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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI C.N. PRASAD, HONBLE & SHRI MANOJ KUMAR AGGARWAL, HONBLEDr. Annie Besant Road Shri Amit Amlani Shri Maurya Pratap
O R D E R PER C.N. PRASAD (JM) 1. This appeal is filed by the revenue against the order of the Learned Commissioner of Income Tax (Appeals) -12, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 25.05.2018 for the Assessment Year 2014-15.
Revenue has raised the following grounds in its appeal: -
1. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) was justified in deleting the disallowance of Rs.2,35,27,793/- made by AO u/s 14A r.w.r. 8(D) without appreciating that disallowance u/s. 14A can be made even in a year in which no exempt income was earned or received by the assessee.
(A.Y: 2014-15) M/s. Essel Utilities Distribution Co. Ltd., 2. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in deleting the disallowance of Rs.2,35,27,793/- made by AO u/s 14A r.w.r. 8(D) without appreciating the CBDT Circular No 5/2014 dated 11.02.2014 has clarified that Rule 8D r.w.s. 14A of the Act provides for disallowance of the expenditure even where tax payer in a particular year has not earned any exempt income"
Whether on the facts and circumstances of the case and in law, the Ld CIT(A) erred in deleting the upward adjustment of disallowance u/s. 14A of Rs. 2,35,27,793/- to the Book Profit u/s. 115JB of the Act."
4. The appellant prays that the order of the CIT(Appeals) on the above grounds be set aside and that of the AO be restored." "The appellant craves leave to amend or alter any ground or to submit additional new ground, which may be necessary."
3. Briefly stated the facts are that, the Assessing Officer while completing the assessment made disallowance u/s. 14A r.w. Rule 8D at ₹.2,35,27,793/-, being interest of ₹.2,25,98,831/- under Rule 8D(2)(ii) and expenses of ₹.9,28,962/- under Rule 8D(2)(iii) of I.T. Rules. The Ld.CIT(A) deleted the disallowance on the ground that assessee has not earned any exempt income during the assessment year under consideration and therefore no disallowance is warranted. Against this order the revenue is in appeal before us.
At the outset, Ld. Counsel for the assessee submitted that the issue in appeal is squarely covered by the Tribunal in assessee’s own case in ITA.No. 4302/Mum/2018 dated 12.06.2019 for the A.Y. 2013-14 wherein the Tribunal deleted the disallowance u/s. 14A of the Act in the absence of exempt income.
(A.Y: 2014-15) M/s. Essel Utilities Distribution Co. Ltd., 5. Ld. DR vehemently supported the order of the Assessing Officer.
We have heard the rival submissions, perused the orders of the authorities below and the order of the Tribunal in assessee’s own case for the A.Y. 2013-14. On a perusal of the order of the Tribunal, we find that Tribunal held that there shall not be any disallowance u/s. 14A of the Act if the assessee has not earned any exempt income during the assessment year and while holding so Tribunal held as under: - “5. Heard Ld. DR, perused the orders of the authorities below. On a perusal of the order of the Ld.CIT(A), it is observed that the Ld.CIT(A) deleted the disallowance observing as under: - “8. I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. It has been contended by the appellant that the provisions of section 14A are not applicable to the appellant's case since it has not earned any tax exempt income during the year. In this regard, it is noticed from the details of "Other income" furnished in Note No. 12 to the financial statements that the appellant has not earned any income by way of dividends during the year from the investments held by it. In the following cases, the Hon'ble High Courts have held that no disallowance u/s. 14A is warranted in a year where no tax exempt income was received by the assessee. 1) Lakhani Marketing Inc 49 taxmann.com 257 (P & H) 2) Shivam Motors (P) Ltd 55 taxmann.com 262 (Allahabad) 3) Corrtech Energy (P.) Ltd. 45 taxmann.com 116 (Gujarat) 4) Cheminvest Ltd. Vs. CIT 61 taxmann.com 118 (Delhi) 9. Further, it is seen that Hon'ble ITAT, Mumbai held in the case of Dish TV India Ltd. Vs. ACIT 86 taxmann.com 177 that provisions section 14A of the Act would not apply when no tax exempt income was received or receivable during the relevant previous year by the assessee. 10. Hence, having regard to the decisions of the Hon'ble High Courts and Hon'ble ITAT, Mumbai cited above, it is held that disallowance u/s. 14A is not warranted in the case of the assessee for the present assessment year in the absence of receipt of any tax exempt income from the investments made by it. In view of the same,
(A.Y: 2014-15) M/s. Essel Utilities Distribution Co. Ltd., the A.O. is directed to delete the disallowance of Rs.1,45,59,7627- made u/s 14A of the Act in computation of total income as per the normal provisions of the Act and the book profit as per section 115JB of the Act. This ground of appeal is accordingly allowed.”
