Loading judgment…
Facts
The assessee declared a total loss for AY 2016-17. The Assessing Officer made an addition of Rs. 1,15,40,253/- under Section 14A of the Act read with Rule 8D. The assessee contended that no exempt income was earned, thus Section 14A was not applicable.
Held
The Tribunal held that the revenue admitted that the assessee had not earned any exempt income during the relevant financial year. Therefore, the disallowance under Section 14A read with Rule 8D of the Act was not justified.
Key Issues
Whether disallowance under Section 14A of the Income Tax Act is applicable when the assessee has not earned any exempt income.
Sections Cited
14A, 8D, 143(2), 142(1), 115JB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “K(SMC
IN THE INCOME TAX APPELLATE TRIBUNAL “K(SMC)” BENCH, MUMBAI BEFORE Ms SUCHITRA KAMBLE, JUDICIAL MEMBER And SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER (Assessment Year: 2016-17) M/s. Saurashtra Cement Limited The Deputy Commissioner Vs. (Erstwhile M/s. Villa Trading of Income Tax, Company Private Limited), 1(3)(2), 4th Floor, NK Mehta Mumbai. International House, Babubhai Chinai Marg, 178 Bachbay Reclamation, Mumbai-400020. [PAN :AAACV5221 F] (Appellant) .. (Respondent) Appellant by : Shri Devendra Jain, AR Respondent by: Shri Bhagirath Ramawat, Sr. DR Date of Hearing 15.09.2025 Date of Pronouncement 18.09.2025 O R D E R PER SUCHITRA KAMBLE, JUDICIAL MEMBER:
This appeal is filed by the Assessee against the appellate order dated 13.02.2025 passed by the Addl./Jt. Commissioner of Income Tax (Appeals)-12 Delhi, relating to the Assessment Year 2016-17.
The assesse has raised the following grounds of appeal:
1. The Learned Assessing Officer erred in making an addition of Rs. 1,15,40,253/- u/s 14A of the Act r.w.r 8D of the Income Tax Rules, 1962.
2. The Honorable CIT Appeal erred in dismissing the Appeal of Your Appellant on the ground of Non pursuance of the Appeal when the detailed submissions along with eight Judicial Pronouncements were already on the records which were also submitted on the online portal.
ITA No.2481/Mum/2025 Asst. Year : 2016-17
- 2–
3. The Learned CIT Appeal erred in mechanically passing the order without considering the facts of the case as well as legal arguments raised by Your Appellant during the course of Assessment as well as the Appellate Proceedings.
4. Your Appellant pleads Your Honor to delete the addition of Rs. 1,15,40,253/-made by the Assessing Officer and requests Your Honor to reinstate the returned loss of Rs. 1,02,03,583/- as reported by Your Appellant.
Your appellant craves leave to add, amend and/or alter any ground(s) of this appeal.
The assessee filed its return of income for A.Y 2016-17 on 15.06.2016 declaring total loss of Rs.(-)102,03,583/- under the normal provision of the Act and at Rs.(-)102,03,583/- u/s.115JB of the Act. The case of the assesse was selected for limited scrutiny on the following issues: a. whether tax aspects related to investments/advances/loans have been considered in the return of income. b. Whether deduction claimed on account of interest expenses is admissible.
Notice dated 03.07.2017 u/s.143(2) of the Act was issued and served upon the. Subsequently, various statutory notices u/s. 142(1) of the Act along with questionnaire was also issued. In response to said statutory notices, the assesse has furnished its reply. The AO observed that the assesse-company has invested substantial amount into investment yielding exempt income. It is seen that the assessee had investment of Rs.78,92,83,088/- as on 31.03.2016 into investment in Asst. Year : 2016-17
- 3– listed securities and Rs.65,10,18,561/- as on 31.03.2015. The assesse- company vide submission dated 13.12.2018 stated that the company made strategic Long Term Investment of Rs.78,92 crores in the Equity shares of Saurashtra Cement Ltd. from the own funds of Rs.4.30 crores plus borrowing of Rs.76 crores. Out of the total borrowing of Rs.76 crores and 70 crores is raised by issue of non-interest bearing securities viz. optionally convertible Debentures. The short term borrowing (interest bearing) of Rs.6 crores is used primarily to sustain the business operations. Considering this the question of disallowance interest/business expenditure if not at all arising as dividend bearing investment is out of non-interest bearing securities namely optionally convertible Debentures. The assessee at the time of assessment order has also given the cash flow along with the audited balance sheet. Thus, the assesse submitted before the Assessing Officer that during the year there was no exempt income forming part of total income and therefore the applicability of section 14A is not called for. After going through the assessee’s reply the Assessing Officer held that the assesse-company has short term borrowing of Rs. 6 crores and long term borrowing of Rs.70 crores as on 31.03.2016 and the assessee incurred interest expenses of Rs.1,02,27,946/- in the AY 2016-17. Thus, the Assessing Officer made disallowance u/s.14A r.w Rule 8D and computed the same as mentioned in para 5.12 of the Assessment Order. Thus, the Assessing Officer made disallowance of Rs.1,15,40,253/- u/s.14A of the Act.
ITA No.2481/Mum/2025 Asst. Year : 2016-17
- 4– 5. Being aggrieved by the Assessment Order, the assesse filed appeal before the Ld. CIT(A). The Ld. CIT(A) dismissed the appeal of the assessee.
The Ld.AR submitted that during the year the assesse-company did not earned any exempt income as the investment in shares of Saurashtra Cement Limited is that of non-interest bearing securities viz. optionally convertible Debentures and this are only short term borrowing of Rs. 6 crores used primarily to sustain the business operations. The Ld.AR further submitted that the assesse made used of short term borrowing are interest bearing primarily to sustain the business of operations Therefore, the assesse has not earned any exempt income and the question of disallowance u/s.14A r.w. Rule 8D of the Act does not arise. The Ld.AR further submitted that, in fact, in para 5.4 the Assessing Officer himself accepted that there is no exempt income forming part of the total income.
The Ld. DR relied upon the Assessment Order and the Order of the Ld. CIT(A).
We have heard both the parties and perused the materials available on record. It is admitted position by the Revenue that the assesse had not earned any exempt income, forming part of the total income during the relevant Financial Year. Thus, the Ld. AR has rightly taken cognizance and made a statement that in assessee’s case, there is no exempt income was received by way of dividend for the Financial
ITA No.2481/Mum/2025 Asst. Year : 2016-17
- 5– Year 2015-16. The contention of the Ld.AR appears to be genuine as the details at page Nos. 5 and 7 has categorically mentioned that there is no exempt income. Once it is established that there is no exempt income, the Revenue cannot take the plea that the disallowance u/s.14A r.w. Rule 8D of the Act is justified. Accordingly, the appeal of the assessee allowed.
In the result, the appeal of the assessee is allowed.
The order is pronounced in the open Court on 18.09.2025. /- Sd/- Sd/- (GIRISH AGRAWAL) (SUCHITRA KAMBLE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 18.09.2025 MV आदेश की �ितिलिप अ�ेिषत/Copy of the Order forwarded to : अपीलाथ� / The Appellant 1. ��थ� / The Respondent. 2. संबंिधत आयकर आयु� / Concerned CIT 3. आयकर आयु�(अपील) / The CIT(A)- 4. 5. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, मुंबई गाड� फाईल / Guard file. 6. (True Copy) आदेशानुसार/ BY ORDER, True Copy