DCIT-11(1)(2), MUMBAI vs. M/S.SAHANA CONSTRUCTION PRIVATE LIMITED, MUMBAI

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)-18, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 15.03.2018 for the A.Y. 2014-15. The only issue in the appeal of the Revenue is in respect of deletion of disallowance made u/s.14A r.w. Rule 8D of I.T. Rules.

(A.Y: 2014-15) M/s. Sahana Constructions Pvt. Ltd., 2. Briefly stated the facts are that, the Assessing Officer while completing the assessment made disallowance u/s. 14A r.w. Rule 8D at ₹.4,04,05,856/-, being interest under Rule 8D(2)(ii) of ₹.3,90,46,883/- and expenses under Rule 8D(2)(iii) of ₹.13,58,973/-. The Ld.CIT(A) deleted the disallowance on the ground that assessee has not earned any exempt income and therefore no disallowance is warranted. Against this order the Revenue is in appeal before us.

(A.Y: 2014-15) M/s. Sahana Constructions Pvt. Ltd., 8.2 It is observed that no exempt income has been earned by the appellant during the year. Therefore, disallowance u/s. 14A r.w. Rule 8D cannot be made. In this regard reliance is placed on the following decisions: (i) Zee News Ltd. (2018-TIOL-263) Bombay HC (ii) Cheminvest Ltd. v. ITO [2009] 378 ITR 33 (Delhi HC). (iii) CIT vs Corrtech energy private limited (Tax Appeal No. 239 of 2014) (Gujarat High Court) (iv) CIT Vs Winsome Textile Industries Ltd (319 ITR 204) (P & H) (v) CIT Vs Holcim India P Ltd (ITA No. 486/2014 & Delhi High Court (vi) CIT Vs. Shivam Motors P Ltd (ITA No. 88 of 2014), Allahabad High Court. (vii) PC1T Vs Ballarpur Industries Ltd (ITA No. 51/2016) (Bombay HC, Nagpur bench). 8.3. Respectfully, relying on the aforesaid judicial pronouncements, it is held that no disallowance can be made u/s. 14A r.w. Rule 8D. 8.4. Accordingly, disallowance made by the learned Assessing Officer by invoking the provisions of Section 14A of the Act r.w. Rule 8D of Rs. 4,04,05,856/- is hereby deleted”

“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 (A.Y: 2014-15) M/s. Sahana Constructions Pvt. Ltd., 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.”

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.”

8. 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 13.10.2016 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

(A.Y: 2014-15) M/s. Sahana Constructions Pvt. Ltd., 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.”

Order pronounced in the open court on the 19th August, 2019