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Income Tax Appellate Tribunal, MUMBAI BENCH “E” MUMBAI
Before: SHRI KULDIP SINGH & SHRI OM PRAKASH KANT
These cross appeals by the assessee and Revenue and the These cross appeals by the assessee and Revenue and the These cross appeals by the assessee and Revenue and the cross objection by the assessee by the assessee are directed against separate orders are directed against separate orders passed by the Ld. First Appellate Authority for assessment year passed by the Ld. First Appellate Authority for assessment year passed by the Ld. First Appellate Authority for assessment year 2013-14 ,2015-16 and 2016 16 and 2016-17 respectively. Being common issue 17 respectively. Being common issue in dispute involved in these appeals, same were heard together and in dispute involved in these appeals, same were heard together and in dispute involved in these appeals, same were heard together and disposed off by way of th disposed off by way of this consolidate order for convenience and is consolidate order for convenience and avoid repetition of facts. avoid repetition of facts.
First of all, we take up the appeal of the assessee for First of all, we take up the appeal of the assessee for First of all, we take up the appeal of the assessee for assessment year 2013 assessment year 2013-14. The relevant grounds of the appeal are 14. The relevant grounds of the appeal are reproduced as under: reproduced as under:
Solitaire Appliances Pvt. Ltd. 3 & 5856/Mum/2016 & Ors. ITA Nos. 5855 & 5856/Mum/2016 & Ors.
1. On the facts and in the circumstances of th On the facts and in the circumstances of the case and in e case and in law, the Ld. Commissioner of Income Tax (Appeals) law, the Ld. Commissioner of Income Tax (Appeals) law, the Ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as ‘the Ld. CIT(A)’] erred in [hereinafter referred to as ‘the Ld. CIT(A)’] erred in [hereinafter referred to as ‘the Ld. CIT(A)’] erred in confirming action of the Ld. Assessing Officer of confirming action of the Ld. Assessing Officer of confirming action of the Ld. Assessing Officer of disallowing a sum of Rs.17,46,66,300/ disallowing a sum of Rs.17,46,66,300/- being interest being interest expenditure claimed u/s 36(1)(iii expenditure claimed u/s 36(1)(iii) and the reasons ) and the reasons assigned for doing so are wrong and contrary to the assigned for doing so are wrong and contrary to the assigned for doing so are wrong and contrary to the facts and circumstances of the case, the provisions of facts and circumstances of the case, the provisions of facts and circumstances of the case, the provisions of the Income Tax Act, 1961 and the Rules made there the Income Tax Act, 1961 and the Rules made there the Income Tax Act, 1961 and the Rules made there under. under.
2. On the facts and in the circumstances of the case and in On the facts and in the circumstances of the case and in On the facts and in the circumstances of the case and in law, the Ld. CIT( law, the Ld. CIT(A) failed to appreciate that: A) failed to appreciate that: The appellant company made investments in its group The appellant company made investments in its group The appellant company made investments in its group companies in the course of furtherance of its business companies in the course of furtherance of its business companies in the course of furtherance of its business out of commercial expediency; and out of commercial expediency; and Making investment in group companies is a business Making investment in group companies is a business Making investment in group companies is a business activity/object of the appellant company authorized by activity/object of the appellant company authorized by activity/object of the appellant company authorized by its Memorandum of Association and therefore, interest its Memorandum of Association and therefore, interest its Memorandum of Association and therefore, interest claimed cannot be disallowed. claimed cannot be disallowed. Which is wrong and contrary to the facts and Which is wrong and contrary to the facts and Which is wrong and contrary to the facts and circumstances of the circumstances of the case, the provisions of the Income case, the provisions of the Income Tax Act, 1961 and the Rules made thereunder. Tax Act, 1961 and the Rules made thereunder. Tax Act, 1961 and the Rules made thereunder. 2.1 Briefly stated, facts of the case are that the assessee company Briefly stated, facts of the case are that the assessee company Briefly stated, facts of the case are that the assessee company was engaged in the business of trading in electronic goods. For the was engaged in the business of trading in electronic goods. For the was engaged in the business of trading in electronic goods. For the year under consideration, the assessee year under consideration, the assessee filed return of income on filed return of income on 28.09.2013 declaring total income of Rs.17,64,882/- under the 28.09.2013 declaring total income of Rs.17,64,882/ 28.09.2013 declaring total income of Rs.17,64,882/ normal provisions of the Income normal provisions of the Income-tax Act, 1961 (in short ‘the Act’). tax Act, 1961 (in short ‘the Act’). The return of income filed by the assessee was selected for scrutiny The return of income filed by the assessee was selected for scrutiny The return of income filed by the assessee was selected for scrutiny and statutory notices under the and statutory notices under the Act were issued and complied with. issued and complied with. In the assessment completed u/s 143(3) of the Act on 30.10.2015, In the assessment completed u/s 143(3) of the Act on 30.10.2015, In the assessment completed u/s 143(3) of the Act on 30.10.2015, the Assessing Officer made disallowance of Rs.17,46,66,300/- in the Assessing Officer made disallowance of Rs.17,46,66,300/ the Assessing Officer made disallowance of Rs.17,46,66,300/ terms of section 36(1)(iii) of the Act out of the interest charged on terms of section 36(1)(iii) of the Act out of the interest charged on terms of section 36(1)(iii) of the Act out of the interest charged on borrowed funds. Furth borrowed funds. Further, though the Assessing Officer proposed though the Assessing Officer proposed
Solitaire Appliances Pvt. Ltd. 4 & 5856/Mum/2016 & Ors. ITA Nos. 5855 & 5856/Mum/2016 & Ors. disallowance u/s 14A of the Act disallowance u/s 14A of the Act, however no addition was made in however no addition was made in the computation in view of interest already disallowed u/s 36(1)(iii) the computation in view of interest already disallowed u/s 36(1)(iii) the computation in view of interest already disallowed u/s 36(1)(iii) of the Act. On further appeal, the Ld. CIT(A) upheld the of the Act. On further appeal, the Ld. CIT(A) upheld the of the Act. On further appeal, the Ld. CIT(A) upheld the disallowance of sectio disallowance of section 36(1)(iii) of the Act. Aggrieved ggrieved, the assessee is in appeal before the Tribunal by way of raising grounds as is in appeal before the Tribunal by way of raising grounds as is in appeal before the Tribunal by way of raising grounds as reproduced above.
The brief facts qua the issue in dispute are that the assessee The brief facts qua the issue in dispute are that the assessee The brief facts qua the issue in dispute are that the assessee borrowed funds/loans in earlier years from M/s Videocon borrowed funds/loans in earlier years from M/s Videocon borrowed funds/loans in earlier years from M/s Videocon Industries Ltd. and for the year under consideration M/s Videocon ustries Ltd. and for the year under consideration M/s Videocon ustries Ltd. and for the year under consideration M/s Videocon Industries Ltd. charged Industries Ltd. charged interest on the loans extended to the on the loans extended to the assessee company. The appellant company assessee company. The appellant company invested the fund invested the fund borrowed into investment in its group companies investment in its group companies. I . It was claimed that those investment e investments were made out of commercial expediency were made out of commercial expediency and utilized for the purpose of the business therefore, the interest and utilized for the purpose of the business therefore, the interest and utilized for the purpose of the business therefore, the interest paid on loan taken was was for the purpose of business business and was not liable for disallowance for disallowance u/s 36(1)(iii) of the Act. Before us, the Ld. u/s 36(1)(iii) of the Act. Before us, the Ld. Counsel of the assessee submitted that due to shifting of the ounsel of the assessee submitted that due to shifting of the ounsel of the assessee submitted that due to shifting of the documents in godowns documents in godowns, the relevant documents were not documents were not readily traceable by the assessee for supporting the commercial expediency by the assessee for supporting the commercial expediency by the assessee for supporting the commercial expediency of the loan. The Ld. Counsel also submitted that the parent of the loan. The Ld. Counsel also submitted that the parent of the loan. The Ld. Counsel also submitted that the parent company namely M/s Videocon Industries Ltd. is under National ny namely M/s Videocon Industries Ltd. is under National ny namely M/s Videocon Industries Ltd. is under National Company Law Tribunal proceedings and therefore he requested that Company Law Tribunal proceedings and therefore he requested that Company Law Tribunal proceedings and therefore he requested that matter may be restored back to the file of the Assessing Officer for matter may be restored back to the file of the Assessing Officer for matter may be restored back to the file of the Assessing Officer for Solitaire Appliances Pvt. Ltd. 5 & 5856/Mum/2016 & Ors. ITA Nos. 5855 & 5856/Mum/2016 & Ors.
deciding afresh after verification of the evidence in support of deciding afresh after verification of the evidence in support of deciding afresh after verification of the evidence in support of commercial expediency. commercial expediency.
