ALTFORT MERCHANTS PVT. LTD., ,KOLKATA V. ITO, WARD 1(1), KOLKATA

ITA 834/KOL/2025

AI Insights

The case involves Altfort Merchants Pvt. Ltd., which appealed against the orders of the Income Tax Officer (ITO) and the Commissioner of Income Tax (Appeals) (CIT(A)). The primary issues were the additions made by the AO on account of notional interest income estimated at 12% on investments in unlisted equities amounting to Rs. 4,17,93,000, and disallowances under Section 14A amounting to Rs. 35,23,210. The CIT(A) upheld the AO's decisions, leading the assessee to appeal to the ITAT. The ITAT found that the AO's actions were not justified as they assessed notional income and made disallowances without any exempt income being earned.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 705299 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2015-2016
• Other Referred Cases: S.A. Builders v. 288 ITR 1 (SC), Sahara India Mutual Benefit Co. Ltd. v. 40 taxmann.com 69 (Allahabad), P.C. Media Systems Ltd. v. 2 taxmann.com 13 (Delhi), Shivnandan Buildcon (P) Ltd. v. 60 taxman.com 347 (Delhi), Arihant Avenue & Credit Ltd. v. 36 taxman.com 14 (Gujarat), Rengamatee Trexim (Pvt.) Ltd. v. 2008 (12) TM 1759 (Cal), Williamson Financial Services Ltd. v. 166 taxmann.com 607 (Guwahati), Era Infrastructure (India) Ltd. v. 448 ITR 674 (Delhi), Avantha Realty Ltd. v. 164 taxmann.com 376 (Cal)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Notional interest; Rule 8D
• Section: 14A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH”, KOLKATA SHRI GEORGE MATHAN, JUDICIAL MEMBER SHRI SANJAY AWASTHI, ACCOUNTANT MEMBER I.T.A. No. 834/KOL/2025 (Assessment Year 2015-16) Altfort Merchants Pvt. Ltd., Room No. 320, 3rd Floor, 7/1A, Grant Lane - 700012 [PAN: AAICA9847L] ……..…...…………….... Appellant vs. Income Tax Officer, Ward 1(1), Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata - 700069 ................................. Respondent Appearances by: Assessee represented by : Sunil Surana, FCA Department represented by : Bonnie Debbarma, Addl. CIT, Sr. DR Date of concluding the hearing : 24.06.2025 Date of pronouncing the order : 04.07.2025 O R D E R PER SANJAY AWASTHI, ACCOUNTANT MEMBER 1. This appeal arises from the order u/s 250 of the Income Tax Act, 1961 (hereafter “the Act”), passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, vide order dated 06.03.2025. 1.1 In this case, the Ld. AO is seen to have made primarily two additions on account of notional interest computed by estimating interest rate of 12% on a sum of Rs. 4,17,93,000/- this amount was properly done as investment in unlisted equities. The second addition is on account of disallowance u/s 14A of the Act at Rs. 35,23,210/-. 2 ITA No. 834/Kol/2025 Altfort Merchants Pvt. Ltd. 1.1 Aggrieved with this action of Ld. AO the assessee carried the matter in appeal where also he could not succeed since the Ld. CIT(A) affirmed both of the actions of Ld. AO. 1.2 Further aggrieved, the assessee has approached the ITAT with the following grounds: “1. For that the order passed by the ITO is without jurisdiction and therefore the same is liable to be quashed. 2. For that the LD CIT(A) erred in confirming the action of AO in making estimated notional addition of Rs. 50,15,160/- on Rs. 4,17,93,000/- invested in equity shares during the financial year by presuming interest @12% when no such interest income accrued to the assessee during the year. 3. For that the LD CIT(A) erred in confirming the action of AO in making estimated notional addition of Rs. 50,15,160/- on amount of Rs. 4,17,93,000/- invested in equity shares during the financial year by presuming interest @12% when no evidence was brought on record by the AO that the assessee had in fact earned any such income and the assessee cannot be asked to prove the negative. 4. For that the Ld CIT(A) erred in confirming the addition made by AO on facts and in law in invoking provisions of section 14A of Income Tax Act, 1961 read with rule 8D of Income Tax Rules, 1962 without recording any satisfaction by ignoring the submissions and details filed by Assessee Company during the course of Assessment proceedings. 