SANJEEV KUMAR KAPOOR,RAJGANGPUR vs. JCIT, ROURKELA RANGE, ROURKELA

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ITA 505/CTK/2017Status: DisposedITAT Cuttack27 August 2018AY 2011-126 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that Section 14A of the Income Tax Act can only be invoked when there is actual receipt of income which is not includible in the total income. Since the assessee had not earned any exempt income, no disallowance could be made.

What were the facts?

The Assessing Officer made a disallowance of Rs. 56,95,726/- under Section 14A read with Rule 8D, observing that the assessee had significant investments but did not disallow any expenditure. The assessee argued that no disallowance is applicable as no exempt income was earned.

What were the issues?

Whether disallowance under Section 14A is permissible when the assessee has not earned any exempt income during the assessment year.

Which sections of the Income-tax Act were involved?

Section 14A

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Cases cited in this judgment(5)Show list

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Income Tax Appellate Tribunal, CUTTACK BENCH, CUTTACK

Before: S/SHRI N.S SAINI & PAVAN KUMAR GADALE

For Appellant: Shri P.R.Mohanty, AR
For Respondent: Shri Subhendu Datta, DR
Hearing: 27/08Pronounced: 27/08

Per N.S.Saini, AM

This is an appeal filed by the assessee against the order of

the CIT(A), Sambalpur dated 4.9.2017 for the assessment year

2011-12.

2.

The sole issue involved in this appeal is that the CIT(A)

erred in confirming the addition of Rs.56,95,726/- made by the

Assessing Officer u/s.14A r.w. Rule 8D of IT Rules, 1962.

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3.

The brief facts of the case are that the Assessing Officer

observed that the assessee has not shown any amount in column

17(L) of the audit report as amount disallowable u/s.14A. In the

balance sheet of the assessee, it is seen that the assessee has

shown investment of Rs.10,67,74,909/- which were the same in

the preceding year also. Therefore, he made disallowance

u/s.14A of the Act r.w. 8D of IT Rules, 1962 of Rs.56,95,726/-.

4.

On appeal before the CIT(A), the assessee argued that the

provisions of section 14A are not applicable to the assessee as

during the year under consideration, the assessee has not claimed

any exempt income u/s.10(34) of the Act.

5.

The CIT(A) did not accept the submission of the assessee on

the ground that even if no exempt income has been earned during

the relevant previous year, disallowance u/s.14A of the Act is

called for in view of the CBDT Circular No.5 of 2014 dated

11.2.2014.

6.

Before us, ld A.R of the assessee argued and submitted that

Hon’ble Delhi R High Court in the case of Pr CIT vs IL&FS Energy

Development Ltd (2017) 399 ITR 483 (Del) has held that no

disallowance of expenditure u/s.14A can be made when no

exempt income is claimed by the assessee.

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7.

On the other hand, ld D.R. submitted that in view of CBDT

Circular No.5 of 2014 dated 11.2.2014, disallowance of

expenditure u/s.14A has to be made even if the assessee has not

earned any exempt income from the investment made by it.

8.

We have heard the rival submissions, perused the orders of

lower authorities and materials available on record. The

undisputed facts of the case are that the Assessing Officer

observed that in the return of income filed, the assessee has not

disallowed any expenditure u/s.14A of the Act. According to him,

the assessee is having investment of Rs.10,67,74,909/- as at the

year ended on 31.3.2011. Therefore, he made disallowance

u/s.14A r.w. 8D of I.T.Rules, 1962 of Rs.56,95,726/-.

9.

On appeal, the CIT(A) confirmed the same holding that the

disallowance u/s.14A has to be made even where the assessee

has not earned any exempt income, for which, he relied on the

CBDT Circular No.5 of 2014 dated 11.2.2014.

10.

Before us, ld A.R. of the assessee relying on the decision of

Hon’ble Delhi High Court in the case of IL&FS Energy Development

Ltd (supra) submitted that no disallowance of expenditure u/s.14A

of the Act can be made where no exempt was earned by the

assessee.

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11.

Ld D.R. has supported the orders of lower authorities.

12.

Now it is settled position of law that whenever assessee did

not earn any exempt income, no disallowance could be made u/s.

14A of the Act. The Hon’ble Delhi High Court in the case

of Cheminvest Ltd. v. CIT, 378 ITR 33 (Del) has categorically held

that section 14A envisages that there should be actual receipt of

income which was not includible in the total income during the

relevant previous year for the purpose of disallowing any

expenditure in relation to the said income. Wherever there is no

exempt income includible in the total income of the assessee, the

provisions of section 14A cannot be invoked. The relevant

observations of the judgment of the Hon’ble Delhi High Court are

extracted here under:-

“15. Turning to the central question that arises for consideration, the court finds that the complete answer is provided by the decision of this court in CIT v. Holcim India (P) Ltd. (decision dated 5th September 2014, in I. T. A. No. 486 of 2014). In that case, a similar question arose, viz., whether the Income-tax Appellate Tribunal was justified in deleting the dis allowance under section 14A of the Act when no dividend income had been earned by the assessee in the relevant assessment year ? The court referred to the decision of this court in Maxopp Investment Ltd. (supra) and to the decision of the Special Bench of the Income-tax Appellate Tribunal in this very case, i.e., Cheminvest Ltd. v. CIT [2009] 317 ITR (AT) 86 (Delhi) [SB]. The court also referred to three decisions of different High Courts which have decided the issue against Revenue. The first was the decision in CIT v. Lakhani Marketing Incl. (decision dated

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April 2, 2014, of the High Court of Punjab and Haryana in I. T. A. No. 970 of 2008)–since reported in [2015] 4 ITR-OL 246 (P&H)– which in turn referred to two earlier decisions of the same court in CIT v. Hero Cycles Ltd. [2010] 323 ITR 518 (P&H) and CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 (P&H). The second was of the Gujarat High Court in CIT v. Corrtech Energy (P.) Ltd. [2014] 223 Taxmann 130 (Guj) ; [2015] 372 ITR 97 (Guj) and the third of the Allahabad High Court in CIT v. Shivam Motors (P) Ltd. (decision dated 5th May, 2014, in I . T. A. No. 88 of ITA No. 1107/Bang/2016 2014). These three decisions reiterated the position that when an assessee had not earned any taxable income in the relevant assessment year in question “corresponding expenditure could not be worked out for dis allowance.”

13.

As it is not in dispute that the assessee has not earned any

exempt income during the year, therefore, we respectfully

following the above quoted decision of Hon’ble Delhi High Court,

set aside the orders of lower authorities and delete the

disallowance of expenditure of Rs.56,95,726/- and allow the

ground of appeal of the assessee.

14.

In the result, appeal filed by the assessee is allowed.

Order pronounced on 27/08/2018.

Sd/- sd/- (Pavan Kumar Gadale) (N.S Saini) JUDICIALMEMBER ACCOUNTANT MEMBER Cuttack; Dated 27/08/2018 B.K.Parida, SPS

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Copy of the Order forwarded to : 1. The Appellant : Sanjeev Kuamr Kapoor, Barpali, Rajgangpur

2.

The Respondent. JCIT, Uditnagar, Rourkela 3. The CIT(A)- Sambalpur 4. Pr.CIT- Sambalpur 5. DR, ITAT, Cuttack 6. Guard file. By order //True Copy// Sr. Pvt. Secretary, ITAT, Cuttack

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