ACIT, CENTRAL CIRCLE - 3(3), KOLKATA, KOLKATA vs. M/S. CYGNUS INVESTMENT & FINANCE P. LTD., KOLKATA

order

: January 31, 2018 ORDER

PER P.M. JAGTAP, AM

C.O. No. 3/Kol/2018 Cygnus Investment & Finance Pvt. Ltd. 2. The solitary common issue involved in this appeal of the revenue and the cross-objection of the assessee relates to the disallowance under section 14A r/w rule 8D and the same is raised by way of the following grounds:

Grounds raised in the revenue’s appeal

1. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in law to hold that disallowance under section 14A read with rule 8D will not apply where no exempt income is received or receivable during the relevant previous year by ignoring the provision of Rule 8D that provides for computation of expenditure in respect of not only those investments, income from which does not form part of total income but also those investments, income from which shall not form part of total income.

2. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in deciding that disallowance u/s 14A read with Rule 8D cannot be made in a year in which no exempt income has been earned or received by the assessee without considering the CBDT’s Circular No. 5/2014 dated 11.02.2014.

3. That on the facts and in the circumstances of the case the Ld. CIT(A) has erred in law in holding that the issue in dispute is in the line with the decision of the ITAT Kolkata Benches in the case of REI Agro Ltd. vs CIT in order dated 19.06.2013 which has been subsequently approved by the Hon’ble Delhi High Court, Calcutta wherein such issues were not even considered and adjudicated by the Hon’ble High Court in its order dated April 09, 2014.

4. That on the facts and in the circumstances of the case and in the law, the Ld. CIT(A) has erred in deleting disallowance of Rs. 38,50,262/- u/s 14A read with Rule 8D by interpreting these provisions.

5. That the revenue reserves their rights to substantiate, modify, delete, supplement and / or alter the grounds at the time of hearing. Grounds raised in assessee’s cross-objection

1. For that the Ld. CIT(A) was justified in deleting the addition made u/s 14A when no satisfaction as required under the law was recorded that C.O. No. 3/Kol/2018 Cygnus Investment & Finance Pvt. Ltd. any expenses have been incurred so as to attract the provisions of section 14A.

2. For that on the facts of the case the Ld. CIT(A) was fully justified in deleting the addition.

3. The assessee in the present cases is an investment and finance company. The return of income for the year under consideration was filed by it on 25.09.2012 declaring a total income of Rs. 8,53,920/-. As noted by the A.O. during the course of assessment proceedings, the assessee company had made investment of Rs. 17.37 crores in shares. According to the A.O., since the dividend income from the said investment in shares was exempt from tax, the expenditure incurred in relation thereto was liable to be disallowed in accordance with section 14A of the Act. He accordingly worked out such expenditure by applying Rule 8D at Rs. 38,50,262/- and made a disallowance to that extent under section 14A in the assessment completed under section 143(3) vide an order dated 28.03.2015.

4. Against the order passed by the A.O. under section 143(3), an appeal was preferred by the assessee before the Ld. CIT (A) and keeping in view the fact that the assessee company had not earned any dividend income during the year under consideration, the Ld. CIT(A) deleted the disallowance made by the A.O. under section 14A of the Act. For this conclusion, the Ld. CIT(A) derived support from the decision of this Tribunal in the case of REI Agro Ltd. vs CIT in ITA No. 1331/Kol/2011. Aggrieved by the order of the Ld. CIT(A), the revenue has preferred this appeal before the Tribunal while the assessee company has also filed its cross-objection.