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Income Tax Appellate Tribunal, AHMEDABAD - BENCH ‘SMC’
Before: SHRI RAJPAL YADAV, VICE- & SHRI WASEEM AHMED
आयकर अपील�य अ�धकरण, अहमदाबाद �यायपीठ - अहमदाबाद । IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD - BENCH ‘SMC’
BEFORE SHRI RAJPAL YADAV, VICE-PRESIDENT AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER आयकर अपील सं./ ITA No.2393/Ahd/2018 Asstt.Year 2015-16
M/s.Ram Commodities Vs. ITO, Ward-3(1)(3) P.Ltd. Ahmedabad. 375, 379 Wada Shahapur Road Wada, Thane 421 303.
अपीलाथ�/ (Appellant) �त् यथ�/ (Respondent)
Assessee by : Shri Mehul K. Patel, AR Revenue by : Shri R.R. Makwana, Sr.DR
सुनवाई क� तार�ख/Date of Hearing : 12/08/2021 घोषणा क� तार�ख /Date of Pronouncement: 17/08/2021 आदेश/O R D E R PER RAJPAL YADAV, VICE-PRESIDENT
Assessee is in appeal before the Tribunal against order of the ld.CIT(A)-9, Ahmedabad dated 12.9.2018 passed for Asstt.Year 2015- 16.
Only issue raised in this appeal is that the ld.CIT(A) has erred in confirming disallowance of Rs.5,18,928/- under section 14A read with Rule 8D of the Income Tax Act, 1961.
As the facts emerge from the impugned orders of the Revenue is that the assessee has filed its return of income on 29.9.2015 declaring
ITA No.2393/Ahd/2018 2 total loss at (-)Rs.8,921/- The case of the assessee was selected for scrutiny assessment by issuance of notice under section 143(2) of the Act. During the scrutiny assessment, it was noticed by the AO that the assessee has debited a sum of Rs.5,27,726/- under the head ”Finance Cost (Interest Expenses) in the profit & loss account. The ld.AO doubted the same, because he noticed from the balance sheet that the assessee had long term borrowing of Rs.21,90,000/- and non-current investment for the year under consideration was at Rs.4,90,79,675/- as against preceding year of Rs.7,35,30,140/-, and that the assessee sold shares of Sunshine Paper Tech P.Ltd. for Rs.2,44,50,465/- on no-profit no-loss basis, which according to the AO was made by the assessee out of borrowed funds bearing huge interest, but not earned any profit from the investment. A show cause notice was issued to the assessee in this behalf, as to why proportionate interest expenses should not be disallowed under section 14A of the Act. It was explained inter alia by the assessee that the interest expenditure was incurred wholly and exclusively for the business purpose, and the investment made in Sunshine Paper Tech P.Ltd. was a strategic investment and did not call for disallowance under section 14A of the Act. The ld.AO did not accept the submissions of the assessee and held that assessee has diverted interest bearing borrowed funds for making investment and incurred huge interest expenses, and therefore disallowance to be made as per provisions of Section 14A of the Act. Accordingly, the ld.AO made disallowance of Rs.5,18,928/- by applying provisions of section 14A read with Rule 8D. Aggrieved by order of the ld.AO, the assessee went in appeal before the first appellate authority, but did not succeed; hence, the assessee is now before the Tribunal.
Before us, the ld.counsel for the assessee reiterated the submissions, as were made before the Revenue authorities. He further relied upon the judgment of Hon’ble Gujarat High Court in the case of PCT Vs. Harsha Engineering P.Ltd., Tax Appeal No.547 of 2019 dated
ITA No.2393/Ahd/2018 3 5.8.2019 to contend that when the assessee had not claimed any exempted income, then provisions of section 14A would no application. He placed on record copy of the decision of Hon’ble Gujarat High Court cited (supra). On the other hand, the ld.DR supported orders of the Revenue authorities.
Heard both the parties and gone through the impugned orders and also material available on record. We find that the Revenue authorities made the impugned disallowance on the ground that the assessee has not allocated any expenditure towards the exempt income earned from the investments. However, the claim of the assessee is that when the assessee has not earned any exempt income and no claim has been made thereof, there is no question of disallowance under section 14A of the Act. This issue has been settled now by various Benches of the ITAT and also Hon’ble High Court to the effect that when no exempt income claimed by the assessee, there is no application of section 14A of the Act and calculation of disallowance under Rule 8D. The case law cited by the ld.counsel for the assessee in the case of PCIT Vs. Harsha Engineering Ltd. (supra) squarely covers the case of the present assessee. It is held by the Hon’ble Gujarat High Court that section 14A of the Act can be invoked only if the assessee seeks to square off the expenditure against the income which does not form part of the total income under the Act. In the case of CIT Vs. Corrtech Energy Ltd., 372 ITR 97 (Guj) Hon’ble Gujarat High Court has held that in the absence of any exempt income being claimed by the assessee provisions of section 14A r.w.r 8D could not be invoked. In the instant case, undisputedly the assessee has not earned or claimed exempt income, and in such circumstances, the provisions of section 14A cannot be invoked. Findings of both the Revenue authorities are not in accordance with law, and therefore, the same are not maintainable. We allow the claim of the assessee and delete the
ITA No.2393/Ahd/2018 4 impugned disallowance made under section 14A of the Act read with Rule 8D. Thus, ground of the appeal of the assessee is allowed.
In the result, appeal of the assessee is allowed.
Pronounced in the Court on 17TH August, 2021 at Ahmedabad.
Sd/- Sd/- (WASEEM AHMED) (RAJPAL YADAV) ACCOUNTANT MEMBER VICE-PRESIDENT Ahmedabad; Dated 17/08/2021