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Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Before: SHRI ANIKESH BANERJEE & SHRI RAKESH MISHRA
Biswanath Hosiery Mills Ltd. CIT (Appeals), Kolkata-27 39, Shree Centre, Kali Krishna Vs 110, Shanti Pally, Aaykar agore Street, Malapara, Bhavan Poorwa, Kolkata- Kolkata-700007, West Bengal 700107, West Bengal (Appellant) (Respondent) PAN: AABCB5179R Present for: Appellant by : Shri Aayush Kedia, AR Respondent by : Shri Mahare Yogesh Prabhakar, DR Date of Hearing : 07.11.2024 Date of Pronouncement : 25.11.2024 O R D E R
PER RAKESH MISHRA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax [hereinafter referred to as “the Ld. CIT (A)”] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2017-18 dated 09.01.2024, which has been passed against the assessment order u/s 143(3) of the Act, dated 16.12.2019.
The grounds of appeal raised by the assessee are reproduced as under:
“1. That a search and seizure was conducted in the case of appellant and group entities from 21-09-2023 to 24-09-2023 and the last panchnama has been drawn on 15-11-2023. Thereafter, post search proceedings continued till 08-01-2024. Hence the appellant was sufficiently precluded from representing its case before the Ld. Commissioner of Income Tax (Appeals), Kolkata-27 [hereinafter referred to as the Ld. CIT(Appeals)]. That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) has erred
Aggrieved with the assessment order, the assessee preferred an appeal before the ld. CIT (A), who dismissed the same by giving his finding as under:
On the other hand, the Ld. CIT, DR opposed this prayer of the assessee.
We have heard the rival contentions and perused the written submissions and the judicial pronouncements relied upon by the assessee. The Ld. AO noted that the assessee had made suo moto disallowance of Rs. 5,350/- u/s 14A of the Act. The Ld. AO further noted that the assessee had received dividend income of Rs. 3,75,000/- and had not disallowed the direct expenses relating to exempt income nor had it taken into consideration 1% of the annual average of the monthly averages of opening and closing balance of the value of the investment which yielded exempt income during the year. The disallowance was found to be unsatisfactory as the assessee had not followed Rule 8D for calculating the disallowance u/s14A of the Act. The assessee was required to furnish details and the Ld. AO noted that the assessee had made investment in Lux Industries Ltd. and the investment of Rs. 15,00,00,000/- in preference share of Lux Industries Ltd. should have been considered for calculation of 1% of the annual average of the monthly average of opening and closing balance of investment. Since the details of 1% of the annual average as required were not available, he considered the value of investment for 11 months as value on 31.03.2016 and for the 12 months as the value of investment as on 31.03.2017 and worked out the amount of 1% of annual average of 7.1. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who confirmed the disallowance. The relevant extract of the order of the Ld. CIT(A) is as under:
“6.2. Discussion and decision: 6.2.1. I have perused the assessment order as well as the submission of the assessee. On examining the same. It is noted that the assessee had earned dividend income of Rs.3.75,000/- against the investment of Rs. 15,00,00,000/- in preferential shares of LUX Industries Ltd. It is also observed that the said dividend income was declared exempted us 10(34) of the Act by the assessee. However, the assessee had suo moto disallowed Rs.5,350/- as expenditure u/s 14A of the Act. It is pertinent to mention that the assessee had only considered its investments in the scrips of 'Mis Kamala Tea Ltd., M/s Bala Techno Synthetics Limited', 'M/s Sundaram Finance Limited', 'M/s Unispin India Limited & M/s West Bengal Hosiery Park Ltd. for calculating the expenditure for suo moto
“Your Honour, in the present case, the appellant filed a return on 28.10.2017. Relying on the decision of Hon’ble Delhi High Court in the case of Cheminvest Ltd. V CIT wherein it was held that Sec 14A does not apply to shares bought for strategic purposes and various other judicial decisions, the appellant believed that disallowance under Section 14A
1 % on above 5,350 Your honour subsequent to the filing of return by the appellant, the Hon’ble Apex Court passed a judgment on 12.02.2018 in the case of Maxopp Investment Ltd. v. Commissioner of Income Tax, New Delhi, [2018] 91 taxmann.com 154 (SC), wherein the Hon’ble Apex Court held that any strategic investment should also be considered while computing the disallowance under the disallowance made under Section 14A of the Act, however, shares held as ‘stock in trade’ should not be considered while computing the disallowance under Section 14A of the Act as any exempt dividend income earned from such investment is ‘quirk of fate’. Relying on this ruling and the Hon'ble ITAT Kolkata decision in REI Agro Ltd. v. Deputy Commissioner of Income-tax [2013] 35 taxmann.com 404 (Kolkata - Trib.), the Learned Assessing Officer (AO) recalculated the disallowance under Section 14A, using the annual average of the monthly average of opening and closing balances of investments from which exempt income was earned. Accordingly, the AO made a disallowance of Rs. 15,00,000 under Section 14A, read with Rule 8D, specifically considering investments in preference shares of M/s Lux Industries Ltd., from which the appellant had earned an exempt dividend of Rs. 3,75,000. Given that the appellant had already disallowed Rs. 5,350, the AO added the remaining Rs. 14,94,650/- in the assessment order. This is despite the fact that the exempt income earned by the appellant is only Rs 3,75,000/-. The AO’s calculation was as follows: • Total of monthly average of opening and closing values of investments in preference shares of Lux Industries Limited: Rs. 180,00,00,000 • Annual average: Rs. 180,00,00,000 1 12 — Rs. 15,00,00,000 • 1% of annual average: Rs. 15,00,000 “1. Price waterhouse Coopers (P.) Ltd v Assistant Commissioner of Income Tax, Circle-2(2), Kolkata, 127 taxmann.com 825 (Kolkata - Trib.) - Disallowance under section 14A was to be restricted to extent of exempt income earned by assessee-company during relevant year.
Deputy Commissioner of Income-tax v. Forum Projects (P.) Ltd, 153 taxmann.com 19 (Kolkata - Trib.) - Disallowance of expenses under section 14A read with rule 8D shall not exceed exempt income earned during relevant assessment year.
1) “Eveready Industries India Ltd. v. Principal Commissioner of Income-tax, Kol (Kolkata ITAT, Bench ‘A’, 114 taxmann.com 610 (Kolkata - Trib.) 2) ACIT v. Gold Rush Sales and Service Ltd, 156 taxmann.com 514 (Kolkata - Trib.) 3) Godrej & Boyce Manufacturing Co. Ltd. v. DCIT (Bombay High Court, 2010) 4) CIT v. Chettinad Logistics (P.) Ltd. [80 taxmann.com 221 (Madras HC)] 5) Cheminvest Ltd. v. CIT [378 ITR 33 (Delhi HC)] 6) CIT v. Shivam Motors (P.) Ltd. [97 DTR 81 (Allahabad HC)] 7) Joint Investments (P.) Ltd. v. CIT [59 taxmann.com 295 (Delhi HC)] 8) CIT vs Delite Enterprise (2009) (Bombay High Court) of 2009 (BomHC) 9) CIT vs. Corrtech Energy Pvt. Ltd. (2014) 223 Taxman 130 (Gujrat High Court) 10) CIT v. Winsome Textile Industries Ltd. [(2009) 319 ITR 204 (P&H)]” 8. We have considered the rival submissions. The Ld. AO had rightly disagreed with the disallowance made by the assessee as even the strategic investments have to be considered while computing the disallowance under Rule 8D r.w.s. 14A of the Act. However, in view of the decision of the Hon'ble Supreme Court in the 8.1. During the course of hearing, Ground no. 1 has not been pressed by the ld. AR, hence, this ground is dismissed as ‘not pressed’.
8.2. Ground no. 4 is general in nature and does not require any separate adjudication.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 25th November, 2024.
Sd/- Sd/- [Anikesh Banerjee] [Rakesh Mishra] Judicial Member Accountant Member Dated: 25.11.2024 Bidhan (P.S.)