GOVARDHANDAS B.SHAH (HUF),JALGAON vs. INCOME-TAX OFFICER, WARD - 2(4), JALGAON

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ITA 1288/PUN/2018Status: DisposedITAT Pune07 March 2019AY 2013-145 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that disallowance under Section 14A cannot exceed the amount of exempt income earned. Since the assessee earned no exempt income, no disallowance is warranted.

What were the facts?

The assessee, an HUF, filed its return of income. During scrutiny, the Assessing Officer (AO) disallowed Rs. 2,66,965/- under Section 14A read with Rule 8D, despite the assessee not earning any exempt income. The CIT(A) upheld the AO's order.

What were the issues?

Whether disallowance under Section 14A can be made when no exempt income has been earned by the assessee.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(4)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

Income Tax Appellate Tribunal, PUNE BENCH “SMC”, PUNE

Before: SHRI ANIL CHATURVEDI, AM & SHRI VIKAS AWASTHY, JM

For Appellant: Smt. Deepa Khare
For Respondent: Shri Rajesh Gawali
Hearing: 22.01.2019Pronounced: 07.03.2019

आदेश / ORDER

PER ANIL CHATURVEDI, AM :

This appeal filed by the assessee is emanating out of the order of 1. the Commissioner of Income Tax – (Appeals) – 2, Nashik dated 15.05.2018 for the assessment year 2013-14.

2.

The relevant facts as culled out from the material on record are as under :-

Assessee is an HUF stated to be engaged in the business of cotton ginning pressing and trading. Assessee electronically filed its return of income for A.Y. 2013-14 on 30.09.2013 declaring total income at Rs.1,05,670/-. The case was selected for scrutiny and thereafter

assessment was framed u/s 143(3) of the Act vide order dt.11.02.2016

and the total income was determined at Rs.5,78,250/-. Aggrieved by

the order of AO, assessee carried the matter before Ld.CIT(A), who vide

order dt.15.05.2018 (in appeal No.NSK/CIT(A)-2/319/2015-16)

dismissed the appeal of assessee. Aggrieved by the order of Ld.CIT(A),

assessee is now in appeal before us and has raised the following

grounds :

1.

That the learned CIT(A) erred in confirming the disallowance of Rs.2,66,965/- u/s 14A Rule 8D of the Act. He failed to appreciate that in the absence of any exempt income Sec.14A/Rule D had no application. 2. That the learned CIT(A) ought to have restricted the disallowance to the extent of exempt income earned which was Rs.Nil in view of the decisions relied upon by the appellant. 3. That the learned CIT(A) failed to appreciate that CBDT Circular No.5/2014 dt.11.02.2014 is not in line with the provisions of the Act and judicial view in this regard and as such must be held to be bad-in-law.

4.

That the learned CIT(A) erred in not considering the Ground No.4 stated in para 5 of his order and confirming the disallowance u/s 14A without disposing of the said ground. 5. That the learned CIT(A) failed to appreciate that the facts of the decision of the Hon’ble Supreme Court in MAXOPP Investments Ltd. Vs. CIT (402 ITR 640) and CIT Vs. Rajendra Prasad Mody, (115, ITR 519) were distinguishable and consequently erred in confirming the disallowance u/s 14A relying upon the said decision. 6. That the learned CIT(A) ought to have ignored the investment of Rs.2.37 crore in group companies on which no dividend was received while working out disallowance in terms of Rule 8D. 7. That the learned CIT(A) erroneously concluded that borrowed funds on which net interest of Rs.14,22,965/- was paid were utilized inter-alia on the amount invested in group companies. 8. That assuming without admitting that relevant provisions of Sec.14A Rule 8D are capable of more than one interpretation, the learned CIT(A) ought to have followed the one favourable to the appellant.”

3.

Before us, at the outset, Ld.A.R. submitted that though assessee

has raised various grounds but the only issue is with respect to

disallowance u/s 14A r.w. Rule 8D of the Income Tax Rules.

4.

During the course of assessment proceedings, AO noticed that

assessee had investments of Rs.2.37 crore in the shares for various

companies which were purchased in earlier years. The assessee was

asked to explain as to why the disallowance u/s 14A r.w. Rule 8D of I.T.

Rules not be made. Assessee inter-alia submitted that it has not earned

any exempt income from the aforesaid investments and therefore there

cannot be any disallowance. The submissions of the assessee were not

found acceptable to the AO. AO was of the view that even if assessee

has not earned any exempt income, disallowance u/s 14A r.w. Rule 8D

of I.T. Rules was required to be made and for the aforesaid view, he

relied on CBDT Circular No.5 dated 11.02.2014. He thereafter worked

out the disallowance u/s 14A r.w. Rule 8D of I.T. Rules at Rs.2,66,965/-

and disallowed the same. Aggrieved by the order of AO, assessee carried

the matter before Ld.CIT(A), who upheld the order of AO. Aggrieved by

the order of Ld.CIT(A), assessee is now in appeal before us.

5.

Before us, Ld.A.R. reiterated the submissions made before AO and

Ld.CIT(A) and further submitted that since assessee has not earned any

exempt income, no disallowance u/s 14A of the Act is called for. In

support of her contention that when no exempt income is earned, there

cannot be any disallowance u/s 14A of the Act, she relied on the

decision of Hon’ble Punjab and Haryana High Court in the case of PCIT

Vs. State Bank of Patiala in ITA No.359 of 2017 dt.14.11.2017 and

submitted that disallowance u/s 14A of the Act is to be restricted upto

the extent of exempt income only and not a higher figure. She further

submitted that against the aforesaid decision of Punjab and Haryana

High Court, Revenue had filed S.L.P. before the Hon’ble Apex Court.

She submitted that the said S.L.P. was dismissed by the Hon’ble Apex

Court and is reported in (2018) 99 taxmann.com 286. She also placed

on record the copy of the aforesaid decision. She also relied on the

decision of Hon’ble Delhi High Court in the case of Cheminvest Limited

Vs. CIT reported in (2015) 378 ITR 33 for the proposition that when

assessee has not earned exempt income, no disallowance u/s 14A of the

Act can be worked out. She therefore submitted that in the present

case, the disallowance cannot exceed exempt income. Ld.D.R. on the

other hand, did not controvert the submissions made by Ld.A.R. but

however supported the order of lower authorities.

6.

We have heard the rival submissions and perused the material on

record. The issue in the present ground is with respect to disallowance

u/s 14A r.w. Rule 8D of the Act. It is an undisputed fact that assessee

has incurred expenditure on account of interest etc., for making

investment in shares of various companies to the extent of Rs.2.37

crores and has not earned any any exempt income. We find that the

Hon’ble Punjab and Haryana High Court in the case of PCIT Vs. State

Bank of Patiala (supra) has held that the amount of disallowance u/s

14A of the Act has to be restricted to the amount of exempt income only

and not at a higher figure. We find that against the aforesaid order of

Punjab and Haryana High Court, Revenue filed S.L.P. before the Hon’ble

Apex Court and the S.L.P. was dismissed by the Hon’ble Apex Court.

We further find that Hon’ble Delhi High Court in the case of PCIT Vs

Caraf Builders & Construction (P) Ltd., (2019) 101 Taxmann.com 167

(Del) after considering the decisions of Hon’ble Apex Court in the case of

Maxopp Investment Ltd. Vs. CIT (2018) 402 ITR 640, Cheminvest Vs.

CIT (2015) 378 ITR 33 and other decisions has held that disallowance

u/s 14A cannot exceed exempt income of the relevant year. In the

present case, since assessee has not earned any exempt income from dividends, no disallowance is called for in the present case. We direct accordingly. Thus, the grounds of the assessee are allowed.

7.

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

Order pronounced on 7th day of March, 2019.

Sd/- Sd/- (VIKAS AWASTHY) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 7th March, 2019. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A) –2, Nashik 4 Pr.CIT-2, Nashik. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “एक सद�य” / 5. DR, ITAT, “SMC” Pune; 6. गाड� फाईल / Guard file.

आदेशानुसार/ BY ORDER

// True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.

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