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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: HON’BLE RAJPAL YADAV & SHRI MANISH BORAD
order u/s 143(3) of the Income Tax Act 1961(In short the ‘Act’) dated 14.12.2016 framed by DCIT-1(1), Indore.
Revenue has raised following grounds of appeal:-
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance made by the AO of Rs. 3,35,38,350/- u/s 14A of Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962? 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was justified in deleting the disallowance of Rs.3,35,38,350/- u/s 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 by not taking into account the decision of the Hon’ble Supreme Court in M/s Maxopp Investments Ltd vs. CIT 402 ITR 640 (SC) ? The appellant, carves leave to add or to deduct from or otherwise amend the above grounds of appeal
3. Brief facts of the case as culled out from the records are that the assessee is a limited company engaged in the business of real estate and construction. Assessee filed its return of income on 30.11.2014 declaring total income at NIL and current year loss of Rs.5,02,86,279/-. The case was selected for scrutiny through CASS and notice u/s 143(2) of the Act dated 31.08.2015 was duly served upon the assessee. During the course of assessment proceedings query letter u/s 142(1) of the Act was also issued. Detailed 2 submissions were filed by the assessee. Ld. Assessing Officer completed the assessment after making various additions totalling to Rs.3,39,03,281/- which also included disallowance u/s 14A of the Act at Rs.3,35,38,350/-. Income assessed on book profit at Rs. 6,43,95,032/-.
4. Aggrieved assessee preferred appeal before Ld. CIT(A) and partly succeeded.
5. Now the Revenue is in appeal before the Tribunal raising sole issue regarding deletion of disallowance u/s 14A of the Income Tax Act r.w.r.t. Rule 8D of the I.T. Rules at Rs.3,35,38,350/- by Ld. CIT(A). 6. Ld. Departmental Representative (DR) vehemently argued supporting the order of the Ld. Assessing Officer.
7. Per contra ld. Counsel for the assessee submitted that the issues raised in the instant appeal is squarely covered by the decision of Hon’ble Indore Bench in assessee’s own case for A.Y. 2013-14 in ITANo.393/Ind/2017 dated 30.05.2019. It was also submitted by the ld. Counsel for the assessee that the assessee has not earned any exempt income during the year and thus in view of judgment of 3 Hon’ble Delhi High Court in the case of Cheminvest Limited vs. CIT (2015) 378 ITR 033, no disallowance u/s 14A of the Act was called for.
Reliance was also placed on following decisions:
Copy of order of the Hon'ble Allahabad High Court in the case of Shivam Motors Private Limited. (2015) 230 Taxman 0063 (All) 2. Copy of order of the Hon'ble Delhi High Court in the case of Holcim India Private Limited. (2014) 90 CCH 0081 (Del HC) 3. Copy of order of the Hon'ble Punjab and Haryana High Court in the case of Lakhani Marketing Incl. vs. CIT (ITA No. 970/2008) 4. Copy of order of the Hon'ble Punjab and Haryana High Court in the case of Hero Cycles Limited vs. CIT (2010) 323 ITR 518. 5. Copy of order of the Hon'ble Punjab and Haryana High Court in the case of Winsome Textile Industries Limited vs. CIT (2009) 319 ITR 204. 6. Copy of order of Hon'ble ITAT Indore Bench in the case of DCIT-1(1), Indore vs. M/ s Brilliant Estate Pvt. Ltd in Departmental Appeal for AY 2013-2014. 7. Copy of the decision of Hon'ble IT AT Delhi Bench in the case of Amar Packaging Pvt. Ltd. vs. CIT (ITANo.6291/Del/2013 9. We have heard rival contentions and perused the records placed before us and also carefully gone through judgments referred and relied by the Ld. Counsel for the assessee. Sole grievance of the revenue challenging the finding of Ld. CIT(A) is that the Ld. CIT(A) erred in deleting the disallowance of Rs.3,35,38,350/- made by the Ld. AO u/s 14A of the Act r.w.
Rule 8D of I.T. Rules.
From perusal of the audited profit and loss account placed at pages 16 to 31 of the paper book dated 29th July 2020 and more specifically note no. 14 & 15 (paper book page 27) pertaining to revenue from operations and other income, we find that assessee has not earned any exempt income during the year. This fact remains undisputed at the end of Ld. DR.
Under these given facts and circumstances where no exempt income has been eared by the assessee during the year, in view of the judgment of the Hon’ble Delhi High Court in the case of Cheminvest Limited (supra), no disallowance u/s 14A was called for. Relevant abstract of the judgment of Hon’ble Delhi High Court is reproduced below:
In the impugned order, the ITAT has referred to the decision in Maxopp Investment Ltd. (supra) and remanded the matter to the AO for reconsideration of the issue afresh. The issue in Maxopp Investment Ltd. (supra)was whether the expenditure (including interest on borrowed funds) in respect of investment in shares of operating 5 companies for acquiring and retaining a controlling interest therein was disallowable under Section 14 A of the Act. In the said case admittedly there was dividend earned on such investment. In other words, it was not a case, as the present, where no exempt income was earned in the year in question. Consequently, the said decision was not relevant and did not apply in the context of the issue projected in the present case.
