The Calcutta High Court quashed proceedings against Century Enka Limited on the ground that borrowed funds were not utilized for making investments.
The appeal was filed by the revenue under Section 260A of the Income Tax Act, 1961 is directed against the order passed by the Income Tax Appellate Tribunal, Kolkata Bench for the assessment year 2008-09.Smita Das De, standing counsel appeared for the appellant/revenue and J.P. Khaitan, senior counsel advocates appeared for the respondent/assessee.
The 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 impermissible in law.
The 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 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.
In Pr. CIT v. Britannia Industries Limited, 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.
The Court of Justices TS Sivagnannam and Hiranmay Bhattacharyya observed that “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.”
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