ITO WARD - 16(3), NEW DELHI vs. MASTERWAY CONSULTANTS LIMITED, NEW DELHI
In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal held that disallowance under Section 14A is not sustainable if no exempt income is earned. It also upheld the CIT(A)'s proportionate disallowance of interest expenses, finding no error in the method applied.
What were the facts?
The Revenue appealed against the CIT(A)'s order deleting disallowance under Section 14A and partially deleting disallowance of interest expenses. The assessee had not earned any exempt income, and the CIT(A) had applied a proportionate disallowance method for interest expenses, consistent with the previous year.
What were the issues?
Whether disallowance under Section 14A is permissible without earning exempt income, and whether the proportionate disallowance of interest expenses was correctly applied.
Which sections of the Income-tax Act were involved?
Section 14A,Section 36(1)(3)
AI-generated summary — verify with the full judgment below
Cases cited in this judgment(3)Show listHide list
Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.
- CIT v. Rajendra Prasad Moody386 citing115 ITR 519 · 1978 · SC
- PCIT v. Oil Industry Development Board120 citing103 Taxmann.com 326 · 2019 · SC
- Principal Commissioner of Income-tax-2 v. Caraf Builders & Constructions (P.) Ltd.71 citing112 Taxmann.com 322 · 2019 · SC
Income Tax Appellate Tribunal, [ DELHI BENCH : “E” NEW DELHI ]
Before: DR. B. R. R. KUMAR & SH. YOGESH KUMAR U.S.
This appeal is filed by the assessee against the order dated 13/03/2020 of the ld. Commissioner of Income Tax (Appeals)–37, New Delhi [hereinafter referred to CIT (Appeals)] for Assessment Year 2015-16.
The assessee has raised the following substantive grounds of appeal:- “1. Weather the Ld. CIT (A) was correct on facts and in law in deleting the disallowance made by the AO on account of section 14A r.w rule 8D ignoring the facts that section 14A of the come Tax Act, 1961 is attracted even whether the dividend income earned or not.
2. Weather CIT(A) is legally justified in not upholding disallowance u/s 14A of the Act without considering a legal principle that allow ability/disallowability of expenditure under the Act is not conditional upon the earning of the income as upheld by Hon’ble Supreme Court in case of CIT vs. Rajendra Prasad Moody[1978] 115 ITR 519?
3. Whether on facts and circumstances of the case and in law, the Ld. CIT (A) erred in deleting the addition of Rs. 15,56,346/- out of Rs. 6,09,19,027/- made on account of disallowance of interest expenses which is not part of business expenditure.
Brief facts of the case are that, the return of income declaring loss of Rs. 2,32,68,999/- was filed, the case was selected for scrutiny and notice u/s 143(2) Income Tax Act 1961 (‘Act’ for short) was issued and the detailed questionnaire along with notices u/s 142(1) of the Act was issued to the assessee. The assessee has participated in the assessment proceedings, the assessment order came to be passed on 25/12/2017 u/s 143(3) of the Act by making addition on account of interest expenses of Rs. 6,09,19,027/- and also disallowed Rs. 11,70,395/- u/s 14A of the Act.
Aggrieved by the assessment order dated 25/12/2017, the assessee has preferred an appeal before the CIT(A). The Ld.CIT(A) while adjudicating the appeal deleted the disallowance made by the A.O u/s 14A of the Act and further deleted the addition of Rs. 15,56,346/- out of Rs. 6,09,19,027/- made on account of disallowance of interest expenses.
As against partial sustaining the addition by the CIT(A), the assessee has not preferred any appeal but the Revenue has preferred the present appeal aggrieved by the deletion of the disallowance made u/s 14A of the Act read with Rule 8D of the Rules and partial deletion of Rs. 15,56,364/- made on account of disallowance of interest expenses.
The Ld. Counsel for the assessee submitted that, the assessee has not earned any exempt income, the assessee has also filed computation of income for the year under consideration before the CIT(A) to prove that there is no exempt income earned during the year under consideration. Now, it is well settled law that if there is noi exempt income is earned by the assessee then disallowance u/s 14A cannot be made. The said ratio has been laid down by the Hon'ble Supreme Court in the case of PCIT Vs. Oil Industry Development Board reported in 103 Taxman.com 326 & PCIT Vs. Caraf Builders and Construction reported in 112 Taxman.com 322.
The above factual aspects have not been disputed by the Ld. DR. Therefore, the Ground No. 1 & 2 of the Revenue deserves to be dismissed. Accordingly, Ground No. 1 & 2 of the Revenue are dismissed.
The Ground No. 3 is regarding deletion of addition of Rs. 15,56,346/- out of Rs. 6,09,919.027/- made on account of interest expenses. It is found from the records that the Ld. A.O. has not made disallowance of interest on proportionate basis for the period of delays for which the sister concerns/related parties utilized the interest free funds received from the Assessee. It is not in dispute that the Ld. A.O. for the AY 2014-15 made proportionate disallowance of interest for the period of days for which these interest free funds were utilized by the sister concerns/related parties of the assessee. The Ld. A.O. should have applied very same approach for the year under consideration. Further, the Ld.CIT(A) has worked out and tabulated proportionate disallowance interest at 14% for the period of delays for which the sister concern/related parties had utilized the interest free funds received from the assessee and worked out the disallowance of interest u/s 36(1)(3) of the Act at Rs. 4,53,55,563/- based on the period of delays for which the interest free funds advanced by the assessee out of the interest bearing funds were utilized by the sister concerns/related parties of the assessee. The order of the Ld.CIT (A) is well reasoned and very same method has also been followed by the A.O. in the Assessment Year 2014-15. Thus we do not find any error or infirmity in the approach of the Ld.CIT (A) in deleting the addition of Rs. 15,56,346/- out of 6,09,19,027 made on account of disallowance of interest expenses. Accordingly, Ground No. 3 of the Revenue is dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Open Court on : 30.11.2022.
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