M/S WEST BENGAL INFRASTRUCTURE DEVELOPMENT CORPORATION LTD.,KOLKATA vs. PR.CIT-2, KOLKATA

No one has put in appearance on behalf of the assessee despite notice, therefore, we proceed to decide the appeal after hearing the ld. DR and going through the record.

A perusal of the impugned order of the ld. PCIT passed u/s 263 of the Act reveals that the ld. PCIT has observed that the average investment in shares of the assessee during the year under consideration was at Rs.59,21,80,820/-. He held that the assessee might have incurred expenditure in making the aforesaid huge investments and therefore, the provisions of section 14A of the Act Assessment Year: 2014-15 West Bengal Industrial Infrastructure Development Corporation r.w.r. 8D(2)(iii) of the Income Tax Rules were applicable and held that 0.5% of the average investment would come to Rs.29,60,904/-, which was required to be disallowed. On being show-caused in this respect, the assessee explained that the alleged investment was, in fact, not actual investment made by the assessee. That, in fact, an amount of Rs.58,97,80,820/- had been the balance of loan outstanding towards Haldia Petrochemical Ltd. (‘HPL’). Due to the inability of HPL to repay the outstanding loan to the assessee, the Govt. of West Bengal directed the assessee corporation, which is a Govt. organisation, for treating the balance of outstanding loan as preference shares held in HPL. The ld. PCIT called a report in this respect from the concerned Assessing Officer, whereupon, a letter was issued to HPL for clarification. The Assessing Officer in his letter mentioned that HPL had allotted preference shares to the assessee on 14.10.2004. The ld. PCIT, however, noted that it was not clear as to whether those shares were in the nature of conversion of old loans or not. He further held that in any case, the fact would remain that the assessee had an investment in preference shares amounting to Rs.58,97,80,820/- during the year and therefore, disallowance as per Rule 8D(2)(iii) was attracted. He accordingly held that the order of the Assessing Officer was erroneous and prejudicial to the interest of the revenue.

We have heard the ld. DR and gone through the record. In this case, it has mentioned by the ld. PCIT, himself, that as per the Assessing Officer, the aforesaid preference shares were allotted to the assessee on 14.10.2004, therefore, it is apparent from the record that no new investments were made by the assessee during the year under consideration. Moreover, the assessee has explained that as per the directions of the Govt., the assessee-corporation has been asked to treat the outstanding loans towards HPL, which is again a Govt. organisation, as preferential shares. Under the circumstances, when it Assessment Year: 2014-15 West Bengal Industrial Infrastructure Development Corporation is apparent that the assessee did not incur any expenditure during the year for making the investment in question, therefore, no disallowance u/s 14A of the Act r.w.r. 8D(2)(iii) of the Income Tax Rules was attracted in this case. Moreover, considering the facts and circumstances of the case, it cannot be said that the order of the Assessing Officer was erroneous. In view of this, the impugned order of the ld. PCIT is not sustainable and the same is quashed.

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