ACIT, CIRCLE- 6(1), NEW DELHI vs. CLIX FINANCE INDIA UNLIMITED, NEW DELHI

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ITA 6843/DEL/2019Status: DisposedITAT Delhi24 August 2022AY 2015-165 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s order, agreeing that Section 14A disallowance is not applicable in the absence of any exempt income. The Tribunal relied on jurisdictional High Court and Apex Court decisions supporting this view.

What were the facts?

The assessee, an NBFC, had significant investments in shares. The Assessing Officer disallowed expenses under Section 14A, invoking Rule 8D, despite the assessee claiming no exempt income was earned. The CIT(A) deleted the disallowance, holding that Section 14A applies only when exempt income is earned.

What were the issues?

Whether disallowance under Section 14A read with Rule 8D can be made when the assessee has not earned any exempt income.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, DELHI BENCH, ‘B’: NEW DELHI

Before: SHRI SHAMIM YAHYA & SHRI NARENDER KUMAR CHOUDHRY

For Respondent: Ms. Sangeeta Yadav, Sr.DR
Hearing: 12.08.2022Pronounced: 24.08.2022

Date of Hearing 12.08.2022 Date of Pronouncement 24.08.2022 ORDER PER SHAMIM YAHYA, AM,

This appeal by the Revenue is directed against the order of the Ld.

CIT(A)-2, New Delhi, dated 15.05.2019 pertaining to Assessment Year 2015-16.

2.

Grounds of appeal reads as under:-

1. Whether, on the facts & Circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance u/s 14A of the I.T. Act, 1961 in accordance with Rule 8D of the I.T. Rules.

2. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal.”

3.

Brief facts of the case are that the assessee company is stated to be engaged in the business of providing finance to industry, trade etc through hire purchase, lease and loans. The assessee company is Non Banking Financial Company (NBFC) registered with the Reserve Bank of India (RBI). During the year under consideration, the assessee had undertaken transaction with its associated enterprises. The international transactions entered into by the assessee with the associates enterprises were referred to the Transfer pricing officer after taking prior approval from the PCIT-02, Delhi vide letter dated 24.11.2017, for determining the Arm’s length price. The TPO has passed order u/s 92CA(3) on 30.10.2018, wherein, no adverse inference has been drawn in respect of international transactions.

4. The Assessing Officer further observed that that the perusal of the assessee’s Profit & Loss Account and balance sheet reveals that the assessee company has investment of Rs.63,66,00,000/- in shares as on 31.03.2015 and as on 31.03.2014 for the purpose of earning dividend income and Long Term Capital Gain. The Assessing Officer enquired about the disallowance u/s 14A of the Act. The assessee’s response in nutshell was as under:-

1.

Disallowance under section 14A cannot be made in absence of any exempt income.

2. Similar disallowance made in the past by the Assessing Officer has been deleted by appellate authorities including the Tribunal in assessee’s own case and relief by Hon'ble Commissioner of Income tax

(Appeals) post Rule 8D. Refer details provided below.

3. It is an admitted fact that no expenditure has been incurred in relation to the investments made by the assessee and in view thereof the provisions of section 14A (2) cannot be invoked.

4.

Without prejudice to the above, we wish to submit that the Assessing Officer is required to record his satisfaction why the upfront disallowance made by the Assessee is incorrect/inadequate before invoking the provision of section 14A and that he cannot apply the provisions of section 14A read with Rule 8D without absence of the same.

5.

No disallowance of any expenditure including interest under section 14A read with Rule 8D can be made where, on facts, the investments have been made earlier and out of own funds.

5. The assessee further relied upon the decisions in support of the proposition that no disallowance is required when no exempt income has been earned by referring the decision of the Hon’ble Delhi High Court in the case of ChemInvest Ltd. vs CIT (378 ITR 033). This submission regarding no disallowance when no exempt income is earned was rejected by the Assessing Officer, by inter alia referring to the decision of the ITAT Special Bench in the case of M/s Daga Capital Investments Pvt. 312 ITR (AT) 01 (Mumbai), vide order 20.10.2008. He also rejected the other contentions.

6.

Upon assessee’s appeal, the Ld. CIT(A) found that this issue was covered in favour of the assessee and held as under:-

“6. Decision:- I have gone through the assessment order, grounds of appeal and the submission filed by the appellant. Grounds of appeal are adjudicated as under:

6.1 Ground no. 1&2:- These grounds are directed against addition of Rs. 3,01,85,017/- u/s 14A r.w.r 8D. During the year, the appellant has not earned any exempt income as is clear from the assessment order.

6.2 As per the latest judicial pronouncements of the Apex Court in the cases of CIT Vs Chettinad Logistics Pvt. Ltd.(SC) dt. 02.07.2018 and Maxopp Investments Pvt. Ltd. Vs CIT (SC) dt. 12.02.2018, it was clearly held that disallowance u/s 14A will apply where exempt income is earned.

6.3 Keeping in view all the facts and circumstances and the prevailing law and judicial pronouncements, the addition u/s 14A r.w.r 8D is deleted.”

7.

Against the above order, the Revenue is in appeal before us.

8.

We have heard both the parties and perused the records. Ld. Counsel for the assessee submitted that the issue is squarely covered in favour of the assessee. He submitted that it is undisputed fact that the assessee has not earned any exempt income. That Hon’ble jurisdictional High Court in such a case in Chem Invest Ltd. vs CIT (378 ITR 033) had held that no disallowance u/s 14A is required when no exempt income has been earned. That however, the Assessing Officer chooses to ignore it by referring ITAT Special Bench decision, which stood over turned by the Hon’ble jurisdictional High Court decision.

9.

The Ld. DR could not dispute this proposition. No contrary decision from higher courts was also cited.

10.

We find considerable cogency in these submissions. In this view of the matter, in our considered opinion, the issue is squarely covered in favour of the assessee by the decision of the Hon’ble jurisdictional High Court as above and the decision of the Hon’ble Apex Court cited by the assessee and referred by the Ld. CIT(A) in his order above. Moreover, the Hon’ble jurisdiction High Court in the case of PCIT vs Era Infrastructure (India) Ltd. vide order dated 20.07.2022 has held as under:-

“8. Consequently, this Court is of the view that the amendment of Section 14A, which is “for removal of doubts” cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood.” 11. Accordingly, we do not find any infirmity in the order of the Ld.

CIT(A). Hence, we uphold the same.

12.

In the result, the Revenue’s appeal stands dismissed.

Order pronounced in the open court on 24.08.2022.

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