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Income Tax Appellate Tribunal, “H” Bench, Mumbai
O R D E R Per Shamim Yahya (AM) :- This appeal by the Revenue is directed against the order of learned CIT(A) dated 24.6.2019 pertaining to assessment year 2016-17.
The grounds of appeal read as under :
DCIT-12(2)(2), Mumbai, to file an appeal to the Hon’ble Income Tax Appellate Tribunal, Mumbai, against the order of Ld. CIT(A)-20, Mumbai, bearing Appeal No.CIT(A)-20/IT-10242/2018-19, dated 24.06.2019, in the above case on following grounds: 1. "On the facts of the case, in the circumstances and in law, the Ld. CIT(A) has erred in deleting the disallowance made u/s. 14A merely on the ground that the assessee did not earn any exempt income during the relevant previous year ignoring the decision of Apex Court in the case of M/s. Maxopp Investment Ltd. vs. CIT, New Delhi in Civil Appeal No. 104-109 of 2015 wherein it was asserted that whether dividend income is earned or not is immaterial for the attracting of the provisions of section 14A as whenever dividend is declared by the assessee alone will be the beneficiary of the same? 2. "The appellant prays that the order of the Ld. CIT(A) on the grounds be set aside and that of the Assessing Officer be restored".
2 M/s. Hathway Cable & Datacom Ltd.
3. "The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary".
The issue in this case relates to disallowance under section 14A of the Act when assessee has not received any exempt income.
Learned CIT(A) has allowed this issue by holding as under :-
“I have considered the rival contentions. I find from the schedule "El" of the return of income that the appellant did not earn any exempt income during the relevant previous year. Therefore, I agree with the contention of the AR that the disallowance made under section 14A is not sustainable. Reliance is placed on the decision of the Hon'ble Supreme Court in the case of CIT(Central) 1 vs. Chettinad Logistics (P) Ltd. [2018] 95 taxmann.com 250 (SC). Reliance is also placed on the decision of the Hon'ble Madras High Court in the case of Redington (India) Ltd. v. Additional CIT [2017] 77 taxmann.com 257 (Madras). In that case, the assessee Redigton (India) Ltd) had investments in companies to the tune of Rs. 177.56 crores that had not yielded any returns in the previous year relevant to the relevant assessment year. The Assessing Officer disallowed the expenditure under section 14A, read with rule 8D despite objections that the provisions of section 14A would not be attracted in a case where no actual exempt income had been earned. On appeal, the Dispute Resolution Panel also confirmed the disallowance. On further appeal, the Tribunal also confirmed the disallowance. On appeal to the High Court, the High Court held that in a year where there is no exempt income, there cannot be a disallowance of expenditure under section 14A; that the provisions of section 14A, read with rule 8D cannot be made applicable in the absence of exempt income.”
Upon hearing both the parties we find that there is no infirmity in the order of learned CIT(A). The reference by the Revenue’s grounds of appeal to Hon'ble Apex Court decision in Maxopp Investment Ltd. vs. CIT, New Delhi in (Civil Appeal No. 104-109 of 2015) is totally misplaced. The reference mentioned in the grounds of appeal relate to Hon'ble Apex Court observation in that context where shares were treated as stock in trade. There is no such exposition by the Hon'ble Apex Court which helps the case of the Revenue here. In fact in the said decision Hon'ble Apex Court has approved the decision of Hon'ble Punjab & Haryana High Court in the case of State Bank of Patiala, which in fact holds that disallowance has to be restricted to exempt income. Hence when there is no exempt income disallowance under section 14A is not required. This may be clear from the reference to following part of Hon'ble Supreme Court order :
3 M/s. Hathway Cable & Datacom Ltd.
“We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO. CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. It is to be kept in mind that in those cases where shares are held as 'stock-in- trade’, it becomes a business activity of the assessee to deal in those shares as a business proposition. ixv) Whether dividend is earned or not becomes immaterial. In fact, it would be a quirk of fate that when the investee company declared dividend, those shares are held by the assessee, though the assessee has to ultimately trade those shares by selling them to earn profits. The situation here is, therefore, different from the case like Maxopp Investment Ltd. where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee. In contrast, where the shares are held as stock-in-trade, this may not be necessarily a situation. The main purpose is to liquidate those shares whenever the price goes up in order to earn profit. In the result the appeal filed by the Revenue challenging the Judgement of P&H Court in State Bank of Patiala also fails though law in this regard has been clarified herewith.”
Hence, we do not find any infirmity in the order of learned CIT(A). Hence, we uphold the same.
In the result, Revenue’s appeal is dismissed.
Pronounced in the open court on 2.8.2021.