We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The Section 36 dispute and perused the relevant material on record. dispute and perused the relevant material on record. of the Act prescribe for allowance of amount of the interest paid in of the Act prescribe for allowance of amount of the interest paid in of the Act prescribe for allowance of amount of the interest paid in respect of capital borrowed fo respect of capital borrowed for the purpose of business or r the purpose of business or profession. Further, the Hon’ble Supreme Court in the case of SA profession. Further, the Hon’ble Supreme Court in the case of profession. Further, the Hon’ble Supreme Court in the case of Builders Ltd. v. CIT 288 ITR 1 (SA) Builders Ltd. v. CIT 288 ITR 1 (SA) held that when interest free that when interest free loans are given to sister sister company (i.e. subsidiary company) as a subsidiary company) as a measure of the commercial exped of the commercial expediency, then coresponding coresponding interest on borrowed capital is also eligible for deduction. Before us, the Ld. on borrowed capital is also eligible for deduction. Before us, the Ld. on borrowed capital is also eligible for deduction. Before us, the Ld. Counsel of the assessee has expressed difficulty in collecting and Counsel of the assessee has expressed difficulty in collecting and Counsel of the assessee has expressed difficulty in collecting and submitting documentary evidence in support of commercial submitting documentary evidence in support of commercial submitting documentary evidence in support of commercial expediency due to the reason the reason the parent company the parent company is before the NCLT proceedings and documents of the assessee NCLT proceedings and documents of the assessee have been shifted have been shifted in godowns. In view of difficulty in producing the documents before godowns. In view of difficulty in producing the documents before godowns. In view of difficulty in producing the documents before us, in the interest of substantial justice us, in the interest of substantial justice, we accept the prayer of the we accept the prayer of the assessee for restoring the matter e for restoring the matter to the Ld. Assessing Officer for the Ld. Assessing Officer for deciding taking into consideration deciding taking into consideration the documentary evidence in he documentary evidence in support of commercial expediency support of commercial expediency, which the assessee has agreed which the assessee has agreed to produce before the Assessing Officer. The grounds of appeal of before the Assessing Officer. The grounds of appeal of before the Assessing Officer. The grounds of appeal of the assessee are accordingly allowed for statistical purposes. assessee are accordingly allowed for statistical purposes. assessee are accordingly allowed for statistical purposes.
Solitaire Appliances Pvt. Ltd. 6 & 5856/Mum/2016 & Ors. ITA Nos. 5855 & 5856/Mum/2016 & Ors.
Now we take up Now we take up cross appeal of the assessee and the Revenue appeal of the assessee and the Revenue for assessment year 2015 for assessment year 2015-16. The respective grounds are 16. The respective grounds are reproduced as under: reproduced as under:
Assessee’s ground Assessee’s ground
On the facts and in the circumstances On the facts and in the circumstances of the case and in of the case and in law, the Ld. Commissioner of Income Tax (Appeals) law, the Ld. Commissioner of Income Tax (Appeals) law, the Ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as ‘the CIT(A)’] erred in [hereinafter referred to as ‘the CIT(A)’] erred in [hereinafter referred to as ‘the CIT(A)’] erred in confirming action of the Ld. Assessing Officer of confirming action of the Ld. Assessing Officer of confirming action of the Ld. Assessing Officer of disallowing a sum of Rs.2,66,86,454/ disallowing a sum of Rs.2,66,86,454/- out of total interest claimed u/s 36(1)(iii) an interest claimed u/s 36(1)(iii) and the reason given for d the reason given for disallowing the same are wrong and contrary to the disallowing the same are wrong and contrary to the disallowing the same are wrong and contrary to the facts of the case, the provisions of the Income Tax Act, facts of the case, the provisions of the Income Tax Act, facts of the case, the provisions of the Income Tax Act, 1961 and the Rules made there under. 1961 and the Rules made there under.
