PEE KAY VANIJYA PVT. LTD.,KOLKATA vs. DCIT, CIR. 7(1), KOLKATA

This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (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 15.02.2024, passed against the assessment order u/s. 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 09.12.2019.

The grounds of appeal raised by the assessee are reproduced as under:

For that on the facts and circumstances of the case, the interest levied u/s 234B deserves to be reduced and/or deleted.

For that the appellant craves leave to submit additional grounds and/or amend or alter the grounds already taken either at the time of hearing of the appeal or before.”

At the outset, it is noticed that there is a delay of 4 days. The assessee has filed the petition dated 19.04.2024 along with appeal memo for condonation of delay along with affidavit of the director confirming that the facts stated in the enclosed condonation petition are true and correct to the best of his knowledge:

The assessee has relied upon the decision in the case of Improvement Trust Vs. Ujagar Singh & Ors. (2010) 6 SCC 786 (SC) and in the case of Collector, Land Acquisition Vs. Mst.

Brief facts of the case are that the assessee is a resident Indian Company, filed its return of income electronically on 30.10.2017 declaring total income of Rs. 8,080/-. The case was selected for complete (CASS) scrutiny assessment as per existing norms. The AO in his impugned order has computed and disallowed a sum of Rs.36,31,210/- under Section 14A of the Act in terms of Rule 8D as opposed to Rs. 1,08,642/- suo moto offered by the appellant under Section 14A of the Act. In the course of assessment, the appellant had provided the basis of disallowance made u/s 14A of the Act. The AO however without pointing out any defect or infirmity in this basis and calculation of the appellant and without recording objective satisfaction as to why the explanation offered by the assessee, having regard to its books of accounts, was not tenable, proceeded to make disallowance u/s 14A read with Rule 8D. The appellant further submits that the AO had invoked and applied Rule 8D without establishing any proximate cause between the expenditure disallowed and earning of exempt income. Rival contentions were heard and details filed have been examined.

Ground No. 2 and 3 are general in nature and do not require any separate adjudication.

