NAGREEKA FOILS LTD.,KOLKATA V. D.C.I.T., CIRCLE - 3, , KOLKATA

ITA 1930/KOL/2024

AI Insights

The case involves Nagreeka Foils Ltd., which appealed against the orders of the Commissioner of Income Tax (Appeals)-NFAC, Delhi, concerning disallowances made under sections 14A read with Rule 8D and section 36(1)(iii) of the Income Tax Act, 1961 for the assessment years 2010-11, 2011-12, and 2013-14. The primary issues revolved around the calculation of disallowances related to investments yielding exempt income and the disallowance of interest on advances made to subsidiaries. The Tribunal's decision was influenced by precedents from the Hon'ble Jurisdictional High Court, which clarified the application of Rule 8D and the prospective nature of amendments to section 14A.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 711890 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-07-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2011-2012
• Other Referred Cases: Pr. CIT vs. Shalimar Pellet Feeds Ltd., Principal Commissioner of Income-tax (Central) vs. Avantha Realty Ltd., CIT vs. Reliance Utilities & Power Ltd., J.K. Industries Ltd. vs. CIT, S.P. Jaiswal Estates (P.) Ltd. vs. ACIT, S.A. Builders Ltd. vs. CIT (Appeals)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Condonation of delay; Retrospective amendment; Question of law; Commercial expediency; Earning of tax free income; Rule 8D
• Section: 143(3); 142(1); 11; 14A; 36 (1) (iii); 115JB

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 I.T.A. Nos.: 1788, 1930 & 1789/KOL/2024 Assessment Years: 2010-11, 2011-12 & 2013-14 Nagreeka Foils Ltd. Vs. D.C.I.T., Circle-3(1), Kolkata D.C.I.T., Circle-3, Kolkata D.C.I.T., Circle-6(3), Kolkata (Appellant) (Respondent) PAN: AAACN8548H Appearances: Assessee represented by : Akshay Ringasia. CA. Department represented by : Kapil Mandal, Addl. CIT (DR). Date of concluding the hearing : 23-April-2025 Date of pronouncing the order : 22-July-2025 ORDER PER RAKESH MISHRA, ACCOUNTANT MEMBER: These appeals filed by the assessee are against the separate orders of the Commissioner of Income Tax (Appeals)-NFAC, Delhi [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AYs 2010-11, 2011-12 & 2013- 14 dated 27.06.2024, which have been passed against the assessment Printed from counselvise.com Page | 2 I.T.A. Nos.: 1788, 1930 & 1789/KOL/2024 AYs: 2010-11, 2011-12 & 2013-14 Nagreeka Foils Ltd. Page 2 of 11 orders u/s 143(3)/263, 143(3) and 143(3) of the Act, dated 31.03.2016, 25.03.2014 and 25.03.2016, respectively. 1.1. The Registry has informed that the appeal filed by the assessee for AY 2011-12 is barred by limitation by 18 days. An application seeking condonation of delay has been filed by the assessee stating as under: “On 27th June 2024, we have received the order of the Commissioner (Appeal) - NFAC in our case for the assessment year 2011-12. Being aggrieved by the said order we requested our tax department to prefer an appeal to the Hon'ble Appellate Tribunal. It undertook to do the needful soon after the rush of work of filing return of income and finalisation of audited accounts of the company. Our accounts got finalised and signed on 27th August 2024. A affidavit detailing the above facts is enclosed. These may kindly placed before the Hon'ble Appellate Tribunal for condonation of the short delay in submission of the appeal.” 1.2. Considering the application for condonation of delay and the reasons stated therein, we are satisfied that the assessee had a reasonable and sufficient cause and was prevented from filing the instant appeal within statutory time limit. We, therefore, condone the delay and admit the appeal for A.Y. 2011-12 for adjudication. 2. Since the issues in all the appeals are common except for an additional issue in A.Y. 2011-12, all the appeals were heard together and are being decided vide this common order for the sake of convenience and brevity.. The assessee is in appeal before the Tribunal raising the following grounds of appeal: I. I.T.A. No. 1788/Kol/2024; AY 2010-11: “1. That the Ld.CIT(A) was not justified in adding a sum of Rs.15,18,517/- u/s 14A read with Rule 8D by completely ignoring the submission made by the appellant company before Ld.CIT(A). The appellant company suo moto disallowed a sum of Rs. 10709/- while submitting the return of income. Printed from counselvise.com Page | 3 I.T.A. Nos.: 1788, 1930 & 1789/KOL/2024 AYs: 2010-11, 2011-12 & 2013-14 Nagreeka Foils Ltd. Page 3 of 11 2. In addition to the above, the Ld. CIT(A) has made calculation of disallowance under Rule 8D(2)(iii) by considering all investments instead of the investment from where the appellant company yielded exempted income.” II. I.T.A. No. 1930/Kol/2024; AY 2011-12: “1. That the Ld.CIT(A) was not justified in adding a sum of Rs.15,19,385/- u/s 14A read with Rule 8D by completely ignoring the submission made by the appellant company before Ld.CIT(A). 2. In addition to the above, the Ld. CIT(A) has made calculation of disallowance under Rule 8D(2)(iii) by considering all investments instead of the investment from where the appellant company yielded exempted income. 3. That Ld. CIT (A) has erred in disallowance of interest of Rs.58,42,413/- u/s 36 (1) (iii) of the Income Tac 1961.” III. I.T.A. No. 1789/Kol/2024; AY 2013-14: “1. That the Ld.CIT(A) was not justified in adding a sum of Rs.15,80,58/- u/s 14A read with Rule 8D by completely ignoring the submission made by the appellant company before Ld.CIT(A). 2. In addition to the above, the Ld. CIT(A) has made calculation of disallowance under Rule 8D(2)(iii) by considering all investments instead of the investment from where the appellant company yielded exempted income. 3. That, the appellant craves leave to amend, alter, modify, substitute, add to, abridge and/or rescind any or all of the above grounds.” 3. We will take up the appeal for AY 2010-11 in ITA No. 1788/KOL/2024 as the lead case. Brief facts of the case are that the assessee is a public limited company engaged in the businesses of manufacturing of plastic clad metal type, quoted aluminium foils, trading in crockery and wind power generation etc. For the year under consideration, the assessee filed its return of income on 14.10.2010 showing ‘NIL’ income which was later revised on 15.03.2011 again declaring ‘NIL’ total income and book profit of ₹1,02,203/- as per section 115JB of the Act. The case was then processed u/s 143(1) of the Act on Printed from counselvise.com Page | 4 I.T.A. Nos.: 1788, 1930 & 1789/KOL/2024 AYs: 2010-11, 2011-12 & 2013-14 Nagreeka Foils Ltd. Page 4 of 11 25.05.2011 by the CPC, Bengaluru, Bengaluru on the same amount of income. Subsequently, the case of the assessee was selected for scrutiny through CASS and statutory notices u/s 143(2) and 142(1) of the Act were served upon the assessee. the Assessing Officer (hereinafter referred to as Ld. 'AO') completed the assessment vide order u/s 143(3) of the Act on 21.03.2013, assessing the total income at ‘Nil’ after allowing set off of brought forward losses of AY 2009-10 and determining the book profits u/s 115JB of the Act at ₹96,77,083/- after making following disallowances/additions to the total income of the assessee: a) Disallowance of expenditure under section 14A r.w.r 8D of the I.T. Rules, 1962 : Rs. 95,85,590/- b) Disallowance u/s 40a(ia) of the Act : Rs. 2,13,270/- c) Addition u/s 2(24)(x) r.w.s 36(1)(va) of the Act : Rs. 35,905/- d) Disallowance of Donation expenses : Rs. 4,09,601/- 4. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A), who deleted the disallowance u/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 of ₹75,58,500/- and further disallowance of 0.5% of the average value of investments at ₹30,37,03,361/- and granted additional relief to the assessee and the appeal was partly allowed. Further aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before this Tribunal. 5. Rival submissions were heard and the record and the submissions made have been examined. The assessee has filed the written submission as under: Printed from counselvise.com Page | 5 I.T.A. Nos.: 1788, 1930 & 1789/KOL/2024 AYs: 2010-11, 2011-12 & 2013-14 Nagreeka Foils Ltd. Page 5 of 11 “3.1 For ground 1: That disallowance of 0.5% was to be restricted to only those investments which had yielded exempt income during the present year 3.1.1 The relevant facts of the present case are that the assessee during the year had earned dividend income of Rs. 36,78,365/- from a certain number of its investments. The details of the ledger account of the dividend income in the books of the assessee were filed before the Assessing Officer. 3.1.2 The appellant states that the issue that the assessee has not earned dividend income from all of its investment and it is not in dispute and that the disallowance, if any, is to be considered in respect of such investments which have yielded exempt income during the year. It is submitted that the issue that disallowance at the rate of 0.5% is to be computed with reference to average investments which have yielded exempt income and not total investments is covered by the various judgments of Hon'ble jurisdictional High Court. On such being in case of Pr. CIT v. Shalimar Pellet Feeds Ltd. [2022] 138 taxmann.com 124/287 Taxman 134 has held as under:- “….. The next substantial question of law is with regard to the disallowance under section 14A of the Act. The tribunal after noting several decisions has directed the assessing officer to compute the disallowance as per rule 8D by taking into consideration only those shares which have yielded dividend income in the year under consideration. Though the Tribunal has noted the decision of the Tribunal in REI Agro Ltd. v. DCIT (2013) 35 taxmann.com 404, there are several other decisions on the said point and the machinery provision under rule 8D can be applied only with regard to the shares which yielded dividend income in year under consideration. Therefore, we find that the tribunal rightly applied the legal principle and granted relief ......\" Such law has been accepted by the Ld. CIT(A) as well at page 16 of his order. However, he denies such relief by relying on amendment brought in by Finance Act, 2022 to section 14A stating that even in case of no exempt income, section 14A disallowance is to be considered as per Rule 8D. 3.1.3 That the Hon'ble Calcutta High Court in case of Principal Commissioner of Income-tax (Central) v. Avantha Realty Ltd. [2024] 164 taxmann.com 376 (Calcutta) following the Hon'ble Delhi High Court in case of Pr. CIT (Central) v. Era Infrastructure (India) Ltd. [2022] 141 taxmann.com 289/288 Taxman 384/448 ITR 674 (Delhi) (para 14) has dismissed the appeal filed by the Revenue and held that the Explanation inserted to Section 14A by Finance Act, 2022 will be applicable prospectively. Printed from counselvise.com Page | 6 I.T.A. Nos.: 1788, 1930 & 1789/KOL/2024 AYs: 2010-11, 2011-12 & 2013-14 Nagreeka Foils Ltd. Page 6 of 11 The operative portion of the decision in Avantha Realty Ltd. (supra) reads as under: \"Substantial questions Nos. D & E pertain to the deletion of the disallowance made under Section 14A of the Act. The learned Tribunal took note of the decision of the High Court of Delhi in Era Infrastructure (India) Ltd. (supra), which had taken note of the decision in the case of Cheminvest Ltd. (supra), wherein it was held that amendment by the Finance Act, 2022 of Section 14 A of the Act by inserting a non-obstante clause and explanation we take effect from 01.04.22 and cannot be presumed to have retrospective effect and, therefore, on facts the amendment cannot be applied to the assessment year under consideration. We find no error in such conclusion arrived at by the learned Tribunal. 3.1.4 That unfortunately, without any stay on above judgement, the Ld. CIT(A) refused to follow the same and termed these to be per incuriam. He rather relied on orders of Tribunal which has since then been over-ruled by the Hon'ble High Courts. Thus, it is prayed that while computing disallowance under Rule 8D(2)(iii), only those investments be considered which had yielded exempt income.” 6. Thus, the Ld. AR relied upon the decision of the Hon'ble Jurisdictional High Court in the case of Principal Commissioner of Income-tax vs. Shalimar Pellet Feeds Ltd. [2022] 138 taxmann.com 124 (Calcutta)/[2022] 287 Taxman 134 (Calcutta)/[2023] 453 ITR 547 (Calcutta)[22-02-2022] in support of the claim that the disallowance u/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 should be made by taking into consideration only those shares which had yielded dividend income in the year under consideration. The Ld. AR has also relied upon the order of Hon'ble Jurisdictional High Court in the case of Principal Commissioner of Income-tax (Central) vs. Avantha Realty Ltd. [2024] 164 taxmann.com 376 (Calcutta)[19-06-2024] in support of the claim that the amendment in section 14A of the Act is applicable prospectively