M/S. PODAR ADVISORY & CONSULTING ENTERPRISE P LTD.,MUMBAI vs. INCOME TAX OFFICER-2(2)(4), MUMBAI

This is an appeal preferred by the assessee against the order of the Ld. CIT(A)/NFAC dated 01.12.2022 for AY 2016-17.

The sole grievance of the assessee s is against the action of the Ld. CIT(A) confirming the addition of Rs. 17,99,581/- u/s 14A r.w.s. 8D of the Income Tax Act, 1961 (herein after ‘the Act’). 3. Brief facts are that the appellant is a private limited company and had filed original return of income on 13.10.2016 declaring total income at 12,47,580/-. Subsequently, the case was selected for scrutiny. In response to notice, the submissions were made by assessee on the e-filing portal. Thereafter, the AO has passed an order u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as 1 M/s Podar Advisory & Consulting Enterprise P. Ltd ‘the Act’) dated 28.11.2018 after making an addition of Rs. 17,99,581/- on account of disallowance u/s 14A of the Act r.w.Rule 8D of the Income Tax Rules, 1962 (hereinafter ‘the Rules’) on the ground that the appellant company has incurred interest expenditure during the previous year which is not directly attributable to any particular business income or receipt. 4. Being aggrieved, the appellant challenged the action of AO before the Ld. CIT(A). However, the Ld. CIT(A) dismissed the appeal and confirmed the addition made by the Ld. AO. 5. At the outset the Ld. AR of the assessee draw our attention to inter-alia ground no. 2 wherein the assessee has challenged the action of the Ld. CIT(A) confirming the action of the AO to have disallowed of Rs. 17,99,581/- u/s 14A r.w.Rule. 8D when the assessee has not earned any exempt income and ground no. 2 reads as under:- “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in confirming the order of the Ld. AO as regards disallowance of expenses overlooking the legal position that when the assessee has not earned any exempt income there would be no justification for disallowance of expenses under section 14A r.w.r. 8D of the I.T. Rules.” 6. We have heard both the parties and perused the record. We note that AO has disallowed Rs. 17,99,581/- u/s 14A of the Act. However, the main plea of the assessee is that assessee has not earned any ‘exempt’ income warranting any disallowance on this score and for such a proposition has relied on the jurisdictional High Court decision in the case of PCIT vs. HSBC Invest Direct 2 M/s Podar Advisory & Consulting Enterprise P. Ltd (India) Ltd in (2020) 421 ITR 125 (Bom.) wherein, the Hon’ble High Court held as under:- “3. The Tribunal in the impugned judgment rejecting the contentions, placed reliance on the decision of Delhi High Court in case of Cheminvest Ltd vs. CIT, (2015) 281 CTR (Del) 447: (2015) 378 ITR 33 (Del) in which it was held that when the assessee had not earned any income which was exempt from tax, the disallowance of the expenditure under s. 14A of the Act r.w.r. 8D of the Rules, would not arise.

Having heard learned counsel for the parties and perused documents on record. We notice that in cheminvest Ltd (supra) Delhi High Court had referred to and relied upon its earlier decision in the case of CIT vs. Holcim India (P) Ltd. (I.T.A. No. 486 of 2014, decided on 5th Sept., 2014). We further notice that this Court in IT Appeal No. 693 of 2015 by an order dt. 21st Nov, 2017 while dismissing the Revenue's appeal on similar issue had noted that the decision of Delhi High Court in case of Holcim India (P) Ltd (supra) had adopted the same principles. In the present case, counsel for the Revenue however, points out that this is not a case where the assessee had earned no income which was exempt from tax However in our opinion, the ratio of the above noted decisions in the cases of Cheminvest Ltd., and Holcim India (P) Ltd. (supra) would include a facet where the assessee's income exempt from tax is not NIL but has earned exempt income which is larger than the expenditure incurred by the assessee in order to earn such income. In such a situation that disallowance cannot exceed the exempt income so earned by the assessee during the year under consideration. We do not find any error in the view of the Tribunal. We record that the assessee had offered voluntary disallowance of expenditure of Rs. 1.30 crores, which is not been disturbed by the Tribunal." 3 M/s Podar Advisory & Consulting Enterprise P. Ltd

And we note that this Tribunal in the case of Assistant Commissioner of Income Tax vs. Bajaj Capital Ventures P. Ltd reported at (2022) 2018 TTJ (Mumbai) 832 has on similar facts held as under:- "6.2 I have considered the assessment order and the submission of the appellant. The issue regarding applicability of s. 144 c r. 8D of the IT Rules, 1962 has been the subject matter of incessant litigation on almost every issue, involved, L., whether a disallowance can be made when no exempt income has been earned during the year. Whether the satisfaction has been correctly recorded by the AO regarding the correctness of the claim and in respect of such expenditure incurred in relation to exempt income, whether share application money is to be considered as investment, whether investment in subsidiary company or joint ventures can be said to be made with a view of earn exempt income etc. In the present case the admitted fact is that no dividend income or any other exempt income has been earned during the year under consideration. The present legal position established by the Delhi High Court in the case of Cheminvest Ltd. vs. CIT (2015) 281 CTR (Del) 447: (2015) 126 DTR (Del) 289: (2015) 61 taxmann.com 118 (Del), which has also been relied upon by the appellant, is that no disallowance can be made if no exempt income has been earned during the year. Recently, the case of CIT vs. Chettined Logistics (P) Ltd. (2018) 95 Taxman 250 (SC), the Hon'ble Supreme Court have dismissed the SLP against High Court ruling that's. 14A cannot be invoked where no exempt income was earned by assessee in relevant assessment year. The Tribunal Mumbai jurisdictional Tribunal has recently in the case of Asstt. CIT vs. Essel Utilities Distribution reaffirmed the same 4 M/s Podar Advisory & Consulting Enterprise P. Ltd 8. In the light of the above case laws, we find that the Hon’ble Jurisdictional High Court and this Tribunal has held that where the assessee has not earned any exempt income then, no disallowance is warranted u/s 14A r.w.r. 8D. However, since it is not discernable from the records placed before us that assessee has not earned any exempt income, the impugned order of the Ld. CIT(A) is set aside back to the file of AO for limited purpose of verification/examine as to whether the assessee has claimed any exempt income or not. And if it is found by AO that the assessee has not earned any exempt income in the relevant assessment year, then no disallowance u/s 14A of the Act r.w.Rule 8D is warranted. And assessee is at liberty to raise the other grounds in the event assessee doesn’t succeed in the ground number 2 supra. And the assessee is directed to file relevant documents to substantiate its claim before the AO and after hearing the assessee, the AO to pass order on this issue in accordance to law. 9. In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on this 31/05/2023. (AMARJIT SINGH) JUDICIAL MEMBER