ITO 11(1)(3), MUMBAI vs. SAICHARAN CONSULTANCY PVT. LTD., MUMBAI

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ITA 3451/MUM/2018Status: DisposedITAT Mumbai28 August 2019AY 2014-154 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that Section 14A cannot be invoked if the assessee has not earned any exempt income during the relevant assessment year. The legislative intent, as discerned from judicial decisions, supports this view.

What were the facts?

The Assessing Officer made a disallowance under Section 14A based on CBDT Circular No. 5/2014, despite the assessee claiming no exempt income was earned. The assessee argued that certain expenses were capitalized or added back, and minimal expenditure was incurred.

What were the issues?

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

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(3)Show list

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Income Tax Appellate Tribunal, MUMBAI BENCH “G” MUMBAI

Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN

Hearing: 08/08/2019Pronounced: 28/08/2019

ORDER

PER N.K. PRADHAN, AM

1.

This is an appeal filed by the Revenue. The relevant assessment year is 2014-15. The appeal is directed against the order of the Commissioner of Income Tax-18, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’). Though the case was fixed for hearing on 08.08.2019 neither the assessee nor its authorized representative appeared before the Tribunal on the above date. Because of non-compliance by the assessee, we are proceeding to dispose P a g e | The Income Tax Officer-11(1)(3) Vs. M/s Saicharan Consultancy Pvt. Ltd. off this appeal after hearing the Ld. DR and examining the materials available on record.

2.

The grounds of appeal

filed by the revenue read as under:

1. Whether on the facts and in the circumstances of the case and in law, the learned CIT(A) erred in giving relief to the assessee by relying on the facts that assessee has no exempt income by ignoring the CBDT Circular No.5/2014 which states that it is not necessary that exempt income should necessarily be included in a particular year’s income for disallowance to be triggered.

2. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT (A) erred on giving relief to the assessee by ignoring the facts that Section 14A does not use the word “income of the year” but “income under the Act” which clearly indicates that for invoking disallowance u/s 14A, it is not necessary that assessee should have earned such exempt income during the financial year under consideration.”

3. Briefly stated, the facts are that during the course of assessment proceedings, the Assessing Officer (AO) invoked the provisions of section 14A of the Act. In reply, the assessee submitted vide letter dated 10.08.2016 the following :

“The company has not earned any exempt income during the year. Hence, disallowance u/s 14A should not be made.” However, the AO was not convinced with the above reply of the assessee and thereafter relying on the CBDT Circular No. 5/2014 dated 11.02.2014 made a disallowance of Rs.2,04,17,998/- u/s 14A of the Act.

4.

Aggrieved by the order of the AO, the assessee filed an appeal before the Ld. CIT(A). During the course of hearing, the assessee submitted that Rs.1,99,95,316/- was not claimed as an expenditure in the P&L account and P a g e | The Income Tax Officer-11(1)(3) Vs. M/s Saicharan Consultancy Pvt. Ltd. in fact the said amount was capitalized to investment account. Further, it was submitted that the assessee had suo motu added back the entire finance costs of Rs.7,90,159/- in the computation of income. Also it was stated that the assessee had claimed in the P&L account an amount of Rs.31,355/- which is bare minimum expenditure required to run the company. The Ld. CIT(A) found the above contentions of the assessee as correct. Thereafter, relying on catena of decisions like PCIT v. Ballarpur Industries Ltd. (ITA No. 51/2016) (Bombay High Court, Nagpur Bench), Zee News Ltd. (2018-TIOL-263) (Bombay High Court), Cheminvest Ltd. v. ITO (2009) 378 ITR 33(Delhi High Court), deleted the disallowance of Rs.2,04,17,998/- made by the AO u/s 14A of the Act.

5.

Before us, the Ld. DR relies on the order of the AO. 6. We have heard the Ld. DR and perused the relevant materials on record. The fact remain that the assessee-company has not earned any exempt income during the year under consideration. We are of the considered view that the legislative intent is more discernable in the judicial decisions. In CIT vs. Chettinad Logistics (P) Ltd. (2017) 80 taxmann.com 221 (Mad), the Hon’ble Madras High Court has held that section 14A cannot be invoked where no exempt income was earned by the assessee in the relevant assessment year. In the case of CIT v. Shivam Motors (P) Ltd. (2015) 55 taxmann.com 262 (All), it has been held that in absence of any tax free income earned by the assessee, disallowance u/s 14A could not be made. In a similar vein, it has been held in Ballarpur Industries Ltd. (supra) that section 14A will not apply if no exempt income is received or receivable during the relevant previous year.

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