THE PR. COMMISSIONER OF INCOME TAX ( CENTRAL), LUDHIANA vs. M/S COSMOS INFRA ENGINEERING ( INDIA ) LTD.

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ITA/213/2018HC Punjab & HaryanaPHHC01119059201801 April 2019Author: MR. JUSTICE AJAY KUMAR MITTAL,MRS. JUSTICE MANJARI NEHRU KAUL3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the revenue's appeal. The Court noted that the revenue's counsel could not dispute that the matter was covered by a previous judgment of the same Court in ITA-322-2016 (Principal Commissioner of Income Tax-I, Chandigarh v. M/s Vardhman Chemtech Private Limited, Chandigarh), decided on August 28, 2018. In that case, the revenue's appeal against the deletion of a disallowance under Section 14A read with Rule 8D was dismissed. Therefore, following the precedent set in Vardhman Chemtech, the present appeal was also dismissed. The specific reasoning from the Vardhman Chemtech judgment, which would form the ratio decidendi for this case, is not detailed here but pertains to the applicability of Section 14A and Rule 8D when no exempt income is earned.

What were the facts?

The assessee, M/s Cosmos Infra Engineering (India) Ltd., Delhi, is in appeal against an order of the Income Tax Appellate Tribunal (ITAT) for assessment year 2013-14. The Assessing Officer (AO) disallowed expenditure of ₹2,07,14,800/- under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962, on the grounds that the assessee had investments in shares amounting to ₹641.13 lakhs, and any income earned from these investments (like dividends) was exempt. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition. The ITAT upheld the CIT(A)'s order, leading to the present appeal by the revenue.

What were the issues?

1. Whether, in the facts and circumstances of the case, the ITAT was correct in upholding the CIT(A)'s order that no disallowance under Section 14A can be made if there is no tax-free income earned during the year, ignoring CBDT's Circular No. 5/2014 dated February 11, 2014, which states that disallowance of expenses for earning exempt income under Section 14A read with Rule 8D would be attracted even if corresponding income has not been earned during the year? 2. Whether the impugned order passed by the ITAT is sustainable in law or maintainable in the facts and circumstances of the case? Assessee's Contention: Not recorded in the judgment. Revenue's Contention: The revenue argued that disallowance under Section 14A is attracted even if no exempt income is earned in the year, citing CBDT Circular No. 5/2014. The revenue challenged the ITAT's order upholding the CIT(A)'s deletion of the disallowance.

Which sections of the Income-tax Act were involved?

Section 14A,Section 143(3),Section 260A

AI-generated summary — verify with the full judgment below

ITA-213-2018 -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA-213-2018 (O&M) Date of Decision: 1.4.2019 The Principal Commissioner of Income Tax (Central), Ludhiana ....Appellant. Versus M/s Cosmos Infra Engineering (India) Ltd., Delhi ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MRS. JUSTICE MANJARI NEHRU KAUL. PRESENT: Mr. Rajesh Katoch, Sr. Standing Counsel with Ms. Pridhi Jaswinder Sandhu, Junior Standing Counsel. *** AJAY KUMAR MITTAL, J.

1.

This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 31.10.2017 (Annexure A-III) passed by the Income Tax Appellate Tribunal, Chandigarh Bench, Chandigarh (hereinafter referred to as “the Tribunal”) in ITA No. 486/CHD/2017, for the assessment year 2013-14, claiming the following substantial questions of law:- (i) Whether in the facts and circumstances of the case, the Hon'ble ITAT is correct in upholding the order of the CIT(A) that no disallowance u/s 14A can be made if there is no tax free income earned during GURBACHAN SINGH 2019.04.06 16:07 I attest to the accuracy and integrity of this document

ITA-213-2018 -2- the year ignoring the CBDT's Circular No. 5/2014 dated February 11, 2014 which states that disallowance of expenses for earning exempt income u/s 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962, would be attracted even if corresponding income has not been earned during the year? (ii) Whether the impugned order dated 31.10.2017 passed by the ITAT is sustainable in the eyes of law or maintainable in the facts and circumstances of the case?

2.

Briefly stated, the facts necessary for adjudication of the instant appeal as narrated therein may be noticed. The Assessing Officer during the course of assessment proceedings had noticed that the assessee had declared investment in shares amounting to ` 641.13 lakhs as against such investment of ` 640.98 lakhs shown in the immediate preceding assessment year. Since the income earned, if any, from these investments, by way of dividend etc. was exempt from taxation, as such the expenditure incurred relating to such investments was not an allowable expenditure. The Assessing Officer vide assessment order dated 5.6.2015 (Annexure A-1) passed under Section 143(3) of the Act disallowed the expenditure amounting to ` 2,07,14,800/- and added to the income of the assessee. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [for brevity “the CIT(A)”] challenging the addition of ` 2,07,14,800/- under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (in short “the Rules”). The CIT(A) vide order GURBACHAN SINGH 2019.04.06 16:07 I attest to the accuracy and integrity of this document

ITA-213-2018 -3- dated 6.1.2017 (Annexure A-II) allowed the appeal and deleted the addition of ` 2,07,14,800/- under Section 14A of the Act read with Rule 8D of the Rules. The revenue challenged the order, Annexure A-II, before the Tribunal. The Tribunal vide order dated 31.10.2017 (Annexure A-III) upheld the order of the CIT(A) and dismissed the appeal of the revenue. Hence, the present appeal by the revenue.

3.

We have heard learned counsel for the revenue.

4.

It could not be disputed by the learned counsel for the revenue that the aforesaid matter is covered by the judgment of this Court in ITA- 322-2016 (Principal Commissioner of Income Tax-I, Chandigarh v. M/s Vardhman Chemtech Private Limited, Chandigarh) decided on 28.8.2018, wherein the appeal filed by the revenue against the deletion of disallowance of ` 40,28,526/- under Section 14A of the Act read with Rule 8D of the Rules, was dismissed.

5.

Accordingly, the present appeal is also dismissed in terms of ITA-322-2016. (AJAY KUMAR MITTAL) JUDGE April 1, 2019 (MANJARI NEHRU KAUL) gbs JUDGE Whether Speaking/Reasoned Yes/No Whether Reportable Yes/No GURBACHAN SINGH 2019.04.06 16:07 I attest to the accuracy and integrity of this document

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