Jayantika Investment & Finance Ltd., Kolkata V. I.T.O.,Ward-7(2), Kolkata

ITA 375/KOL/2020

AI Insights

The case involves Jayantika Investment & Finance Ltd., which appealed against the order of the Commissioner of Income Tax (Appeals) that partly allowed the disallowance under section 14A read with Rule 8D of the Income Tax Act, 1961. The primary contention was regarding the disallowance of expenses related to exempt income. The Assessing Officer had applied Rule 8D due to the assessee's failure to justify its claims with adequate evidence, leading to a significant disallowance. The Tribunal, however, found that the assessee had sufficient own funds to cover the investments, and no interest-bearing borrowed funds were used, thus overturning the lower authorities' decisions.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 122939 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 04-01-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 22-06-2020
• Other Referred Cases: ITO 15(2)(2) vs M/s. New Era Advisors Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Period of limitation; Proportionate interest; Corroborative evidences; Time period of passing order; Rule 8D
• Section: 142(1); 14A; 115JB; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH ‘C’, KOLKATA [Before Shri Rajesh Kumar, Accountant Member & Shri Sonjoy Sarma, Judicial Member] I.T.A. No. 375/Kol/2020 Assessment Year : 2013-14 Jayantika Investment & Finance Ltd. PAN: ADUPG 7386 C Vs . ITO, Ward-7(2), Kolkata Appellant Respondent Date of Hearing 05.01.2023 Date of Pronouncement 15.03.2023 For the Assessee Shri B.K. Chaturvedi, Advocate For the Revenue Shri Vijay Kumar, Addl. CIT ORDER Per Shri Sonjoy Sarma, JM: This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax(Appeals)-3, Kolkata [hereinafter referred to as ‘Ld.CIT(A)’] dated 03.02.2020 for the assessment year 2013-14. The assessee has raised the following grounds of appeal: “i. For that the ld. CIT(A) misconceived the facts and circumstances of the case and thereby restricted disallowance u/s 14A of the Income Tax Act, 1961 to the extent of exempted income instead of to the total administrative expenditure which was added back by the appellant himself in the return of income. ii. For that the ld. Assessing Officer in the computation sheet added a sum of Rs. 1,35,79,304/- being disallowance u/s 14A of the Income tax Act, 1961 while computing taxable income u/s 115JB without mentioning anything in the assessment order. iii. For that the assessee craves leave to urge further grounds at the time of hearing of the appeal.” 2. Though the Registry has pointed out that the appeal is time barred, however, in view of the decision of the Hon’ble Supreme Court in the case of Miscellaneous Application No. 665 of 2021 in SMW(C) No. 3 of 2020, the period of filing appeal during the COVID-19 pandemic is to be excluded for the purpose of counting the limitation period. In view of this, the appeal is treated as filed within the limitation period. 2 ITA No. 375/Kol/2020 AY: 2013-14 Jayantika Investment & Finance Ltd. 3. Brief facts of the case are that the assessee is a private limited company. During the assessment year under consideration, assessee filed its return of income declaring total income of Rs. 25,21,840/- on 30.09.2013. The case of the assessee was selected for scrutiny through CASS due to following reasons: “i. High ratio of refund ii. Large interest expenses relatable to exempt investment u/s 14A.” The notice u/s 143(2) as well as notice u/s 142(1) were issued upon the assessee in compliance to such notices, the ld. AR of the assessee appeared time to time before the ld. AO and filed various details, documents, supporting evidences and explained the return. During the course of hearing, the ld. AO noticed that the assessee mainly engaged in the business of investing and trading as non banking financial company and in the course of assessment proceeding, the ld. AO after duly considered the submission of the AR of the assessee, he noticed that the assessee had shown an investment of Rs. 63,04,59,330/- in its balance sheet for purchasing shares and it has also claimed an exempted dividend income of Rs. 30,22,588/- in the computation of taxable income for the year under consideration. During the assessment proceeding, the assessee submitted before the ld. AO stating that it had not maintained any books of account to calculate the expenditure relating to its income which did not form part of total taxable income but it had voluntarily disallowed an amount of Rs. 21,064/- u/s 14A of the Act while computation of taxable income. The ld. AO further issued a show cause notice to the assessee stating that as to why the provision of section 14A read with Rule 8D(ii) had not applicable in the case of assessee. In compliance