M/S. Checons Limited, Kolkata V. A.C.I.T., Circle-12(1), Kolkata, Kolkata

ITA 629/KOL/2022

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The case involves M/s Checons Ltd. appealing against the orders of the Commissioner of Income Tax (Appeals) - NFAC, Delhi, which upheld the additions made by the AO under Section 14A of the Income Tax Act, 1961. The additions were related to expenses apportioned to exempt income earned from mutual funds and the computation of book profit under Section 115JB. The Tribunal examined whether the disallowances were justified, considering the nature of the investments and the applicable legal provisions. The Tribunal's decision reversed the CIT(A)'s ruling, leading to the deletion of the disallowances.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127249 (ITAT-KOLKATA)
• Duration Of Justice: 2 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 18-12-2022
• Assessment Year: 2017-2018
• Appeal Filed On: 09-11-2022
• Other Referred Cases: Maxopp Investment Pvt. Ltd. vs. CIT, New Delhi, ACIT vs. Vireet Investment Pvt. Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A; 115JB

Judgement Text

आयकर अपील य अ धकरण, कोलकाता पीठ ‘‘एसएमसी’’, कोलकाता IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH: KOLKATA ी राजेश क ु मार, लेखा सद य एवं ी संजय शमा या यक सद य के सम [Before Shri Rajesh Kumar, Accountant Member & Shri Sonjoy Sarma, Judicial Member] I.T.A. No. 629/Kol/2022 Assessment Year: 2017-18 M/s Checons Ltd. (PAN: AABCC 4170 B) Vs. ACIT, Circle-12(1), Kolkata Appellant / (अपीलाथ ) Respondent / ( !यथ ) Date of Hearing / स ु नवाई क$ त&थ 19.12.2022 Date of Pronouncement/ आदेश उ)घोषणा क$ त&थ 17.01.2023 For the Appellant/ नधा /रती क$ ओर से Shri A.K. Tulsiyan, FCA For the Respondent/ राज व क$ ओर से Shri Vijay Kumar, Addl. CIT Sr. DR ORDER / आदेश Per Rajesh Kumar, AM: This is the appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals)-NFAC, Delhi (hereinafter referred to as the Ld. CIT(A)”] dated 14.09.2022 for the AY 2017-18. 2. Issue raised in ground no. 1 is general in nature and does not need any adjudication. 3. Issue raised in ground no. 2 is against the order of Ld. CIT(A) upholding the addition of Rs. 19,93,513/- as made by the AO u/s 14A of the Act by ignoring the fact 2 I.T.A. No. 629/Kol/2022 Assessment Year: 2017-18 M/s Checons Ltd. that no disallowance can be made on the shares held as stock-in-trade though the assessee earned exempt income thereon. 4. Facts in brief are that during the course of assessment proceedings the AO noted that assessee has earned exempt income by way of dividend however no expenses were apportioned to the said income. The said income was earned on the mutual fund purchased such as JM Balance Mutual Fund and Tarus Bonanza Fund which were purchased and sold during the month itself. The AO rejected the contentions of the assessee that loss incurred on the said mutual funds of Rs. 1,01,42,511/- was disallowed u/s 94(7) and therefore should not be any disallowance of the expenses relating to earning of exempt income. The AO held that loss u/s 94(7) of the Act and disallowance u/s 14A of the Act are two distinct issues. Accordingly the AO computed disallowance of Rs. 19,93,513/- by taking 1% of the opening and closing balance in March, 2017 as stated in para 4.8 of the assessment order and added the same to the income of the assessee. The AO has also added the same in the calculation of book profit under MAT u/s 115JB of the Act. 5. In the appellate proceedings, the Ld. CIT(A) dismissed the appeal of the assessee by upholding the order of AO by holding that the disallowance is to be made only in respect of shares and securities held stock-in-trade in terms of decision of Hon’ble Apex Court in the case of Maxopp Investment Pvt. Ltd. vs. CIT, New Delhi in [2018] 91 taxmann.com 154 (SC) which yielded exempt income. 6. After hearing the rival contentions and perusing the material on record, the undisputed facts are that the mutual funds were purchased by the assessee during the month of March . We further note that these mutual funds were also sold after few days during the month of March. Therefore there was no opening and closing balance left in the beginning of the month and end of the month so far as the investments in mutual funds are concerned. The formula/mechanism as provided for quantification of expenses to be disallowed u/s 14A of the Act read with Rule 8D(2)(iii) fails and thus we find merit in the contentions of the assessee that since the mechanism 3 I.T.A. No. 629/Kol/2022 Assessment Year: 2017-18 M/s Checons Ltd. provided under the Act itself fails on the issue of average investments becoming zero therefore, we are not in a position to sustain the order of Ld. CIT(A). Accordingly we set aside the order of Ld. CIT(A) and direct the AO to delete the disallowance and consequently the ground no. 2 raised by the assessee is allowed. 7. Issue raised in ground no. 3 is against the confirmation of addition of Rs. 26,38,625/- by the ld CIT(A) as made by the AO while computing the books profit u/s 115JB of the Act which was over and above the suo-moto disallowance by the assessee of Rs. 3,06,644/-. 8. After hearing the rival submissions and perusing the material on record including the decision of Special Bench of Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. in [2017] 82 taxmann.com 415(Del-Trib.), We find that the books profit are to be computed strictly in terms of provision of Section 115JB of the Act. The Hon’ble Special Bench in the case of Vireet Investment Ltd. (surpa) has specifically held that no disallowance u/s 14A read with Rule 8D could be made to the book profit u/s 115JB of the Act. Accordingly we set aside the order of Ld. CIT(A) and direct the AO to delete the disallowance of Rs. 26,38,625/-. Accordingly ground no. 3 raised by the assessee is allowed. 6. In the result, the appeal of the assessee is allowed. Order is pronounced in the open court on 17 th January, 2023 Sd/- Sd/- (Sonjoy Sarma /संजय शमा ) (Rajesh Kumar/राजेश क ु मार) Judicial Member/ या यक सद य Accountant Member/लेखा सद य Dated: 17 th January, 2023 SB, Sr. PS 4 I.T.A. No. 629/Kol/2022 Assessment Year: 2017-18 M/s Checons Ltd. Copy of the order forwarded to: 1. Appellant- M/s Checons Ltd., P-46A, Radha Bazar Lane, Lal Bazar, Kolkata- 700001. 2. Respondent – ACIT, Circle-12(1), Kolkata 3. Ld. CIT(A)-NFAC, Delhi 4. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail) True Copy By Order Assistant Registrar ITAT, Kolkata Benches, Kolkata