2. On the facts and in the circumstances of the case and in On the facts and in the circumstances of the case and in On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to a law, the Ld. CIT(A) failed to appreciate that the ppreciate that the appellant has given the advances to its group concern appellant has given the advances to its group concern appellant has given the advances to its group concern for for for their their their business business business purposes purposes purposes out out out of of of commercial commercial commercial expediency which is wrong and contrary to the expediency which is wrong and contrary to the expediency which is wrong and contrary to the provisions of the Income Tax Act, 1961 and the rules provisions of the Income Tax Act, 1961 and the rules provisions of the Income Tax Act, 1961 and the rules made there under. made there under. Revenue’s Grounds of Revenue’s Grounds of Appeal
1. Whether on the facts and circumstances of tlie case 1. Whether on the facts and circumstances of tlie case 1. Whether on the facts and circumstances of tlie case and in law, the Ld. CIT(A) was justified in deleting the and in law, the Ld. CIT(A) was justified in deleting the and in law, the Ld. CIT(A) was justified in deleting the disallowance u/s 14A by holding that no disallowance u/s disallowance u/s 14A by holding that no disallowance u/s disallowance u/s 14A by holding that no disallowance u/s 14A is called for in respect of investments which do not 14A is called for in respect of investments which do not 14A is called for in respect of investments which do not earn exempt income earn exempt income which is contrary to CBDT Circular which is contrary to CBDT Circular No.5/2014 which clarified that the Rule 8D r.w.s. 14A of No.5/2014 which clarified that the Rule 8D r.w.s. 14A of No.5/2014 which clarified that the Rule 8D r.w.s. 14A of the Act provides for disallowance of tlie expenditure even the Act provides for disallowance of tlie expenditure even the Act provides for disallowance of tlie expenditure even where taxpayer in a particular year lias not earned any where taxpayer in a particular year lias not earned any where taxpayer in a particular year lias not earned any exempt income? exempt income? 2. Whether on the facts and ether on the facts and circumstances of the case nces of the case and in law, th and in law, the Ld. CIT(A) was justified in deleting tlie e Ld. CIT(A) was justified in deleting tlie disallowance u/s 14A by holding that no disallowance u/s disallowance u/s 14A by holding that no disallowance u/s disallowance u/s 14A by holding that no disallowance u/s 14A is called for in respect of investments which do not 14A is called for in respect of investments which do not 14A is called for in respect of investments which do not Solitaire Appliances Pvt. Ltd. 7 & 5856/Mum/2016 & Ors. ITA Nos. 5855 & 5856/Mum/2016 & Ors.
earn exempt income in view of the decision of tlie Hon'ble earn exempt income in view of the decision of tlie Hon'ble earn exempt income in view of the decision of tlie Hon'ble Supreme Court in the case of M/s, Maxopp Investment Ltd. Supreme Court in the case of M/s, Maxopp Investment Ltd. Supreme Court in the case of M/s, Maxopp Investment Ltd. vs. CIT in Civil Appeal No. 104 vs. CIT in Civil Appeal No. 104-109 of 2015 dated 109 of 2015 dated 12.02.2018, wherein the Hon'bk Supreme Court has held 12.02.2018, wherein the Hon'bk Supreme Court has held 12.02.2018, wherein the Hon'bk Supreme Court has held that Section 14A applies irrespective* of whether the that Section 14A applies irrespective* of whether the that Section 14A applies irrespective* of whether the shares are held to gain control or as st shares are held to gain control or as stock-in-trade? trade? 