M/S PINEWOOD INFORMATION SYSTEMS PVT. LTD.,NEW DELHI vs. ACIT, NEW DELHI

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ITA 244/DEL/2016Status: DisposedITAT Delhi28 November 2019AY 2009-105 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that no disallowance under Section 14A is permissible if no exempt income has been earned. Since the assessee did not earn any dividend income or incur expenditure on investments, the disallowance was deleted.

What were the facts?

The assessee company made investments and earned dividend income. The Assessing Officer disallowed a portion of expenses under Section 14A. The CIT(A) confirmed the addition, partly allowing the assessee's appeal.

What were the issues?

Whether disallowance under Section 14A is permissible in the absence of exempt income earned by the assessee.

Which sections of the Income-tax Act were involved?

Section 14A

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Income Tax Appellate Tribunal, DELHI BENCH ‘G’ : NEW DELHI

Before: SHRI R.K. PANDA & SHRI KULDIP SINGH

For Appellant: Shri R.S. Ahuja, Advocate
For Respondent: Shri S.S. Rana, CIT DR
Hearing: 27.11.2019

PER KULDIP SINGH, JUDICIAL MEMBER :

Appellant, M/s. Pinewood Information Systems Pvt. Ltd.

1.

(hereinafter referred to as the ‘assessee’) by filing the present appeal sought to set aside the impugned order dated 27.11.2013 passed by the Commissioner of Income-tax (Appeals)-XXXI, New Delhi qua the assessment year 2009-10 on the grounds inter alia that:-

“That on the facts & circumstances of the case the learned ITO & the CIT(A) erred in :

1) Assessing the Income of Rs. 13,03,42,286/- as against Rs.12,10,16,551/- (including the surrendered income of Rs.11,90,00,000/-).

2) Making the Additions of the amount of Rs. 11,90,00,000 on account of bogus Purchases in spite of the fact that the actual Purchases from the same parties were Rs.78,93,726/- and Rs.11,11,06,274 was wrongly offered for tax in the return of income.

3) Upholding the Assessment & addition of Rs. 4,13,658/-u/s 14A inspite of the fact that the Assessment for the year had abated in terms of section 153A & no incriminating material was unearthed in the course of search & seizure operations.

4) Disallowing Rs.4,13,658/- under Section 14A of the Income Tax Act.

5) Disallowing u/s 14A without the Assessing Officer giving any finding in the assessment order regarding the amount of actual expenditure incurred by the assessee to earn tax-free income.

6) Not following the orders of the jurisdictional High Court in this matter.”

2.

Briefly stated the facts necessary for adjudication of the issue at hand are : Assessing Officer (AO) noticed that during the year under assessment, the assessee company has made investment of Rs.5,57,48,277/- on which dividend income was earned. AO by invoking the provisions contained under section 14A of the Income-tax Act, 1961 (for short ‘the Act’) read with Rule 8D of the Income-tax Rules, 1962 (for short ‘the Rules’) made disallowance of Rs.93,00,035/- and thereby added the same to the income of the assessee.

3.

Assessee carried the matter by way of an appeal before the ld. CIT (A) who has confirmed the addition made by the AO by partly allowing the appeal. Feeling aggrieved, the assessee has come up before the Tribunal by way of filing the present appeal.

4.

We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.

GROUNDS NO.1 & 2

5.

Grounds No.1 & 2 are dismissed having not been pressed during the course of arguments.

GROUNDS NO.3, 4, 5 & 6

6.

The ld. AR for the assessee challenging the impugned order contended that no expenditure has been incurred by the assessee qua the investment made during the year under assessment nor any dividend has been earned and as such, no disallowance can be made.

7.

Ld. DR for the Revenue, on the other hand, relied on the orders of the lower Revenue authorities.

8.

Perusal of the profit & loss account brought on record by the assessee shows that no expenditure has been incurred by the assessee during the year under assessment nor any dividend earned. It is settled principle of law that when no dividend has been earned by the assessee, there cannot be any disallowance u/s 14A of the Act.

9.

Hon’ble Delhi High Court in the case of Cheminvest Limited vs. CIT (2015) 378 ITR 33 has held that, “In the absence of exempt income, disallowance u/s 14A of any amount was not permissible.” So, we are of the considered view that since assessee has not earned any dividend income nor proved to have incurred any expenditure on the investment during the year under assessment, no disallowance can be made, hence disallowance of Rs.4,13,658/- is ordered to be deleted.

10.

Resultantly, the appeal filed by the assessee is allowed. Order pronounced in open court on this 28th day of November, 2019.

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