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Income Tax Appellate Tribunal, Hyderabad ‘ A ‘ Bench, Hyderabad
Before: Smt. P. Madhavi Devi & Shri D.S. Sunder Singh
ORDER Per D.S. Sunder Singh, A.M. This is Assessee’s appeal for the A.Y 2013-14 against the order of the CIT (A) - 3, Hyderabad, dated 18.08.2017. All the grounds raised by the assessee in this appeal are related to the disallowance made by the AO u/s 14A r.w. Rule 8D of the I.T. Rules, which was sustained by the ld. CIT(A).
During the assessment proceedings the AO found out that the assessee has made the investments to the tune of Rs. 8,27,06,271/- but not made any disallowance relating to earning of exempt income. Therefore, the AO invoked Rule 8D of the I.T. Rules and computed the disallowance under section 14A read with Rule 8D to the extent of Rs. 14,28,529/- by relying on the CBDT Circular No. 5/2014, dated 11th February, 2014. Against the order of the AO, the assessee went on appeal before the CIT(A) and the learned CIT (A) sustained the disallowance following the decision of Hon’ble Delhi
TA No. 1860/Hyd/2017 Serene Estates Pvt. Ltd., Hyd. High Court in the case of Indiabulls Financial Services Ltd., Vs. DCIT [2016] 76 Taxmann.com 268 (Delhi).
Against the order of CIT(A), the assessee is in appeal before us.
When the appeal was taken up for hearing, the ld. AR submitted that during the AY under consideration, the assessee did not earn any dividend income and, therefore, argued that there is no case for making disallowance u/s 14A of the Act. The ld. AR drew our attention to the page No. 19 of the paper book to submit that the other income earned by the assessee constitutes interest income and miscellaneous income and no exempt income was earned by the assessee. The contention of the ld. AR is supported by the order of ld. CIT(A) with regard to earning of exempt income.
We have heard both the parties and gone through the orders of the authorities below. In this connection, we refer to the decision of the Indiabulls Financial Services Ltd., on which reliance placed by the CIT(A) in his order. In the decision cited supra, the assessee reported the exempt income at Rs. 105.24 crores and made disallowance of Rs. 25.1 lakhs. The AO invoked Rule 8D of IT rules and made disallowance of Rs. 3,87,10,146/-. On appeal, the Hon’ble High Court of Delhi held that merely because the AO did not record his dissatisfaction with regard to the disallowance made by the assessee, the addition made by the AO cannot be deleted, when, there is an elaborate analysis carried by the AO in respect of all the important issues in his order. Therefore, the case law relied upon by the ld. CIT(A) is distinguishable from the facts of the assessee’s case and does not help the revenue.
5.1 In the instant case, though the assessee has made investments, the assessee did not earn any exempt income. In this connection, the coordinate bench of this Tribunal in the case of TA No. 1860/Hyd/2017 Serene Estates Pvt. Ltd., Hyd. Prathista Industries Ltd., Secunderabad Vs. The DCIT, Circ1e-16(3), Hyderabad in dated 29.04.2016 for the A.Y. 2011-12, has held as under:
“6. Having regard to the rival contentions and the material on record, we find that section 14A clearly stipulates that the expenditure incurred for earning of any income which does not form part of the total income alone can be disallowed. In the case before us, when the assessee has not earned any exempt income, there can be no disallowance under section 14A of the Act. The Hon'ble Delhi High Court in the case of Cheminvest Ltd., reported in (2015) 378 ITR 33 (Del.) has held that section 14A will not apply where no exempt income is received or receivable during the relevant assessment year .. " Respectfully following the above decision of Hon'ble ITAT in the case of Prathista Industries and since the appellant has not earned any dividend during the relevant assessment year; the provisions of section 14A r.w. Rule 8D are not applicable in this case. Therefore, we set aside the order of CIT(A) and delete the disallowance made by the AO u/s 14A r.w. Rule 8D of the Act.
In the result, appeal of the assessee is allowed. Order pronounced in the Open Court on 10th September, 2020.