I . T. . N o. 3 4 8 / KO L . / 2 0 1 4 Assessment year: 2009-2010 Page 1 of 5 IN INCOME TAX APPELLATE TRIBUNAL , BENCH KOLKATA BEFORE SHRI WASEEM AHMED, AM & SHRI K. NARASIMHA CHARY, JM ITA No.348/Kol/2014 ( Assessment Year :2009-2010) Deputy Commissioner of Vs. M/s Todays Writing Products Income Tax, Central Circle-XX, Ltd., Kolkata, 13, Brabourne Road, Kolkata- 110, Shanti Pally, Aayakar 700001 Bhavan Poorva, 5th Floor, Kolkata-700 107 PAN/GIR No. : AABCT 1487 E ( Appellant) .. (Respondent) Revenue by : Shri Dular Chand Mondal , JCIT, D.R. Assessee by : Shri Dilip Loyalka, FCA Date of Hearing : 04/10/2016 Date of Pronouncement : 07/10/2016 O R D E R PER SHRI NARASIMHA CHARY, J.M.: This is appeal by assessee challenging order dated 31.12.2013, in Appeal No.38/CC-XX/CIT(A)C-III/2011-12/Kolkata, passed by ld. Commissioner of Income Tax (Appeals)-Central-III, Kolkata [hereinafter called as CIT(A) ]. 2. Brief facts of case are that assessee is limited company engaged in manufacturing and trading of writing products and stationery items. For assessment year 2009-2010, assessee filed return of income on 29.09.2009 disclosing loss I . T. . N o. 3 4 8 / KO L . / 2 0 1 4 Assessment year: 2009-2010 Page 2 of 5 of Rs.27,55,08,775/-. case was taken up for scrutiny and during scrutiny Assessing Officer, among other things, found that in accounts, assessee indicated investment of Rs.4,15,26,000/- and share application money of Rs.8,76,00,000/-, and assessee furnished break up figures of interest paid during year. AO further found that total payment of interest during year was to tune of Rs.19,94,72,326/-. Taking this figures, AO estimated disallowance of expenses to tune of Rs.59,32,660/- and added it back to total income of assessee. Aggrieved by this finding assessee preferred appeal before ld. CIT(A) and ld. CIT(A) by way of impugned order modified amount of disallowance and found that total amount to be disallowed was only Rs.11,08,690/-. 3. Challenging said finding of ld. CIT(A), revenue came in this appeal on following grounds :- 1. In facts and circumstances of case, CIT(A) erred in accepting net interest as expenditure of interest instead of total interest paid for purpose of calculation of disallowance u/s.14A of I.T. Act. 2. In facts and circumstances of case, CIT(A) erred in accepting calculation of disallowance u/s.14A read with Rule 8D of assessee without getting it verified or examined by AO. 4. It is argument of ld. DR that in accepting net interest as expenditure of interest instead of total interest paid for purpose of calculation of disallowance u/s.14A of Act, ld. CIT(A) committed error. He further submitted that in all fairness before accepting calculation of disallowance as submitted by AR, ld. CIT(A) should have got it verified or examined by AO. Ld. DR further submitted that for this reason, order of ld. CIT(A) needs to be quashed and order of AO has to be restored. I . T. . N o. 3 4 8 / KO L . / 2 0 1 4 Assessment year: 2009-2010 Page 3 of 5 5. argument of ld. AR is that while calculating disallowance AO committed error in taking share application money of Rs.8,76,00,000/- also take into consideration as investment and thereby reached to wrong figure of Rs.6,56,88,500/- as average investment to work out disallowance ended up with addition of Rs.59,32,660/-. Ld. AR submits that share application money does not yield any income and, therefore, it shall not be considered as investment for purpose of Section 14 of Act read with Rules 8D of I.T. Rules. 6. next contention of ld. AR is that while computing interest paid by assessee on borrowed funds AO should have deducted interest recovered from subsidiary companies to tune of Rs.6,04,18,894/- and net interest alone should have been taken for determining disallowance. Ld. AR supports impugned order on these two grounds and pressed to dismiss appeal. 