SRIVARU AGRO PVT. LTD. (SUCCESSOR TO MANOJ MERCANTILE CREDIT PVT. LTD.),KOLKATA V. A.C.I.T., CC-1(4), KOLKATA

ITA 98/KOL/2025

AI Insights

The case involves Srivaru Agro Pvt. Ltd., which succeeded Manoj Mercantile Credit Pvt. Ltd., appealing against the order of the Commissioner of Income Tax (Appeals)-27, Kolkata. The appeal contested the addition of \\u20b925,74,427 on account of disallowance under section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962. The original assessment order under section 143(3) of the Act had determined the total income of the assessee at \\u20b95,29,490, which included the disputed disallowance. The Tribunal considered the submissions and precedents cited, particularly focusing on whether the disallowance of expenses related to earning exempt income was justified, given the assessee's claim of having sufficient own funds to cover such investments.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 781352 (ITAT-KOLKATA)
• Duration Of Justice: 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-10-2025
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2016-2017
• Appeal Filed On: 13-01-2025
• Other Referred Cases: South Indian Bank Ltd. vs. CIT [2021] 10 SCC 153 (SC), REI Agro v DCIT 144 ITD 141 (ITAT, Kolkata Bench)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Additional evidence; Principle of natural justice; Source of fund; Earning of tax free income; Rule 8D
• Section: 143(3); 142(1); 139; 14A

