PRINCIPAL COMMISSIONER OF IN vs. M/S TAMIL NADU STATE TRANSPO

TCA.No.31 of 2021 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 11.1.2021 CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM and THE HONOURABLE MS.JUSTICE R.N.MANJULA Tax Case Appeal No.31 of 2021

Principal Commissioner of Income Tax-I, Coimbatore ...Appellant Vs M/s.Tamil Nadu State Transport Corporation (Coimbatore Division) Ltd., Coimbatore-43 ...Respondent APPEAL under Section 260A of the Income Tax Act, 1961 against the order dated 19.7.2019 passed by the Income Tax Appellate Tribunal, Madras 'B' Bench, Chennai made in I.T.A.No.2213/Chny/2017 for the assessment year 2010-11. For Appellant: Mr.T.R.Senthilkumar, SSC For Respondent: Mr.R.Vijayaraghavan for M/s.Subbaraya Aiyer Padmanabhan Judgment was delivered by

T.S.SIVAGNANAM

This appeal has been filed by the assessee under Section 260A of the Income Tax Act, 1961 ('the Act' for brevity) challenging the order 1/7 https://www.mhc.tn.gov.in/judis/ TCA.No.31 of 2021 dated 19.7.2019 made in I.T.A.No.2213/Chny/2017 on the file of the Income Tax Appellate Tribunal, Chennai, 'B' Bench ('the Tribunal' for brevity) for the assessment year 2010-11. 2. The Revenue has filed this appeal by raising the following substantial questions of law: “i. Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in deleting the addition made on account of disallowance under Section 14A of the Income Tax Act ? ii. Whether the Tribunal is right in law in overlooking the observation made by the Hon'ble Supreme Court in the case of Maxopp Investment Ltd Vs. CIT [reported in (2018) 91 Taxmann.com 154] wherein it was held that 'the purpose behind Section 14A of the Act by not permitting deduction of the expenditure incurred in relation to income, which does not form part of total income, is to ensure that the assessee does not get double benefit and that once a particular income itself is not to be included in the total income and is exempted from tax, there is no reasonable basis for giving benefit of deduction of the expenditure incurred in earning such an income' ? And iii. Whether the expenditure under 2/7 https://www.mhc.tn.gov.in/judis/ TCA.No.31 of 2021 Section 14A of the Income Tax Act in respect of investment in shares can be claimed against the taxable income on the ground that no exempt income received from the investment during the financial year?” 3. We have heard Mr.T.R.Senthilkumar, learned Senior Standing Counsel appearing for the appellant/Revenue and Mr.R.Vijayaraghavan, learned counsel appearing on behalf of the respondent/assessee. 4. It is not disputed by the Revenue that an identical issue was considered by this Court in the decision in the case of CIT Vs. Celebrity Fashion Ltd. [reported in (2020) 119 Taxmann.com 426], to which, one of us (TSSJ) was a party, wherein it was held that in terms of Section 14A of the Act, only expenditure, which was proved to be incurred in relation to earning of tax free income, could be disallowed and such provision could not be extended to disallow expenditure, which was assumed to have been incurred for earning tax free income. It was further held that to apply provisions of Section 14A of the Act, the Assessing Officer should have recorded a finding as to how Sub-Section (1) of Section 14A of the Act would stand attracted and in absence of any such finding, the disallowance made was not justifiable. 5. The relevant portions in the said decision read as follows : 3/7 https://www.mhc.tn.gov.in/judis/ TCA.No.31 of 2021 “24. We had an occasion to consider a similar question in the case of CIT, Corporate Circle-3, Chennai v. Visual Graphics Computing Services India Pvt. Ltd. [TCA.No.414 of 2018 dated 19-8-2020]. In the said appeal, question of law No.5, which was framed for consideration, was as to whether the Tribunal was right in holding that the provisions of Section 14A of the Act read with Rule 8D of the said Rules will have no applicability if there is no exempt income earned or received during the previous year though the disallowance is linked to expenditure incurred on investment fetching exempt income. The said case was decided in favour of the assessee and against the Revenue and in doing so, we have followed the decision of the Hon'ble Division Bench of this Court in the case of CIT v. Chettinad Logistics Pvt. Ltd. [reported in (2017) 80 Taxmann.com 221]. This decision would come to the aid and assistance of the assessee. .......... 28. In fact, an identical argument was raised for consideration before the Hon'ble Division Bench of this Court in the case of Chettinad Logistics Pvt. Ltd., and such a contention was rejected by rendering the following findings : 4/7 https://www.mhc.tn.gov.in/judis/ TCA.No.31 of 2021 '13. Mr.Senthil Kumar, seeks to distinguish the judgment in Redington (India) Ltd. case (supra) based on the fact that Rule 8D had not kicked-in by AY 2007-08, which was the AY being considered in the said case. 14. According to us, this was not the argument, put forth, before the Division Bench. As a matter of fact, the Revenue relied heavily on Rule 8D. 14.1 Mr.Ravikumar, who appeared for the Revenue, in that matter and who is present in this Court, informs us that he had in fact argued that the Rule was clarifactory in nature and would apply retrospectively, and that, the Division Bench, therefore, discussed the impact of Rule 8D of the Rules. 15. However, it is, our view, as indicated above, independent of the reasoning given in Redington (India) Ltd. case (supra) that Rule 8D cannot be read in a manner, which takes it beyond the scope and content of the main provision, which is, Section 14 A of the Act. 15.1 Therefore, as adverted to above, Rule 8D, cannot come to the rescue of the Revenue. 15.2 In any event, the Tribunal, via, the impugned judgment has remitted the matter to the Assessing Officer. 5/7 https://www.mhc.tn.gov.in/judis/ TCA.No.31 of 2021 15.3 Therefore, for the foregoing reasons, we are of the view, that no interference is called for qua the impugned judgment." As against the decision of this Court in the case of Chettinad Logistics Pvt. Ltd., the Revenue preferred appeals before the Hon'ble Supreme Court and the special leave petitions were dismissed on the ground of delay as well as merits in the decision reported in (2018) 95 Taxmann.com 250.' 6. In the instant case also, the facts are identically cogent and there is no opinion recorded by the Assessing Officer as to how Sub- Section (1) of Section 14A of the Act would stand attracted. 7. Thus, by following the said decision, the above tax case appeal is dismissed and the substantial questions of law raised are answered against the Revenue. No costs. 11.1.2021 To The Income Tax Appellate Tribunal, 'B' Bench, Chennai. RS 6/7 https://www.mhc.tn.gov.in/judis/ TCA.No.31 of 2021 T.S.SIVAGNANAM,J AND R.N.MANJULA,J RS TCA.No.31 of 2021 11.1.2021 7/7 https://www.mhc.tn.gov.in/judis/