MEDITAB SPECIALITIES PVT. LTD.,MUMBAI vs. ACIT 2(2)(2), MUMBAI

The assessee had filed the present appeal against the order dated 18.03.2019 passed by the Commissioner of Income Tax (Appeals) -5, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2014- 15.

The assessee has raised the following grounds: - “1. Disallowance of Rs. 40,91,150 (Rs. 131,04,740 - Rs. 90,13,590) under section 14A of the Act read with Rule 8D of the Income Tax Rules - Tax effect Rs. 13,90,580 a) The Learned Commissioner of Income Tax (Appeals)-5, Mumbai, [hereinafter referred to as the CIT (A) has erred in not accepting the submission that in a case where there A.Y.2014-15 is no receipt of tax free income there should not be any disallowance under section 14A of the Act. The learned CIT (A) ought to have considered the order of Honourable ITAT dated 18.08.2017 in appellant's own case for AY 2012-13.

The brief facts of the case are that the assessee filed its return of income on 30.11.2014 declaring total income of Rs.Nil for the A.Y.2014- 15.The return was processed u/s 143(1) of the Act. The case was selected for scrutiny under CASS. Notices u/a 143(2) & 142(1) of the I. T. Act, 1961 were issued and served upon the assessee. The assessee company is engaged in the business of manufacturing of pharmaceuticals products having its formulation manufacturing plant at Goa, Daman & Satara. The assessee has shown the investment of Rs.2,89,50,67,184/- in the year under consideration. The AO applied the provisions u/s 14A r.w. Rule 8D and assessed the expenditure to earn the exempt income in sum of Rs.1,31,04,740/-. The total income of the assessee was assessed in sum of Rs.9,41,61,890/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who partly allowed the claim of the assessee but the assessee was not satisfied, therefore, the assessee has filed the present appeal before us.

We have patiently and carefully heard rival contentions and perused the material available on record. We have also applied our mind to the decisions relied upon by both the parties- At the outset, we must put it on record that learned Authorized Representative has restricted his contention on the disputed issue. of disallowance made under section 14A r/w rule 8D only on the proposition that the disallowance under section 14A cannot exceed the exempt income earned in a particular assessment year. In this context, the learned Authorized Representative has furnished a chart before us as per which the exempt income earned in the assessment years under appeal are as under:- A.Y. 2008-09 Rs.6,04,377 A.Y. 2010-11 Rs.9,130 A.Y.2012-13 Rs. Nil

In view of the aforesaid submissions of the learned Authorized Representative, we are called upon to decide the limited issue, whether the disallowance under section 14A r/w rule 8D has to be restricted to the exempt income earned in a particular assessment year To counter the aforesaid proposition of the learned Authorized Representative, the learned Departmental Representative has submitted that the provisions of section 14A r/w rule 8D being mandatory in nature, the Assessing Officer has to compute the disallowance under Section 14A in terms of the method prescribed under Section rule 811 We are unable to agree with the contention of the learned Departmental Representative. In case of Cheminvest ltd. vis CIT, ITA. 749/2014, dated September 2015, the Hon'ble Delhi High Court has held that no disallowance under section 14A of the Act, can be made in the absence of exempt income:. In case of CIT v/s Joint Investment Pvt. Ltd., dated 25"' February 20)5, the Hon'ble Delhi High Court A.Y.2014-15 has held that the disallowance under section 14A cannot swallow the entire exempt income. Following the aforesaid ratio of the Hon'ble Delhi High Court, different Benches of the Tribunal have held that disallowance under section 14A r/w rule 8D, cannot exceed the exempt income earned by the assessee in a particular assessment year. In fact, [TAT, Delhi Special Bench, in the case or ACIT v/s Vireet Investment Pvt. Ltd. (supra) has held that only investments yielding exempt income during the year can be considered for Computing average value of investment. In contrast, the decisions relied upon by the learned Departmental Representative in no way contradict the aforesaid ratio4 On a careful reading of the decision in case of Distributors (Baroda) Pvt. Ltd, (supra); Cloth Traders Pvt. Ltd. (supra, ACG Associated Capsules Pvt. Ltd. (supra), we are convinced that these decisions are in no way connected to the issue in dispute in the present appeals. As far as the decisions in Walfort Shares and Stock Brokers (supra), Godrej & Boyce Mfg. Co. Pvt. Ltd. (supra) are concerned, though they are in the context of section 14A of the Art. however, these decisions cannot be said to be laying down the ratio that ever) in absence of exempt income disallowance under section 14A can be made or the disallowance under section 14A should not restricted to the exempt income earned in a particular assessment year. Learned Departmental Representative has failed to bring to our notice even a single decision which directly counters the proposition put forward by the learned Authorized Representative. In the aforesaid view of the matter, following the ratio laid down in the decision referred to above by us, we hold that if in a particular assessment year, the assessee has not earned any exempt income, no disallowance under section 14A, can be made. Similarly, earned in a particular assessment year. In terms of our aforesaid observations, we direct the Assessing Officer to restrict the disallowance under section 14A to Rs.6,04,377 in assessment year 2008-09 and Rs.9,130 in assessment year 2011- 12. In assessment in year 2012-13, assessee has not earned any, 'exempt income, therefore, no disallowance under section 14A can be made. In view of our reasoning above, the grounds raised

Since the issue no. 1a has been decided in favour of the assessee, therefore, decision upon the issue no. 1b to 1f became academic in nature, therefore, not required for adjudication.