6. It is an undisputed fact that during this Assessment Year assessee did not receive any exempt income. When no exempt income is received by the assessee, whether there can be any disallowance u/s. 14A has been considered by the Coordinate Benches of this Tribunal and it has been consistently holding that if there is no exempt income there should not be any disallowance u/s. 14A of the Act. In the case of ACIT v. M/s. Ballarpur Industries Ltd., in ITA.No. 346 to 379/NAG/2014 dated 04.12.2015 the Nagpur Bench of the Tribunal following the decision of the Hon'ble Delhi High Court in the case of Cheminvest v. CIT (supra) held as under: - “6. We have heard both the sides at some length and carefully perused the orders of the authorities below in the light of the precedence cited. As far as the exemption for the years under consideration were concerned, it was an admitted factual position that the AO has not mentioned any such amount. Meaning thereby, there was no exempt income earned by the assessee for the years under consideration. In reply to one of our questions, the learned AR, Mr. K. P. Dewani has also made a statement at Bar that no dividend was declared, hence, there was no earning of exempted dividend income. He has also clarified that for the purpose of invocation of the provisions of section 14A of the IT Act, the AO has applied the formula only in respect of disallowance of proportionate interest expenditure. There was no allegation of the AO that the exempt income was earned by the assessee. In the light of the undisputed finding on facts, we have perused the decision of the Hon’ble Courts. We may like to mention that a view has been expressed consistently that if there is no exempted profit then there is no question of invocation of the provisions of section 14A of the IT Act but, we have also carefully perused that very decision of the Tribunal namely Cheminvest Ltd. (supra) was reversed by the Hon’ble Delhi High Court, copy placed in the compilation. The Hon’ble Delhi High Court in vide order dated 02-09-2015 titled as “Cheminvest Ltd. Vs CIT” has decided the substantial question of law that whether disallowance u/s 14A of the Act can be made in a year in which no exempt income has been earned or received by the assessee. The Final verdict was 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 for 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.”
(A.Y: 2014-15) M/s. Essel Utilities Distribution Co. Ltd., 7. In short, in a situation when that very order of the Tribunal which was the basis for invocation of the provisions of Section 14A of the IT Act got reversed by the Hon’ble Delhi High Court, hence, the very said basis do not survive any more. As a result, we hereby confirm the findings of the learned CIT (A) on this issue. We hereby also hold that in view of the numbers of decisions on this issue in favour of the tax payers, we find no force in this ground of appeal of the Revenue. The same is dismissed.”
7. This decision of the Tribunal has been affirmed by the Hon'ble Bombay High Court in the case of Pr.CIT v. M/s. Ballarpur Industries Limited in ITA.No. 51 of 2016 dated 13.10.216 by rejecting the appeal of the Revenue and held that no substantial question of law arises. While holding so the Hon'ble High Court observed as under: - “On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression “does not form part of the total income” in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. The Income Tax Appellate Tribunal held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income. The findings of facts recorded by both the Authorities do not give rise to any substantial question of law. Since no substantial question of law arises in this income tax appeal, the income tax appeal is dismissed with no order as to costs.”
8. It is not in dispute that the assessee has not earned any exempt income during this Assessment Year, therefore in the absence of any exempt income there shall not be any disallowance u/s. 14A of the Act. Thus, respectfully following the above decision of the Hon'ble Jurisdictional High Court in the case of Pr.CIT v. M/s. Ballarpur Industries Limited (supra), I uphold the order of the Ld.CIT(A) and reject the grounds raised by the Revenue.”
(A.Y: 2014-15) M/s. Essel Utilities Distribution Co. Ltd., 7. It is an undisputed fact that assessee has not earned any exempt income during the year. Facts being identical respectfully following the said decision in assessee’s own case, we do not find any infirmity in the order passed by the Ld.CIT(A) in deleting the disallowance on the ground that assessee has not earned any exempt income during the assessment year under consideration.
In the result, appeal of the revenue is dismissed.
Order pronounced in the open court on the 04th December, 2019