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA ‘SMC’ BENCH, KOLKATA Before SHRI SONJOY SARMA, JUDICIAL MEMBER & SHRI RAKESH MISHRA, ACCOUNTANT MEMBER I.T.A. No.: 98/KOL/2025 Assessment Year: 2016-17 Srivaru Agro Pvt. Ltd. (Successor to Manoj Mercantile Credit Pvt. Ltd.) Vs. A.C.I.T., CC-1(4), Kolkata (Appellant) (Respondent) PAN: AASCS9253N Appearances: Assessee represented by : Miraz D. Shah, AR. Department represented by : Ranu Biswas, Addl. CIT, Sr. DR. Date of concluding the hearing : 31-July-2025 Date of pronouncing the order : 22-October-2025 ORDER PER RAKESH MISHRA, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of the Commissioner of Income Tax (Appeals)- 27, Kolkata [hereinafter referred to as Ld. 'CIT(A)'] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for AY 2016-17 dated 14.11.2024, which has been passed against the assessment order u/s 143(3) of the Act, dated 28.12.2018. 2. The assessee is in appeal before the Bench raising the following grounds of appeal: Printed from counselvise.com Page | 2 I.T.A. No.: 98/KOL/2025 Assessment Year: 2016-17 Srivaru Agro Pvt. Ltd. (Successor to Manoj Mercantile Credit Pvt. Ltd.) “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 in the facts and circumstances of the case the Learned CIT(Appeals) erred in upholding the addition of ₹25,74,427 on account of disallowance u/s 14A of the Income Tax Act, 1961 read with section (sic) Rule 8D of the Income Tax Rules, 1962. This addition is unjustified and the same be deleted. 3. 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. 4. The appellant craves leave to produce additional evidences in terms of Rule 29 of the Income Tax (Appellate Tribunal) Rules 1963. 5. 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.” 3. Brief facts of the case are that the assessee had filed the original return of income u/s 139 of the Act electronically on 14.10.2016 showing ‘NIL’ income showing the current year’s loss of ₹20,43,644/-. Further, the case was selected for complete scrutiny through Computer Assisted Scrutiny Selection (in short 'CASS'). Subsequently, the notices u/s 143(2) and 142(1) of the Act along with a questionnaire calling for various details and documents were issued on different dates which were also served upon the assessee. In response to the said notices, the Ld. AR of the assessee appeared and made submission. During the period under consideration, the assessee claimed to have income from business and profession. On perusal of the records available, the Ld. AO noted from the balance sheet that the assessee had investments in shares of various companies from which he derived dividend income which was exempt from tax. It was also noticed that the assessee had shown taxable as well as non-taxable income in the consolidated profit Printed from counselvise.com Page | 3 I.T.A. No.: 98/KOL/2025 Assessment Year: 2016-17 Srivaru Agro Pvt. Ltd. (Successor to Manoj Mercantile Credit Pvt. Ltd.) and loss account and common expenditure had been debited against various sources of income. Accordingly, the Assessing Officer (hereinafter referred to as Ld. 'AO') passed the assessment order u/s 143(3) of the Act determining the total income of the assessee at ₹5,29,490/- after making the additions viz. a) disallowance of ₹25,71,427/- u/s 14A of the Act and b) addition of ₹1,704/- in the form of interest of IT refund. Aggrieved with the assessment order, the assessee filed an appeal before the Ld. CIT(A) who, vide the impugned order, considered the facts of the case, the calculation by the Ld. AO as mentioned on page 4 of the appeal order and the submission of the assessee and held that the assessee had invested huge sums in variety of shares in various companies and there would be a certain element of expenses incurred towards managing of those shares and also a time cost involved for utilizing the funds invested to realize maximum profit. It was also noted by him that there were expenses such as printing and stationery, electricity, rent, bank charges, sundry expenses etc. which would be relatable to the earning of income from investment and it could not be denied that the assessee personally was involved and carried out those transactions. Therefore, the addition of ₹25,71,427/- made by the Ld. AO was upheld and the appeal filed by the assessee was dismissed. 4. Aggrieved with the order of the Ld. CIT(A), the assessee has filed the appeal before the Tribunal. 5. Rival contentions were heard and the submissions made have been examined. The Ld. DR submitted that the disallowance was to be limited to the expenditure claimed which was only ₹57,979/-. Our attention was drawn to page 2 of the paper book, specifically notes 13 Printed from counselvise.com Page | 4 I.T.A. No.: 98/KOL/2025 Assessment Year: 2016-17 Srivaru Agro Pvt. Ltd. (Successor to Manoj Mercantile Credit Pvt. Ltd.) and 14 thereof, which shows finance costs at ₹22,32,529/- and the other expenses as ₹57,979/-. It was submitted that only item of investment in which dividend was received was Ganesh Grains Ltd. with opening balance of ₹10,74,85,000/-, in which investment during the year of ₹1,07,00,000/- was made and the closing balance was ₹11,81,85,000/-. The assessee had shareholders’ funds of ₹13,48,71,557/- and the short-term borrowings were only ₹1.70 Crore. The Ld. AR relied upon the decision of the Hon'ble Supreme Court in the case of South Indian Bank Ltd. vs. CIT [2021] 10 SCC 153 (SC) before the Ld. CIT(A) and also submitted that Hon'ble Supreme Court has held that no disallowance can be made when own funds are higher than the investments made. The assessee relied upon several other citations, namely REI Agro v DCIT 144 ITD 141 (ITAT, Kolkata Bench), which order has been upheld by the Hon'ble Calcutta High Court. The assessee was earlier Manoj Mercantile Credit Pvt. Ltd. which had merged as per the Merger Scheme by the NCLT. The Ld. CIT(A) granted relief on the ground that the disallowance should have been restricted for the investment which yielded dividend income. However, this ground of appeal was dismissed by the Ld. CIT(A). It was submitted before us that the disallowance should have been limited to the maximum expenses debited as the interest was not liable to be disallowed since the assessee had own interest free funds which were more than the amount invested for earning the exempt income. 6. The Ld. DR relied upon the order of the Ld. CIT(A). 7. We have considered the submissions made and in the interest of justice and in view of the finding of the Hon'ble Supreme Court in the Printed from counselvise.com Page | 5 I.T.A. No.: 98/KOL/2025 Assessment Year: 2016-17 Srivaru Agro Pvt. Ltd. (Successor to Manoj Mercantile Credit Pvt. Ltd.) case of South Indian Bank Ltd. (supra), are of the view that the matter needs to be remanded to the Ld. CIT(A) who shall examine whether the assessee’s own funds were higher than the borrowed funds when the investments limit and also the contention of the assessee that the short- term borrowings were not utilised for investment in shares and, therefore, the interest thereof was not liable to be disallowed. He shall also consider the claim of the assessee and decide whether the disallowance should be limited to the maximum expenses debited in the profit and loss account as this issue was not raised before the Ld. CIT(A). With these directions, the Ground No. 2 of the appeal of the assessee is allowed for statistical purposes. The other grounds of appeal are either consequential or general in nature and, therefore, do not require separate adjudication. 8. In the result, the appeal filed by the assessee is partly allowed for statistical purposes. Order pronounced in the open Court on 22nd October, 2025. Sd/- Sd/- [Sonjoy Sarma] [Rakesh Mishra] Judicial Member Accountant Member Dated: 22.10.2025 Bidhan (Sr. P.S.) Printed from counselvise.com Page | 6 I.T.A. No.: 98/KOL/2025 Assessment Year: 2016-17 Srivaru Agro Pvt. Ltd. (Successor to Manoj Mercantile Credit Pvt. Ltd.) Copy of the order forwarded to: 1. Srivaru Agro Pvt. Ltd. (Successor to Manoj Mercantile Credit Pvt. Ltd.), 88, Burtolla Street, Kolkata, West Bengal, 700007. 2. A.C.I.T., CC-1(4), Kolkata. 3. CIT(A)-27, Kolkata. 4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. 6. Guard File. //True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata Printed from counselvise.com "