to such notice, the ld. AR of the assessee company submitted before the ld. AO that the assessee had made a total expenditure of Rs. 21,064/- and the entire expenditure has been considered disallowed u/s 14A of the Act and as such the question of disallowance as per Rule 8D did not arise. However, the ld. 3 ITA No. 375/Kol/2020 AY: 2013-14 Jayantika Investment & Finance Ltd. AO dissatisfied regarding the genuineness of the assessee’s claim of the expenses relating to exempt income as the assessee has not able to justify its claim by producing books of account and other evidences during the course of proceedings even after repeated opportunities having been offered to the assessee. In such a situation, the assessing officer has applied Rule 8D(ii) and added a sum of Rs. 1,35,79,376/- being proportionate interest of Rs. 80,992/- as per Rule 8D(iii) and disallowance of Rs. 1,36,00,368/- made u/s 14A of the Act. 4. Dissatisfied with the above order, assessee preferred an appeal before the ld. CIT(A). However, the ld. CIT(A) partly allowed the appeal of the assessee by restricting the total disallowance u/s 14A read with Rule 8D(2) at Rs. 30,22,588/-. 5. Aggrieved by the above order, assessee preferred an appeal before the Tribunal. At the time of hearing, the ld. AR of the assessee submitted that the impugned order passed by the ld. CIT(A) has ignored the fact that there is no expenditure on account of interest. In fact the assessee has received a sum of Rs. 1,83,13,736/- as interest and to earn such interest income, the assessee ultimately has incurred finance cost of Rs. 1,57,31,969/- and after incurring finance cost, the assessee has earned interest to the extent of Rs. 25,81,768/-. Therefore, the assessee has shown Rs. 25,81,768/- as it is taxable business income. Since the assessee has no expenditure on account of interest finance cost, no disallowance can be made under Rule 8D(2)(ii). The ld. AR further contended that the investment of the assessee company at the beginning of the year i.e. 01.04.2012 was Rs. 63,04,59,330/- and at the end of the year i.e. as on 31.03.2013 was Rs. 63,04,59,330/- respectively. Therefore, the assessee has not made any investment out of the borrowed fund on which interest has been 4 ITA No. 375/Kol/2020 AY: 2013-14 Jayantika Investment & Finance Ltd. charged. Moreover, the assessee had sufficient reserve and shareholders fund of Rs. 1,29,50,000/- and reserve & surplus of Rs. 62,02,04,882/- which totaling to Rs. 63,31,54,882/- as on 01.04.2012. Therefore, the investment made by the assessee out of assessee’s own fund on which no interest/interest cost was incurred, in fact in the present case, assessee has earned interest of Rs. 1,83,13,736/- as against finance cost of Rs. 1,57,31,968/-. The ld. AR further contended that the ld. CIT(A) has not disputed the above facts and the ld. CIT(A) disagree to consider Rs. 18,17,70,000/- being security premium as available reserve and surplus for investment in shares due to restriction imposed by the Companies Act, 1956 in this regard. He further relied on the judgement of Co-ordinate ITAT Mumbai Bench in ITA No. 3861/M/2016 in the case of ITO 15(2)(2) vs M/s. New Era Advisors Pvt. Ltd. in which Tribunal held that section 78(2) of the Companies Act, 1956 which imposed restriction on utilization of share premium account has no relevance for the purpose of Income Tax Act. Therefore, view taken by the ld. CIT(A) is not correct and he prayed before the Tribunal that the entire addition made by the ld. AO u/s 14A read with Rule 8D should be deleted. Since the assessee has interest free own funds available to invest in such exempt income. On the other hand, ld. DR relied upon the order passed by the authorities below. 6. We after hearing the rival submission of the parties and material available on record. We noticed that the assessee has enough fund for investment in shares and securities and assessee has made investment out of its own fund on which no interest/financial cost was incurred. Therefore, the addition made by the ld. AO is not correct and view taken by the ld. CIT(A) in this regard is also not in accordance with law. Therefore, the entire addition made by the ld. AO 5 ITA No. 375/Kol/2020 AY: 2013-14 Jayantika Investment & Finance Ltd. u/s 14A read with Rule 8D is hereby deleted and grounds taken by the assessee are allowed. 7. In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 15.03.2023. Sd/- Sd/- (Rajesh Kumar) (Sonjoy Sarma) Accountant Member Judicial Member Dated: 15.03.2023 Biswajit, Sr. PS Copy of the order forwarded to: 1. Appellant- Jayantika Investment & Finance Ltd., 15 th Floor, 10, Camac Street, Kolkata – 700017. 2. Respondent – ITO, Ward-7(2), Kolkata. 3. Ld. CIT 4. Ld. CIT(A) 5. Ld. DR True Copy By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata