M/S. SRI VENKATACHALAPATHY SPINNING MILLS PVT. LTD.,,RAJAPALAYAM vs. DCIT, CORPORATE CIRLCE - 2,, MADURAI

Both the appeals filed by the assessee are directed against different orders of the ld. Commissioner of Income Tax (Appeals) 1, Madurai both dated 20.12.2019 relevant to the assessment years 2013-14 and 2014-15. The only effective common ground raised in both the appals of the assessee relates to confirmation of disallowance made under section 14A of the Income Tax Act, 1961 r.w. Rule 8D of the Income Tax Rules, 1962.

Brief facts leading to the ground are that in the assessment order for the assessment year 2013-14, the Assessing Officer has noted that the assessee has made investments to the tune of ₹.36,61,106/-. The value of investments during the previous year ended on 31.03.2013 and 31.03.2012 is ₹.36,61,106/- and ₹. 36,25,973/- respectively. The average value of total investment is ₹.36,43,540/-. The above investments in shares have led to earning of dividend income. However, since the assessee has claimed that it did not incur any expenditure towards earning of dividend income which does not form part of the total income, by invoking the provisions of section 14A r.w. Rule 8D, the Assessing Officer determined the expenditure attributable to earning of dividend income at ₹.3,61,427/- and brought to tax. On appeal, the ld. CIT(A) confirmed the disallowance made by the Assessing Officer under section 14A of the Act.

On being aggrieved, the assessee is in appeal before the Tribunal for both the assessment years. The ld. Counsel for the assessee has submitted that the disallowance under section 14A r.w. Rule 8D may be restricted to the extent the assessee has earned the exempt income for both the assessment years under appeal.

On the other hand, the ld. DR has strongly supported the orders of authorities below.

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including the paper book filed by the assessee. Against the disallowance made under section 14A r.w. Rule 8D, in the grounds of appeal the assessee has raised a specific ground that the assessee has earned exempt income of ₹.10,133/- during the assessment year 2013-14 and ₹.10,322/- in the assessment year 2014-15, whereas, the Assessing Officer made the disallowance under section 14A r.w. Rule 8D at ₹.3,61,427/- for the assessment year 2013-14 and ₹.2,34,040/- for the assessment year 2014-15 without any reasonableness, which was confirmed by the ld. CIT(A) on appeal.

Before us, the ld. Counsel for the assessee has submitted that the Tribunal is consistently following the judgement of Hon’ble Delhi High Court in the case of Joint Investments Pvt. Ltd. v. CIT 372 ITR 694 to restrict the disallowance under section 14A of the Act to the extent of earning of exempt income, which may be followed. On perusal of the orders of authorities below, nowhere in the assessment order or appellate order, it is mentioned that the assessee has earned exempt income for both the assessment years. However, only in the grounds of appeal, the assessee has claimed to have earned exempt income of ₹.10,133/- against which disallowance under section 14A of the Act was made at ₹.3,61,427/- for the assessment year 2013-14. Similarly, for the assessment year 2014-15 also specific ground was raised that the assessee earned exempt income of ₹.10,322/- against which disallowance was made at ₹.2,31,040/-. Under the above facts and circumstances, we direct the Assessing Officer to examine and verify as to whether the assessee has received any exempt income in both the assessment years and if so, the disallowance under section 14A of the Act shall be restricted to the extent the exempt income is earned in view of the decision of the Hon’ble Delhi High Court in the case of Joint Investments Pvt. Ltd. v. CIT (supra) and, in case no exempt income was earned, no disallowance could be made in view of the decision of the Hon’ble Supreme Court in the case of CIT v. Chettinad Logistics (P) Ltd. [2017] 80 taxmann.com 221 (SC), wherein, while dismissing the SLP filed by the Department, the Hon’ble Supreme Court has held that where no exempt income i.e., dividend, was earned in the relevant assessment year by the assessee, section 14A of the Act could not be invoked.

In the result, both the appeals filed by the assessee are allowed for statistical purposes.