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Income Tax Appellate Tribunal, DELHI BENCH: ‘E’, NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI O.P. KANT
ORDER PER O.P. KANT, AM:
This appeal by the Revenue is directed against order dated 30/01/2017 passed by the Ld. Commissioner of Income-tax (Appeals)-39, New Delhi [in short ‘the ld. CIT(A)’] for assessment year 2012-13 raising following grounds: 1. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting disallowance of Rs. 3,67,68,492/- u/s 14A of the Income Tax Act, 1961 (the Act) on the ground that the assessee hStfnot claimed the deduction of any expenditure in computation of income by ignoring finding of facts recorded by the Assessing Officer (the AO) that the assessee had claimed deduction of expenditure both in the Profit & Loss account and computation of income leading to a claim of loss of Rs.3,51,16,991/- and the same was corroborated with computation of income filed along with the return? 2. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in deleting disallowance of Rs. 3,67,68,492/- u/s 14 A of the Act on the basis of perverse finding by relying on self-serving claims of the assessee which were contrary to the facts on the record? 3. Whether on facts and in circumstances of the case, the Ld. CIT(A) is legally justified in holding that even in cases where the assessee had refused to furnish details of expenditure no disallowance could be made u/s 14 A of the Act on the ground that the AO had not furnished evidence to link expenditure relatable to exempt income? 4. That the appellant craves leave to add, amend, alter before or at the time of hearing of the appeal.
At the outset, we may like to mention that neither anyone represented on behalf of the assessee nor any adjournment was sought despite notifying the date of hearing. In the circumstances, we were of the opinion that the assessee is not interested in prosecuting the appeal and accordingly we heard the appeal ex-parte qua the assessee, after hearing the arguments of the Revenue.
Briefly stated facts of the case are that the assessee e-filed its return of income on 29/09/2012 declaring nil income. The case was selected for a scrutiny and assessment under section 143(3) of the Income-tax Act, 1961 (in short ‘the Act’) was completed on 14/03/2015. In the assessment, the Assessing Officer made disallowance under section 14A of the Act amounting to Rs.3,67,68,492/-. Before the Assessing Officer, the assessee claimed that income of the company did not include any exempted income and therefore, no question of disallowance arises. However, before the Ld. CIT(A), the assessee submitted that income of the assessee include long-term capital gain of Rs.62,48,509/- and dividend income of Rs.15,66,500/-. Regarding the expenditure, the assessee claimed that in the books of accounts there was total loss of Rs.2,88,68,482/- but same was not claimed in the return of income and income was declared at Nil. According to the assessee in view of no expenditure claimed, disallowance of expenditure under 14A towards earning exempt income was not justified and amounted to double disallowance. The Ld. CIT(A) accepted the contention of the assessee and deleted the disallowance, observing as under: “5.2 Coming to the remaining grounds of appeal [grounds at (b) and (c)] therefrom these ground converge on the disallowance made in the impugned order u/s 14A of the Act. In fact, the disallowance is restricted to Rs.3,67,68,492/-. It is observed from the impugned order that while the first sentence reads, “The return of income was e-filed by the assessee on 29/09/2012 declaring an income of Rs. NIL", the recomputation of income of the appellant at the end of the assessment begins with a net loss of Rs.3,66,83,492/- stated to be "as declared by assessee". All these despite the appellant’s communication vide letter dated 4/03/2015 to the AO stating inter alia as under- “...The assessee Ms. Matin Realtech Pvt. Ltd. holding PAN: AAFCM-9533-L filed its return of income electronically for the assessment year 2012-13 vide acknowledgment no. 50351071290912 dated 29/09/2012 declaring NIL income. As per audited balance sheet the assessee company has booked total revenue amounting to Rs. 79,00,009.99 and incurred total expenses for Rs.3,67,68,492.22 therefore the assessee company has incurred business loss of Rs.2,88,68,482.23 for the above mentioned year. As above return of income was filed NIL income the assessee company had not claimed business losses in its ITR... .. .3. At the time of filing return of income for the assessment year 2012-13 the assessee company has not claimed deduction under chapter Vl-A, U/sec 57, u/s 54 and no claimed relief u/s 90/91 of IT Act, 1961. Hence as required by your honour justification of claiming deduction and relief is not applicable to assessee company... ”
The copy of this communication as well as that of the computation of income filed along with its return in ITR 6 on 29/09/2012, has been filed during the course of appeal hearing. Thus, the AR’s submission at the appellate stage, that “...The appellant company had not claimed any business losses in its return of income and had disallowed entire expenditure incurred during the year in the Income Tax Return filed with the department...” is borne out from records. The computation of income which forms as integral part of the return of income filed by an assessee flows from the P&L A/c wherein the receipts / sales/ turnover as well as expenses which constitute the two sides of accounts are mentioned. It is the net profit / loss that forms the beginning of the computation of income. Further, an expenditure can be disallowed only when such is claimed as deductible. Therefore, it can be safely inferred that there is a distinct flaw in the impugned order whereby disallowance u/s 14A r w Rule 8D has been made therein when no expenditure has been claimed as deductible. Of course, the flaw in not identifying the nexus between the tax exempt income and the relatable expenditure as well as determining the disallowance of expenditure u/s 14A r w Rule 8D is not discussed here, as it is, in my opinion, not necessary in the present case given the situation as mentioned above. Accordingly, the disallowance made u/s 14A r w Rule 8D in the impugned order is deleted.”
Before us, the ld. DR submitted that mere mentioning nil income in the return of income is not sufficient and it needs verification, whether the assessee has claimed carry forward of the losses of the year under consideration, then only it can be ascertained that assessee has not claimed any expenditure in the return of income filed.
We have heard the submission of the ld. DR and perused the relevant material on record. There is no dispute as far as the principle that disallowance under section 14A can be made towards expenditure on exempted income, only out of the expenses claimed in the return of income filed. If the assessee has not claimed any expenditure in the return of income filed, there is no scope for disallowance towards exempted income under section 14A of the Act. The issue in the instant case is that according to the assessee in view of the NIL return of income filed no expenditure has been claimed by the assessee. Before us, no copy of return of income has been filed, on the basis of which it could be ascertained whether the assessee has claimed any expenditure in the return of income filed. This fact can be ascertained from the claim of carry forward of the losses in the return of income filed for subsequent years also. As the matter needs verification at the level of the Assessing Officer, we set aside the order of the ld. CIT(A) and restore the matter to the file of Assessing Officer for deciding afresh in accordance with law after providing adequate opportunity of being heard to the assessee. The grounds of the Revenue are accordingly allowed for the statistical purposes 6. In the result, the appeal of the Revenue is allowed for the statistical properties. Order is pronounced in the open court on 10th January, 2020.