JCIT Vs M/s IMC Ltd (ITAT Kolkata)
In this case AO had directly made the disallowance under section 14A by abruptly rejecting workings of assessee without having any cogent reason to deny the claim made by the assessee no expenditure was incurred for earning exempt income, the disallowance was deleted.
FULL TEXT OF THE ITAT JUDGMENT
1. These cross appeals by the assessee as well as revenue arise out of the common order passed by the Learned Commissioner of Income Tax (Appeals) –9, Kolkata (in short the ld CITA) in Appeal No. 733/CIT(A)-9/Range-11/2014-15/Kol dated 29.02.2016 against the order passed by the JCIT(OSD),Cir-11(1), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 30.12.2010 for the Assessment Year 2008-09.
2. The first issue to be decided in these appeals is as to whether the Ld. CIT(A) was justified in upholding the disallowance u/s 14A of the Act read with Rule 8D(2)(iii) of the Rules after granting partial relief to the assessee, in the facts and circumstances of the case.
3. The brief facts of this issue is that the assessee is a domestic company engaged inter alia in the business of purchasing and selling of molasses, leather goods, handling of liquidity cargo and bulk liquid storage, banking, lending etc. The assessee filed its original return of income for the assessment year 2008-09 on 30.09.2008 declaring total income of Rs. 6,72,89,490/-. The assessee produced the books of accounts and relevant supporting documents before the ld. AO which were examined on test check basis. The ld. AO observed that the assessee had earned exempt dividend income of Rs. 40,83,869/- during the year under appeal and had not disallowed any amount u/s 14A of the Act in the return of income. When show caused in this regard, the assessee filed a reply that no expenditure was incurred by it for earning exempt income. The ld. AO directed the assessee to furnish the workings of amount disallowable u/s 14A of the Act. The assessee accordingly furnished the working of disallowance u/s 14A of the Act amounting to Rs. 3,42,997/-. The ld. AO did not accept to the workings of the assessee and proceeded directly to make disallowance u/s 14A of the Act by applying Second and Third Limb of Rule 8D and arrived at the disallowance figure of Rs. 38,57,077/-and added the same in the assessment. Before the ld. Ld. CIT(A) the assessee pleaded that even tax auditor in the tax audit report had certified that there has been no expenditure incurred in relation to income which does not form part of total income. The assessee further submitted that calculation of disallowance u/s 14A of the Act read with Rule 8D of the Rules made by the ld. AO suffers from computational error inasmuch as the ld. AO committed error in arriving at the opening and closing balance of investments. It was pleaded that only dividend bearing investments ought to have been taken by the ld. AO in any case by following the ratio laid down in the decision rendered by this Tribunal in the case of REI Agro Ltd. reported in 144 ITD 141. The Ld. CIT(A) placed reliance on the order of his predecessor in assessee’s own case for the assessment year 2010-11 wherein disallowance under Rule 8D was made only under Third limb thereon by applying 0.5% of the average value of investments which yielded dividend income. The Ld. CIT(A) following the said order directed the ld. AO to recompute the disallowance under Rule 8D. Aggrieved, both the assessee and revenue are in appeal before us on the following grounds:
I.T.A. No. 1239/Kol/2016 – Assessee Appeal