In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression „does not form part of the total income‟ in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.
Consequently, the impugned order of the ITAT is set aside and the appeal is allowed in the above terms. This Court should not be understood to have expressed any opinion on the issue of whether for the AY in question the interest expenditure incurred by the Assessee would be allowable as business expenditure under Section 36 (1)(iii) of the Act.
We further observe that this Coordinate Bench in assessee’s own case for A.Y.2013-14 vide ITANo.393/Ind/2017 dated 30.05.2019 has decided very same issue wherein disallowance u/s 14A was made but there was no exempt income earned during the year. This Tribunal confirmed the view taken by the ld. CIT(A), and dismissed the revenue’s appeal observing as follows: 6
We have heard rival contentions, perused the records placed before us and carefully gone through the decision relied by both the parties. Revenue’s sole grievance is against the finding of Ld. CIT(A) deleting the disallowance of Rs.3,10,93,327/- made by the Ld. A.O. We find that the similar issue came up before us for the Assessment Year 2012-13 in assesese’s own case and the revenue’s ground challenging the disallowance u/s 14A of the Act was dismissed by us by distinguishing facts of the assessee with the fact adjudicated by the Hon’ble Apex Court in the case of Maxopp Investment Ltd vs. CIT 101 CCH 0092 dated 12.02.2018. Relevant extract of the decision of the Tribunal in assessee’s own case for Assessment Year 2012-13 dealing with the issue of disallowance u/s 14A of the Act is reproduced below; 14. From going through the above discussions, we are satisfied with the submission made by the Ld. Counsel for the assessee that the judgment of Hon’ble Apex Court in the case of Maxopp Investment Ltd (supra) is not applicable on the assessee as the facts are different. Similarly reliance placed by Ld. DR on the decision of I.T.A.T. Amritsar Bench is also not applicable to the facts of the assessee. 15. Further we are of the considered view that disallowance u/s 14A of the Act is not called for in the case of the assessee as there is no dividend income earned during the year and the assessee’s case is squarely covered in the judgment of Hon’ble Gujarat High Court in the case of CIT V/s Corrtech Energy (P) Ltd (supra) wherein the Hon’ble High Court has held that “where the assessee has not made any claim for any exemption then in such situation the disallowance u/s 14A of the Act have no application”. 16. Perusal of the audited balance sheet of the assessee shows that as on 31.03.2012 the total of the share capital and reserve and surplus at the end of the year stands at Rs.39,28,44,695/- and against these interest free funds available with the assessee, the average value of investment is Rs.29,83,62,600/-, which means that 7 the average investments are less than the interest free fund available with the assessee. Further there is no specific satisfaction by the Ld.A.O which could prove that interest bearing funds have been applied for the investments in group concerns for non business purposes. In such situation judgment of Hon’ble High Court of Bombay in the case of CIT V/s Reliance Utilities & Power Ltd (supra) is also applicable and is in favour of the assessee, wherein the Hon’ble High Court while adjudicating similar issue held that “if there are funds available, both interest free and over draft or loans taken, then the presumption would arise that the investments would be out of the interest free fund generated but available with the company, if the interest free funds were sufficient to meet the investments”.
Similar view was also taken by Hon’ble High Court of Bombay in the case of CIT V/s HDFC Bank Ltd (supra) wherein the assessee’s capital, profit, reserve surplus and current account deposits were higher than the investment in tax free securities, then it would have to be presumed that investment made by the assessee would be out of the available interest free funds.
We therefore respectfully following the above judgments, detailed finding of Ld.CIT(A) as well as our discussions above are of the considered view that no disallowance u/s 14A was called for by the Ld.A.O and therefore we find no infirmity in the finding of Ld.CIT(A) deleting the disallowance u/s 14A of the Act at Rs.2,31,50,925/-. In the result Ground No.1 of the revenue stands dismissed”.
We therefore respectfully following the decision of the Co- ordinate Bench as well as in the given facts and circumstances of the case are of the considered view that firstly the assessee has sufficient interest free funds in the form of share capital and reserve and surplus to cover up various investments made in subsidiary and associated companies and secondly the alleged investments in subsidiary companies have been made for promoting business and to 8
have controlling interest and the income from investments have been duly offered to tax and therefore no disallowance u/s 14A of the Act was called for. Accordingly we find no reason to interfere in the finding of Ld. CIT(A) deleting the disallowance of Rs.3,10,93,327/-. Accordingly Ground No. 1 to 3 of revenue duly stands dismissed. 13. We, therefore, respectfully following the judgment of Hon’ble Delhi High Court and the view taken by this Tribunal in assessee’s own case, and similarity of facts and issues raised in the instant appeal, are of the considered view that since no exempt income is earned by the assessee during the year, disallowance u/s 14A was uncalled for. We, thus, find no inconsistency in the finding of ld. CIT(A).
Accordingly, both the grounds raised by the revenue are dismissed.
In the result, appeal filed by the revenue in is dismissed. The order pronounced as per Rule 34 of ITAT Rules, 1963 on 29.06.2021.