Shebro Marketing , Kolkata V. ACIT, Cir. 40, Kolkata

ITA 95/KOL/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 1898 (ITAT-KOLKATA)
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 16-02-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Earning of tax free income; Period of limitation; Additional evidence; Time period of passing order; Rule 8D
• Section: 147; 143(3); 14A; 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘SMC’ BENCH, KOLKATA Before SRI MANISH BORAD, ACCOUNTANT MEMBER & SRI SONJOY SARMA, JUDICIAL MEMBER I.T.A. Nos.: 94 to 96/Kol/2022 Assessment Years: 2013-14 to 2015-16 Shebro Marketing....................................................Appellant [PAN: AAMFS 6900 M] Vs. ACIT, Circle-40, Kolkata.......................................Respondent Appearances by: Sh. Miraj D. Shah, A/R, appeared on behalf of the Assessee. Sh. Biswanath Das, Addl. CIT, appeared on behalf of the Revenue. Date of concluding the hearing : May 19 th , 2022 Date of pronouncing the order : June 29 th , 2022 ORDER Per Manish Borad, Accountant Member: The captioned appeals filed by the assessee pertaining to the Assessment Years (in short “AY”) 2013-14, 2014-15 & 2015-16 are directed against separate orders passed u/s 250 of the Income Tax Act, 1961 (in short the “Act”) by ld. Commissioner of Income-tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [in short ld. “CIT(A)”] dated 25.11.2021 arising out of the separate assessment orders framed u/s 143(3) of the Act. 2. Registry has informed that the captioned three appeals are time barred by 24 days. Condonation applications have been filed by the assessee. Perusal of the same shows that the delay was on I.T.A. Nos.: 94 to 96/Kol/2022 AYs: 2013-14 to 2015-16 Shebro Marketing. Page 2 of 8 account of COVID-19 restrictions. We, therefore, in view of the judgment of The Hon’ble Supreme Court vide Miscellaneous Application No. 21 of 2022 find that the limitation period in filing appeal between 15.03.2020 till 28.02.2022 has been excluded for calculating the limitation period in filing appeal under this period. Since the period of limitation in the course of the assessee falls during this period, the same deserves to be extended and we, therefore, condone the delay of 24 days and admit the appeals for adjudication. 3. The assessee is in appeal before the Tribunal raising the following grounds: Assessment Year 2013-14: “1. For that in the facts and circumstances of the case the appellate order passed was in violation of principals of natural justice hence is bad in law and be quashed. 2. For that the Learned CIT(Appeals) erred is passing the appellate order without considering the written submission filed on 27/06/2017. 3. For that the Learned CIT(Appeals) erred is passing the appellate order without giving proper opportunity of hearing to the assessee. 4. For that the Learned CIT(Appeals) erred in adding Rs.8,95,826/- on account of disallowance u/s 14A of the Income Tax Act,1961 read with section Rule 8D of the Income Tax Rules, 1962. This addition is unjustified and the same be deleted 5. For that the interest computed u/s 234 A/B/C of the IT Act 1961 is over charged and wrongly calculated and or is not applicable to the assessee case hence the interest be deleted and or correctly computed. 6. The appellant craves leave to produce additional evidences in terms of Rule 29 of the Income Tax (Appellate Tribunal) Rules 1963. I.T.A. Nos.: 94 to 96/Kol/2022 AYs: 2013-14 to 2015-16 Shebro Marketing. Page 3 of 8 7. The appellant craves leave to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal.” Assessment Year 2014-15: “1. For that in the facts and circumstances of the case the appellate order passed was in violation of principals of natural justice hence is bad in law and be quashed. 2. For that the Learned CIT(Appeals) erred is passing the appellate order without considering the written submission filed on 26/03/2018. 3. For that the Learned CIT(Appeals) erred is passing the appellate order without giving proper opportunity of hearing to the assessee. 4. For that the Learned CIT(Appeals) erred in adding Rs.8,67,004 on account of disallowance u/s 14A of the Income Tax Act, 1961 read with section Rule 8D of the Income Tax Rules, 1962. This addition is unjustified and the same be deleted. 