7. Grounds No.1 & 2. 7.1 On careful perusal of orders of authorities below, we found that while calculating amount of disallowance AO has taken sum total of investment and share application money which comes to Rs.12,91,26,000/- as closing balance of investment, whereas opening balance of investment was Rs.22,51,000/-, thereby he reached average investments at Rs.6,56,88,500/-. On this amount only he calculated disallowable portion under Rule 8D(2)(ii)&(iii) of I.T. Rules and it was Rs.59,32,660/-. 7.2 Ld. CIT(A) considered this aspect in light of submissions made by ld. AR, decisions of coordinate bench of Mumbai Tribunal in case of Rainy Investments (P) Ltd. [2013] 30 taxmann.com 169, Morgan Stanley India Securities (P) Ltd., (2011) 55 DTR 177 for principle that share application money is incapable I . T. . N o. 3 4 8 / KO L . / 2 0 1 4 Assessment year: 2009-2010 Page 4 of 5 of yielding any tax free income and it has to be excluded in working out disallowance under Rule 8D, and took view that share application money cannot be treated as investment. When this exclusion of share application money from reckoning investment is based on sound principle of law holding field as on date, we find it difficult to say that such exclusion of share application money by ld. CIT(A) while calculating total investment, is bad either under law or on facts. 8. Now, turning to next contention of ld. DR that ld. CIT(A) erred in considering net interest debited to P&L account for purpose of Rule 8D(2)(ii) and (iii), order of ld CIT(A) shows that on verification of record he found that assessee has recovered amount of Rs.6,04,18,894/- towards interest from its subsidiary company and interest which was capitalized was Rs.1,58,78,221/-, interest received was Rs.87,56,255/-, and net interest paid by assessee was only Rs.11,44,18,956/- but not Rs.19,94,72,326/-. While computing disallowable portion under Rule 8D2(ii) and (iii) of Rules, ld. CIT(A) considered only net interest paid by assessee. This act of ld CIT is based on ratio of following decisions i) Morgan Stanley India Securities (P) Ltd., (2011) 55 DTR 177; ii) M/s Trade Apartment Ltd., ITA No.1277/Kol/2011, order dated 30.03.2012; iii) Karnavati Petrochem (P) Ltd., ITA No.2228/Ahd/2012, order dated 05.07.2013; and iv) Shah Bhagwandas K. Choksi, ITA No.777/Ahd/2011, order dated 19.09.2014. In all these decisions, it is consistently held that since amount of interest is debited to profit and loss account is on net basis, disallowance of interest should also be made only with reference to net interest. Therefore, we find that act of ld. CIT(A) I . T. . N o. 3 4 8 / KO L . / 2 0 1 4 Assessment year: 2009-2010 Page 5 of 5 in considering net interest of Rs.11,44,18,956/- paid by assessee is based on established principle of law. 9. Since calculation of disallowable portion by ld. CIT(A) is based on principle of law laid down by various coordinate benches of Tribunal, we do not see any illegality or irregularity in order of ld. CIT(A). We accordingly, uphold same and dismiss both grounds of Revenue. 10. In result, appeal of Revenue is dismissed. Order pronounced in open court on 07/10/2016. Sd/- Sd/- (WASEEM AHMED) (NARASIMHA CHARY) ACCOUNTANT MEMBER JUDICIAL MEMBER Kolkata; Dated 07/10/2016 Prakash Mishra, . PS Copy of Order forwarded to : 1. Appellant 2. Respondent. 3. CIT(A), Central-III, Kolkata 4. CIT 5. DR, ITAT, Kolkata 6. Guard file. //True Copy// BY ORDER, (Asstt. Registrar) ITAT, Deputy Commissioner of Income Tax, Central Circle-XX, Kolkata v. M/s Todays Writing Products Ltd