5. For that the LD CIT(A) erred in confirming the action of Ld AO in making disallowance of 35,23,210/- u/s 14A when no exempted dividend income was earned by the assessee. 6. For that the Ld CIT(A) erred in confirming the action of AO who has misconstrued the provisions of section 14A of Income Tax Act, 1961 and Rule 8D of Income Tax Rules, 1962 by ignoring the fact that the investments have been made by the assessee company out of its own funds.” 2. Before us, the Ld. AR vehemently argued that the assessment order was passed without the necessary pecuniary jurisdiction. The Ld. AR argued that the assessment order itself was null and void due to this alleged illegality. For this point he relied on several authorities including orders of coordinate Benches of Kolkata ITAT. Regarding the assessment of notional interest income by assuming the rate of 12% by the Ld. AO, it was mentioned that the Ld. AO has whimsically forced the assessee to earn income when nothing like that had actually happened. The Ld. AR relied on the case of S.A. Builders reported in 288 ITR 1 (SC) to canvass the point 3 ITA No. 834/Kol/2025 Altfort Merchants Pvt. Ltd. that the AO could not sit in the shoes of the businessman when it came to passing judgments on commercial decisions. Regarding the addition on account of section 14A of the Act, it was argued that the assessee had not earned any exempt income and hence there was no question of any disallowance under Section 14A of the Act. 2.1 The Ld. DR, on the other hand, relied on the orders of authorities below. 3. We have carefully considered the arguments of Ld. AR/DR and we have also gone through the documents before us. Regarding the issue of earning notional interest, it is a judicially settled principle that only “real” income can be assessed and not “notional” income. We may add that the concept of “Real” vs. “Notional” Income has considerable judicial precedents in terms of directing assessment of only real income and not any notional one. At this stage, we may refer to a few case laws as under: (a) Sahara India Mutual Benefit Co. Ltd. reported in 40 taxmann.com 69 (Allahabad) [Paras 34-37). (b) P.C. Media Systems Ltd. 2 taxmann.com 13 (Delhi) [para 1] (c) Shivnandan Buildcon (P) Ltd. reported in 60 taxman.com 347 (Delhi) [para 7] (d) Arihant Avenue & Credit Ltd. reported in 36 taxman.com 14 (Gujarat) [para 4.1] (e) Rengamatee Trexim (Pvt.) Ltd. reported in 2008 (12) TM 1759 (Cal) Considering the facts of the present case as discussed above and the judgments relied on, we hold that the Ld. AO was not justified in bringing to tax any “notional income”. The addition made on that account is deleted. 3.1 Regarding the issue of disallowances under Section 14A read with Rule 8D of IT Rules, it is seen that the Ld. AO has relied on CBDT’s Circular 4 ITA No. 834/Kol/2025 Altfort Merchants Pvt. Ltd. No. 5/2014 dated 11.02.2014 to work out the impugned disallowance. On this issue, the judicial pronouncements are in favour of the assessee in as much as it is fairly well settled as of now that any disallowance under Section 14A of the Act read with Rule 8D will not be made if no exempt income is earned. The following cases cover this issue in favour of the assessee:- (i) Williamson Financial Services Ltd. [166 taxmann.com 607 (Guwahati) (ii) Era Infrastructure (India) Ltd. [448 ITR 674 (Delhi] (iii) Avantha Realty Ltd. [164 taxmann.com 376 (Cal)] Accordingly, the addition in this regard is deleted. 3.2 Since the assessee has succeeded on all of the two additions since we have held that the additions are not sustainable in the eyes of law, hence we do not adjudicate Ground No. 1 of the assessee, challenging the jurisdiction, since it would merely be an academic exercise. 4. In the result, appeal filed by the assessee is allowed. Order pronounced on 04.07.2025 Sd/- Sd/- (George Mathan) (Sanjay Awasthi) Judicial Member Accountant Member Dated: 04.07.2025 AK, Sr. P.S. Copy of the order forwarded to: 1. Altfort Merchants Pvt. Ltd. 2. Income Tax Officer, Ward 1(1), Kolkata 3. CIT(A) 4. CIT 5. CIT(DR) 5 ITA No. 834/Kol/2025 Altfort Merchants Pvt. Ltd. //True copy// By order Assistant Registrar, Kolkata Benches "