ORDER SHEET ITA No. 108 of 2007 IN HIGH COURT AT CALCUTTA Special Jurisdiction (Income Tax) ORIGINAL SIDE COMMISSIONER OF INCOME TAX, KOLKATA-III, KOLKATA Versus M/s NARESH KUMAR & CO PVT LTD BEFORE: Hon'ble JUSTICE GIRISH CHANDRA GUPTA Hon'ble JUSTICE ARINDAM SINHA Date : 8th April, 2015. Ms A.G. Gutgutia, Advocate for Appellant Mr. Saurav Bagaria, Advocate, Mr. G.S.Gupta, Adv. and Mr.Siddhartha Das, Adv. for Respondent Court: appeal pertaining to assessment year 2002-03 was admitted on 29.3.2007 when following question of law was formulated. Whether on facts and in circumstances of case and in view of introduction of provision of sec. 14A of Income Tax Act, 1961 with retrospective effect, Income Tax Tribunal was justified in law and on facts to delete addition of Rs.8,43,660/- coming under sec. 36(I)(iii) of Income Tax Act, 1961? It is not in dispute that sum of Rs.1.99 crore was invested by assessee from cash credit account for purchasing shares by transferring aforesaid sum to account of Aryan Energy Pvt. Ltd. It is also not in dispute that on account of transactions in cash credit account sum of Rs. 3,99,553/- was debited towards interest. Question arose whether interest incurred or paid by assessee is deductible from taxable income. learned Tribunal has answered question as follows: Considering totality of facts of case and relying on decisions cited above and considering fact that assessee s bank account is mixed one and assessee had sufficient funds of its own for purpose of such investment and further considering fact that revenue has not brought on record any concrete evidence to prove direct nexus between such borrowed funds being utilised for interest free investments, we are of considered opinion that no part of such interest can be disallowed U/s. 14A read with Section 36(I)(iii) of I.T.Act. Therefore, we set aside order of CIT(A) and direct AO to delete addition. How does interest paid or incurred by assessee for earning exempt income become expenditure allowable under section 36 of Income Tax Act has not been explained by learned Tribunal nor has Mr. Bagaria, learned Advocate for assessee tried to make any improvement thereupon. Therefore, finding given by learned Tribunal is palpably wrong. Mr. Bagaria contended that assessee had invested his own funds for purpose of purchasing shares, but that contention was never substantiated before Assessing Officer. Admittedly, money was paid from cash credit account. position would have been different if money had been paid from current account or savings account. Money was admittedly paid from cash credit account and admittedly interest was also paid. Therefore, it was obligation of assessee to offer one to one explanation to establish that money borrowed from United Bank of India was not spent for purpose of purchasing shares. Since assessee did not discharge his obligation, Assessing Officer had refused to allow deduction. Without applying mind, learned Tribunal upheld contention of assessee. We, therefore, propose to remand matter to Assessing Officer. Ms. Gutgutia, learned Advocate for appellant however submitted that there is no reason why matter should be remanded. She relied upon judgment of this Court to which one of us (G.C. Gupta,J.) was party in case of CIT vs. RKBK Fiscal Services Pvt. Ltd., reported in (2013) 358 ITR 228 (Cal). What had happened in that case was that Commissioner of Income Tax had exercised power under section 263 of Income Tax Act and directed Assessing Officer to pass fresh order in accordance with law and to make appropriate disallowance under section 14A of Act. aforesaid order of Commissioner of Income Tax was challenged before learned Tribunal and learned Tribunal set aside that order. Aggrieved by order of learned Tribunal, revenue had come up before us. We had set aside order passed by learned Tribunal and upheld order of Commissioner of Income Tax passed under Section 263 of Income Tax Act. Ms. Gutgutia drew our attention to following findings recorded by us in aforesaid judgment. assessee did not maintain any separate accounts for purpose of exempt income. assessee did not give one to one co-relation between funds available and funds deployed. It was, therefore, not possible to follow with any amount of certainty as to part or portion of sum of Rs.4,49,02,775/- paid on account of interest relatable to exempt income. assessee had admittedly earned interest amounting to sum of Rs.2,68,75,491/-. said sum could not have been set off against sum of Rs.4,49,02,775/- because sum of Rs.2,68,75,491/- earned on account of interest is clearly taxable. interest paid by assessee amounting to Rs.4,49,02,775/- is both on account of taxable income and exempt income. It was for assessee to furnish actual amount of interest paid for purpose of earning dividend income which assessee did not do. assessee, as such, did not discharge its burden and, therefore, assessee could not have claimed that only sum of Rs.1,33,51,132/- was relatable to interest paid for purpose of earning exempt income. There was, as such, reason enough to hold that assessment was erroneous and was also prejudicial to interests of Revenue. We fail to understand how does judgment relied upon by Ms. Gutgutia militate against measure we propose to adopt. In aforesaid case, Commissioner of Income Tax in exercise of power under section 263 of I.T. Act had directed Assessing Officer to pass fresh order after making appropriate disallowances under section 14A of I.T. Act. We upheld that order. In case now before us, we are passing same order. Therefore, judgment cited by Ms. Gutgutia really supports view we are taking in this case, rather than militating against same. In result, question formulated is answered in negative and in favour of revenue. matter is remanded to Assessing Officer who shall undertake exercise indicated above. Considering that matter is pretty old, Assessing Officer is directed to use some expedition in matter. (GIRISH CHANDRA GUPTA,J.) (ARINDAM SINHA,J) Commissioner of Income-tax, Kolkata - III, Kolkata v. M/s. Naresh Kumar & Co. Pvt. Ltd