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Income Tax Appellate Tribunal, “C” BENCH, MUMBAI
Before: SHRI AMIT SHUKLA, JM & SHRI PRASHANT MAHARISHI, AM
O R D E R
Per Amit Shukla, Judicial Member:
The aforesaid appeal has been filed by the revenue against the impugned order dated 28.01.2022, passed by Ld. CIT(A)-49, Mumbai for the quantum of assessment passed u/s 143(3) for AY 2017-18. The revenue has taken the following grounds:-
M/s Pan India Network Infravest Ltd. A. Whether on the facts and circumstances of the case and in law the Ld. CIT(A) is justified in restricting the disallowance U/S.14A to Rs.1,511/- i.e. to the extent of exempt income instead of Rs.59,65,39,287/- worked out by the AO as per Rule 8D, without appreciating the fact that the Hon'ble Bombay High Court has upheld the constitutional validity of Rule 8D in case of Godrej Boyce & MGF, Co vs ACIT from AY 2007-08 onwards. B. Whether on the facts and in circumstances of the case, the Ld.CIT(A) was justified in not appreciating the facts that the assessee has made strategic investments in its associates / related concerns which are likely to result in exempt income and expenditure incurred on such investments is to be considered for disallowance U/S.14A as held by the Hon'ble Apex Court in the case of Maxopp Investment Ltd [2018] 402 ITR 640/254 and CBDT Circular No.5/2014 dated 11.02.2014.
The brief facts of the case are that, assessee is engaged in the business of data centre services. During the course of assessment proceedings, AO noted that assessee has not made any disallowance u/s 14A. After detail discussion, AO made disallowance under rule 8D amounting to Rs. 59,65,39,287/-.
Before Ld. CIT(A), assessee submitted that assessee has earned only exempt income of Rs. 1,511/- and therefore M/s Pan India Network Infravest Ltd. disallowance could not have exceed the exempt income and in support of it, various citations and judicial pronouncements were relied on by the assessee. The Ld. CIT(A) accepted the contention of the assessee and allowed the assessee’s plea. The relevant findings of Ld. CIT(A) is read as under:-
6.1 I have considered the facts of the case. The assessee has raised multiple contentions as to disallowance made by the Id. AO u/s 14A. One of the contentions of the assessee is that the exempt income earned during the year under reference was only Rs. 1511/- and that in any case the disallowance should not have exceeded the exempt income. Hence, the effective grounds taken by the assessee is regarding the disallowance made under section 14A of the Act being in excess of the tax-exempt income earned during the financial year under consideration. In the grounds of appeal, it has articulated this by stating that dividend income stood at Rs.1511/- and, therefore, the impugned disallowance could not have been exceeded the said amount. The Assessing officer, in Para 3.3 of the assessment order, has also noted the submission^ tile assessee that the it has earned dividend income of Rs. 1511/-from its investments. This was reiterated in the submissions made before me. The assessee has relied upon multiple judicial pronouncements as referred to in its submissions above, where it was held that no disallowance under section 14A of the Act can be made when no exempt income had been earned.
M/s Pan India Network Infravest Ltd. 6.2. The assessee also submitted that this aspect has previously been considered in its case in appeal by the Ld. CIT(A) for A.Y. 2012-13 to 2015-16 and the Ld. CIT(A) has directed to restrict the disallowance to the extent of exempt income. The aforesaid orders of the Ld. CIT(A) was also upheld by the Hon'ble ITAT for AYs 2013-14, 2014-15 & 2015-16. I find that this submission was made before the AO as well and it is reproduced in Para 3.3 of the assessment order as part of the submission of the assessee. 6.3. There is no dispute about the fact that the total exempt income earned by the respondent-assessee in this year was Rs. 1511/- only. In this regard, it is pertinent to note that the disallowance as held by the Hon'ble Delhi Court in Pr. CIT v. McDonalds India (P.) Ltd. ITA 725/2018 decided on 22nd October, 2018 cannot exceed the exempt income of that year. This decision of the Hon'ble High Court follows the ratio and judgment of the Hon'ble Supreme Court in the case of Maxopp Investments Ltd. v. CIT [2018] 402 ITR 640/254 Taxman 325/91 taxmann.com 154 and the ^earlier judgments of the Delhi High Court in Cheminvest v. CIT [2015] 378 ITR 33/234 Taxman 761/61 taxmann.com 118 and CIT v. Holcim (P.) Ltd. [2015] 57 taxmann.com 28 (Delhi). 6.4. In DCIT, Central Circle-5(4) Mumbai vs. RKW Developers (P.) Ltd (ITA No. 6267/Mum/2016 dated 19.12.2017) Hon'ble Appellate Tribunal, Mumbai, held as under (emphasis added):