3. Wheth Whether on the facts and circumstances of tlie case er on the facts and circumstances of tlie case and in law, the Ld. C1T(A) was justified in deleting tire and in law, the Ld. C1T(A) was justified in deleting tire and in law, the Ld. C1T(A) was justified in deleting tire disallowance u/s 14A in view of tlie finding of the Hon'ble disallowance u/s 14A in view of tlie finding of the Hon'ble disallowance u/s 14A in view of tlie finding of the Hon'ble Supreme Court in para 42 of their decision in tlie case of Supreme Court in para 42 of their decision in tlie case of Supreme Court in para 42 of their decision in tlie case of M/s. Max M/s. Maxopp Investment Ltd. vs. CIT in Civil Appeal No. opp Investment Ltd. vs. CIT in Civil Appeal No. 104-109 of 2015 dated 12/02/2018, wherein the Hon'ble 109 of 2015 dated 12/02/2018, wherein the Hon'ble 109 of 2015 dated 12/02/2018, wherein the Hon'ble Supreme Court have upMd the principle of apportionment Supreme Court have upMd the principle of apportionment Supreme Court have upMd the principle of apportionment in cases where tlie assessee has mixed funds? in cases where tlie assessee has mixed funds? in cases where tlie assessee has mixed funds? 4. Whether Whether on the facts and in the circumstances of the on the facts and in the circumstances of the case and in law, the Ld. CIT (A) was justified in deleting case and in law, the Ld. CIT (A) was justified in deleting case and in law, the Ld. CIT (A) was justified in deleting the disallowance u/s 14A to tlie book profit which is the disallowance u/s 14A to tlie book profit which is the disallowance u/s 14A to tlie book profit which is contrary to tlie decision of the Hon'ble ITAT 'D' Bench in tlie contrary to tlie decision of the Hon'ble ITAT 'D' Bench in tlie contrary to tlie decision of the Hon'ble ITAT 'D' Bench in tlie case oflTO vs. RBK Share Broking case oflTO vs. RBK Share Broking Pvt. Ltd. Pvt. Ltd. -37 taxman 128(2013) and tlie decision of the Hon'ble ITAT T Bench in 128(2013) and tlie decision of the Hon'ble ITAT T Bench in 128(2013) and tlie decision of the Hon'ble ITAT T Bench in the case of D.C.I. T. Cen. Cir. 18 & 19, Mumbai vs. Viraj the case of D.C.I. T. Cen. Cir. 18 & 19, Mumbai vs. Viraj the case of D.C.I. T. Cen. Cir. 18 & 19, Mumbai vs. Viraj Profiles Ltd. (2015) 64 taxmann.com 52 (Mumbai Profiles Ltd. (2015) 64 taxmann.com 52 (Mumbai Profiles Ltd. (2015) 64 taxmann.com 52 (Mumbai - Trib.)/2016, 156 ITD 72 (Mumbai Trib.)/2016, 156 ITD 72 (Mumbai - Trib.) wherein it is clear Trib.) wherein it is clear that the provisions of section provisions of section-14A r.w.r. 8D is applicable for 14A r.w.r. 8D is applicable for computation of book profit u/s 115JB of computation of book profit u/s 115JB of the Act. Act.
5. Tlie appellant prays that tlie order of CIT (A) on tlie 5. Tlie appellant prays that tlie order of CIT (A) on tlie 5. Tlie appellant prays that tlie order of CIT (A) on tlie above grounds be set aside and that ofAssessing Officer be above grounds be set aside and that ofAssessing Officer be above grounds be set aside and that ofAssessing Officer be restored 6. We find that in the c We find that in the case of the assessee, the ground No. 1 and ase of the assessee, the ground No. 1 and 2 raised are identical 2 raised are identical to corresponding grounds to corresponding grounds raised in assessment year 2013 assessment year 2013-14 and therefore, to have consistency in our 14 and therefore, to have consistency in our decision, the ground No. 1 and 2 of the appeal of the assessee are decision, the ground No. 1 and 2 of the appeal of the assessee are decision, the ground No. 1 and 2 of the appeal of the assessee are restored back to the fi restored back to the file of the Assessing Officer for deciding afresh for deciding afresh keeping in view the documentary to support the contention of keeping in view the documentary to support the contention of keeping in view the documentary to support the contention of Solitaire Appliances Pvt. Ltd. 8 & 5856/Mum/2016 & Ors. ITA Nos. 5855 & 5856/Mum/2016 & Ors.
commercial expediency of loans commercial expediency of loans. The grounds are accordingly . The grounds are accordingly allowed for statistical purposes. allowed for statistical purposes.
