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Income Tax Appellate Tribunal, MUMBAI BENCH “SMC”, MUMBAI
Before: SHRI VIKAS AWASTHY & SHRI S.RIFAUR RAHMAN.
आदेश/ ORDER PER VIKAS AWASTHY:JM
This appeal by the Revenue is against the order of Commissioner of Income Tax (Appeals)-18, Mumbai ( in short ‘the CIT(A)’) dated 15/04/2019 for the assessment year 2013-14.
The brief facts of the case as emanating from the records are: The assessee company is a builder and developer. During the course of scrutiny assessment proceedings the Assessing Officer observed that the assessee had purchased 20,000 shares of M/s. Somani & Co. Pvt. Ltd. The shares were purchased by utilizing interest bearing funds. The Assessing Officer invoked the provisions of section 14A r.w.r 8D of the Income Tax Act, 1961 ( in short ‘the Act’) and made total disallowance of Rs.17,50,31,966/-. Aggrieved by the assessment order dated 30/3/2016 passed under section 143(3) of the Act, the assessee filed appeal before the CIT(A). The CIT(A) deleted the disallowance made under section 14A of the Act holding since, the assessee has not earned any exempt income, no disallowance under section 14A of the Act could have been made. The CIT(A) placed reliance on the decision of Hon'ble Supreme Court of India dismissing SLP of the Revenue in the case of CIT vs. Chettinad Logistics Pvt. Ltd. reported as 80 taxamann.com 221(Mad). Against the findings of CIT(A) Revenue is in appeal before the Tribunal .
Shri Sanjay J. Sethi, representing the Department vehemently contested the finding of CIT(A) in deleting the disallowance made under section 14A of the Act. The ld.Departmental Representative submitted that the assessee had made investment in shares of M/s. Somani & Co. Pvt. Ltd. by utilizing borrowed funds. The assessee incurred interest expenditure of Rs.16,58,91,016/- towards the loan taken exclusively for the purpose of investment in the shares. Therefore, the provisions of section 14A of r.w.r. 8D are attracted. The ld.Departmental Representative prayed for restoring the disallowance under section 14A r.w.r. 8D of the Act.
Submissions made by ld.Departmental Representative heard, orders of authorities below examined. In the present case undisputedly the assessee made investment of Rs.182,81,90,016/- for purchase of 20,000 shares of Somani & Co. Pvt. Ltd. The said company was subsequently merged with the assessee company under the scheme of merger approved by Hon'ble Bombay High Court vide judgment dated 12/12/2014. The assessee for acquiring the shares of Somani & Co. Pvt. Ltd. had raised interest bearing funds in the form of NCD/ICD. It is also an undisputed fact that the assessee had not earned any dividend income on the shares acquired during the period relevant to the assessment year 2013-14.
The disallowance under section 14A is required to be made where expenditure is incurred in relation to earning of income which does not form part of the taxable income under the Act. Thus, from plain reading of provisions of section 14A of the Act it can be safely deduced that earning of income exempt from tax is a precondition for making disallowance under section 14A of the Act. The Hon'ble Supreme Court of India in the case of DCIT vs. State Bank of Patiala, reported as 99 taxmann.com286 has held that disallowance under section 14A cannot exceed exempt income earned. The Hon’ble Apex Court in the case of PCIT vs. Oil Industry Development Board reported as 262 Taxman 102 dismissed the appeal of Revenue against the judgment of Hon’ble Delhi High Court, wherein it was held that in absence of any exempt income no disallowance under section 14A of the Act is permissible. The Hon'ble Madras High Court in the case of Chettinad Logistics (supra) has held that where no exempt income is earned no disallowance under section 14A of the Act be made. The Revenue carried the issue to Hon’ble Apex Court. The SLP of Revenue was dismissed by Hon'ble Supreme Court . Thus, the issue is now settled that where no exempt income is earned by the assessee from investments made, no disallowance under section 14A of the Act is warranted. We do not find any infirmity in the impugned order, the same is upheld and the appeal by Revenue is dismissed.
In the result, appeal by the Revenue is dismissed.
Order pronounced in the open Court on Monday, the 18th day of January, 2021.