ALTIMETRIK INDIA PRIVATE LIMITED,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -1(1)(1) , BANGALORE

O R D E R Per Jason P. Boaz, A.M. This appeal by the assessee is directed against the order of CIT(A) - 12, Bangalore, dated 31.01.2019 for Assessment Year 2013-14..

2.1 The assessee, a company engaged in deputing professionals for computer related software services, ITES and placement services, filed its return

Page 2 of 6 for Assessment Year 2013-14 on 28.11.2013. Subsequently, a revised return was filed on 28.11.2013 declaring a loss of Rs.(-) 2,89,68,291/-. The case was taken up for scrutiny for this Assessment Year and the assessment was concluded under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) vide order dated 04.03.2016, wherein the assessee’s loss was determined at Rs.(-)2,58,52,654/-; in view of, inter alia, disallowance under section 14A of the Act r.w.Rule 6D of the Income Tax Rules, 1962 (in short ‘the Rules’) of an amount of Rs.22,21,686/- [i.e., Rs.10,04,359/- under Rule 8D(2)(ii) and Rs.12,17,327/- under Rule 8D(2)(iii)]. On appeal, the aforesaid disallowance under section 14A r.w.Rule 8D(2)(ii) and 8D(2)(iii) of the Rules was upheld vide the impugned order dated 31.01.2019.

3.1 Aggrieved by the order of CIT(A)-12, Bangalore, dated 30.01.2019 for Assessment Year 2013-14, the assessee has preferred this appeal wherein it has raising the following grounds:-

3.2 Before us, the ld. AR for the assessee submitted that in the year under consideration, the assessee has not earned any exempt income. In these circumstances, it is contended that the provisions of section 14A of the Act are Page 3 of 6 not attracted and therefore no disallowance could have been made as per provisions of section 14A of the Act. In support of this proposition the ld. AR for the assessee placed reliance, inter alia, on the following judicial pronouncements:-

(i) PCIT Vs. GVK Project and Technical Services Ltd., (2019) 106 taxmann.com 181 (SC); (ii) M/s. CCI Ltd., v JCIT, Udupi, in HC); (iii) Cheminvest Ltd. v CIT (2015) 378 ITR 33 (Delhi HC); (iv) Tanglin Retail Reality Developments Private Limited v DCIT in ITA No. 265/Bang/2016 dated 31.03.2017; 3.3 Per contra, the ld. DR supported the orders of the authorities below in making and confirming the disallowance u/s. 14A r.w. Rule 8D(2)(iii) of the Act.

3.4.1 We have considered the rival contentions and perused and carefully considered the material on record; including the judicial precendents cited (supra). It is a matter of record and not disputed that the assessee had not earned any exempt income in the year under consideration and this fact is admitted by the learned CIT(A) in the impugned order. The applicability of the provisions of section 14A of the Act is in respect of expenditure incurred in relation to the earning of income not includible in total income. A plain reading of the provisions of section 14A of the Act envisages that there should be an actual receipt of income which is not includible in the total income. Therefore, the provisions of section 14A of the Act will not apply where no exempt income is Page 4 of 6 received or receivable by the assessee during the relevant previous year. This proposition was upheld by the Hon’ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT [(2015) 378 ITR 33 (Del) vide order dated 02.09.2015; wherein at para 23 thereof their Lordships have held as under:- “23.In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression ‘does not form part of the total income’ in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year of the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.”

3.4.2 In the case on hand admittedly, the factual position was that the assessee had not earned or received any exempt income in the previous year relevant to assessment year 2013-14. In these circumstances, in our considered view, the ratio of the decision of the Hon’ble Delhi High Court in the case of Cheminvest Ltd. (supra) would apply squarely in the case on hand. The Hon’ble High Court in the aforesaid judgement held that no disallowance under section 14A of the Act could be made in a year in which no exempt income had been earned or received by the assessee. It was held that the expression ‘does not form part of the total income’ in section 14A of the Act envisages that there should be an actual receipt of income which is not includible in the total income during the Page 5 of 6 relevant previous years for the purpose of disallowing any expenditure incurred in relation to the said exempt income. A similar view has been taken by a co- ordinate bench of this Tribunal in the case of Tanglin Retail Reality Developments Private Limited v DCIT in dated 31.03.2017, considering the decisions of the Hon’ble Karnataka High Court in the case of CCI Ltd. (supra) and of ITAT, Mumbai in Fair Exports (India) P. Ltd.(supra). Therefore, in the factual matrix of the case on hand, as discussed above, we, respectfully following the decisions of the Hon’ble Delhi High Court in the case Cheminvest Ltd. (supra) and the co-ordinate bench in Tanglin Retail Reality Developments Private Limited (supra), hold that no disallowance under section 14A of the Act can be made in the case on hand for the assessment year 2013-14 since the assessee had not earned or received any exempt income in this year and therefore direct the AO to delete the disallowance of expenditure made under section 14A of the Act. Consequently, the assessee’s grounds at S.Nos. 1 to 5 are allowed.