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Facts
The assessee company filed its return, which was finalized. The case was reopened under Section 147, and the Assessing Officer made an addition under Section 14A r.w.r. 8D for disallowable expenses related to exempt income. The CIT(A) dismissed the assessee's appeal.
Held
The Tribunal condoned the delay in filing the appeal before the CIT(A) due to an employee's involvement in fund misappropriation. On merits, the Tribunal held that since the assessee did not incur any cost for investments yielding exempt income and did not receive any dividend in the relevant year, the disallowance under Section 14A was not justified.
Key Issues
Whether the disallowance under Section 14A r.w.r. 8D is justified when the assessee has not incurred any expenditure related to exempt income and has not received any dividend in the assessment year.
Sections Cited
14A, 8D, 250, 143(3), 67A, 147, 148, 143(2), 115JB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “D” BENCH
Before: Dr. BRR Kumar & Ms. Suchitra Kamble
आदेश/ORDER
Per Suchitra Kamble, Judicial Member:
This is an appeal filed against the order dated 16-04- 2025 passed by National Faceless Appeal Centre (NFAC), Delhi for assessment year 2012-13.
The grounds of appeal
are as under:-
1. Section 14A read with rule 8D and Section 250; That the Ld. CIT(Appeals) had not followed the provisions as contained in Section 250 and hence has resulted in violation of Principles of Natural Justice. So, the order of CIT (Appeals) shall not stand valid in law.
2. Section 14A read with rule 8D and Section 250: That the learned CIT (Appeals) has erred both in law and on facts by confirming the addition of Rs. 1,43,93,914/- on account of wrong interpretation of the provisions. The impugned order was passed by the then AO without making enquiries/verification.
3. Section 14A read with rule 8D and Section 250: The assessee therefore pray that the addition of Rs. 1,43,93,914/- be deleted. And, accordingly the demand of Tax of Rs. 49,71,360/- be deleted along with Interest and Penalties. 4. Section 14A read with rule 8D and Section 250: The assessee craves leave to add alter or amend any of the grounds till appeal is finally heard and decided.”
3. The assessee company filed original income tax return on 29-09-2012 declaring taxable income at Rs. 21,20,86,920/-. The assessment u/s. 143(3) was finalized on 31-03-2015. The Assessing Officer observed that the assessee made investment of Rs. 27,46,09,191/- and received interest income of Rs. 22,97,900/-. The same has been claimed as exempt u/s. 67A of the Income Tax Act which is disallowable u/s. 14A r.w.r. 8D of the Income Tax Act. The case was reopened u/s. 147 of the Act. Notice 148 of the Act was issued and served upon the assessee on 28-03-2019. In response to the notice u/s. 148 of the I.T. Act, 1961, the assessee filed return of income on 19-11-2019 declaring total income of Rs. 21,20,86,910/-. Notice u/s. 143(2) was issued and served upon the assessee on 27-11-2019 and reasons for reopening of assessment for the assessment year 2012-13 was given to the assessee on 29-11-2019. In response to the notices, the assessee submitted the details. The Assessing Officer observed that during the year under consideration, the assessee earned interest income of Rs. 21,97,900/- and claimed the same as exempt income u/s. 67A of the Act. The assessee made investment in equity shares, income from which in the form of dividend is exempted and has made investment in 2 Gujarat Informatics Ltd., A.Y. 2012-13 venture capital fund interest from which it is claimed exempted from section 67A which is disallowable u/s. 14A r.w.s. 8D of the Act. Thus, the Assessing Officer observed that the assessee committed default in not disallowing the expenditure related to exempt income u/s. 14A r.w.r. 8D of the Act which resulted in income to the tune of Rs. 1,43,93,193/-. The assessee has not filed the explanation regarding the show cause notice and thus, the Assessing Officer made the disallowance u/s. 14A r.w.r. 8D and given the working in para 7 of the assessment and accordingly made addition of Rs. 1,43,93,914/- to the total income of the assessee as well as book profit u/s. 115JB of the Act.
Being aggrieved by the assessment order, the assessee filed appeal before the CIT(A). The CIT(A) dismissed the appeal of the assessee.
The ld. A.R. submitted that the CIT(A) dismissed the matter on the ground of delay of 1821 days in preferring the appeal before CIT(A) but since the email on which the Department is showing that the assessee received the notices and the communication order does not belong to the assessee but to the employee of the assessee who was involved in mis-appropriation of fund of the assessee company which is set out in para (v), (vi), (vii), (viii), (ix) and (x) of the written submission filed before the ITAT. Thus, the A.R. submitted that the CIT(A) has ignored the genuine reason of delay in filing appeal before the CIT(A).
6. The ld. D.R. relied upon the order of the CIT(A).
Gujarat Informatics Ltd., A.Y. 2012-13 7. We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that since email id for communication was that of employee and the employee was involved in the mis-appropriation of funds which is very well not fault of the assessee company but because of the negligence of the credit employee, the assessee suffered. Therefore this reason itself for delay in filing the appeal appears to be genuine and hence the delay in filing the appeal before the CIT(A) is condoned.
8. As regards merits of the case, the ld. A.R. submitted that the assessee never deducted exempt income from business/ profession income but had only added the same in exempt income. Thus, it was mistake at the time of reporting of exempt income in income tax return filed u/s. 148. The assessee never claimed any expense related to exempt income as the assessee has not received any dividend in the particular assessment year. Thus, in light of this, the 14A disallowance r.w.r. 8D is not justified and the same should be allowed.
The ld. D.R. relied upon the order of the CIT(A).
We have heard both the parties and perused all the relevant material available on record. The assessee invested in two entities i.e. Creative Infocity Ltd. and in Gujarat Information Technology Fund of Gujarat Venture Finance Ltd. and the assessee has not incurred any cost for purchasing the shares of Creative Infocity Ltd. as well as Gujarat Government has given the loan which was interest free subsequent to March 2001 and therefore there was no payment of interest for 13% per annum and thus there was no cost incurred in both these investments Gujarat Informatics Ltd., A.Y. 2012-13 and therefore the assessee has rightly claimed 14A deduction. The ld. A.R. placed reliance on the decision of Hon’ble Gujarat High Court in case of CIT vs. Corrtech Energy Pvt. Ltd. 372 ITR 97 specifically on this issue itself is squarely applicable in assessee’s case as mere in respect of exempt income is not sufficient to trigger the disallowance u/s. 14A of the Act. In the present assessee’s case, the assessee has demonstrated that the assessee has not at all incurred any cost as such and in fact has not received any dividend in this particular year. Therefore, the appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 04-11-2025 Sd/- Sd/- (Dr. BRR Kumar) (Suchitra Kamble) Vice President Judicial Member Ahmedabad : Dated 04/11/2025 आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद