MADHU DEVI SARAF,KOLKATA vs ACIT, CEN. CIR. 3(3), KOLKATA

Income Tax Appellate Tribunal, “A” BENCH KOLKATA

Appearances by: Assessee represented by : Amit Agarwal, Advocate Department represented by : Subhendu Datta, CIT DR Date of concluding the hearing : 01.10.2024 Date of pronouncing the order : 18.11.2024

ORDER

PER SANJAY AWASTHI, ACCOUNTANT MEMBER:

This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax (Appeals), Kolkata-1 [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 2016-17 dated 21.02.2024, which has been passed against the Assessment Order u/s 143(3) of the Act, dated 28.12.2017.

In this case an addition of Rs. 16,30,790/- u/s 14A of the Act read with Rule 8D(iii) has been made by the Ld. AO vide his order dated 28.12.2017, which is the subject matter of dispute before us. It is seen Madhu Devi Saraf that the appellant made a suo moto disallowance of Rs. 10,00,000/- on an ad hoc basis on account exempt income yielding assets. The Ld. AO, however, enhanced the disallowance to Rs. 16,30,790/- after giving the benefit of Rs. 10,00,000/- already disallowed by the appellant. The reasoning given by the Ld. AO was that the appellant had not adopted any legally acceptable method to compute the disallowance and merely resorted to an estimation. On the other hand, the Ld. AO adopted the mechanism under Rule 8D to compute the impugned disallowance.

1.1 Before the Ld. CIT(A) also the appellant could not succeed and has thus filed the present appeal with a single ground of appeal challenging the impugned disallowance.

2. Before us the Ld. AR has filed several documents and two decisions of co-ordinate Benches in assessee’s own case for AY 2010-11 [ITA No. 2216/Kol/2016], order dated 16.08.2017 and for AY 2012-13 [ITA No. 1943/Kol/2016, order dated 09.04.2018]. In these two orders the same issue, as the impugned issue, has been decided in favour of the appellant.

2.1 The Ld. DR relied on the orders of authorities below.

We have considered the documents before us and heard the rival contentions. Right at the outset the appellant’s case is covered in her favour by earlier year’s orders cited supra. Also, another case has been brought to our notice in which the nature of expenses that can be considered under rule 8D(iii) of the Income Tax Rules has been dealt with. Some extracts from the case of Emerald Company Pvt. Ltd. [ITA No. 252/Kol/2024] would be relevant:

“5. The rival contentions have been carefully considered. In this case it is not in doubt that substantial portion of income is exempt from taxation and the remaining items of income pertain to house property (Rs. 3.60 Lakh), interest of bank deposits (Rs. 58,298/-) and income from business and profession showing a loss of Rs. 46,83,643/-. At this stage it needs to be mentioned that the contention of the ld. A/R that no satisfaction has been recorded is also not justified considering that the Id. AO has clearly recorded that he is not satisfied with the way income has been computed (supra). 2 Madhu Devi Saraf 5.1. However, it needs to be mentioned that during the course of presentation before us, the Id. A/R has relied on the case of Hoshang D. Nanavati vs. ACIT reported in (2012) 25 taxmann.com 141 (Mumbai-Trib.) to canvas the point that depreciation cannot be the subject matter of disallowance u/s 14A of the Act. A reading of this order of Hon'ble ITAT, Mumbai reveals that the conclusion regarding depreciation have been arrived at by relying on a number of authorities and thus, has to be respected and followed in the present case also. 5.2. It is seen from the order of ld. CIT(A) that he has doubted the contention of ld. A/R in as much as only Rs. 1,75,24,222/-has been suo-moto disallowed by the assessee himself as in the portion of Id. CIT(A)'s order extracted (supra) it has been mentioned that depreciation of Rs. 5,42,363/- and amalgamation expenses of Rs. 5,39,409/ have been claimed in the computation sheet. However, it is evident that the authorities below have not taken into consideration the fact that claim of depreciation cannot be a subject matter of Section 14A of the Act read with Rule 8D of the Rules on the basis of case of Hoshang D. Nanavati (supra). Further, expenses on items like audit, legal and professional charges, travelling etc. totalling to Rs. 37,91,843/- would be outside the purview of Rule 8D(2)(iii) of the Rules. 5.3. Considering the totality of the facts and circumstances of this case it is seen that once the claim under "other administrative expenses of Rs. 7,91,843/- (out of which Rs. 2,52,250/- has already been added back by the assessee) and claim of depreciation have been settled in favour of the assessee on the basis of the cases of Hoshang D. Nanavati (supra) and M/s. Agarwal Galvanising (P.) Ltd. (supra), then there would not survive any quantum of disallowable expenses out of Rs. 35,39,323/- which is the resultant of total expenses claimed (Rs. 2,10,63,545/-) (minus) expenses added back by the assessee himself (Rs. 1,75,24,222/-).” 3.1 In light of discussion above, the mater is decided in favour of the assessee.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 18.11.2024

Sd/- Sd/- [Sanjay Garg] [Sanjay Awasthi] Judicial Member Accountant Member Dated: 18.11.2024. AK, PS

MADHU DEVI SARAF,KOLKATA vs. ACIT, CEN. CIR. 3(3), KOLKATA