M/S. RMZ ONE PARAMOUNT LTD.,CHENNAI vs. ITO, CORPORATE WARD - 3(3), CHENNAI

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ITA 3060/CHNY/2019Status: DisposedITAT Chennai19 February 2020AY 2017-185 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 can be made when no exempt income is earned. The CIT(A) was bound by the High Court and Supreme Court judgments confirming this principle.

What were the facts?

The assessee did not earn any exempt income during the assessment year. The CIT(A) disallowed expenses under Section 14A, erroneously believing a High Court judgment was overruled by the Supreme Court.

What were the issues?

Whether disallowance under Section 14A is permissible when the assessee has not earned any exempt income during the year.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI

Before: SHRI N.R.S. GANESAN & SHRI S. JAYARAMAN

Hearing: 07.01.2020Pronounced: 19.02.2020

O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

1.

This appeal of the assessee is directed against the order passed by the Commissioner of Income Tax (Appeals)–11, Chennai dated 20.08.2019 and pertains to the assessment year 2017-18.

2.

Shri Saroj Kumar Parida, the Ld. Counsel for the assessee submitted that admittedly there was no exempt income earned by the assessee during the year under consideration. Even though the judgment of the Madras High Court in the case of M/s. Redington India Ltd., (2016) 97 CCH 219 was brought to the notice of the CIT(A), the CIT(A) found that the judgment of the Madras High Court in the Redington India Ltd., was overruled by the Apex Court. In fact, the Apex Court confirmed the order of the Madras High Court on identical situation in M/s. Chettinad Logistics Pvt. Ltd. Therefore, the Ld.Counsel submitted that the CIT(A) is not justified in confirming the order of the Assessing Officer.

3.

We heard Shri AR.V. Sreenivasan, the Ld. Departmental Representative also. The Ld.DR very fairly submitted that he has gone through the judgment of the Madras High Court in Redington India Ltd., referred by the CIT(A) and nowhere the Apex Court over ruled the judgment of the Madras High Court in Redington India Ltd. The Ld.DR has also clarified that no exempt income was earned by the assessee during the year under consideration.

4.

We have considered the rival submissions on either side and perused the material available on record. It is not in dispute that the assessee has not earned any dividend income from the investment made during the year under consideration. The question arises for consideration is when the assessee has not earned any exempt income / dividend during the year under consideration, can there be any disallowance U/s.14A read with Rule 8D(ii). This issue was examined by the Madras High Court in Redington India Ltd., (supra). The Madras High Court found that there was no disallowance when there was no exempt income. In fact, the Madras High Court has observed as follows:- “15. The exemption extended to dividend income would relate only to the previous year when the income was earned and none other and consequently the expenditure incurred in connection therewith should also be dealt with in the same previous year. Thus, by application of the matching concept, in a year where there is no exempt income, there cannot be a disallowance of expenditure in relation to such assumed income. (Madras Industrial Investment Corporation Ltd. vs. CIT (225 ITR 802)). The language of s.14A(1) should be read in that context and such that it advances the scheme of the Act rather than distort it.”

Similarly, the Madras High Court in the case of Chettinad Logistics Pvt. Ltd., examined this issue and by following the judgment in Redington India Ltd., found that there cannot be any disallowance when there was no exempt income. In fact, the Revenue filed an appeal before the Apex Court in Chettinad Logistics Pvt. Ltd. The appeal filed by the Revenue was dismissed. In those circumstance, this Tribunal is of the considered opinion, the CIT(A) is not justified in observing that the judgment of Madras High Court in Redington India Ltd., was overruled by the Apex Court.

4.1 When the judgment of the Madras High Court in the case of Redington India Ltd., and Chettinad Logistics Pvt. Ltd., was confirmed by the Apex Court, it is binding on the CIT(A). In other words, the CIT(A) has no other way except to follow the judgment of the Madras High Court. There may be difference of opinion with regard to issues arises for consideration. Irrespective of the personal difference of opinion, the CIT(A) while deciding the appeal is bound to follow the judgment of the Apex Court and the jurisdictional High Court. Judicial discipline demand that all authorities in the State of TamilNadu and Pondicherry has to follow the judgment of the Madras High Court including the present CIT(A). Therefore, we are unable to uphold the order of the CIT(A). Accordingly, the orders of both the authorities below are set aside and the disallowance made by the Assessing Officer U/s.14A of the Act is deleted.

5.

In the result, the appeal filed by the assessee stands allowed.

Order pronounced in the court on 19th February, 2020 at Chennai.

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