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Income Tax Appellate Tribunal, MUMBAI BENCH “B”, MUMBAI
ORDER PER DIVA SINGH, J.M: In the facts of the present case, it is seen that the assessee-company is engaged in the business of toll collection as per the contract entered with various authorities and also in providing road, repair and maintenance service to its subsidiaries companies.
For the purposes of addressing the issues necessitating adjudication, it is necessary to first address the fact that the present appeal has been filed by the Revenue, wherein the correctness of the order dated 27.01.2021 passed (A.Y.2017-18) by the Commissioner of Income Tax (Appeals)-53, Mumbai [hereinafter referred to as ‘the CIT(A)’] pertaining to Assessment Year (AY) 2017-18 is assailed on the following grounds:
1. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in restricting the disallowance u/s14A amounting to Rs.1,68,580/and ignoring the Board's Circular No.5/2014 and without considering the fact that the assessee has earned exempt income and assessing officer has rightly invoked the section 14A read with rule 8D.
2. The learned CIT(A)'s order is contrary in law and deserves to be set aside.
3. Without prejudice to the Ground No.1! the learned CIT(A) has erred in law and facts in not appreciating the fact that the assessee had credited an amount of Rs. 73,52,732/- as Annual Maintenance Charges not derived from the manufacturing activity in the Profit & Loss Account and claimed deduction u/s. 80IB at Rs.26,36,215/- instead of Rs.4,32,115/-.
4. The appellant prays that the order of the CIT(A}) on the above grounds be set aside and that of the AO be restored. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary at the time of hearing.
3. At the time of hearing, the ld. Authorized Representative (AR) made an oral request seeking time. However, considering the fact that the sole issue arising for consideration by Ground No.1 in the present appeal appears to be a covered issue; Ground No.2 & 4 being general in nature and Ground No.3 does not arise from the impugned order the request for adjournment was turned down. The counsel was required to ascertain the facts. The Department represented by Mr. Kishore Dhule was also required to verify the position qua Ground No.3 and accordingly the appeal was passed over directing that it shall come up at the end of the Board.
4. In the next round when the appeal came up for hearing, the ld. DR submitted that he has ascertained from the office of the AO that the PCIT-8, Mumbai had authorized the raising of only one issue which is agitated vide (A.Y.2017-18) Ground No.1, 2 & 4 and Ground No.3 possibly may have been inadvertently copied/pasted and hence may be treated as a typographical error.
The ld. DR relied upon the assessment order.
The ld. AR of the assessee who had verified the facts submitted that the issue is a covered issue in favour of assessee and the departmental Ground No.1 accordingly it was her prayer may be dismissed. Ground No.2 & 4 in support of Ground No.1 it was her prayer may also be accordingly dismissed. Addressing the Ground No.3, it was her submission that it does not arise from the impugned order.
We have heard the submissions and perused the material available on record. Addressing Ground No.3 first we have seen that as per the authorization memo dated 31.03.2021 of PCIT-8, Mumbai, on record the AO was authorized to raise the issue of only the disallowance under section 14A restricted by the CIT(A) and Ground No. 2 & 3 were infact prayers in support of the said Ground No.1. Accordingly, we have seen on a perusal of the assessment order as well as the impugned order that Ground No.3 in the present appeal has been raised inadvertently and as such is treated as a typographical error requiring no adjudication.
Addressing the facts relatable to the sole surviving issue challenged in the present proceedings vide Ground No.1, it is seen that the AO noticed that the assessee-company has earned exempt income of Rs. 1,68,580/- from dividend. It was also noticed that no suo-moto disallowance on expenditure attributable for earning of exempt income under section 14A of the Act had been made. Taking note of the dividend income received, the AO worked out a disallowance of Rs. 5,96,09,260/- under section 14A r.w.r 8D. Aggrieved by (A.Y.2017-18) this the assessee carried the issue in appeal before the First Appellate Authority (FAA). Two fold arguments were advanced before the said Forum; Firstly that no disallowance for incurring managerial expenses, etc. can be made, calculating a notional expenditure; and Secondly that the disallowance made by the AO was highly excessive. Without prejudice to these arguments, it was also canvassed that the disallowance under section 14A cannot exceed the receipt of exempt income. Various decisions of different High Court were relied upon. 8.1 The ld. CIT(A) discarded the primary argument of the assessee that no disallowance can be made, however, taking note of the decisions of the Hon’ble Karnataka High Court in the case of Pragati Krishna Gramin bank Vs. JCIT (2018) 256 Taxman 349 (Kar) (HC), the Hon’ble Bombay High Court in the cases of Pr.CIT Vs. HSBC Invest Direct (India) Ltd. 421 ITR 125 (Bom) and Nirved Traders (P) Ltd. (2020) 421 ITR 142 and of the Hon’ble Gujarat High Court in the case of CIT Vs. Corrtech Energy (P.) Ltd. he restricted the disallowance to Rs. 1,68,580/-.
Aggrieved by this the Revenue is in appeal before the ITAT.
We have heard the rival submissions and perused the material on record. On a consideration thereof, we note that there is no dispute on facts and we further note that the legal position thereon is also well-settled. It is seen that consistently the jurisdictional High Court in the cases of PCIT Vs. HSBC Invest Direct (India) Ltd. (supra) and again in Nirved Traders (P) Ltd. (supra) and yet again in PCIT Vs. Kohinoor Project Pvt. Ltd. (2020) 121 taxmann.com 177 (Bom) have all along held that disallowance cannot exceed the exempt income. On the said issue various High Courts are unanimous and hence the said issue can no longer be said to be res-Integra. The said issue as