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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
AadoSa / O R D E R महावीर स ुंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM: These cross appeals of the assessee are arising out of the order of Commissioner of Income Tax (Appeals)-3, Mumbai in Appeal No. CIT(A)- 3/DCIT 1(3)(2)/2016-17 dated 07.11.2017. The Assessment was framed by the Dy. Commissioner of Income Tax-Circle 1(3)(2), Mumbai (in short DCIT/ITO/ AO) for AY 2013-14 vide dated 04.03.2016, under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
The first issue in these cross appeals is as regards to the order of CIT(A) restricting the disallowance of expenses relatable to exempt income made by AO by invoking the provisions of section 14A of the Act r.w.r. 8D of the I.T Rules, 1962 (hereinafter the ‘Rules’). For this Revenue has raised the following grounds: - “1. On the facts and in the circumstances of the case the Ld. CIT(A) has erred in his interpretation of judgement of Hon’ble Bombay High Court in case of M/s HDFC Bank Ltd. (2014) 366 ITR 505 (Bom) whereby relief is to the extent of disallowance under section 14A r.w.r 8D(2)(ii) which involves interest component and thus disallowance as per Rule 8D(2)(iii) is 3 | P a g e ITAs No.2708& 2191/MUM/2018 not covered by the ruling and hence incorrectly deleted.
2. On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition under section 14A to the extent of Rule 8D(2)(iii) given that this component is not covered by ruling of Hon’ble Bombay high Court in the case of M/s HDFC Bank Ltd. (2014) 366 ITR 505.”
Assessee has raised the following grounds: - “1. In the facts and circumstances of the case, the Ld. CIT(A) erred in not issuing the show cause notice as to why the amount of Rs. 22,16,204/-, being interest cost on borrowings used for acquiring investment should not be disallowed U/s. 37(I) of the Act or any other provisions of the Act. Consequently, the appellant was not granted an opportunity for submitting its submissions in this regard. Accordingly, the decision of the Id. CIT(A) of sustaining the disallowance of Rs.22,16,204/- should be held as bad in law and consequently. be deleted.
2. Without prejudice to the above and in the alternate, on the facts and circumstances of the case and in law, the interest expenditure of 4 | P a g e ITAs No.2708& 2191/MUM/2018 Rs.22,16,204/- being incurred to acquire investment in shares should be held as an inadmissible deduction u/s. 37(1) of the Act or any other provisions of the Act and consequently, the disallowance so made should be deleted.
Without prejudice to the above and in the alternate, oil facts and circumstances of the case and in law, in the event, it is held that aforesaid interest expenditure as inadmissible, then it should be held that same represents cost of investment of the shares.”
Briefly stated facts are that the assessee before the AO claimed 3. that the assessee has not earned any exempt income and hence, no disallowance under section 14A of the Act read with Rule 8D of the Rules be made. However, the assessee suo moto disallowed an amount of ₹ 22,16,204/- under section 14A of the Act. But the AO applied Rule 8D and computed the disallowance under Rule 8D(2)(i) i.e. direct expenses at ₹ 22,16,204/- (the suo moto disallowance made by assessee), under Rule 8D(2)(ii) being interest relating to exempt income at ₹ 12,56,242/- and under Rule 8D(2)(iii) 1 ½ % of average value of investment yielding exempt income at ₹ 1,17,76,108/-. Thereby the AO computed the total disallowance at ₹ 1,30,32,349/- under section 14A of the Act read with Rule 8D of the Rules. However, he restricted the disallowance at ₹ 1,08,16,145/- after reducing the already disallowance made by assessee at ₹ 1,22,10,204/-. Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) restricted the disallowance at ₹ 22,16,204/-, the suo 5 | P a g e ITAs No.2708& 2191/MUM/2018 moto disallowance made by assessee and deleted the balance disallowance made under Rule 8D(2)(ii) and 8D(2)(iii) by the AO. Aggrieved, both the assessee as well as Revenue came in appeal before Tribunal.
We have heard rival contentions and gone through the facts and 4. circumstances of the case. Admitted facts are that the assessee has not earned any dividend income or has not claimed any exempt income in its computation of income or in the P&L Account. This fact is not disputed by the AO or by CIT(A) or now before us by the learned Sr. Departmental Representative. In such circumstances, we are of the view that the issue is squarely covered by the decision of Hon’ble Bombay High Court in the case of Pr. CIT vs. Ballarpur Industries Limited in Income Tax Appeal No. 51 of 2016, wherein this issue has been considered following the judgment of Hon’ble Delhi High Court in the case of Chem invest Limited vs. CIT (2015) 378 ITR 33 (Delhi) held 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 6 | P a g e ITAs No.2708& 2191/MUM/2018 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.”
Respectfully, following the decision of Hon’ble Bombay High Court 5. in the case of Ballarpur Industries Limited (supra), we delete the disallowance. This issue of assessee’s appeal is allowed and that of the Revenue is dismissed.
The next issue in this appeal of assessee is against the order of 6. CIT(A) confirming the disallowance of claim of brought forward losses or unabsorbed depreciation being amount of ₹ 69,50,531/-. For this, assessee has raised the following ground No. 4: -
On the facts and circumstances of the case and in law, in computing the book profits 7 | P a g e ITAs No.2708& 2191/MUM/2018 u/s. 115 JB of the Act, the Ld. CIT(A) ought to have directed the Ld. CIT(A) to reduce the same by Rs. 69,50,531/- being lower of the amount of toss brought forward or unabsorbed depreciation as per the books of account. Consequently, the book profit ought to have been determined at Rs. Nil.”
At the outset, both the parties conceded that none of the authorities 7. below have gone into the details and the claim of the assessee. We also noticed that the CIT(A) has just decide the issue on conjunctures and surmises vide Para 5.4.1 as under: - “5.4.1 I have considered the appellants submissions. In the assessment order the AO has not discussed the issue at all. The appellant has failed to establish that in its return of income, it had claimed deduction of book profit by the amount of loss brought forward or unabsorbed depreciation as per books, whichever is lower, in the computation of book profit. The appellant can have grievance only if it makes a claim which is rejected by the appellant. In this case the appellant has failed to establish that it had made the claim in its return of income. Therefore, I dismiss this ground of appeal.”