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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI N.K. CHOUDHRY, HON’BLE & SHRI D.S. SUNDER SINGH, HONBLE
Assessee by : Shri P.S. Raju, CA. Department by : Shri B.Satyanarayana Raju, Sr.DR Date of hearing : 18/08/2021. Date of pronouncement : 08/09/2021. O R D E R PER D.S. SUNDER SINGH, ACCOUNTANT MEMBER
This appeal by the Revenue is directed against the order of Ld.Commissioner of Income Tax (Appeals)-3, dated 07/10/2020 for the A.Y.2012-13.
All the grounds of appeal are related to the disallowance made by the AO representing investments of the Assessee in equity shares and interest free advances given to M/s. Girija Alloy and Power (P) Ltd. During the assessment proceedings, the AO found that the Assessee has taken a loan of Rs. 10.00 crores from (M/s. Srinivasa Ferro Alloys Ltd.) Sriram City Union Finance Ltd. and invested the sum of Rs.5.00 crores in M/s Girija Alloy and Power (P) Ltd. as equity and also advanced the sum of Rs.5.00 crores free of interest to the same company. The AO also found from the statement of interest on borrowings that an amount of Rs.88,79,529/- was paid towards interest to Sriram City Union Finance Ltd. The AO further observed that out of total amount of interest of Rs. 88,79,529/-, the Assessee has disallowed the amount of Rs. 21,86,477/-. The AO viewed that the balance amount of Rs. 66,93,052/- required to be disallowed applying the provisions of section 14A of the Act. Accordingly, AO issued show-cause notice and the Assessee filed explanation objecting the proposed disallowance, as the Assessee company has not earned any exempt income during the year under consideration. The Assessee also relied on the decision of ITAT, Visakhapatnam Bench in in D.Veerabhadra Reddy, dated 23/06/2017 and also the decision of ITAT, Chennai Bench in the case of ACIT Vs. M. Baskaran ITA No. 1717/MDS/2013, dated 31/07/2014. Not being convinced with the explanation of the Assessee, the AO held that since, the investment derives dividend income which is exempt from the tax, the disallowance needs to be made applying the provisions of section 14A of IT act r.w.r 8D of IT Rules. The AO relied on the CBDT Circular No. 05/2014, dated 11/02/2014 and accordingly disallowed the sum of Rs. 88,79,529/-.
3. Aggrieved by the order of the AO, the Assessee went on appeal before the Ld. CIT(A) and the ld. CIT(A) placing reliance on the decision of ITAT, Visakhapatnam Bench in the case of D.Veerabhadra Reddy (HUF) Vs. DCIT in ITA No.263/VIZ/2014,
(M/s. Srinivasa Ferro Alloys Ltd.) dated 23/06/2017 held that no disallowance is called for if there is no exempt income. We reproduce hereunder the relevant part of the order of this tribunal supra which was reproduced by the Ld.CIT(A) in his order and the same reads as under:-
“6………… It is seen from the profit and loss account and the statement of computation of income that the assessee has not derived any dividend income. When the assessee has no exempt income, the question of disallowance u/s14A r.w.Rule 8D is not called for. The same view is expressed by the decision of Hon‟ble Madras High Court in Redington (India) Ltd. Vs. Addl.CIT, 77 taxman.com 257, Hon'ble Delhi High Court in Chem Investments Vs. CIT, 61 taxman.com 118 and the Hon'ble Gujarat High Court in Principal CIT Vs. Sintex Industries Ltd., 82 taxman.com 171 held that no disallowance is called for when assessee makes small investment from the surplus funds. There was no dividend income earned by the assessee and the case was taken for revision to disallow the business loss claimed against the property income which was examined by the AO and dropped the assessment proceedings and the Ld.CIT also satisfied that there is no case for revision on account of incorrect set off of business loss. With regard to the issue of disallowance u/s 14A as per the judicial pronouncements no disallowance is called for when there is no exempt income. Therefore, we are of the considered opinion that there is no case for revision of order u/s 263 and accordingly we set aside the orders of the CIT and allow the appeal of the assessee. Aggrieved by the order of the ld. CIT(A), the department is in appeal before this Tribunal.
We have heard both the parties and perused the material placed on record. The ld. CIT(A) deleted the addition following the decision of this Tribunal in the case of D. Veerabhadra Reddy (HUF) (supra) wherein this Tribunal held that in the absence of earning of dividend income there is no case for making disallowance u/sec. 14A of the Act. Since, the ld. CIT(A) followed the decision of this Tribunal and the department did not place any material to controvert the decision rendered by the Tribunal, we
(M/s. Srinivasa Ferro Alloys Ltd.) do not find any reason to interfere with the order of the Ld.CIT(A) and the same is upheld.
In the result, appeal of the Revenue stands dismissed.
Order Pronounced in open Court on 08th this day of Sept., 2021.