COMMERCIAL HOUSE PVT. LTD.,KOLKATA V. ITO, WARD - 6(1), KOLKATA

MA 34/KOL/2025

AI Insights

The case revolves around the disallowance made under section 14A of the Income Tax Act by the Assessing Officer (AO) and upheld by the CIT(A), which was contested by Commercial House Pvt. Ltd. before the Tribunal. The primary contention was regarding the disallowance of \\u20b910,10,959/- which the assessee argued was erroneous as the entire administrative expenses had already been disallowed and the interest income exceeded the interest expenditure, leading to a net interest surplus. The Tribunal, upon reviewing the submissions and the relevant financial records, agreed with the assessee's position and modified the earlier order accordingly.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 708841 (ITAT-KOLKATA)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 16-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2017-2018
• Other Referred Cases: Principal Commissioner of Income-tax - 3 vs. Nirma Credit & Capital (P.) Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Capital asset; Depreciation; Rule 8D
• Section: 143(3); 14A

Judgement Text

"आयकर अपीलीय अधिकरण कोलकाता 'बी' पीठ, कोलकाता में IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘B’ BENCH, KOLKATA श्री प्रदीप क ुमार चौबे, न्याधयक सदस्य एवं श्री राक ेश धमश्रा, लेखा सदस्य क े समक्ष Before SHRI PRADIP KUMAR CHOUBEY, JUDICIAL MEMBER & SHRI RAKESH MISHRA, ACCOUNTANT MEMBER M.A. No.: 34/KOL/2025 Arising out of I.T.A. No.: 601/KOL/2024 Assessment Year: 2017-18 Commercial House Pvt. Ltd. Vs. ITO, Ward-6(1), Kolkata (Appellant) (Respondent) PAN: AABCC2315G Appearances: Assessee represented by : Akkal Dudhwewala, AR. Department represented by : S.B. Chakraborthy, Addl. CIT, Sr. DR. Date of concluding the hearing : 20-June-2025 Date of pronouncing the order : 16-July-2025 ORDER PER RAKESH MISHRA, ACCOUNTANT MEMBER: This Miscellaneous Application arises out of the order in ITA No. 601/KOL/2024 for AY 2017-18 order dated 11.09.2024 passed by the SMC, Kolkata Bench in the case of Commercial House Pvt. Ltd. It is stated that in the assessment order u/s 143(3) of the Act the Assessing Officer (hereinafter referred to as Ld. 'AO') had made disallowance of ₹13,21,806/- u/s 14A of the Act and in the first appeal, the Ld. CIT(A) Page | 2 M.A. No.: 34/KOL/2025 AOO I.T.A. No.: 601/KOL/2024 Assessment Year: 2017-18 Commercial House Pvt. Ltd. had upheld the order of the Ld. AO against which the appeal was filed before the Tribunal. It was explained that the total expenditure (excluding depreciation) debited to profit and loss account was ₹3,11,049/- and our attention was drawn to page 26 of the paper book filed in this regard. Further, loss on sale of fixed assets of ₹202/- had been separately disallowed in the computation of income as per page 41 of the paper book and the remaining sum of ₹3,10,847/- had been suo moto disallowed u/s 14A of the Act, which comprised the entire administrative expenditure and accordingly no further disallowance u/s 14A of the Act was required to be made. The Ld. AR for the petitioner further pointed out that the lower authorities had wrongly considered the separate debit of interest cost of ₹13,37,458/- as a part of the overall expenditure to justify the further disallowance made by the Ld. AO u/s 14A of the Act. It was explained that against the interest cost, the petitioner had reported gross interest income of ₹16,87,945/- and therefore, there was net interest surplus of ₹3,50,847/- and in view of the decision of Hon'ble Gujarat High Court in the case of Principal Commissioner of Income-tax - 3 vs. Nirma Credit & Capital (P.) Ltd. [2017] 85 taxmann.com 72 (Gujarat)/[2018] 300 CTR 286 (Gujarat)[31-08-2017] no further disallowance was permissible. Our attention was drawn to para 12 of the order of the Tribunal in which it is stated that no disallowance is to be made out of the interest expense because the assessee has a surplus interest income. The relevant para 12 of the Tribunal’s order is reproduced as under: “12. We have duly considered the rival contentions and gone through the record carefully. A perusal of the record would indicate that assessee’s average investment has been worked out by the Id. Assessing Officer at Rs. 13,21,80,634/-. He has worked out a disallowance at 1% of this average investment and made a calculation of Rs.13,21,806/-. The Id. Assessing Page | 3 M.A. No.: 34/KOL/2025 AOO I.T.A. No.: 601/KOL/2024 Assessment Year: 2017-18 Commercial House Pvt. Ltd. Officer has not made disallowance out of interest expenses. Therefore, we are of the view that from the total disallowance of Rs. 13,21,806/-, credit of Rs.3,10,847/- be granted to the assessee and the rest of the disallowance deserves to be confirmed. No disallowance is to be made out of interest expense because the assessee has a surplus interest income. The Hon’ble Gujrat High Court in the case of Nirma Credit & Capital Private Limited has observed that interest expenditure is to be worked out net, in other words if the assessee has an interest income as well as expenditure, then net amount is to be worked out for considering the disallowance. If the net amount is a positive interest income, then, no disallowance out of interest expenditure is to be made. But in the present case, disallowance is to be u/s. 14A Rule 8D(iii) i.e. out of administrative expenses. The Id. Assessing Officer has worked out it at Rs. 13,21,806/-. This amount deserves to be reduced by the amount, assessee has itself disallowed i.e. (Rs. 13,21,806/- minus Rs.3,10,847/-) Rs.10,10,959/-. The above addition is confirmed.” 