6.1 As far as appeal of the Revenue is concerned, we As far as appeal of the Revenue is concerned, we As far as appeal of the Revenue is concerned, we find that the Ld. CIT(A) has deleted the addition Ld. CIT(A) has deleted the addition of section 14A of the Act of section 14A of the Act in view of binding precedent on the issue in dispute of binding precedent on the issue in dispute. The relevant finding of he relevant finding of the Ld. CIT(A) is reproduced as under: the Ld. CIT(A) is reproduced as under:
“3.2.2; This ground pertains to disallowance u/s 14A r.w.r. 3.2.2; This ground pertains to disallowance u/s 14A r.w.r. 3.2.2; This ground pertains to disallowance u/s 14A r.w.r. 8D. The appellant contended before the assessing officer that . The appellant contended before the assessing officer that . The appellant contended before the assessing officer that no exempt income has been earned. The Assessing officer no exempt income has been earned. The Assessing officer no exempt income has been earned. The Assessing officer while relying on the decision of Hon'ble Bombay High Court while relying on the decision of Hon'ble Bombay High Court while relying on the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce (Supra) made disallowance of in the case of Godrej & Boyce (Supra) made disallowance of in the case of Godrej & Boyce (Supra) made disallowance of Rs. 2:16,54;158/ 158/- u/s 14A r.w.r 8D. 3.2.3 The main thrust of the appellant is that the appellant 3.2.3 The main thrust of the appellant is that the appellant 3.2.3 The main thrust of the appellant is that the appellant company has not earned any exempt income during the year company has not earned any exempt income during the year company has not earned any exempt income during the year under consideration. Recently, Hon'ble Supreme Court of under consideration. Recently, Hon'ble Supreme Court of under consideration. Recently, Hon'ble Supreme Court of India has given a landmark judgement India has given a landmark judgement on the section 14A in on the section 14A in the case of Maxopp Investment Ltd 91 Taxmann.com 154. the case of Maxopp Investment Ltd 91 Taxmann.com 154. the case of Maxopp Investment Ltd 91 Taxmann.com 154. The judgement is particularly relevant on the issues of The judgement is particularly relevant on the issues of The judgement is particularly relevant on the issues of strategic investment and stock in trade, while applying the strategic investment and stock in trade, while applying the strategic investment and stock in trade, while applying the provisions of section 14A. It is held that If expenditure is provisions of section 14A. It is held that If expenditure is provisions of section 14A. It is held that If expenditure is incurred on earning dividend income, that much of curred on earning dividend income, that much of curred on earning dividend income, that much of expenditure which is attributable to dividend income has to expenditure which is attributable to dividend income has to expenditure which is attributable to dividend income has to be be be disallowed disallowed disallowed and and and cannot cannot cannot be be be treated treated treated as as as business business business expenditure. In those cases, where shares are held as stock expenditure. In those cases, where shares are held as stock expenditure. In those cases, where shares are held as stock- in-trade, main purpose is to trade in th trade, main purpose is to trade in those shares and earn ose shares and earn profits therefrom, in the process, certain dividend is also profits therefrom, in the process, certain dividend is also profits therefrom, in the process, certain dividend is also earned, though incidentally, which is also an income. This earned, though incidentally, which is also an income. This earned, though incidentally, which is also an income. This triggers applicability of section 14A which is based on triggers applicability of section 14A which is based on triggers applicability of section 14A which is based ontheory of apportionment of expenditure between taxable and non of apportionment of expenditure between taxable and non of apportionment of expenditure between taxable and non- taxable income, Therefore, to that extent, expenditure taxable income, Therefore, to that extent, expenditure taxable income, Therefore, to that extent, expenditure incurred in acquiring those shares will have to be incurred in acquiring those shares will have to be incurred in acquiring those shares will have to be apportioned. Hon'ble Supreme Court has held that the apportioned. Hon'ble Supreme Court has held that the apportioned. Hon'ble Supreme Court has held that the disallowance u/s 14A cannot exceed the exempt income: / disallowance u/s 14A cannot exceed the exempt income: / disallowance u/s 14A cannot exceed the exempt income: / find that the Hon'ble Supreme Court in t find that the Hon'ble Supreme Court in the case of Maxopp he case of Maxopp Investment Ltd. (supra) has noted in para 40 of said order as Investment Ltd. (supra) has noted in para 40 of said order as Investment Ltd. (supra) has noted in para 40 of said order as under: "We note from the facts in the State Bank ofPatiala cases "We note from the facts in the State Bank ofPatiala cases "We note from the facts in the State Bank ofPatiala cases that the AO, while passing the assessment order, had that the AO, while passing the assessment order, had that the AO, while passing the assessment order, had Solitaire Appliances Pvt. Ltd. 9 & 5856/Mum/2016 & Ors. ITA Nos. 5855 & 5856/Mum/2016 & Ors. already restricted the disallowance to the amount which wa already restricted the disallowance to the amount which wa already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained claimed as exempt income by applying the formula contained claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the in Rule 8D of the Rules and holding that section 14A of the in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. Act would be applicable. In spite of this exercise of apportionment of expenditure In spite of this exercise of apportionment of expenditure In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire carried out by the AO, CIT(A) disallowed the entire deduction deduction of expenditure. That view of the CIT(A) was clearly untenable of expenditure. That view of the CIT(A) was clearly untenable of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the IT AT." and rightly set aside by the IT AT." 3.2.4 ' In view of the above detailed discussion of Hon'ble SC 3.2.4 ' In view of the above detailed discussion of Hon'ble SC 3.2.4 ' In view of the above detailed discussion of Hon'ble SC order in Maxopp Investments Ltd, it is held here that it is not order in Maxopp Investments Ltd, it is held here that it is not order in Maxopp Investments Ltd, it is held here that it is not a fit case for invok a fit case for invoking provisions of section 14A as no exempt ing provisions of section 14A as no exempt income has been earned by the appellant at all. It is income has been earned by the appellant at all. It is income has been earned by the appellant at all. It is worthwhile to mention over here that in a recent judgement worthwhile to mention over here that in a recent judgement worthwhile to mention over here that in a recent judgement dated 2/7/18 in the case of Chettinad Logistics Pvt Ltd, (95 dated 2/7/18 in the case of Chettinad Logistics Pvt Ltd, (95 dated 2/7/18 in the case of Chettinad Logistics Pvt Ltd, (95 Taxmann.com 250), the Hon'ble Apex Cour Taxmann.com 250), the Hon'ble Apex Court re-affirmed its affirmed its stand when it dismissed the SLP against Ld Madras High stand when it dismissed the SLP against Ld Madras High stand when it dismissed the SLP against Ld Madras High Court ruling that Section 14A cannot be invoked where no Court ruling that Section 14A cannot be invoked where no Court ruling that Section 14A cannot be invoked where no exempt income was earned by the assessee in the relevant exempt income was earned by the assessee in the relevant exempt income was earned by the assessee in the relevant assessment year. assessment year.” 6.1 Since, the Ld. CIT(A) has follow Since, the Ld. CIT(A) has followed the binding precedent on the precedent on the issue in dispute, we do not find any error in the order of the Ld. issue in dispute, we do not find any error in the order of the Ld. issue in dispute, we do not find any error in the order of the Ld. CIT(A) and accordingly CIT(A) and accordingly, we uphold the same. The grounds raised by ld the same. The grounds raised by the Revenue are accordingly dismissed. the Revenue are accordingly dismissed.
Now we take the appeal of the Revenue and cross objection of Now we take the appeal of the Revenue and cross objection of Now we take the appeal of the Revenue and cross objection of the assessee for assessment year 2016 e assessee for assessment year 2016-17. The respective grounds 17. The respective grounds are reproduced as under: are reproduced as under:
Revenue’s Grounds of appeal Revenue’s Grounds of appeal
1. Whether on the facts and circumstances of the case Whether on the facts and circumstances of the case Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in deleting the and in law, the Ld. CIT(A) was right in deleting the and in law, the Ld. CIT(A) was right in deleting the disallowance u/s 14A which was computed as per disallowance u/s 14A which was compu disallowance u/s 14A which was compu Rule 8D of the I.T. Rules 1962 on the basis of CBDT Rule 8D of the I.T. Rules 1962 on the basis of CBDT Rule 8D of the I.T. Rules 1962 on the basis of CBDT Circular No. 5/2014 dated 11.02.2014 which clearly Circular No. 5/2014 dated 11.02.2014 which clearly Circular No. 5/2014 dated 11.02.2014 which clearly states that it is not necessary to earn exempt income in states that it is not necessary to earn exempt income in states that it is not necessary to earn exempt income in a particular year in which the disallowance is made. a particular year in which the disallowance is made. a particular year in which the disallowance is made.
Solitaire Appliances Pvt. Ltd. 10 & 5856/Mum/2016 & Ors. ITA Nos. 5855 & 5856/Mum/2016 & Ors.