and para 9 of the order in the case of Avantha Realty Ltd. (supra) is reproduced as under: Printed from counselvise.com Page | 7 I.T.A. Nos.: 1788, 1930 & 1789/KOL/2024 AYs: 2010-11, 2011-12 & 2013-14 Nagreeka Foils Ltd. Page 7 of 11 “9. Substantial questions Nos. D & E pertain to the deletion of the disallowance made under Section 14A of the Act. The learned Tribunal took note of the decision of the High Court of Delhi in Era Infrastructure (India) Ltd. (supra), which had taken note of the decision in the case of Cheminvest Ltd. (supra), wherein it was held that amendment by the Finance Act, 2022 of Section 14A of the Act by inserting a non-obstante clause and explanation we take effect from 01.04.22 and cannot be presumed to have retrospective effect and, therefore, on facts the amendment cannot be applied to the assessment year under consideration. We find no error in such conclusion arrived at by the learned Tribunal.” 7. We have considered the submissions made, gone through the facts of the case and perused the record and the order of the Ld. CIT(A). Respectfully following the decision of the Hon’ble Jurisdictional High Court in the case of Shalimar Pellet Feeds Ltd. (supra) and Avantha Realty Ltd. (supra), we reverse the finding of the Ld. CIT(A) in para 7.11 that the disallowance under Rule 8D(2)(iii) shall be @0.5% of average value of all equity investments irrespective of the fact whether these investments actually yielded any exempt income or not during the year and direct the Ld. AO to consider only the investments which yielded exempt income and delete the rest of the disallowance. The assessee shall file the relevant details before the Ld. AO in this regard. Hence, Ground Nos. 1 & 2 of the appeal for A.Y. 2010-11 are allowed. 8. Since the Ground of appeals for A.Y. 2013-14 are also similar to the grounds of appeal for A.Y. 2010-11, the Ld. AO is directed to follow the directions in para 7 of this order and allow the consequential relief to the assessee. 9. In the result the appeals of the assessee for A.Ys. 2010-11 and A.Y. 2013-14 are allowed. 10. As regards the appeal for A.Y. 2011-12, Ground Nos. 1 and 2 are allowed as per the findings in para 7 above. As regards Ground No. 3, Printed from counselvise.com Page | 8 I.T.A. Nos.: 1788, 1930 & 1789/KOL/2024 AYs: 2010-11, 2011-12 & 2013-14 Nagreeka Foils Ltd. Page 8 of 11 the Ld. AR relied upon the order of Ld. CIT(A) for AY 2011-12 and stated that the loans to subsidiaries were given interest free and the borrowed funds were utilized for export financing purposes and were not utilised for giving interest-free advances to the subsidiaries. It was submitted by the assessee that the assessee had own funds of aggregating to ₹70.45 Crore while the advances to its associates/subsidiary companies aggregated to ₹5,16,86,770/- and the and advances were given to 4 associate/subsidiary company. It was submitted that the Ld. CIT(A) went on the principle of commercial expediency and not on the basis of sufficiency of own interest free fund available with the assessee. The written submission filed in this regard is as under: “The present ground challenges the action of the Ld. CIT(A) in upholding the disallowance of interest amounting to ₹58,42,413/-on the allegation that the assessee advanced interest-free loans to its associate/subsidiary companies without establishing commercial expediency. The said disallowance is unsustainable on facts and in law for the following reasons: 1. Advances Made Out of Own Funds At the end of the relevant previous year, the assessee had own funds aggregating to ₹70.45 crores, while the advances to its associate/subsidiary companies aggregated to ₹5,16,86,770/-, comprising: S. No. Associate/Subsidiary Company Amount (₹) 1 Sulabh Developers Pvt. Ltd. 1,94,63,696 2 Yasoda Infrcon Pvt. Ltd. 2,25,84,701 3 Mala Overseas Pvt. Ltd. 29,38,373 4 Shantiniketan Infrastructure Pvt. Ltd. 67,00,000 Total 5,16,86,770 It is a well-settled principle in law that where both own funds and borrowed funds are available, a presumption arises that interest-free advances are made out of own funds, especially when such funds are sufficient to cover the advances. This legal position has been affirmed by the Hon'ble Bombay High Court in the case of: • CIT vs. Reliance Utilities & Power Ltd. [2009] 313 ITR 340 (Bom) Printed from counselvise.com Page | 9 I.T.A. Nos.: 1788, 1930 & 1789/KOL/2024 AYs: 2010-11, 2011-12 & 2013-14 Nagreeka Foils Ltd. Page 9 of 11 “if there are funds available, both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of interest free funds generated or available with the company.