DCIT CIR. 2(2)(1), MUMBAI vs. L & T POWER DEVELOPMENT LTD., MUMBAI

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ITA 2607/MUM/2018Status: DisposedITAT Mumbai09 August 2019AY 2014-153 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 no disallowance under Section 14A is justified if no exempt income has been earned. Judicial precedents of High Courts are to be preferred over CBDT circulars.

What were the facts?

The assessee made substantial investments but did not offer any disallowance under Section 14A, claiming no exempt income was earned. The Assessing Officer (AO) disallowed expenses under Rule 8D(iii) based on CBDT circular, disregarding the assessee's claim.

What were the issues?

Whether disallowance under Section 14A is permissible when no exempt income is earned by the assessee, and the applicability of CBDT circulars versus High Court judgments.

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, MUMBAI

Before: HON’BLE SHRI MAHAVIR SINGH, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM

For Appellant: Shri Anuj Kisnadwala, Ld.AR
For Respondent: Shri Anadi Varma – Ld. CIT DR, Shri Anuj Kisnadwala, Ld.AR

O R D E R Manoj Kumar Aggarwal (Accountant Member):- 1. Aforesaid appeal by Revenue for Assessment Year [in short referred to as ‘AY’] 2014-15 contest the order of Ld. Commissioner of Income-Tax (Appeals)-5, Mumbai, [in short referred to as ‘CIT(A)’], Appeal No. CIT(A)-5/DCIT-2(2)(1)/IT-367/2016-17 dated 08/01/2018 on following grounds of appeal: -

1.

L&T Power Development Ltd. Assessment Year :2014-15 1. Whether on the facts and circumstances of the case and in law Ld. CIT(A) was right in deleting the disallowance of Rs.10,45,17,032/- made u/s 14A r.w. rule 8D(iii) of the IT Rule without appreciating the fact that assessee cannot earn dividend income without systematic management and that dividend income can be earned by incurring no or nominal expenditure? 2. Whether on the facts and circumstances of the case and in law Ld. CIT(A) was right in deleting the disallowance of Rs. 10,45,17,032/- made u/s 14A r.w. rule 8D(iii) of the IT Rule without appreciating the fact that after analyzing various judicial pronouncement, CBDT has clarified and crystallized this matter through the Circular No. 5/2014 dated 11.02.2014 and this issue was put to rest?” As evident from ground of appeal

, the sole subject matter of present appeal is disallowance u/s 14A. 2.1 Facts as emanating from records are that the assessee being resident corporate assessee engaged in development of infrastructure projects was assessed u/s 143(3) on 07/12/2016 wherein the income of the assessee was determined at Rs.10.80 Crores under normal provisions after sole disallowance u/s 14A for Rs.10.45 Crores. 2.2 During assessment proceedings, it transpired that the assessee had made substantial investments but did not offer any disallowance u/s 14A. The assessee pleaded that no exempt income was earned by it during the year under consideration and therefore, no disallowance was warranted u/s 14A in terms of decision of Hon’ble Delhi High Court in Cheminvest Ltd.

61. Taxmann.com 118. However, Ld. AO, disregarding the same and relying upon CBDT circular No. 5 of 2014 dated 11/02/2014 computed indirect expense disallowance u/r 8D(2)(iii) for Rs.10.45 Crores, being 0.5% of average investments. 2.3 The Ld. first appellate authority, relying upon the decision of this Tribunal in assessee’s own case for AY 2010-11 as well as the decision of first appellate authority in AY 2011-12, deleted the addition in view of L&T Power Development Ltd. Assessment Year :2014-15 the fact that no exempt income was earned by the assessee during the year under consideration. The decision of this Tribunal for AY 2010-11 relied upon the decision of Hon’ble Bombay High Court rendered in Pr.CIT V/s Ballarpur Industries Ltd. [ITA No.51 of 2016]. Aggrieved, the revenue is in further appeal before us.

3. Upon hearing rival submissions, the undisputed position that emerges is the fact that no exempt income has been earned by the assessee during the year and therefore, no disallowance u/s 14A would be justified. The binding judicial precedent in the shape of decision of Hon’ble High Courts, in our opinion, would stand in preference to the CBDT circular. Respectfully following the same, we confirm the stand of Ld. first appellate authority.

4.

In result, the appeal stands dismissed. Order pronounced in the open court on 09th August, 2019.

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