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TMI Blog2024 (12) TMI 1381X X X X Extracts X X X X X X X X Extracts X X X X ..... nfirmed and the decision of the Hon ble Supreme Court is binding on the High Court as well as the Tribunal. Appeal of assessee allowed. - Shri Anikesh Banerjee, Judicial Member And Shri Rakesh Mishra, Accountant Member For the Appellant : Shri Aayush Kedia, AR For the Respondent : Shri Mahare Yogesh Prabhakar, DR ORDER PER RAKESH MISHRA, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax [hereinafter referred to as the Ld. CIT (A) ] passed u/s 250 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) for AY 2017-18 dated 09.01.2024, which has been passed against the assessment order u/s 143(3) of the Act, dated 16.12.2019. 2. The grounds of appeal raised by the assessee are reproduced as under: 1. That a search and seizure was conducted in the case of appellant and group entities from 21-09-2023 to 24-09-2023 and the last panchnama has been drawn on 15-11-2023. Thereafter, post search proceedings continued till 08-01-2024. Hence the appellant was sufficiently precluded from representing its case before the Ld. Commissioner of Income Tax (Appeals), Kolkata-27 [hereinafter referred to as the Ld. CIT(Appeals)]. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ividend income was declared exempted u/s 10(34) of the Act by the assessee. However, the assessee had suo moto disallowed Rs. 5,350/- as expenditure u/s 14A of the Act. It is pertinent to mention that the assessee had only considered its investments in the scrips of 'M/s Kamala Tea Ltd.', 'M/s Bala Techno Synthetics Limited', 'M/s Sundaram Finance Limited', 'M/s Unispin India Limited' 'M/s West Bengal Hosiery Park Ltd.' for calculating the expenditure for suo moto disallowance u/s 14A of the Act. However, none of the above investments had yielded any exempt income for the assessee in the subjected AY. Rather, the assessee had received exempted dividend income from the investments of the 'LUX Industries Ltd. ' in preferential shares of Rs. 15,00,00,000/-, for which the assessee had failed to disallow direct related expenses u/s 14A of the Act. Hence, the stand of the AO is rightly vindicated as per the assertations of Rule 8D of the Act. Reliance may be placed on the judgement of the Apex Court in the case of 'Maxopp Investment Ltd. vs. CIT 12/02/2018 SC', where the Hon'ble Apex Court clearly analyzed section 14A(1) and hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isfactory as the assessee had not followed Rule 8D for calculating the disallowance u/s14A of the Act. The assessee was required to furnish details and the Ld. AO noted that the assessee had made investment in Lux Industries Ltd. and the investment of Rs. 15,00,00,000/- in preference share of Lux Industries Ltd. should have been considered for calculation of 1% of the annual average of the monthly average of opening and closing balance of investment. Since the details of 1% of the annual average as required were not available, he considered the value of investment for 11 months as value on 31.03.2016 and for the 12 months as the value of investment as on 31.03.2017 and worked out the amount of 1% of annual average of monthly average of opening and closing balance on the value of investment at the value of Rs. 15,00,000/-. Besides this, the direct expenses of Rs. 17,81,22,191/- claimed under the head legal and professional charges were also included and the total disallowance was worked out at Rs. 32,81,222.91 and as the assessee had made suo moto disallowance of Rs. 5,350/-, a sum of Rs. 32,75,872.91 was worked out as the net disallowance and a show cause notice was issued to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is not to be allowed which has been incurred by the assessee in relation to income which does not form part of the total income under this Act . Axiomatically, it is that expenditure alone which has been incurred in relation to the income which is includible in total income that has to be disallowed. 6.2.2. Additionally, it is noteworthy to mention that the judicial pronouncement of the Apex Court relied by the assessee in the cases of 'Pr. CIT, Patiala Vs. State Bank of Patiala' is an isolated case law and the facts are not identical to the assessee. Further, the case of 'CIT (Central-1) Vs. Chettinad Logistics Pvt. Ltd.' which was relied by the Assessee in its support. is also based on non-identical issue as compared to the present case of the assessee as there was no 'dividend income earned by the assessee in the subjected AY which was liable to be exempted. However, in the present case, a dividend income of Rs. 3.75,000/- prevails. 6.2.3. Hence, in view of the above discussions, the addition of Rs. 14,94,650/- made by the AO u/s 14A of the Act is confirmed. Therefore, this ground of appeal raised by the assessee is dismissed. 7.2. Before us, the assessee m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the appellant had already disallowed Rs. 5,350, the AO added the remaining Rs. 14,94,650/- in the assessment order. This is despite the fact that the exempt income earned by the appellant is only Rs 3,75,000/-. The AO s calculation was as follows: Total of monthly average of opening and closing values of investments in preference shares of Lux Industries Limited: Rs. 180,00,00,000 Annual average: Rs. 180,00,00,000 1 12 Rs. 15,00,00,000 1% of annual average: Rs. 15,00,000 Your honour while doing so, the LD officer erred in ignoring the well-established principle of law upheld by the Hon ble Apex Court in the case of Pr. CIT v. State Bank of Patiala [(2018) 99 taxmann.com 286 (SC)[ that disallowance under Section 14A should not exceed the exempt income earned by the assessee. Your honour the Hon ble Apex Court has reaffirmed its above rulings in subsequent cases, including CIT v. Oil Industry Development Board, reported in [2019] 103 taxmann.com 326 (SC) PCIT-2 v.v Caraf Builders Constructions (P) Ltd, reported in [2019] 112 taxmann.com 322 (SC). In the Oil Industry Development Board case, the Supreme Court upheld the same principle, ruling that Section 14A disallowance cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 610 (Kolkata - Trib.) 2) ACIT v. Gold Rush Sales and Service Ltd, 156 taxmann.com 514 (Kolkata -Trib.) 3) Godrej Boyce Manufacturing Co. Ltd. v. DCIT (Bombay High Court, 2010) 4) CIT v. Chettinad Logistics (P.) Ltd. [80 taxmann.com 221 (Madras HC)] 5) Cheminvest Ltd. v. CIT [378 ITR 33 (Delhi HC)] 6) CIT v. Shivam Motors (P.) Ltd. [97 DTR 81 (Allahabad HC)] 7) Joint Investments (P.) Ltd. v. CIT [59 taxmann.com 295 (Delhi HC)] 8) CIT vs Delite Enterprise (2009) (Bombay High Court) ITA No. 110 of 2009 (BomHC) 9) CIT vs. Corrtech Energy Pvt. Ltd. (2014) 223 Taxman 130 (Gujrat High Court) 10) CIT v. Winsome Textile Industries Ltd. [(2009) 319 ITR 204 (P H)] 8. We have considered the rival submissions. The Ld. AO had rightly disagreed with the disallowance made by the assessee as even the strategic investments have to be considered while computing the disallowance under Rule 8D r.w.s. 14A of the Act. However, in view of the decision of the Hon'ble Supreme Court in the case of State Bank of Patiala (supra), the disallowance u/s 14A has to be restricted to Rs. 3,75,000/- which was the amount of dividend received by the assessee. The contention of the Ld. CIT(A) that it was an isolate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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