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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI G.S. PANNU, & SHRI SANDEEP SINGH KARHAIL
The present appeal has been filed by the assessee challenging the impugned order dated 14/02/2023, passed under section 250 of the Income Tax Act, 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi, [“learned CIT(A)”], for the assessment year 2017–18.
In its appeal, the assessee has raised the following grounds:–
“I. DISALLOWANCE UNDER SECTION 14A r.w.r 8D OF THE ACT OF RS. 18,45,867/– 1.1 On the facts and in circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) [CIT(A)] erred in confirming the Mukand Engineers Limited (Since merged/amalgamated with Mukand Engineers Limited) ITA no.1246/Mum./2023 disallowance under Section 14A read with rule 8D for a sum of Rs. 18,45,867/- made by the learned Assessing Officer. 1.2 The learned CIT (Appeals) failed to appreciate that the appellant had not earned any dividend income and therefore the provisions of Section 14A were not applicable in the case of the appellant. 1.3 The learned CIT(Appeals) also failed to appreciate the submissions made and explanations furnished by the appellant as also the legal position emerging form the various judicial pronouncements in this behalf. In view of the above, the appellant prays that the disallowance computed/ addition made by the learned Assessing Officer may kindly be deleted as the same is unreasonable, unjustified, and excessive. II. DISALLOWANCE OF DEPRECIATION ON INTELLECRUAL PROPERTY RIGHTS OF RS. 1,30,924/-: 2.1 On the facts and in circumstance of the case and in law, the learned CIT(A) erred in disallowing the on Intellectual Property Rights amounting to Rs. 1,30,924/- depreciation as claimed by the appellant under Section 32 of the Act. 2.2 The learned CIT(Appeals) failed to appreciate the submissions made and explanation offered by the appellant under Section 32 of the Act. The appellant prays that the learned Assessing Officer be directed to allow the deduction for Depreciation as the same is allowable. The appellant craves the leave to add to, alter or amplify the above grounds of appeal as and when the need arises.”
During the hearing, the learned Authorised Representative wishes not to press ground no.2 raised in the present appeal. Accordingly, ground no.2 is dismissed as not pressed.
The issue arising in ground no.1, raised in assessee’s appeal, is pertaining to disallowance under section 14A read with Rule 8D of the Income Tax Rules, 1962.
We have considered the submissions of both sides and perused the material available on record. The brief facts of the case pertaining to this issue, as emanating from the record, are that the assessee is engaged in the Mukand Engineers Limited (Since merged/amalgamated with Mukand Engineers Limited) ITA no.1246/Mum./2023 business of erection and commissioning of industrial machinery, civil and engineering construction including mechanical, electrical, piping for its clients in petroleum and electricity generation, continuation and other process industries such as steel plants, aluminium plants, etc. For the year under consideration, the assessee filed its return of income on 31/10/2017 declaring a loss of Rs. 2,01,33,920 as per normal provisions of the Act and a loss of Rs. 90,08,900 under section 115JB of the Act. The return filed by the assessee was selected for scrutiny and statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee. During the assessment proceedings, it was observed that the assessee had made investments of Rs. 3,18,56,012 and also paid interest expenditure of Rs. 8,19,16,233 exclusive of interest paid on trade dues and bank charges during the previous year. It was also observed that the assessee has not worked out any disallowance under section 14A read with Rule 8D. Accordingly, the assessee was asked to explain as to why disallowance under section 14A read with Rule 8D should not be made. In response thereto, the assessee, inter- alia, submitted that no dividend income was received by the assessee and therefore no disallowance is required to be made under section 14A read with Rule 8D. The Assessing Officer vide order dated 16/12/2019 passed under section 143(3) of the Act did not agree with the submissions of the assessee and computed the disallowance of Rs. 18,45,867 under section 14A read with Rule 8D. The learned CIT(A), vide impugned order, dismissed the ground raised by the assessee on this issue and upheld the disallowance made by the AO under section 14A read with Rule 8D.
Mukand Engineers Limited (Since merged/amalgamated with Mukand Engineers Limited) ITA no.1246/Mum./2023 6. From the perusal of the annual report of the assessee for the financial year 2016-17, forming part of the paper book from pages 16-83, we find that during the year the total investment declared is Rs. 3,18,66,012. We further find that during the year the assessee received no dividend income from its investments and thus claimed no exemption under section 10(34) of the Act while filing its return of income. The aforesaid fact has also not been disputed by the Revenue. We find that the Hon’ble Delhi High Court in Cheminvest Ltd. v. CIT: [2015] 378 ITR 33 (Delhi) held that section 14A will not apply if no exempt income is received or receivable during the relevant previous year. We further find that the Hon’ble jurisdictional High Court in Pr.CIT v/s Kohinoor Project (P) Ltd., [2020] 121 taxmann.com 177 (Bom.), rendered similar findings and dismissed the Revenue’s appeal on a similar issue. Since, in the present case, the assessee has not earned any dividend income, therefore, respectfully following the aforesaid judicial pronouncements, disallowance of expenditure under section 14A read with Rule 8D is not sustainable.
We further find that vide amendment by the Finance Act, 2022, the non- obstante clause and explanation were inserted in section 14A of the Act to the effect that the section shall apply even if no exempt income has accrued or arisen or has been received during the year. We find that while dealing with the issue of whether the aforesaid amendment by the Finance Act, 2022 is prospective or retrospective in operation, Hon’ble Delhi High Court in PCIT vs M/s Era infrastructure (India) Ltd, [2022] 288 Taxman 384 (Delhi) held that the amendment by Finance Act, 2022 in section 14A is prospective and will apply in relation to the assessment year 2022–23 and subsequent assessment
Mukand Engineers Limited (Since merged/amalgamated with Mukand Engineers Limited) ITA no.1246/Mum./2023 years. Thus, even in view of the aforesaid amendment also, the disallowance under section 14A read with Rule 8D is not permissible in the present case.
Thus, in view of the above, the disallowance computed under section 14A read with Rule 8D is directed to be deleted. Accordingly, ground no.1 raised in assessee’s appeal is allowed.
In the result, the appeal by the assessee is partly allowed. Order pronounced in the open Court on 17/08/2023