Y. 2007-08, wherein the similar disallowance made in section 40(a)(i) was deleted by the Tribunal, the ld. CIT(Appeals) deleted the disallowance made by the Assessing Officer under section 40(a)(i) in the year under consideration. Aggrieved by the same, the Revenue has preferred this appeal before the Tribunal.

We have heard the arguments of both the sides and also perused the relevant material available on record. The ld. D.R. has contended that the ld. CIT(Appeals) has simply followed the Tribunal’s order in assessee’s own case for A.Y. 2007-08 to delete the disallowance made by the Assessing Officer under section 40(a)(i) without considering as to whether the facts involved in assessee’s own case for the year under consideration are similar to that of A.Y. 2007-08. He has also contended that even the relevant aspects of the matter are not discussed and taken into consideration by the ld. CIT(Appeals) while giving relief to the assessee on this issue. However, as pointed out by the ld. counsel for the assessee, a similar issue was decided by the Tribunal in assessee’s own case in ITA No. 683/KOL/2012 for A.Y. 2007-08 vide paragraph no. 6 of its order dated 13.11.2015 as under:-

As further pointed out by the ld. counsel for the assessee, the decision rendered in A.Y. 2007-08 has been subsequently followed by the Tribunal to decide a similar issue in favour of the assessee even in the subsequent two years, i.e. A.Y. 2008-09 and 2009-10 vide its order dated

Now we shall take up the appeal of the assessee being ITA No. 1894/KOL/2016. Out of the three grounds raised in this appeal, Ground No. 1 is general, which does not call for any specific adjudication, while Ground No. 3 is not pressed by the ld. counsel for the assessee at the time of hearing before the Tribunal.

The only ground that survives for our consideration is Ground No. 2, which involves the issue relating to the disallowance of Rs.1,24,000/- made by the Assessing Officer and confirmed by the ld. CIT(Appeals) under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962.

During the year under consideration, the assessee-company had earned dividend income of Rs.2,95,000/-, which was claimed to be exempt from tax. No disallowance on account of expenditure incurred in relation to the said exempt income, however, was offered by the assessee as

We have heard the arguments of both the sides in this issue and also perused the relevant material available on record. Although the ld. counsel for the assessee has contended that the disallowance made under section 14A is not sustainable in the absence of any satisfaction recorded by the Assessing Officer as contemplated in the relevant provisions, we find that no disallowance under section 14A was suo motu made by the assessee nor it was the case of the assessee before the Assessing Officer that no expenditure was incurred by it for earning the exempt income. The Assessing Officer, in our opinion, therefore, was not required to record any satisfaction as contemplated in section 14A before making a disallowance under the said provision. We, therefore, find no merit in this contention of the ld. counsel for the assessee. We, however, find merit in the alternative contention raised by the ld. counsel for the assessee that while working out the disallowance as per Rule 8D(2)(iii), the Assessing Officer should have taken into consideration only those investments on which exempt income was actually earned by the assessee during the year under consideration as it is duly supported by the decision of this Tribunal in the case of DCIT –vs.- REI Agro Limited in ITA No. 1811/KOL/2012, which is affirmed by the Hon’ble Calcutta High Court. We accordingly direct the Assessing Officer to re-compute the disallowance under section 14A as per Rule 8D(2)(iii) by taking into consideration only the value of those investments, which actually fetched

In the result, the appeal of the Revenue is dismissed, while the assessee’s appeal is partly allowed. Order pronounced in the open Court on 16th day of February, 2018.