M/s Pan India Network Infravest Ltd. "We have observed that Hon'ble Delhi High Court in the case of Cheminvest Limited (supra) had held that no disallowance can be made u/s. 14A, if no exempt income is received or receivable during the year. The decision of the Hon'ble Delhi High Court is approved by Hon'ble Bombay High Court in the case of Principal CIT v. Ballarpur Industries Ltd. ..... Thus keeping in view ratio of decision of Hon'ble Delhi High Court in the case of Cheminvest Limited (supra) and Hon'ble Bombay High Court in the case of Ballarpur Industries Ltd.(supra) , we order deletion of the addition of Rs. 97,90,947/- as made by the A.O u/s. 14A by applying Rule 8D as the assessee has not received any exempt income during the previous year relevant to the impugned assessment year" 6.5. The same view Has been taken by the Hon'ble Appellate Tribunal, Mumbai, in ACIT, Circle-3(1)(2), Mumbai vs M/s Edelweiss Alternate Asset Advisors Ltd (ITA No. 804/Mum/2017 dated 27.06.2018; in J. M. Baxi Co. vs DCIT Central Circle 6(4) (ITA 4044-46/Mum/2016 dated 25.04.2018); in Pyramid Consulting Engineers (P.) Ltd vs DCIT, Circle 3, Thane [2018] reported in 90 taxmann.com 411; in Priya Limited vs DCIT (OSD), Circle 2(3) (ITA No. 3231/Mum/2015 dated 21.02.2017) and in DCIT-9(3)(1) vs M/s Fiduciary Euromax Global Markets Ltd. (ITA No. 5176/MUM/2016 dated 21/12/2017). In the case of M/s Aptech Ltd. vs DCIT 8(1), (in dated M/s Pan India Network Infravest Ltd. 13.02.2018), Hon'ble Appellate Tribunal, Mumbai, observed as under (emphasis supplied): "The Hon'ble Delhi High Court in case of Joint Investment Pvt. Ltd. vs. CIT in ITA No. 117 of 2015 held that by no stretch of imagination under section 14A or Rule 8D be interpreted so as to mean the entire tax exempt income is to be disallowed. The portion of tax exempt income surely cannot swallow the entire amount as has been happened in that case, the window for disallowance as indicated in section 14A is only to the extent of disallowing the expenditure incurred by assessee only to earn exempt income.
Thus, considering the fact of the present case and the submission made by the assessee, we direct the AO to restrict the disallowance to the extent of exempt income earned by assessee during the Financial Year. In the result, grounds of appeal raised by assessee are allowed." 6.6. In the case of Reliance Ports and Terminals Ltd. (114 taxmann.com 529) (2020), the Hon'ble Bombay High Court has not entertained revenue's appeal on same basis and held as under: "4..... (d) The Revenue is not able to point out, why the impugned order of the Tribunal should be interfered with by this Court. More particularly in view of the fact that this Court's order in Nirved M/s Pan India Network Infravest Ltd. Traders (P.) Ltd. v. Dy. CIT [IT Appeal No. 149 of 2017, dated 23- 4-2019] has held that disallowance under section 14A of the Act cannot be more than exempt income. (e) In the above view, Question (A) does not give rise to any substantial question of law. Thus not entertained.' 6.7 In view of the clear; enunciation of law by the judicial authorities, i.e., the Hon'ble jurisdictional High Court and the jurisdictional Ld. ITAT as well as other courts of law as discussed above, it has to be held that the impugned disallowance made under section 14A of the Act is to be restricted to the quantum of tax-exempt income earned or accruing during the financial year under consideration. The judicial precedents lay down the proposition that where there is no tax-exempt income, the question of applicability of section 14A of the Act will not arise and, therefore, as an obvious corollary, the disallowance is to be restricted to the tax-exempt income. 6.8. In view of the above, disallowance has to be restricted to the exempt income. The argument of the assessee to this extent is meritorious and, therefore, succeeds. The AO is accordingly directed to restrict the disallowance under section 14A to Rs. 1511/- only. The Grounds are accordingly PARTLY ALLOWED.
4. After considering the above findings and once it is an undisputed fact that exempt income is only Rs. 1,511, therefore AO M/s Pan India Network Infravest Ltd. could not have proceeded to make disallowance much more than the exempt income us/s 14A. This proposition has been upheld by the various Hon’ble High Courts as noted above by Ld. CIT(A). Accordingly, order of Ld. CIT(A) is confirmed and ground raised by revenue are dismissed.