2. Thus, as per the Ld. AR, the expenditure remaining is only the administrative expenditure debited to the profit and loss account of ₹3,11,049/-, which had already been disallowed in its entirety u/s 14A of the Act in the return of income and, therefore, no further disallowance out of this sum was called for. These facts were specifically brought to the notice of the Hon'ble Tribunal both in the statement enclosed at page 53 of the paper book as well as at para 7 of the written submission at page 4 of the paper book read along with the profit and loss account at page 26 of the paper book. The Hon'ble Tribunal however, apparently failed to take cognizance of these contemporaneous and prima facie facts and instead confirmed the addition of ₹10,10,959/-. An affidavit of the Ld. AR affirming the same has been also enclosed along with the petition which is further reproduced as under: “2. That I had brought to the notice of the Hon'ble Bench that the administrative expenses of Rs.3,11,409/- debited in the Profit & Loss Account of the company for the year ended 31st March 2017 had already been disallowed in the return of income and that there was no further sum left to be disallowed u/s 14A of the Act. Page | 4 M.A. No.: 34/KOL/2025 AOO I.T.A. No.: 601/KOL/2024 Assessment Year: 2017-18 Commercial House Pvt. Ltd. 3. That I had brought to the notice of the Hon'ble Bench that the interest expenditure of Rs. 13,37,458/- upon netting off against interest income of Rs. 16,87,945/- was a positive figure and therefore no portion of interest expenditure debited in the Profit & Loss Account of the company for the year ended 31st March 2017 could be disallowed u/s 14A of the Act. 4. That in view of the fact that entire administrative expenses had already been disallowed and that no portion of interest expenditure could be added back, there was no further sum or expenditure remaining to be disallowed u/s 14A of the Act and therefore the further disallowance made by the AO was not justified. 5. That I had relied upon the written submissions filed at Annexure A of Paper Book along with Page 26 of Paper Book containing the P&L A/c and the statement placed at Page 53 of Paper Book.” 3. It is therefore prayed that the Hon'ble Tribunal did not deal with the petitioner’s specific contention viz. when the entire administrative expenditure had already been suo moto disallowed and there was no expense left which was claimed as a deduction from the business income then the question of disallowance of any further expenditure u/s 14A of the Act read with Rule 8D(2)(ii) of the Income Tax Rules, 1962 does not arise and it is requested to rectify the above cited error or alternately partially recall the order dated 06.01.2024 in ITA No. 601/KOL/2024 to that extent and adjudicate the above mentioned contention of appeal on merits. 4. We have considered the submission made and have noted that the administrative expenses disallowed by the assessee are ₹3,10,847/- at page 41 of the paper book. The assessee had an interest income of ₹16,87,945/- and interest expenditure of ₹13,37,458/-. Therefore, the net surplus of interest income was ₹3,50,487/-, which in view of the decision of Hon'ble Gujarat High Court and the finding of the Hon'ble Tribunal itself in para 12 did not call for any further disallowance. The total administrative expenses debited in the profit and loss account Page | 5 M.A. No.: 34/KOL/2025 AOO I.T.A. No.: 601/KOL/2024 Assessment Year: 2017-18 Commercial House Pvt. Ltd. which was claimed as deduction at ₹3,10,847/- included a sum of ₹202/- on account of loss on sale of capital assets and which amount was separately disallowed by the assessee in the computation of income. The total administrative expenses worked out to ₹3,11,049/- out of which ₹202/- being loss on sale of fixed assets was disallowed suo moto by the assessee in the computation of income filed and the balance amount of ₹3,10,847/-, the details of which are at page 53 of the paper book filed was further disallowed at ₹3,10,848/- in the computation of income filed by the assessee. Therefore, no further amount was required to be disallowed out of the expenditure claimed u/s 14A of the Act. The Tribunal in the order had gone by the figure of ₹13,21,806/-, which was 1% of the average investment of the opening stock plus investment and the closing stock plus investment being ₹13,21,80,634/-, which was disallowed by the Ld. AO. However, as the administrative expenses worked out to ₹3,10,848/-, the disallowance could not exceed the total expenditure claimed. Hence, the addition of ₹10,10,959/- confirmed in the order of the Tribunal vide para 12 is erroneous as the same has been worked out without considering that the interest being surplus, no expenditure on account of interest payment could have been disallowed. The mistake being prima facie one is liable to be corrected as the same is apparent from record. Hence, the Miscellaneous Application is allowed and para 12 of the order of the Tribunal is hereby modified and the contents of the last para from “But in the present case, … … the above addition is confirmed.” are hereby expunged and substituted by “No disallowance is, therefore, called for as the entire administrative expenses have been suo moto disallowed by the assessee and the addition confirmed is hereby deleted.” Page | 6 M.A. No.: 34/KOL/2025 AOO I.T.A. No.: 601/KOL/2024 Assessment Year: 2017-18 Commercial House Pvt. Ltd. 5. Consequently, para 13 of the order is also modified and substituted as under: “13. In view of the above, the appeal of the assessee is allowed.” 6. In the result, the Miscellaneous Application of the assessee is allowed. Order pronounced in the open Court on 16th July, 2025. Sd/- Sd/- [Pradip Kumar Choubey] [Rakesh Mishra] Judicial Member Accountant Member Dated: 16.07.2025 Bidhan (Sr. P.S.) Page | 7 M.A. No.: 34/KOL/2025 AOO I.T.A. No.: 601/KOL/2024 Assessment Year: 2017-18 Commercial House Pvt. Ltd. Copy of the order forwarded to: 1. Commercial House Pvt. Ltd., C-4, Gillanders House, Netaji Subhas Road, BBD Bag, Kolkata, West Bengal, 700001. 2. ITO, Ward-6(1), Kolkata. 3. CIT(A)-NFAC, Delhi. 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. 6. Guard File. //True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata "