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Income Tax Appellate Tribunal, DELHI “E” BENCH: NEW DELHI
Before: SHRI R.K.PANDA & SHRI KUL BHARAT
ORDER PER KUL BHARAT, JM :
This appeal filed by the Revenue is directed against the order dated 25.08.2017 of the learned CIT(A)-28, New Delhi, relating to Assessment Year 2013-14. The Revenue has raised following grounds of appeal:-
1. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting disallowance of Rs. 2,12,03,476/- u/s 14A of the income Tax Act (the Act) without considering legislative intent of introducing section 14A of the Act by the Finance Act
2001 as clarified by the CBDT Circular No. 5/2014 dated 10.02.2014?
2. Whether on facts and in circumstances of the case, Ld. CIT(A) is legally justified in not holding that application of Rule 8D of the income Tax Rule, 1962 (the Rule) to compute quantum of disallowance u/s 14A of the Act is mandatory?
3. Whether on facts and in circumstances of the case, the Ld.CIT(A) is legally justified in deleting disallowance of Rs. 2,12,03,476/- u/s 14A of the Act without considering ratio decidendi as upheld in cases of CIT vs. Wolfort Share and Stock Brokers P. Ltd. [2010] 326 ITR 1 (SC) and Maxopp Investment Vs. CIT (2012) 347 ITR 272 (Delhi) on application of provisions of section 14A of the Act?
That the appellant craves leave to add, amend, alter or forgo any ground/(s) of appeal either before or at the time of hearing of the appeal.”
The only effective ground is against the deletion of addition of Rs.2,12,03,476/- made by invoking provisions of section 14A of the Income Tax Act, 1961 (hereinafter ‘the Act’).
Facts giving rise to the present appeal are that the return of income declaring total loss of Rs.36,84,765/- was filed on 29.03.215 through electronic mode. The case of the assessee was selected for scrutiny assessment and the Assessment u/s 143(3) of the Act was framed vide order dated 28.03.2016. The Assessing Officer while framing the assessment invoked the provisions of section 14A of the Act and computed the disallowance under Rule-8D of the Income Tax Rules, 1962 (hereinafter ‘the Rules’) of Rs.2,12,03,476/-.
4. Aggrieved against this, the assessee preferred appeal before the Ld. CIT(A), who after considering the submissions deleted the disallowance. The Ld. CIT(A) while deleting the disallowance noticed the assessee had earned meager sum of Rs.148 as exempt but no expenditure against earning such income has been claimed.
Aggrieved by this order, the Revenue is in appeal before the Tribunal.
The Ld. DR vehemently argued that the Ld. CIT(A) was not justified in deleting the disallowance. The Ld. DR submitted that the Assessing Officer has disallowed expenditure in accordance with provisions of section 14A of the Act which is justified. Further reliance is placed on the judgment of Hon’ble Supreme Court in the case of CIT vs. Wolfort Share and Stock Brokers P. Ltd. [2010] 326 ITR 1 (SC) and Maxopp Investment Vs. CIT (2012) 347 ITR 272 (Delhi)
Per contra, the Ld. Counsel for the assessee opposed the submission and submitted that there is no dispute with regard to the fact that the assessee has earned only a sum of Rs.148/-. He submitted that no expenditure was incurred for earning exempt income. He submitted that even if any disallowance was to be made that ought to have been restricted to the extent of exempt income. In support of this contention, the learned counsel for the assessee has placed reliance on the judgment of Hon’ble Supreme Court rendered in the case of CIT vs Rajendra Prasad Moody and judgment of Hon’ble Supreme Court in the case of Cheminvest Ltd. vs CIT 378 ITR 33(SC).
