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Income Tax Appellate Tribunal, DELHI BENCH “H”: NEW DELHI
Before: SHRI N.K. BILLAIYA & MS. ASTHA CHANDRA
O R D E R PER ASTHA CHANDRA, JM
The appeal by the Revenue is directed against the order dated 15.03.2021 of the Ld. Commissioner of Income Tax (Appeals) - 30, New Delhi (“CIT(A)”) pertaining to assessment year (“AY”) 2016-17.
The Revenue has taken the following grounds of appeal:-
“1. The CIT(A) has erred in law and on the facts in deleting the addition of Rs. 2,43,62,181/- made u/s 14A of the IT Act 1961 .r. 8D of Income Tax Rule 1962 2. The Ld CIT(A) has erred in law and on the facts of the case goring the circular of CBDT No. 5/2014, dated – 11.02.2014 wherein, in exercise of its powers under section 119 of the Act CBDT clarifies that Rule 8 D read with 14A of the Act provides for disallowance of the expenditure even where taxpayer m a particular year has not earned any exempt income. 3. That the order of the CIT(A) is perverse, erroneous and is not tenable on facts and in law. 4. That the grounds of appeal are without prejudice to each other._
5. That the applet craves leave to add, amend, alter or forgo any ground(s) of appeal either before or at the time of hearing of the appeal.”
3. Briefly stated, the assessee is a company engaged in the business of manufacturing and production of steel tubes and pipes, cold rolled strips, different variety of lamps and allied items. For AY 2016-17 the assessee e- filed which return declaring income of Rs. 60,99,93,900/- on 29.11.2016. After processing the return under section 143(1) of the Income Tax 1961 (the “Act”) on 19.03.2018, the case was selected for complete scrutiny under CASS. The Ld. Assessing Officer (“AO”) found that the assessee had non-current investments of Rs. 50 crores as on 31.03.2016 but did not make any disallowance under section 14A of the Act. He, therefore, issued show cause notice as to why disallowance under section 14A r.w. Rule 8D be not made. In response thereto the assessee submitted that it has not earned any exempt income during the year nor incurred any direct or indirect expenditure in relation to earning income which does not form part of total income and all the expenditure claimed in the P & L account are expended for earning taxable income. It was further submitted that the assessee has not made fresh investment during the year and the investment made in earlier was out of its share holder’s funds and not out of interest bearing borrowed funds. It was pointed out that the assessee made whole investment in shares of associate company attributable to commercial expediency in normal course of business and for acquiring controlling stake in the said company. It was contended that the assessee has not claimed any income as exempt from tax, no expense can be disallowed under section 14A and placed reliance on the following decisions:- i) CIT vs. Chettinad Logistics Pvt. Ltd. (2018) 95 taxmann.com 250 (SC) ii) Pr. CIT vs. IL&FS Energy Development Company Ltd. (2017) 84 taxmann. Com 186 (Delhi HC) iii) CIT vs. Holcim India Pvt. Ltd. [ITA No. 486/2014 and (Delhi) ] iv) Cheminvest Ltd. vs. CIT (2015) 61 taxmann.com 118 (Delhi HC)
4. The submissions/contentions of the assessee were not acceptable to the Ld. AO for the reasons recorded by him in his order dated 23.12.2018 passed under section 143(3) of the Act. Resultantly, he computed disallowance of Rs. 2,43,62,181/- under section 14A r.w. Rule 8D and added the same to the income of the assessee and completed the assessment on total income of Rs. 63,43,56,080/- as against income declared at Rs. 60,99,93,900/-.
5. The assessee appealed before the Ld. CIT(A) and made lengthy written submission backed with judicial precedents in the course of appellate proceedings on consideration of which the Ld. CIT(A) came to the conclusion that the impugned disallowance made by the Ld. AO was not sustainable with the following observations in para 8 of his order:-
“8. I have carefully considered the assessment order, the facts of the case and written submission filed by the appellant during the course of appellate proceedings. In the case of the appellant, the only issue for consideration pertains to the disallowance made by the AO under sec. 14A read with rule 8D amounting to Rs. 2,43,62,181/-. The Assessing Officer noted that the appellant had non-current investment of Rs. 50,00,00,000/- in M/s Surya Global Steel Tubes Limited and accordingly, the AO made disallowance of Rs. 2,43,62,181/-, in the year under consideration.
During the course of appellate proceedings, the appellant submitted that in the year under consideration no exempt income has been earned from the said investment. The investment in the year under consideration is same as of the last year and no change or new addition or deletion made in the relevant year. The said investment has been made many years ago and there has been no changes in the year under consideration. I find that in the year under consideration, the appellant has not earned any exempt income from the said investments. In the Profit and Loss statement for the year ended 31.03.2016 the appellant has shown Other Income of Rs. 1,84,98,772/-. The detailed breakup of the said is as per note 21 of the Audit Report, which is as under:
Particulars Year ended 31st march Year ended 31st march 2016 2015 Interest From Current Investments 1,17,71,532 93,97,226
TDS Rs. 6,19,563/- Prev. Year Rs. 9,03,880/-) Profit on sale of Fixed Assets 64,70,27 2,78,38,508 Other non-operating income 2,57,213 77,114 Total 1,84,98,772 3,73,12,848
The appellant has submitted the details of the Other Non-operating income which is as under:
Particulars Amount Rebt Received 30,000 Insurance claim receipt 87,006 Receipts from sale of old Takhat, 140,207 Debit notes 257,213
Thus it is seen that during the A.Y. 2016-17 the appellant has not earned any exempt income. The appellant has also submitted a plethora of case laws in the appellate proceedings in order to support of its contention. As per the order of Hon’ble jurisdictional High Court in the case of M/s Cheminvest Ltd. vs CIT reported as 378 ITR 33, it is 4 settled law that no disallowance/addition can be made under sec. 14A read with rule 8D, if the assessee has not earned any exempt income from the subject investment. The appellant has not earned any exempt income during the relevant year. Accordingly, the disallowance of Rs. 2,43,62,181/- made u/s 14A of the Act, by the Assessing Officer cannot be sustained and is hereby deleted. The appellant gets relief on these grounds.”
Aggrieved, the Revenue is in appeal before the Tribunal challenging the above order and findings of the Ld. CIT(A) and all the grounds of appeal relate thereto.
7. Rejecting the application for adjournment moved by the assessee, we proceeded to hear the appeal. The Ld. DR strongly supported the order of the Ld. AO whereas the Ld. AR reiterated the arguments which were raised before the Ld. AO/CIT(A).
8. We have considered the submissions of the parties and perused the material on the records. Perusal of the appellate order show that the Ld. CIT(A) recorded a finding of fact that during the previous year relevant to AY 2016-17 the assessee did not earn any exempt income from its investment in its associate company in earlier year which could not be controverted by the Revenue. The Ld. CIT(A) has placed reliance on the decision of Hon’ble Delhi High Court in M/s. Cheminvest Ltd. vs. CIT 378 ITR 33 (Del) for the proposition that no disallowance / addition can be made under section 14A r.w. Rule 8D, if the assessee has not earned any exempt income from the subject investment. It may be stated that similar view was taken by Hon’ble Madras High Court in Chettinad Logistics Pvt. Ltd. (supra) and SLP filed by the Revenue stands dismissed by the Hon’ble Supreme Court which is reported in CIT vs. Chettinad Logistics Pvt. Ltd. (2018) 257 taxman 2 (SC). In this view of the matter, we do not find any infirmity in the order of the Ld. CIT(A). We concur with his findings and reject the appeal of the Revenue.
In the result, appeal of the Revenue is dismissed.