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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA & SHRI PAVAN KUMAR GADALE
O R D E R Per Shri A.K. Garodia, Accountant Member Both these appeals are filed by the revenue and are directed against two separate orders of ld. CIT(A), Gulbarga both dated 18.01.2018 for Assessment Years 2013- 14 and 2014-15. Both these appeals were heard together and are being disposed of by way of this common order for the sake of convenience. 2. The grounds raised by the revenue for Assessment Year 2013-14 in are as under. “1. The order of the learned Commissioner of Income-tax (Appeals) is opposed to law and facts of the case.
2. In the facts and circumstances of the case, the ld. CIT(A), has erred in not appreciating CBDT's Circular No. 5/2014 dated: 11.02.2014 wherein it is clarified that " Rule 8D r.w.s. 14A of IT act provides for disallowance of expenditure even where taxpayer in a particular year has not earned any exempt income".
3. In the facts and circumstances of the case, the Ld. CIT(A) had relied upon the judgement of Hon’ble High Court of Madras in case of M/s Redington (India) Pvt. Ltd. Vs. ACIT, which is not binding on the department as the judgment does not pertain to jurisdictional High Court.
4. Any other facts and grounds which may arise during the case.” & 902/Bang/2018 Page 2 of 5
3. Similarly, the grounds raised by the revenue for Assessment Year 2014-15 in are as under. “1. The order of the learned Commissioner of Income-tax (Appeals) is opposed to law and facts of the case.
2. In the facts and circumstances of the case, the ld. CIT(A), has erred in not appreciating CBDT's Circular No. 5/2014 dated: 11.02.2014 wherein it is clarified that " Rule 8D r.w.s. 14A of IT act provides for disallowance of expenditure even where taxpayer in a particular year has not earned any exempt income".
3. In the facts and circumstances of the case, the Ld. CIT(A) had relied upon the judgement of Hon’ble High Court of Madras in case of M/s Redington (India) Pvt. Ltd. Vs. ACIT, which is not binding on the department as the judgment does not pertain to jurisdictional High Court.
4. Any other facts and grounds which may arise during the case.”
4. Regarding Assessment Year 2013-14, it was submitted by ld. AR of assessee that in this year, the assessee did not earn any exempt income and therefore, as per the judgment of Hon’ble Delhi High Court rendered in the case of Cheminvest Ltd. Vs. CIT as reported in (2015) 378 ITR 33 (Delhi), no disallowance can be made u/s. 14A. Regarding this factual aspect as to whether there is exempt income or not, he submitted that P&L account is available on page no. 2 of the paper book and the details regarding other income is available on page no. 5 of the paper book and from the same, it can be seen that there is no exempt income earned by assessee in this year. The ld. DR of revenue supported the assessment order and he placed reliance on the judgment of Hon’ble Apex Court rendered in the case of Maxopp Investment Vs. CIT as reported in [2018] 402 ITR 640 (SC).
5. We have considered the rival submissions. We first examine this factual aspect as to whether any exempt income was earned by assessee in the A. Y. 2013 - 14 or not. As per the audited P&L account for this year as available on page 2 of the paper book, the assessee has earned other income of Rs. 136,92,304/- and its details are as per Schedule No. B available on page 5 of the same paper book. As per Schedule – B on page 5 of the paper book, this other income comprised of Rs. 131,44,614/- with the narration “Interest & Other” with no separate details of other income and balance Rs. 547,690/- is profit on sale of scrap The P & L Account for next year ending on 31.03.2014 is available on page 10 of the same paper book with previous year figures i.e. for the year ended on 31.03.2013. As per the same, the assessee earned Rs. 160,97,975/- as other income for the year ended on 31.03.2014 and the assessee earned Rs. & 902/Bang/2018 Page 3 of 5 173,32,304/- as other income for the year ended on 31.03.2013 and details of this other income for both years is as per Schedule “B” available on page 13 of the same paper book. As per this schedule “B”, this other income for these two years include Dividend Income of Rs. 151,812/- for the year ended on 31.03.2014 and Rs. 18,500/- for the year ended as on 31.03.2013. The difference in the amount of other income for the year ended as on 31.03.2013 as per page 5 & 13 of the paper book is of Rs. 36.40 lacs and the same is on account of salary in the year ended as on 31.03.2013 as per page 13 of the paper book and this is no body’s case that salary is exempt income and therefore, this difference is not relevant for our decision and hence, we decide the issue in dispute without going into this aspect. It comes out that in both years, exempt income is earned by the assessee and therefore, the judgment of Hon’ble Delhi High Court rendered in the case of Cheminvest Ltd. Vs. CIT (Supra) is not applicable in any of these two years. While arguing the appeal of the revenue for next year i.e. A. Y. 2014 – 15, learned AR of the assessee submitted that in this year, disallowance to the extent of dividend income is justified but disallowance cannot be made beyond this amount of dividend income earned by assessee in this year. In this regard, he placed reliance on the judgment of Hon’ble Delhi High Court rendered in the case of Joint Investments Pvt. Ltd. Vs. CIT as reported in (2015) 372 ITR 694 (Delhi), copy available on pages 23 to 26 of the paper book. In particular, our attention was drawn to para 9 of this judgment. He submitted that in this case, it was held by Hon’ble Delhi High Court that by no stretch of imagination can section 14A or Rule 8D be interpreted so as to mean that the entire tax-exempt income is to be disallowed. But still in the present case, CIT(A) in this year has confirmed the disallowance to the extent of entire dividend income and the assessee is not in appeal on this aspect and therefore, the order of CIT(A) should be confirmed in A. Y. 2014 -
15. The ld. DR of revenue supported the assessment order. He also placed reliance on the judgment of Hon’ble Apex Court rendered in the case of Maxopp Investment Vs. CIT (supra).
