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Income Tax Appellate Tribunal, DELHI
Before: SH. SHAMIM YAHYA & SH. ANUBHAV SHARMA
This appeal is preferred by the Revenue against order dated 15/04/2019 in appeal no. 209/2016-17 in assessment year 2013-14 passed by the Learned Commissioner of Income Tax (Appeals) - 34, New Delhi (hereinafter referred to as the First Appellate Authority in short “FAA”) in regard to the appeal before it arising out of assessment order dated 28.03.2016 u/s 143(3) of the Income Tax Act, 1961 passed by JCIT, Circle 12(2), New Delhi (hereinafter referred to as the Assessing Officer ‘AO’).
The facts in brief are that the appellant company was engaged in the business of providing clinical establishment services. The operation of the company has been merged with M/s International Hospital Ltd. w.e.f. January 1, 2013 as per the scheme of the amalgamation approved by the Hon'ble High Court of Punjab and Haryana in December, 2013. Return declaring loss of Rs.5,10,400/- was filed on 30.09.2013. The case was selected for scrutiny under CASS. The AO has completed the assessment u/s 143(3) vide order dated 28.03.2016 after making disallowance of interest of Rs. 9,06,25,049/- u/s 36(l)(iii) on substantive basis and disallowance of Rs. 8,64,13,534/- u/s 14A read with Rule 8D(i) on protective basis. Total income assessed at Rs. 4,65,58,640/-.
In appeal Ld. CIT(A) has sustained substantive addition u/s 36(1)(iii) of the Act, however protective addition u/s 14A r.w.s. 8D(i) was set aside, as the assessee had no exempt income in the relevant assessment year.
Now, the revenue is in appeal raising following grounds :-
“(1) Whether on the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 9,06,25,049/- made by the AO on account of disallowance u/s 14A of the Income Tax Act, 1961 (“the Act”) read with the provisions of Rule 8D of the Income Tax Rules, 1962 (‘the Rules’). 1a) Whether on the facts & circumstances of the case and in law, the Ld. CIT(A), in deleting the disallowance u/s 14A r.w. Rules 8D solely on the ground that there is no claim of exempt income during the year, has erred in ignoring the CBDT Circular No. 5/2014 which clarifies the legislative intent that the provisions of section 14A r.w.Rules 8D are applicable regardless of the fact that no exempt income has been earned in a particular year. 2. The appellant crave leave to add, alter or amend any ground of appeal raised above at any time of the hearing.”
5. Heard and perused the record.
6. On behalf of the Revenue it was submitted that Ld. AO had rightly taken into consideration the fact that earning of exempt income is not necessary parameter for disallowing interest cost u/s 14A r. w. Rules 8D as the assessee company failed to establish before Ld. AO that it had made investment in shares of a company out of any business consideration.
On the other hand Ld. AR relied the judgment of Hon’ble Supreme Court of India in Commissioner of Income Tax (Central) 1 vs. Chettinad Logistics (P) Ltd. [2018]95 Taxmann.com 250 (SC) to contend that where there is no exempt income Section 14A cannot be invoked.
Giving thoughtful consideration to the matter on record, it can be observed that the admitted case of AO is that assessee has not earned any exempt income and the substantive addition u/s 36(1)(iii) of the Act has been sustained. It is now settled provision of law that if there is no exempt income, no disallowance of expenditure can be made. Reliance in this regard is rightly placed by Ld AR and also Ld CIT(A) on the judgment of Hon’ble Supreme court in Commissioner of Income Tax (Central) 1 vs. Chettinad Logistics (P) Ltd. (Supra) relied by Ld AR. The decision of the Hon’ble Delhi High Court in Commissioner of Income-tax -IV Vs. Holcim India Pvt. Ltd. (2014) 272 CTR 282 (Delhi) can also be relied where in regard to the issue whether disallowance of expenditure under Section 14A of the Act would be made even when no exempt income in the form of dividend was earned in the year, and it was observed:
"14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad Vs. M/s. Lakhani Marketing Incl., decided on 02.04.2014, made reference to two earlier decisions of the same Court in CIT Vs. Hero Cycles Limited, [2010] 323 ITR 518 and CIT Vs. ITA 725-2018 Page 6 of 12 Winsome Textile Industries Limited, [2009] 319 ITR 204 to hold that Section 14A cannot be invoked when no exempt income was earned. The second decision is of the Gujarat High Court in Commissioner of Income Tax-I Vs. Corrtech Energy (P.) Ltd. [2014] 223 Taxmann 130 (Guj.). The third decision is of the Allahabad High Court in Income Tax Appeal No. 88 of 2014, Commissioner of Income Tax (Ii) Kanpur, Vs. M/s. Shivam Motors (P) Ltd. decided on 05.05.2014.”
8.1 Moreover, when substantive addition under section 36(1)(iii) of the Act has been confirmed and has become final, after order in appeal, the protective addition cannot be sustained. No interference is called for in the order of Ld CIT(A).
Accordingly, the grounds raised are not sustainable; the appeal of Revenue is dismissed.
Order pronounced in the open court on 12th July, 2022.