DY. COMMISSIONER OF INCOME TAX, CIRCLE-16(1), HYDERABAD vs. LANCO HYDRA POWER LIMITED, HYDERABAD

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ITA 2291/HYD/2018Status: DisposedITAT Hyderabad30 August 2021AY 2014-154 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that Section 14A disallowance is applicable only when there is exempt income. Since the assessee did not earn any exempt income, the disallowance made by the Assessing Officer was not sustainable.

What were the facts?

The assessee company declared a loss for AY 2014-15. The Assessing Officer disallowed expenses under Section 14A and also made a rectification for book profit calculation. The CIT(A) deleted the disallowance stating no exempt income was earned.

What were the issues?

Whether disallowance under Section 14A is permissible when the assessee has not earned any exempt income. Whether the disallowance under Section 14A needs to be considered for book profit calculation under Section 115JB in the absence of exempt income.

Which sections of the Income-tax Act were involved?

Section 14A,Section 115JB,Section 154,Section 143(3),Section 37(1)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, HYDERABAD ‘A’ BENCH : Hyderabad

Before: Smt. P. MADHAVI DEVI & Shri L.P. SAHU

Hearing: 02/08/2021Pronounced: 30/08/2021

This appeal of Revenue is directed against the order of the CIT(A)-4, Hyderabad dated 28.09.2018 pertaining to A.Y. 2014-15.

2. Facts of the case in brief are that the assessee is a company, filed its return of income for the AY 2014-15 on 29.11.2014 declaring total loss at Rs.3,97,87,752/-. Subsequently the case was selected for scrutiny and the assessment was completed u/s 143(3) of the Income Tax Act, 1961[in short ‘the Act’] on 28.11.2016 determining the total income at Rs. 10,04,248/- by Lanco Hydro Power Ltd, Hyd. AY 2014-15 disallowing u/s 14A of Rs. 4,07,92,000/-. Further, it was noticed that the disallowances u/s 14A was added to the normal income only and the same was not added back to the book profit as per explanation (i)(c ) of sec. 115 JB of the Act. Since the mistake was apparent on record, a rectification order u/s 154 of the Act was passed on 27.05.2017 by disallowing an amount of Rs. 4,07,92,000/- u/s 14A of the Act. Aggrieved assessee went in appeal before the CIT(A). The CIT(A) deleted the addition made by the Assessing Officer stating that since there is no exempt income received or receivable during the relevant A.Y., the provisions of sec.14A r.w. rule 8D are not applicable.

3.

Aggrieved by the order of CIT(A), the Revenue is in appeal before us by raising the following grounds :

1.

The ld. CIT(A) erred in deleing the disallowance u/s i4A of Rs: 4,07,92,000/ 2. The Ld. CIT(A) erred in ignoring CBDT's Circular No.5 of 2014 dated 11.02.2014. 3. The Ld. CIT(A) erred in ignoring' the Supreme Court decision in the case of CIT vs. Walfort Share of Stock Brokers P Ltd [326 ITR 1], wherein it was held that he mandate of section 14A was to curb the practice of claiming deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail of the tax incentive by way of exempt income without making any apportionment of expenses incurred in relation to exempt income. 4. Without prejudice to the above grounds, the CIT(A) erred in ignoring that this expenditure incurred in relation to exempt income is also not allowable u/s 37(1) of the Act as it cannot be said to be incurred wholly and exclusively for the assessee’s business as claimed. 5. The Ld. CIT(A) erred in ignoring the disallowance has been made in computation u//s 115 JB of the IT Act.

2.

There is no dispute with regard to the fact that the assessee company did not earn any exempt income during the year under consideration. In fact, in the grounds, duly authorised by the Ld. CIT(A), the Revenue has not objected 2

Lanco Hydro Power Ltd, Hyd. AY 2014-15 to the claim of the assessee that no exempt income was earned during the year under consideration. An identical issue had come for adjudication before the ITAT Hyderabad in number of cases wherein the Bench observed that section 14A refers to disallowance of expenditure "in relation to income" which pre-supposes existence of income in the form of dividend as otherwise section 14A cannot be pressed into service. In the following cases, the ITAT, Hyderabad Bench had taken an identical view. (i) DCIT vs. M/s Modi builders and realtors P Ltd (ITA 1167/Hyd/17 dt 03.04.2017) (ii) Vinayak Steels Limited vs. ITO (ITA No. 103/Hyd/2017, dated 04.04.2018) and (iii) M/ s. Kamadhenu Sukrit Pvt Ltd vs. ITO (ITA No.460/Hyd/2017, dated.22.11.2017) 3. Since the view taken by the Ld. CIT(A) is in consonance with the view taken by the ITAT Hyderabad Bench, in the absence of any direct decision cited by the Learned Departmental Representative holding a contrary view, we do not find any infirmity in the orders passed by the Ld. CIT(A). Accordingly, all the grounds raised by the Revenue are rejected. 3.1. In regard to ground no.5, (for MAT issue u/s 115 JB) in regard to the disallowance made u/s 14A; once we have dismissed the appeal of the revenue by holding that there is no exempt income, no addition can be called for. In view of this, the ground no.5 raised by the revenue is consequential in nature. Thus, this ground is also dismissed.

4. In the result, Revenue’s appeal is dismissed. Order pronounced on 30/08/2021.

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