6. Now we examine the applicability of the judgment of Hon’ble Delhi High Court rendered in the case of Joint Investments Pvt. Ltd. Vs. CIT (supra) in both years because there is exempt income earned in both years. For this, first, we reproduce para 9 of this judgment. The same is as under. & 902/Bang/2018 Page 4 of 5 “9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing Rs.2,97,440/- as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO - an aspect which is completely unnoticed by the CIT (A) and the ITAT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs.48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., Rs.52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure "incurred by the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case.”
7. From the above para reproduced from this judgment, it is seen that in that case, the matter was restored back to the file of AO for fresh decision to find out the expenditure incurred by the assessee in relation to exempt income after making this observation that the entire tax exempt income cannot be disallowed u/s. 14A or Rule 8D. Hence in our humble understanding, the matter was set aside to the AO with a view that the disallowance should be less than the amount of exempt income. In the present case, the ld. CIT(A) has confirmed the disallowance in A. Y. 2014 – 15 to the extent of entire exempt income and assessee is not in appeal against this decision of CIT(A). Therefore, we do not find any reason to restore the matter back to the file of AO for fresh decision in the present case and we decline to interfere in the order of CIT(A) on this issue in A. Y. 2014 – 15 by respectfully following the judgment of Hon’ble Delhi High Court rendered in the case of Joint Investments Pvt. Ltd. Vs. CIT (supra). For the assessment year 2013 – 14, we modify the order of CIT (A) and in line with our decision in A. Y. 2014 – 15, we hold that in A. Y. 2013 – 14 also, disallowance u/s 14A should be made to the extent of the exempt income in that year of Rs. 18,500/- as per page 13 0f the paper book.
8. Regarding the judgment of Hon’ble Apex Court rendered in the case of Maxopp Investment Vs. CIT (supra) on which reliance had been p[laced by the learned DR of the revenue, we find that in that case, one of the issues involved was this as to whether the expenditure incurred in respect of investment in shares for acquiring and retaining a controlling interest therein is hit by section 14A and it & 902/Bang/2018 Page 5 of 5 was held that the same is also hit but this aspect is not relevant in the present case because there is no such dispute in the present case. The second aspect of this judgment of Hon’ble Apex Court rendered in the case of Maxopp Investment Vs. CIT (supra) is this that If an expenditure incurred has no causal connection with the exempted income, then such an expenditure would be treated as not related to the income that is exempted from tax, and such expenditure would be allowed as business expenditure. In the present case, this is also not a claim of the assessee that the expenditure in question has no causal connection with the exempted dividend income and hence, this judgment on this aspect also has no relevance in the present case. We have already approved the disallowance to the extent of exempt dividend income earned in each of these two years and this is not a ratio of this judgment that the disallowance u/s 14A can be more than the amount of exempt income earned by the assessee. Hence, in our considered opinion, the ratio of judgment of Hon’ble Delhi High Court rendered in the case of Joint Investments Pvt. Ltd. Vs. CIT (supra) holds the field and hence, the same has to be followed even after considering of this judgment of Hon’ble Apex Court rendered in the case of Maxopp Investment Vs. CIT (supra).
9. In the result, the appeal of the revenue for Assessment Year 2013-14 is partly allowed and for Assessment Year 2014-15 is dismissed. Order pronounced in the open court on the date mentioned on the caption page.