We have heard the rival submissions, perused the records material available on record and gone through the order of the authorities below. The Ld. CIT(A) has decided the issue by observing as under:-
“6. I have considered the facts of the case, basis of disallowance made by the Assessing Officer and submissions of appellant. As it is clear from the assessment order as well as submissions of appellant that the assessee has earned a meager sum of Rs.148/- as exempt but no expenditure against it has been claimed by it which can be made subject matter of Section 14A of the Act. However, Assessing Officer has taken into consideration the investment by appellant during the year as well as the preceding year and by applying the provisions of Section 14A of the Act r.w. Rule 8D, mechanically worked out the disallowance at Rs.2,12,03,476/-. During the appellate proceedings, for not disallowing any expenditure, appellant has relied on many decisions of different Courts. In such situation, when the facts of the case are to be interpreted in the light of decisions of various Courts, firstly we have to go through the ratios of decisions of jurisdictional High Court which are binding on us. In a case CIT vs I.P. Support Services India (P) Ltd. reported in 378 ITR 240, while dealing this issue, Hon'ble jurisdictional High Court has held that it is erroneous premise that the invocation of Section 14A is automatic and comes into operation as soon as the dividend income is claimed as exempt. It is further held that for making disallowance u/s 14A, the pre- condition is satisfaction of assessing officer that voluntary disallowance made by assessee is unreasonable and unsatisfactory and in absence of such satisfaction, disallowance is not justified. It is further held by Hon'ble Court in another case namely CIT Vs Om Prakash Khaitan 376 ITR 390 that even if satisfaction is recorded, no disallowance can be made if no nexus between expenditure incurred and income not forming part of total income has been established by AO. In the case
Cheminvest Ltd Vs CIT 378 ITR 33, Hon'ble Court, after reversing the decision of Spl. Bench, opined that if no exempted income was earned by the assessee in the relevant assessment year and since the genuineness of expenditure incurred was not in doubt, no disallowance could be made u/s 14A of the Act. In a recent decision dated 16.08.2017 in the case of II & FS Energy Development Vs. Pr. CIT-04 Jurisdictional High Court has again deliberated on the issue and after discussing the decision of CIT Vs. Rajendra Prasad Moody of Hon'ble Supreme Court (Supra) & CBDT, Circular No. 5/2014, dated 11.02.2014, along with the other decisions, has affirmed the findings of its earlier decision in the case of Cheminvest Vs. CIT 378 ITR 33 and held that no disallowance u/s 14A of the Act is called for in the year in which the assessee has not earned income which was exempt. It is further held by Hon'ble Court that the CBDT Circular dated 11.02.2014 cannot override the express provisions of Section 14A r.w. Rule 8D of the IT Act. There are several other decisions of different Courts and Tribunals, as mentioned by appellant in its submissions, wherein it has been held that if there is no exempt income claimed by assessee, no disallowance of any expenditure can be made u/s 14A of the Act. Now, in the light of these decisions, the case of appellant has to be examined. First and foremost,, the AO should have a given the details of any exempt income earned by appellant and expenditure incurred against it with cogent reasons by rejecting the claim of assessee before computing the disallowance u/s 14A of the Act. However, the same has not been done by him. He has not even cared to mention the figure of exempt income earned by appellant during the year. He has given only a general observation about the applicability of provisions of section 14A in the assessment order in the case of appellant and mechanically computed the disallowance on the basis of investment made by appellant in the shares during and preceding year. The AO has also not been able to establish any nexus between the exempt income, if any earned by appellant and any expenditure incurred to earn this income. He has simply computed the disallowance only on the ground that no expenditure had been disallowed by appellant in its computation against the receipts not forming part of total income whereas there are insignificant amount of receipts which are not part of total income whereas the appellant has demonstrated with the facts and figures that major part of this investments have gone towards earning the taxable income. In such situation, the legal requirements of Section 14A of the Act are not fulfilled by the AO for making any disallowance as per this Section as held by Hon'ble Jurisdictional High Court in different cases, as mentioned above. Hence, the action of AO is not justified and sustainable. In view of this discussion, the disallowance of Rs. 2,12,03,476/- made by AO is hereby deleted and grounds taken by appellant are allowed.”
The Revenue could not contradict the finding that the assessee has only earned exempt income to the tune of Rs.148/-.
The Revenue has also not rebutted the finding that no expenditure was incurred in earning for the dividend income. It is also contended that the Assessing Officer has not demonstrated the nexus between expenses incurred with the earning of the exempt income. The Hon’ble Supreme Court in the case of Godrej and Boyce Manufacturing Company Ltd. vs DCIT 11 [2017] 7 SCC 421 held that what cannot be denied is that the requirement for attracting the provisions of section 14A(1) of the Act is proof of the fact that the expenditure sought to be disallowed had actually been incurred in earning the dividend income. We find that in the present case, no such finding has been recorded by the Assessing Officer. Therefore, no interference is called for. The ground raised by the Revenue is dismissed.
In the result, the appeal of the Revenue is dismissed.
Above decision was pronounced in the open court on conclusion of Virtual Hearing on 21.09.2021.