Ground No.1 is regarding the disallowance u/s 14A read with Rule 8D of the Income Tax Rules, 1962 (for short “the Pee Kay Vanijya Private Limited AY: 2017-18 Rules”). The Ld. AO noted that the total expenses paid by the assessee in the Profit & Loss Account were Rs. 2,52,53,583/ - and the total investment as seen from the balance sheet filed by the assessee company was Rs. 35,20,11,655/- on 31.03.2014 while the same was Rs. 37,42,30,359/- as on 31.03.2016. Out of the investments, income from investment in equity shares is exempt income. Hence, in the view of the AO there were investments from which income was not includible in the taxable income. The assessee had suo moto disallowed a sum of Rs. 2,07,455/- u/s 14A of the Act and in the computation of income. The Ld. AO was of the view that expenses were not properly appropriated towards activities from taxable income generated and activities from which no taxable income was generated and explanation was called in this regard. The assessee submitted that the disallowance cannot be made where no exempt income is earned but the reply was not found tenable in view of the CBDT’s Circular No. 5/2014 [F.No. 225/182/2013-ITAII] dated 11.02.2014. The Ld.AO also relied upon the decision of the Hon’ble Supreme Court in the case of CIT Vs. Walfort Share and Stock Brokers P Ltd. 326 ITR 1(SC), Maxopp Investment Ltd. Vs. CIT [2018] 91 taxmann.com 154 and B. Laly Motors India P. Ltd. Vs. PCIT, Jalandhar of Amritsar ITAT reported in 93 taxmann.com 39. The AO considered the average total investment as on 31.03.2016 and 31.03.2017 and computed the disallowance of Rs. 35,22,568/-. The Ld. AO relied upon the decision of the CIT Vs. Goetze (India) Ltd. (Delhi High Court) in support of the contention that the disallowance u/s 14A of the Act also has to be applied while computing book profit u/s 115JB of the Act. The Ld. CIT(A) granted relief and excluded the disallowance u/s 14A of the Act for computing income under the provision of section 115JB of the Act but upheld the Pee Kay Vanijya Private Limited AY: 2017-18 disallowance by the Ld. AO while computing the normal income computed. The assessee submitted that the company did not earn any exempt income from the investments aggregating to Rs.32.36 crores. It was submitted that for the purposes of application of Rule 8D, only those investments which actually yielded dividend during the year and form part of the opening and/or closing investments are to be considered. Reliance in this regard was placed on the judgment of the jurisdictional Calcutta High Court in the case of CIT Vs Ashika Global Securities Ltd (GA No. 2122 of 2014) dated 11.06.2018 wherein the Hon’ble High Court have held that where the assessee has not derived any exempt income from the investments, then Rule 8D cannot be applied to such investments. Similar view has been expressed in the following decisions wherein the Hon’ble Courts have held that in absence of any exempt income claimed by the assessee, no disallowance is warranted under Section 14A of the Act - Cheminvest Ltd Vs CIT (61 taxmann.com 318) (Del HC), CIT Vs Holcim India Pvt Ltd (272 CITR 282) (Del HC), CIT Vs Cortech Energy Pvt Ltd(223 taxman 130) (Guj HC), CIT Vs Shivam Motors (P) Ltd (230 Taxman 63) (All HC). The Ld. CIT(A) relied upon the decision in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. Deputy Commissioner of Income Tax [2010] 194 taxman.com 2023 (Bombay) and in the case of Allied Motors (P.) Ltd. Vs. CIT [1997] 91 Taxman 205 treated the proviso as having retrospective effect and dismissed the appeal of the assessee. Before us, the assessee relied upon the paper book filed and drew our attention to the computation of income for AY 2017-18 at page 20-21 of the paper book read with page 13, wherein it is mentioned that the assessee had suo moto disallowed expenditure on account of exempted income as per section 14A being D-mat charges and STT at Rs. 1,08,642/- Pee Kay Vanijya Private Limited AY: 2017-18 along with other disallowances while computing the total income during the year. There were short term capital loss-both STT as well as non-STT paid as well as long term capital loss and the disallowance u/s 14A of the Act of Rs. 1,08,642/- was worked out and other expenses of Rs. 39,68,946/- have been debited and the investment was in unlisted security from which no exempt income was earned. It was submitted that the amendment was prospective and in nature and did not apply to AY 2017-18. The assessee relied upon its own case for AY 2012- 13 and drew our attention to pages 22 to 24 of the paper book in order dated 08.09.2023, wherein specifically at para 5, the findings of the Ld. CIT(A) have been set aside. The relevant extract of the order relied upon in his case is as under: “4. We have heard rival contentions and perused the records placed before us. We notice that the assessee is a private limited company and is a non-banking finance company. Income of Rs. 40,32,330/ declared in the e-return filed for AY 2012-13 on 30.09.2012. During the course of assessment proceedings one of the issues raised by ld. AO was regarding disallowance u/s 14A of the Act. Since the assessee did not maintain any separate books of accounts for the purpose of ascertaining expenses incurred in relation to earning of income not includable in its total income ld. AO applied Rule 8D of the Income Tax Rules, 1962 and computed disallowance u/s 14A of the Act at Rs. 13,28,529/-. Before us ld. Counsel for the assessee, as an officer of Court stated that the assessee company has not earned any exempt income during the year. We observe that Hon'ble Delhi High Court in the case of PCIT vs. Era Infrastructure (India) Ltd. reported in [2022] 141 taxmann.com 289 (Delhi) has held that no disallowance u/s 14A of the Act can be made if the assessee had not earned any exempt income during the year under consideration.

Thus, respectfully following the same, we find that there is no exempt income earned by the assessee during the year and therefore, disallowance u/s 14A of the Act is uncalled for and accordingly, we set aside the finding of Id. CIT(A) and deleted the addition u/s 14A of the Act at Rs. 13,28,529/-. Thus, ground no.1 raised by the assessee is allowed”.

Respectfully following the order of the coordinate bench in the assessee’s own case for the AY 2012-13, more so when the Pee Kay Vanijya Private Limited AY: 2017-18 assessee himself had disallowed expenditure u/s 14A and the AO without giving any reason as to why the disallowance was not accepted and warranted the higher amount has applied Rule 8D the disallowance confirmed by the Ld. CIT(A) cannot be sustained and is hereby set aside and the Ld. AO is directed to delete the addition. Hence, Ground No. 1 of the appeal is allowed.

Ground No. 2 is consequential in nature while Ground No. 3 is general in nature and does not require any separate adjudication.

In the result, the appeal filed by the assessee is allowed.