5. For that the interest computed u/s 234 A/B/C of the IT Act 1961 is over charged and wrongly calculated and or is not applicable to the assessee case hence the interest be deleted and or correctly computed. 6. The appellant craves leave to produce additional evidences in terms of Rule 29 of the Income Tax (Appellate Tribunal) Rules 1963. 7. The appellant craves leave to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal.” Assessment Year 2015-16: “1. For that in the facts and circumstances of the case the appellate order passed was in violation of principals of natural justice hence is bad in law and be quashed. 2. For that the Learned CIT(Appeals) erred is passing the appellate order without considering the written submission filed on 04/05/2018. 3. For that the Learned CIT(Appeals) erred is passing the appellate order without giving proper opportunity of hearing to the assessee. I.T.A. Nos.: 94 to 96/Kol/2022 AYs: 2013-14 to 2015-16 Shebro Marketing. Page 4 of 8 4. For that the Learned CIT(Appeals) erred in upholding the addition of Rs.7,78,825 on account of disallowance u/s 14A of the Income Tax Act, 1961 read with section Rule 8D of the Income Tax Rules, 1962. This addition is unjustified and the same be deleted. 5. For that the Learned CIT(Appeals) erred in upholding the addition of Rs.69,891 on account of cessation of liability for sundry creditors u/s 41(1) of the Income Tax Act, 1961. This addition is unjustified and the same be deleted. 6. For that the interest computed u/s 234 A/B/C of the IT Act 1961 is over charged and wrongly calculated and or is not applicable to the assessee case hence the interest be deleted and or correctly computed. 7. The appellant craves leave to produce additional evidences in terms of Rule 29 of the Income Tax (Appellate Tribunal) Rules 1963. 8. The appellant craves leave to press new, additional grounds of appeal or modify, withdraw any of the above grounds at the time of hearing of the appeal.” 4. From perusal of the grounds, first, common issue relates to disallowance u/s 14A of the Act at Rs. 8,95,826/-, Rs. 8,67,004/- & Rs. 7,78,825/- for AY 2013-14 to AY 2015-16. The common fact for all these three years is that during the course of assessment proceedings, ld. Assessing Officer (in short ld. “AO”) observed that the assessee has received exempt income and has also made investments in equity shares and bonds. Ld. AO asked the assessee to furnish the computation of disallowance u/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (in short the “Rules”). In response the assessee filed the written submission stating that no disallowance is called for since the assessee possess sufficient interest free funds and no expenditure has been incurred directly to earn the exempt income. However, ld. AO did not accept the submission and moved ahead to compute the I.T.A. Nos.: 94 to 96/Kol/2022 AYs: 2013-14 to 2015-16 Shebro Marketing. Page 5 of 8 disallowance as per 8D of the Rules and made the St disallowance. The action of the ld. AO was confirmed by the ld. CIT(A). 5. The assessee has challenged the said disallowance before this Tribunal. Ld. Counsel for the assessee on the strength of the judgement of the Hon’ble Supreme Court in the case of Godrej & Boyce Manufacturing Company Limited vs. DCIT and Another reported in [2017] 394 ITR 0449 (SC) and another judgement of the Hon’ble apex Court in the case of Maxopp Investment Ltd. vs. CIT reported in 402 ITR 640 (SC) stated that the ld. AO failed to record any satisfaction regarding the claim of the assessee and without giving any observation on the financials of the assessee firm had made the disallowance u/s 14A of the Act and this action is uncalled for in view of the ratio laid down by the Hon’ble apex Court. Ld. Counsel for the assessee also stated that interest disallowance u/s 14A of the Act in the case of the assessee is not called for as the interest free funds in the form of partner’s capital available at the close of the year is sufficient to cover the alleged investments fetching exempt income. 6. Per contra ld. D/R vehemently argued supporting the orders of the lower authorities. 