2. Whether on the facts and circumstances of the case Whether on the facts and circumstances of the case Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in restricting the and in law, the Ld. CIT(A) was right in restricting the and in law, the Ld. CIT(A) was right in restricting the disallowance u/s 14A to the exempt income earned disallowance u/s 14A to the exempt income earned disallowance u/s 14A to the exempt income earned during the year which is contrary to CBDT circular No. during the year which is contrary to CBDT circular No. during the year which is contrary to CBDT circular No. 5/2014 which clarifies that the Rule 8D r.w.s. 14A of 5/2014 which clarifies that the Rule 8D r.w.s 5/2014 which clarifies that the Rule 8D r.w.s the Act provides for disallowance of expenditure even the Act provides for disallowance of expenditure even the Act provides for disallowance of expenditure even where taxpayer in a particular year has not earned where taxpayer in a particular year has not earned where taxpayer in a particular year has not earned any exempt income. any exempt income.
3. The appellant prays that the order of CIT(A) on the The appellant prays that the order of CIT(A) on the The appellant prays that the order of CIT(A) on the above grounds be set aside and that of Assessing above grounds be set aside and that of Assessing above grounds be set aside and that of Assessing Officer be restored. Officer be restored. Cross-objection of the assessee objection of the assessee 1(a) On the facts and in the circumstances of the case and in 1(a) On the facts and in the circumstances of the case and in 1(a) On the facts and in the circumstances of the case and in law, the lower authorities have erred in disallowing the law, the lower authorities have erred in disallowing the law, the lower authorities have erred in disallowing the proportionate interest of Rs.83,45,534/ proportionate interest of Rs.83,45,534/- out of the total out of the total interest claimed u/s 36(1)(iii) of the Income interest claimed u/s 36(1)(iii) of the Income Tax Act, 1961 by Tax Act, 1961 by holding that the same are not for the purpose of business, holding that the same are not for the purpose of business, holding that the same are not for the purpose of business, which is wrong and contrary to the provisions of Income Tax which is wrong and contrary to the provisions of Income Tax which is wrong and contrary to the provisions of Income Tax Act, 1961, and the Rules made there under. Act, 1961, and the Rules made there under. 1(b) On the facts and in the circumstances of the case and in 1(b) On the facts and in the circumstances of the case and in 1(b) On the facts and in the circumstances of the case and in law, the lower law, the lower authorities failed to appreciate that the authorities failed to appreciate that the appellant has given advances out of commercial expediency appellant has given advances out of commercial expediency appellant has given advances out of commercial expediency and wholly and exclusively for the purpose of business and and wholly and exclusively for the purpose of business and and wholly and exclusively for the purpose of business and doing so is wrong and contrary to the provisions of Income doing so is wrong and contrary to the provisions of Income doing so is wrong and contrary to the provisions of Income Tax Act, 1961, and the Rules made ther Tax Act, 1961, and the Rules made there under.
Both the grounds raised by the Revenue in the appeal and Both the grounds raised by the Revenue in the appeal and Both the grounds raised by the Revenue in the appeal and grounds raised by the assessee in cross examination on the issue grounds raised by the assessee in cross examination grounds raised by the assessee in cross examination are identical to grounds raised in the cross appeals of the Revenue are identical to grounds raised in the cross appeals of the Revenue are identical to grounds raised in the cross appeals of the Revenue and assessee for assessment year 2015 and assessee for assessment year 2015-16 therefore, 16 therefore, following our finding for assessment year 2015 finding for assessment year 2015-16, the respective grounds raised the respective grounds raised in appeal of the Revenue and cross objection of the assessee are in appeal of the Revenue and cross objection of the assessee are in appeal of the Revenue and cross objection of the assessee are decided mutatis mutandis. decided mutatis mutandis.
Solitaire Appliances Pvt. Ltd. 11 & 5856/Mum/2016 & Ors. ITA Nos. 5855 & 5856/Mum/2016 & Ors.
In the result, the appeals of the assessee for assessment year In the result, the appeals of the assessee for assessment year In the result, the appeals of the assessee for assessment year 2013-14 and 2015-16 16 and cross objection for 2016 and cross objection for 2016-17 are allowed for statistical purposes whereas appeal of the Revenue for for statistical purposes whereas appeal of the Revenue for for statistical purposes whereas appeal of the Revenue for assessment year 2015 assessment year 2015-16 and 2016-17 are dismissed. 17 are dismissed.