DY. COMMISSIONER OF INCOME TAX, CIRCLE-2(1), HYDERABAD, HYDERABAD vs. JASPER INDUSTRIES PRIVATE LIMITED, HYDERABAD, HYDERABAD

Per Smt. P. Madhavi Devi, J.M.

This is the appeal filed by the Revenue for the A.Y 2011-12 against the order of the CIT (A)-1, Guntur, dated 11.05.2017. The only issue in this appeal is against the order of the CIT (A) in restricting the disallowance u/s 14A of the Act to the extent of exempt income earned during the year which according to the Revenue is contrary to Board Circular No.5/2014. 2. Brief facts of the case are that the assessee company, engaged in the business of trading of commercial vehicles and cars, sale of spare parts & lubricants and earning of rental income and commission, filed its return of income for the A.Y 2011-12 on 29.09.2011 admitting total income of Rs.15,61,39,180. During the assessment proceedings u/s 143(3) of the Act, the AO observed from the balance sheet of the assessee that the assessee had made investments in companies to the tune of Rs.48,64,11,000 as on 31.03.2011. Observing that the dividend income arising from investments is exempt from tax and also that the assessee has incurred expenses of Rs.13,07,88,000 towards interest, the AO observed that the disallowance u/s 14A is called for. He accordingly worked out the disallowance under Rule 8D at Rs.4,42,90,857 and brought it to tax. Aggrieved, the assessee preferred an appeal before the CIT (A) who restricted the disallowance to the exempt income earned by the assessee and for coming to this conclusion, he followed the decisions of various Benches of ITAT and also the Hon'ble High Court of Delhi in the case of ACB India Ltd vs. Asstt. CIT reported in (2015) 62 Taxmann.com 71(Del.). Against the relief granted by the CIT (A), the Revenue is in appeal before us.

iii) ITAT Hyderabad in the case of M/s. TGV Projects & No.846/Hyd/2016, dated 28.02.2017. iv) Hon'ble High Court of Punjab & Haryana in the case of Pr. CIT vs. Empire Package (P) Ltd reported in (2017) 81 Taxmann.com 108 (P&H H.C) dated 12th January, 2016. 4. Having regard to the rival contentions and the material on record, we find that this issue is covered in favour of the assessee by the decision of the Hon'ble Delhi High Court (Supra), wherein it has been clearly held that the disallowance u/s 14A cannot exceed the exempt income earned by the assessee. In similar cases, the Coordinate Benches of this Tribunal have been following the decisions of various High Courts to the effect that when there is no exempt income, there cannot be any disallowance u/s 14A of the Act and further that the disallowance u/s 14A cannot exceed the exempt income earned by the assessee. Therefore, we see no reason to interfere with the order of the CIT (A). Accordingly, Revenue’s appeals is dismissed.

Hyderabad, dated 25th May 2018. Vinodan/sps Copy to:

1 Dy.CIT, Circle 2(1) 5th Floor, Room No.514, Signature Towers, Kondapur, Hyderabad 2 M/s. Jasper Industries Pvt. Ltd, Golden Edifice, 1st Floor, Opp: Visweswarayya Statue, Khairatabad, Hyderabad 3 CIT (A)-1 Guntur. 4 Pr. CIT – (Central), Hyderabad 5 The DR, ITAT Hyderabad 6 Guard File

By Order