\" Further support may be drawn from: • J.K. Industries Ltd. v. CIT [1999] 238 ITR 820 (Cal.)- Hon'ble Calcutta HC • S.P. Jaiswal Estates (P.) Ltd. vs. ACIT [2013] 140 ITD 19 (Kolkata Trib.) (TM) Therefore, in the absence of any nexus established by the AO between the borrowed funds and the advances, the presumption must operate in assessee's favour. 2. Loans Taken Were Not Used for the Advances It is respectfully submitted that the term loan of ₹2.74 crores and working capital loan of ₹7.95 crores were taken specifically for export financing purposes. The nature of these borrowings and their restricted end-use prohibits their deployment for interest-free advances. Thus, the borrowed funds were exclusively used for business purposes, and not for any alleged diversion. This is evident from the assessee's balance sheet and audited financials, which clearly demonstrate the purpose and usage of such funds. Hence, no disallowance can be made under section 36(1)(iii) as: • The borrowed funds were not utilized for non-business purposes; • Interest expenditure pertains to borrowings used for commercial operations only. 3. Advances Were for Commercial Expediency Even assuming without admitting that borrowed funds were utilized, the advances made were for commercial expediency. • The CIT(A) has accepted that the advances to Sulabh Developers Pvt. Ltd. and Yasoda Infrcon Pvt. Ltd. were in connection with the procurement of flats which are operational and business-related in nature. • Regarding Shantiniketan Infrastructure Pvt. Ltd., neither the AO nor the CIT(A) has brought any adverse material to establish that the same was not for commercial reasons. It is settled law that any expenditure incurred for the purpose of business, even if indirectly, qualifies as commercial expediency, as held in: • S.A. Builders Ltd. vs. CIT (Appeals) [2007] 288 ITR 1 (SC) \"Once it is established that there was nexus between the expenditure and purpose of the business, revenue cannot justifiably claim to put itself in the armchair of the businessman or in the position of the board of directors...\" Thus, the advances were clearly for business considerations and cannot be treated as gratuitous or personal in nature. Prayer Printed from counselvise.com Page | 10 I.T.A. Nos.: 1788, 1930 & 1789/KOL/2024 AYs: 2010-11, 2011-12 & 2013-14 Nagreeka Foils Ltd. Page 10 of 11 In light of the above, it is most respectfully prayed that the disallowance of ₹58,42,413/- made under section 36(1)(iii) be deleted in full, and relief be granted to the assessee.” 11. We have considered the submissions made. The assessee has been able to demonstrate that the assessee had sufficient interest free funds of its own out of which advances were given for commercial expediency and the loans taken were not used for the advances made to the associates and the subsidiaries. Hence, following the decision of Reliance Utilities & Power Ltd (supra), Ground No. 3 raised in the appeal for A.Y. 2011-12 is allowed and the disallowance made u/s 36(1)(iii) of the Act by the Ld. AO which has been confirmed by the Ld. CIT(A) is hereby directed to be deleted. Hence, the appeal for A.Y. 2011- 12 is also allowed. 12. In the result, all the three appeals filed by the assessee for AYs 2010-11, 2011-12 & 2013-14 are allowed. Order pronounced in the open Court on 22nd July, 2025. Sd/- Sd/- [Pradip Kumar Choubey] [Rakesh Mishra] Judicial Member Accountant Member Dated: 22.07.2025 Bidhan (Sr. P.S.) Printed from counselvise.com Page | 11 I.T.A. Nos.: 1788, 1930 & 1789/KOL/2024 AYs: 2010-11, 2011-12 & 2013-14 Nagreeka Foils Ltd. Page 11 of 11 Copy of the order forwarded to: 1. Nagreeka Foils Ltd., 18, Jain Chamber, R.N. Mukherjee Road, Kolkata, West Bengal, 700001. 2. D.C.I.T., Circle-3(1), Kolkata. 3. D.C.I.T., Circle-3, Kolkata 4. D.C.I.T., Circle-6(3), Kolkata. 5. CIT(A)-NFAC, Delhi. 6. CIT- 7. CIT(DR), Kolkata Benches, Kolkata. 8. Guard File. //True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata Printed from counselvise.com "