RAJASTHAN INDUSTRIES LTD,KOLKATA V. DCIT, CIR. -5(1), KOLKATA

ITA 267/KOL/2024

AI Insights

The case involves Rajasthan Industries Limited, which appealed against the order of the Addl./Joint Commissioner of Income Tax (Appeals)-12, Mumbai, confirming the disallowance made by the Assessing Officer under section 14A read with Rule 8D of the Income Tax Act, 1961. The disallowance was related to expenses incurred in earning exempt income, specifically dividend income. The primary legal contention was whether the disallowance under Rule 8D(2)(ii) should be computed on total investments or only on dividend-yielding investments. The Tribunal considered the prospective application of the amendment to section 14A by the Finance Act, 2022, and relevant judicial precedents, ultimately deciding in favor of the assessee.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772000 (ITAT-KOLKATA)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Assessment Year: 2017-2018
• Other Referred Cases: Pr. CIT -vs.- M/s. Era Infrastructure (India) Limited, Babul Fiscal Services (P) Limited -vs.- ACIT
• Laws Referred To: Income Tax Act, 1961, Income Tax Rules, 1962
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RELYING JUDGMENT OF DIFFERENT HONBLE
• Keywords: Set aside; Revised return; Earning of tax free income; Rule 8D
• Section: 142(1); 14A

