Ita/7/2020 Of Principal Commissioner Of Income Tax-2, Kolkata v. “Two Important Issues Have Been Pointed Out In The Aforementioned Decision. Firstly That The Provisions Of Section 14

OD- 13 ITA/7/2020 IN THE HIGH COURT AT CALCUTTASpecial Jurisdiction [Income Tax]ORIGINAL SIDE PRINCIPAL COMMISSIONER OFINCOME TAX – 2, KOLKATA -Versus-CENTURY ENKA LIMITED BEFORE :THE HON’BLE JUSTICE T.S. SIVAGNANAMAndTHE HON’BLE JUSTICE HIRANMAY BHATTACHARYYADate : 27[th] February, 2023 Appearance :Mr. Smita Das De, Adv.…for the appellant. Mr. J.P. Khaitan, Sr. Adv.Mr. Pratyush Jhunjhunwala, Adv.Ms. Swapna Das, Adv.…for the respondent.. The Court : This appeal filed by the revenue underSection 260A of the Income Tax Act, 1961 (the ‘Act’ forbrevity) is directed against the order dated 18[th ]May, 2016passed by the Income Tax Appellate Tribunal, “B” Bench, Kolkata(the Tribunal) in ITA No.665/Kol/2012 and ITA No.325/Kol/2012for the assessment year 2008-09. The appeal was admitted on 12[th] December, 2019 on thefollowing substantial question of law: “(i)Whether on the facts and in the circumstances ofthe case, the Learned Income Tax Appellate Tribunal erred inlaw in holding that the assessee has sufficient own funds,expenditure by way of interest are not to be taken in account by calculating the disallowance under section 14A read withRule 8D(2)(ii) of the Income Tax Act, 1961?(ii)Whether the assessee is entitled to claim theleft over portion of depreciation of Rs 9,02,49,544/- being thecarry forward figure from the previous year under section32(1)(iia) of the Income Tax Act, 1961?” We have heard Ms. Smita Das De, learned standingcounsel appearing for the appellant/revenue and Mr. J.P.Khaitan, learned senior counsel assisted by Mr. PratyushJhunjhunwala and Ms. Swapna Das, learned advocates appearingfor the respondent/assessee.So far as the substantial question of law (ii) isconcerned, the same issue arose in the assessee’s own case forthe assessment year 2006-07 in ITA/19/2015 and by judgmentdated 27[th] February, 2023 the appeal filed by the revenue isdismissed. Thus, following the said decision, the substantialquestion of law (ii) is answered against the revenue.With regard to the substantial question of law (i) isconcerned, the learned Tribunal after taking note of thefactual position found that the assessing officer has notexamined the accounts of the assessee and there is nosatisfaction recorded by the assessing officer about thecorrectness of the claim of the assessee and without doing so,he has invoked Rule 8D(2)(ii) of the Income Tax Rules which is impermissible in law. Furthermore, the learned Tribunal hadperused a chart which was produced by the assessee before thelearned Tribunal setting out the financial position of theassessee. From the said chart the learned Tribunal found thatthe assessee had sufficient own funds which are several timesmore than the investments made by the assessee and, therefore,it can be concluded that the borrowed funds have not beenutilised for the purpose of making investments. After recordingsuch a factual position, the learned Tribunal rightly held thatthe assessing officer could not have invoked Rule 8D(2)(ii) ofthe Income Tax Rules. This Court had also occasion to considerthe similar issue in the case of Commissioner of Income Tax(Large Tax Payers Unit) Kolkata Vs. M/s. Century Plyboards (I)Ltd., reported in 2022 (9) TMI 1040 – Calcutta High Courtwherein the Court after taking note of this decision in thecase of Kesoram Industries Ltd. Vs. Principal Commissioner ofIncome Tax, reported in (2022) 441 ITR 648 (Cal) and thedecision of the Hon’ble Supreme Court in South Indian Bank Ltd.Vs. Commissioner of Income Tax, reported in (2021) 438 ITR 1(SC) dismissed the appeal filed by the revenue. The operationportion of the judgment is as follows :“13.On going through the order passed by theTribunal, we find that the explanation submitted by theassessee while framing the assessment proceeding was rejected by the assessing officer without adducing anyreasons nor any defect was pointed out by the assessingofficer at the time of assessment and straightway theassessing officer applied the machinery provision underRule 8D of the Income ax Rules, 1962. Furthermore, onfacts, the learned tribunal found that the assessee hadsufficient funds and an inference can be drawn that theinvestment has been made out from the funds of theassessee. In the case of Kesoram Industries Ltd. vs.Principal Commissioner of Income Tax [2022] 441 ITR 648(Cal)the Court took into consideration the decision ofthe Hon’ble Supreme Court in Maxopp Investment Ltd. vs.CIT [2018] 402 ITR 640 (SC)and held as follows : “Two important issues have been pointed out in theaforementioned decision. Firstly that theprovisions of section 14A has to be interpreted,particularly, the words that “in relation to theincome” that does not form of total income.Therefore, it was held that the principle ofapportionment of expenses comes into play as thatis the principle which is incorporated in section14A of the Act. With regard to as to how the powerunder section 14A(2) read with rule 8D of the Rulescould be invoked it was pointed out that theAssessing Officer needs to record satisfaction thathaving regard to the kind of the assessee suo motudisallowance under section 14A was not correct andit will be in those cases where the assessee in hisreturn has himself apportioned but the AssessingOfficer was not accepting the said apportionment.In any event, the Assessing Officer will have torecord its satisfaction to the said effect. … We also take note of the decision of this Court inthe case of CIT v. Ashish Jhunjhunwala reported in[2015] (12) TMI 905 (Cal), and the decision in Pr.CIT v. Britannia Industries Limited I.T.A./45/2017darted July 19, 2018. It was pointed out that theassessee has to make a claim (including a claimthat no expenditure was incurred) with regard tothe expenditure incurred for earning income whichis not chargeable to tax. Such a claim has to beexamined by the Assessing Officer and only if anobjective satisfaction is arrived at by theAssessing Officer that the claim made by theassessee cannot be accepted, the Assessing Officercan then proceed to apply computation mode asprovided in rule 8D(2) of the Rules.” 14.The decision of the Hon’ble supreme Courtin South Indian Bank Ltd. vs. Commissioner of Income Tax[2021] 438 ITR 1(SC) is also in aid of the case of theassessee as the tribunal has recorded specific findingthat own funds were available with the assessee. Therelevant paragraphs are quoted hereunder : “27.The aforesaid discussion and the citedjudgements advise this Court to conclude that theproportionate disallowance of interest is notwarranted, under section 14A of the Income-tax Actfor investments made in tax-free bonds/securitieswhich yield tax-free dividend and interest to theassess-banks in those situations where, interest-free own funds available with the assessee,exceeded their intestments. With this conclusion, we unhesitatingly agree with the view taken by thelearned Income-tax Appellate Tribnunal favouringthe assessee. In the light of the above factual and legal position,the substantial question of law (i) is also required to beanswered against the revenue. In the result, the appeal filed by therevenue stands dismissed and the substantial questions of laware answered against the revenue. (T.S. SIVAGNANAM, J.) (HIRANMAY BHATTACHARYYA, J.)