JPM TOOLS LTD.,NEW DELHI vs. ACIT, CENTRAL CIRCLE- 13, NEW DELHI

The present appeal filed by the assessee for the assessment year 2015- 16 is directed against the order of Ld. CIT(A)-XXVI, New Delhi dated 11.06.2018. The assessee has raised following grounds of appeal:-

2. The learned Commissioner of Income Tax (A) has erred in confirming addition of Rs 11,96,866/- u/s 14A of the Income Tax Act without going through the facts, statutory provisions as well as explanation filed during the course of assessment proceeding as well as penalty proceeding . 3. The learned Commissioner of Income Tax (A) has failed to consider that the amount of disallowance cannot exceed exempt income and have adequate non - interest bearing fund to make investment in shares and have not incurred expenses related to exempt income

4. The learned Commissioner of Income Tax (A) has erred in not adjudicating the ground relating to disallowance of job work expenses of Rs 1,49,130/- and the disallowance in respect of which have been made without going through the facts, statutory provisions as well as explanation filed during the course of assessment proceeding.

5. The appellant herein craves its right to alter, amend, add and / or withdraw any grounds of appeal and / or to take any additional grounds of appeal.”

The assessment u/s 143(3) of the Income Tax Act, 1961 (“the Act”) was framed vide order dated 15.12.2017. By framing the assessee, the Assessing Officer noticed that the assessee company had earned dividend income of Rs.55,000/-.

Therefore, he invoked the provision of section 14A of the Act and computed the disallowance as per Rule 8D of the Income Tax Rules, 1962 at Rs.11,96,866/-.

Further, the Assessing Officer made disallowance on account of job work expenses at Rs.1,49,130/-.

'8. The decision in the case of Maxopp Investment Ltd. (supra) is significant and does answer the question in issue. This decision does not support the Revenue as the Assessing Officer in the case of Maxopp Investment Ltd. (supra) had himself restricted the disallowance to the extent of exempt income. After referring to Walford Share and Stock Brokers P Ltd. (supra) it was held- "Axiomatically, it is that expenditure alone which has been incurred in relation to the income which is includable in total income that has to be disallowed. If an expenditure incurred has no causal connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is exempted from tax, and such expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated as part of the total income." * * * * 10. The decision of the Delhi High Court in Holcim India Pvt. Ltd. (supra) had referred 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 contra decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad v. M/s. Lakhani Marketing Incl., decided on 02.04.2014, made reference to two earlier decisions of the same Court in CIT v. Hero Cycles Limited, [2010] 323 ITR 518 and CIT v. Winsome Textile Industries Limited, [2009] 319 ITR 204 to hold that Section 4A cannot be invoked when no exempt income was earned. Page | 4 The second decision is of the Gujarat High Court in Commissioner of Income Tax-I v. 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, v. M/s. Shivam Motors (P.) Ltd. decided on 05.05.2014. In the aid decision it has been held: "As regards the second question, Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, no deduction shall [be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A), which has, been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of Rs. 2,03,752/- made by the Assessing Officer was in order".

Ground Nos.2 & 3 raised by the assessee are partly allowed.

11. Ld. Counsel for the assessee submitted that Ld.CIT(A) has not decided this issue hence it may be restored back to the file of Ld. CIT(A) for decision on merit.

In the result, the appeal of the assessee is partly allowed. 14.

Above decision was pronounced on conclusion of Virtual Hearing in the presence of both the parties on 09th November, 2021.