Judgement Text

" ITA No. 267/KOL/2024 (A.Y. 2017-2018) Rajasthan Industries Limited 1 IN THE INCOME TAX APPELLATE TRIBUNAL, ‘SMC’ BENCH, KOLKATA Before Shri Duvvuru RL Reddy, Vice-President (KZ) I.T.A. No. 267/KOL/2024 Assessment Year: 2017-2018 Rajasthan Industries Limited,…….…...……Appellant Birla Building, 11th Floor, 9/1, R.N. Mukherjee Road, B.B.D. Bagh, Kolkata-700001 [PAN:AABCR3997B] -Vs.- Deputy Commissioner of Income Tax,…....Respondent Circle-5(1), Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700069 Appearances by: Shri Akkal Dudhwewala, FCA, appeared on behalf of the assessee Shri Kallol Mistry, JCIT, Sr. D.R., appeared on behalf of the Revenue Date of concluding the hearing: June 24, 2025 Date of pronouncing the order: August 29, 2025 O R D E R The present appeal is directed at the instance of assessee against the order of Id. Addl./Joint Commissioner of Income Tax Printed from counselvise.com ITA No. 267/KOL/2024 (A.Y. 2017-2018) Rajasthan Industries Limited 2 (Appeals)-12, Mumbai dated 15.12.2023 passed for Assessment Year 2017-2018. 2. Facts in brief are that the assessee is a limited domestic company which furnished its return of income for the assessment year 2017-18 electronically on 28.10.2017 declaring total income of Rs.18,25,380/-. The assessee filed a revised return of income on 26.03.2019 declaring the same total income. The return was selected for limited scrutiny assessment under CASS and notice under section 143(2) of the Act was issued through ITBA module and duly served upon the assessee-company. Thereafter notices under section 142(1) and questionnaires were issued on different occasions and duly served on the assessee-company through ITBA module. It was noticed that the assessee earned total dividend income, which did not form part of total income, to the tune of Rs.17,06,800/-. The assessee was asked to furnish detailed computation of expenses incurred for earning exempt income. It was seen that the assessee had suo motu disallowed expenses amounting to Rs.1,30,821/- under section 14A read with Rule 8D. Thereafter the assessee was requested to furnish the monthly opening and closing averages of all the investments irrespective of whether dividend form such investment has been received or not. Since the assessee itself disallowed a sum of Rs.1,30,821/- under section 14A read with the Rule 8D, the balance amount of Rs.6,82,775/- was disallowed under section 14A read with Rule 8D by the ld. Assessing Officer and added to the total income of the assessee. Finally, ld. Assessing Officer determined the total assessed income of the assessee at Rs.25,08,160/-. Printed from counselvise.com ITA No. 267/KOL/2024 (A.Y. 2017-2018) Rajasthan Industries Limited 3 3. On being aggrieved, the assesese preferred an appeal before the ld. CIT(Appeals). The ld. Addl./JCIT(Appeals) confirmed the addition made by the ld. Assessing Officer and dismissed the appeal of the assessee by relying judgment of different Hon’ble High Courts saying that if there is no exempt income, no disallowance under section 14A can be made. 4. On being aggrieved, the assessee preferred an appeal before the Tribunal and raised the following ground:- “The ld. CIT(Appeals) erred on the facts of the case and in law in confirming that the disallowance under section 14A of the Income Tax Act, 1961 read with Rule 8D(2)(ii) of the Income Tax Rules, 1962 of the amount equal to one per cent of the annual average of the monthly averages of the opening and closing balances of the value of investment should be computed on total investments and not on the dividend yielding investments”. 5. I have heard both the sides. It was the submission of the ld. Counsel for the assessee that the ld. Assessing Officer made disallowance under section 14A with reference to all investments instead of dividend yielding investments by referring to the amendment made to section 14A by Finance Act, 2022 by virtue of which, the disallowance in terms of Rule 8D has to be computed with reference to all investments, irrespective whether it yielded exempt income or not. He further submitted that the aforesaid reasoning given by the ld. Assessing Officer as well as ld. Addl./JCIT (Appeals) are misplaced as the amendment made to section 14A is applicable Printed from counselvise.com ITA No. 267/KOL/2024 (A.Y. 2017-2018) Rajasthan Industries Limited 4 prospectively, i.e. from assessment year 2022-23 and onwards and it was not applicable in the relevant assessment year 2017-18. The said view is supported by the decision of the Hon’ble Delhi High Court in the case of Pr. CIT -vs.- M/s. Era Infrastructure (India) Limited [288 taxman 384] dated 20th July, 2022, wherein it was held that the amendment to section 14A of Finance Act, 2022, as referred to by the ld. Addl./JCIT(Appeals) has been held to be applicable prospectively. Following the same, the Hon’ble ITAT, Kolkata also passed an order in favour of the assessee in the case of Babul Fiscal Services (P) Limited -vs.- ACIT in ITA No. 318/KOL/2022. Therefore, the disallowance under section 14A read with Rule 8D(2)(ii) has to be restricted to only to those investments which actually yielded exempt dividend income in assessment years prior to assessment year 2022-23. He pleaded to set aside the orders passed by the lower authorities. 6. On the other hand, ld. Departmental Representative relied on the orders passed by the revenue authorities. 7. I have perused the material available on record. It is an admitted fact that during the relevant assessment year, the appellant held investment in shares and securities, whose annual average of the monthly averages of investment was Rs.20,41,23,356/-. During the year, the appellant earned dividend income of Rs.17,06,800/-, Printed from counselvise.com ITA No. 267/KOL/2024 (A.Y. 2017-2018) Rajasthan Industries Limited 5 which was derived from investments, whose annual average value of the monthly averages for FY 2016-17 was Rs.1,27,82,653/-. It is also an admitted fact that the appellant-assessee voluntarily disallowed the aggregated amount of Rs.1,30,821/- under section 14A read with Rule 8D. It is also an admitted fact that the ld. Assessing Officer considered it for the purpose of computation of disallowance under Rule 8D(2)(ii) whether investment yielded dividend income or not. It is also an admitted fact that there was an amendment under section 14A, which was made by Finance Act, 2022. The only grievance of the assessee is that it is applicable only from the assessment year 2022-23. On this aspect, he relied on the decision of the Hon’ble Delhi High Court in the case of Pr. CIT -vs.- M/s. Era Infrastructure (India) Limited [288 taxman 384] dated 20th July, 2022, wherein it was held that the amendment to section 14A of Finance Act, 2022 is prospective in nature and it is applicable from AY 2022- 23 onwards. After considering the facts and circumstances of the case and the ratio laid down by the Hon’ble Delhi High Court, I am of the view that the suo motu disallowance made by the ld. Assessing Officer under section 14A read with Rule 8D with reference to dividend yielded investment was reasonable and it is in accordance with law. Therefore, I direct the ld. Assessing Officer to delete the disallowance made by him on this account. The grounds raised by the assessee in this appeal are allowed. Printed from counselvise.com ITA No. 267/KOL/2024 (A.Y. 2017-2018) Rajasthan Industries Limited 6 8. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open Court on 29/08/2025. Sd/- (Duvvuru RL Reddy) Vice-President (KZ) Kolkata, the 29th day of August, 2025 Copies to :(1) Rajasthan Industries Limited, Birla Building, 11th Floor, 9/1, R.N. Mukherjee Road, B.B.D. Bagh, Kolkata-700001 (2) Deputy Commissioner of Income Tax, Circle-5(1), Kolkata, Aayakar Bhawan, P-7, Chowringhee Square, Kolkata-700069 (3) Addl./JCIT(A)-12, Mumbai; (4) CIT - , Kolkata; (5) The Departmental Representative; (6) Guard File TRUE COPY By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S. Printed from counselvise.com "