7. We have heard rival contentions and perused the records placed before us. The common issue raised for AY 2013-14 to AY 2015-16 relates to the disallowance u/s 14A of the Act at Rs. 8,95,826/-, Rs. 8,67,004/- & Rs. 7,78,825/- respectfully. As regards the contention of the ld. Counsel for the assessee that the alleged disallowance is uncalled for as ld. AO has not recorded necessary satisfaction regarding the correctness of the claim of the I.T.A. Nos.: 94 to 96/Kol/2022 AYs: 2013-14 to 2015-16 Shebro Marketing. Page 6 of 8 assessee. To examine this aspect, we will first go through the relevant provisions of Section 14A of the Act. “14A. Expenditure incurred in relation to income not includible in total income— [(1)] For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.] [(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act:] [Provided that nothing contained in this section shall empower the Assessing Officer either to reassess undersection 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee undersection 154, for any assessment year beginning on or before the 1st day of April, 2001.]” 8. Now, from perusal of sub-Section (2) of Section 14A of the Act, we find that the precondition to the determination of the disallowance u/s 14A of the Act As per Rule 8D prescribed under the Rules is that ld. AO with regard to the accounts of the assessee needs to satisfy that whether the claim of the assessee in respect of such expenditure in relation to the exempt income is incorrect. Only after recording proper satisfaction to this effect the ld. AO can proceed to compute the disallowance as per Rule 8D of the Rules. I.T.A. Nos.: 94 to 96/Kol/2022 AYs: 2013-14 to 2015-16 Shebro Marketing. Page 7 of 8 9. Hon’ble apex Court in the case of Maxopp Investment Ltd. had made the following observations: “51. Having regard to the language of Section 14-A(2) of the Act, read with Rule 8-D of the Rules, we also make it clear that before applying the theory of apportionment, the AO needs to record satisfaction that having regard to the kind of the assessee, suo motu disallowance under Section 14-A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the AO was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the Assessing Officer.” 10. Examining the facts of the instant case, we find that the assessee has given detailed submissions stating that the disallowance u/s 14A is not called for as no direct expenditure has been incurred to earn such exempt income and secondly interest disallowance is also not called for as sufficient interest free funds to the tune of Rs. 6.63 crores approx were available to cover up the investments of Rs. 6.64 crores as on 31.03.2013. However, ld. AO simply brushed aside the assessee’s submission without recording any satisfaction about the correctness of the claim of the assessee proceeded to make the disallowance u/s 14A of the Act applying Rule 8D of the Rules. This Action of the ld. AO is not in consonance with the provision of Section 14A of the Act and therefore, we find no justification in the said disallowance made u/s 14A of the Act. We accordingly delete the said disallowance and allow the common issue raised by the assessee for AY 2013-14 to AY 2015-16. I.T.A. Nos.: 94 to 96/Kol/2022 AYs: 2013-14 to 2015-16 Shebro Marketing. Page 8 of 8 11. Common ground nos. 1, 2, 3 for AY 2013-14 to 2015-16 and ground no. 5 for AY 2015-16 are not pressed by the assessee. Hence, these grounds are dismissed as not pressed. 12. All other grounds raised by the assessee in the instant three appeals are general in nature which need no adjudication. 13. In the result, the appeals filed by the assessee for AY 2013- 14 to AY 2015-16 are partly allowed. Kolkata, the 29 th June, 2022. Sd/- Sd/- [Sonjoy Sarma] [Manish Borad] Judicial Member Accountant Member Dated: 29.06.2022 Bidhan (P.S.) Copy of the order forwarded to: 1. Shebro Marketing, 61, Bentick Street, Esplanade, Kolkata- 700 069. 2. ACIT, Circle-40, Kolkata. 3. CIT(A)- National Faceless Appeal Centre (NFAC), Delhi. 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. True copy By order Assistant Registrar ITAT, Kolkata Benches Kolkata