Calcutta High Court
Income Tax - 2 vs Century Enka Limited on 27 February, 2023
OD- 13
ITA/7/2020
IN THE HIGH COURT AT CALCUTTA
Special Jurisdiction [Income Tax]
ORIGINAL SIDE
PRINCIPAL COMMISSIONER OF
INCOME TAX - 2, KOLKATA
-Versus-
CENTURY ENKA LIMITED
BEFORE :
THE HON'BLE JUSTICE T.S. SIVAGNANAM
And
THE HON'BLE JUSTICE HIRANMAY BHATTACHARYYA
Date : 27th 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 under
Section 260A of the Income Tax Act, 1961 (the 'Act' for
brevity) is directed against the order dated 18th May, 2016
passed by the Income Tax Appellate Tribunal, "B" Bench, Kolkata
(the Tribunal) in ITA No.665/Kol/2012 and ITA No.325/Kol/2012
for the assessment year 2008-09.
The appeal was admitted on 12th December, 2019 on the
following substantial question of law:
"(i) Whether on the facts and in the circumstances of
the case, the Learned Income Tax Appellate Tribunal erred in
law in holding that the assessee has sufficient own funds,
expenditure by way of interest are not to be taken in account
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by calculating the disallowance under section 14A read with
Rule 8D(2)(ii) of the Income Tax Act, 1961?
(ii) Whether the assessee is entitled to claim the
left over portion of depreciation of Rs 9,02,49,544/- being the
carry forward figure from the previous year under section
32(1)(iia) of the Income Tax Act, 1961?"
We have heard Ms. Smita Das De, learned standing
counsel appearing for the appellant/revenue and Mr. J.P.
Khaitan, learned senior counsel assisted by Mr. Pratyush
Jhunjhunwala and Ms. Swapna Das, learned advocates appearing
for the respondent/assessee.
So far as the substantial question of law (ii) is
concerned, the same issue arose in the assessee's own case for
the assessment year 2006-07 in ITA/19/2015 and by judgment
dated 27th February, 2023 the appeal filed by the revenue is
dismissed. Thus, following the said decision, the substantial
question of law (ii) is answered against the revenue.
With regard to the substantial question of law (i) is
concerned, the learned Tribunal after taking note of the
factual position found that the assessing officer has not
examined the accounts of the assessee and there is no
satisfaction recorded by the assessing officer about the
correctness of the claim of the assessee and without doing so,
he has invoked Rule 8D(2)(ii) of the Income Tax Rules which is
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impermissible in law. Furthermore, the learned Tribunal had
perused a chart which was produced by the assessee before the
learned Tribunal setting out the financial position of the
assessee. From the said chart the learned Tribunal found that
the assessee had sufficient own funds which are several times
more than the investments made by the assessee and, therefore,
it can be concluded that the borrowed funds have not been
utilised for the purpose of making investments. After recording
such a factual position, the learned Tribunal rightly held that
the assessing officer could not have invoked Rule 8D(2)(ii) of
the Income Tax Rules. This Court had also occasion to consider
the 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 Court
wherein the Court after taking note of this decision in the
case of Kesoram Industries Ltd. Vs. Principal Commissioner of
Income Tax, reported in (2022) 441 ITR 648 (Cal) and the
decision 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 operation
portion of the judgment is as follows :
"13. On going through the order passed by the
Tribunal, we find that the explanation submitted by the
assessee while framing the assessment proceeding was
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rejected by the assessing officer without adducing any
reasons nor any defect was pointed out by the assessing
officer at the time of assessment and straightway the
assessing officer applied the machinery provision under
Rule 8D of the Income ax Rules, 1962. Furthermore, on
facts, the learned tribunal found that the assessee had
sufficient funds and an inference can be drawn that the
investment has been made out from the funds of the
assessee. 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 of
the 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 the
aforementioned decision. Firstly that the
provisions of section 14A has to be interpreted,
particularly, the words that "in relation to the
income" that does not form of total income.
Therefore, it was held that the principle of
apportionment of expenses comes into play as that
is the principle which is incorporated in section
14A of the Act. With regard to as to how the power
under section 14A(2) read with rule 8D of the Rules
could be invoked it was pointed out that the
Assessing Officer needs to record satisfaction that
having regard to the kind of the assessee suo motu
disallowance under section 14A was not correct and
it will be in those cases where the assessee in his
return has himself apportioned but the Assessing
Officer was not accepting the said apportionment.
In any event, the Assessing Officer will have to
record its satisfaction to the said effect.
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...
We also take note of the decision of this Court in
the 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./45/2017
darted July 19, 2018. It was pointed out that the
assessee has to make a claim (including a claim
that no expenditure was incurred) with regard to
the expenditure incurred for earning income which
is not chargeable to tax. Such a claim has to be
examined by the Assessing Officer and only if an
objective satisfaction is arrived at by the
Assessing Officer that the claim made by the
assessee cannot be accepted, the Assessing Officer
can then proceed to apply computation mode as
provided in rule 8D(2) of the Rules."
14. The decision of the Hon'ble supreme Court
in South Indian Bank Ltd. vs. Commissioner of Income Tax
[2021] 438 ITR 1(SC) is also in aid of the case of the
assessee as the tribunal has recorded specific finding
that own funds were available with the assessee. The
relevant paragraphs are quoted hereunder :
"27. The aforesaid discussion and the cited
judgements advise this Court to conclude that the
proportionate disallowance of interest is not
warranted, under section 14A of the Income-tax Act
for investments made in tax-free bonds/securities
which yield tax-free dividend and interest to the
assess-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 the
learned Income-tax Appellate Tribnunal favouring
the assessee.
28. The above conclusion is reached because
nexus has not been established between the
expenditure disallowed and earning of exempt
income. The respondents as earlier noted, have
failed to substantiate their argument that the
assessee was required to maintain separate
accounts. Their reliance on Honda Siel (supra) to
project such an obligation on the assessee, is
already negated. The learned counsel for the
Revenue has failed to refer to any statutory
provision which obligate the assessee to maintain
separate accounts which might justify proportionate
disallowance."
In the light of the above factual and legal position,
the substantial question of law (i) is also required to be
answered against the revenue.
In the result, the appeal [ITA/7/2020] filed by the
revenue stands dismissed and the substantial questions of law
are answered against the revenue.
(T.S. SIVAGNANAM, J.)
(HIRANMAY BHATTACHARYYA, J.)
S.Das/K. Banerjee
