DCIT CEN CIR 5(4), MUMBAI vs. SATYAM REALTORS P.LTD, MUMBAI

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ITA 2391/MUM/2018Status: DisposedITAT Mumbai31 July 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 disallowance under Section 14A should also be excluded when calculating income under MAT provisions (Section 115JB).

What were the facts?

The Assessing Officer made a disallowance of Rs. 74,26,504/- under Section 14A read with Rule 8D, even though the assessee had not earned any exempt income. The CIT(A) deleted this addition, relying on High Court decisions.

What were the issues?

Whether disallowance under Section 14A is permissible when no exempt income is earned, and whether such disallowance should be considered for MAT computation.

Which sections of the Income-tax Act were involved?

Section 14A,Section 115JB

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(5)Show list

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Income Tax Appellate Tribunal, MUMBAI BENCH “G” MUMBAI

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

For Appellant: Mr. Nimesh R. Thar, AR
For Respondent: Mr. Chaudhary Arun Kumar Singh, DR, Mr. Nimesh R. Thar, AR
Hearing: 31/07/2019Pronounced: 31/07/2019

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-53, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).

2.

The grounds of appeal filed by the revenue read as under:

1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition of Rs.74,26,504/- u/s 14A of the Income Tax Act, 1961 ignoring that the provisions of Section 14A apply even if no exempt income has actually been earned or received during the year in any form whatsoever.? 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition u/s 14A of the Income Tax Act, 1961 by ignoring the provisions of CBDT Circular no. 5/2014 dated 11.02.2014 wherein, it has been clarified that the Rule 8D r.w.s. 14A provides for disallowance of expenditure even where the assessee in particular has not earned exempt income?.

3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition u/s 14A of the Income Tax Act, 1961 relying upon the decision of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. overlooking the fact that the above decision has not been accepted by the revenue and SLP has been filed before the Hon'ble Supreme Court and same is pending? 4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in directing the AO to exclude disallowance u/s 14A while calculating income under MAT provisions u/s 115JB of the Act.

3. There is no exempt income claimed by the assessee during the year under consideration as recorded by the Ld. CIT(A) at para 4.3.12 of his order dated 16.02.2018. In the assessment completed u/s 143(3) dated 19.12.2016, the Assessing Officer (AO) computed the disallowance u/s 14A r.w. Rule 8D of the Income Tax Rules, 1962 (the Rules) at Rs.74,26,504/-.

In appeal, the Ld. CIT(A) followed the order of his predecessor-in- office for AY 2012-13 and deleted the above disallowance of Rs.74,26,504/- made by the AO on the reason that the assessee has not claimed as deduction any exempt income.

4.

Before us, the Ld. DR relies on the order of the ITAT, Amritsar in Lally Motors reported in 170 ITD 370 and submits that disallowance u/s 14A r.w. Rule 8D can be made even if there is no exempt income.

On other hand, the Ld. counsel for the assessee relies on the decision of the Hon’ble Delhi High Court in Cheminvest Ltd. v. CIT (2015) 61 taxmann.com 118 (Del).

5.

We have heard the rival submissions and perused the relevant materials on record. The fact remains that in the present case the assessee has not earned any exempt income. 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 Cheminvest Ltd. (supra),Ballarpur Industries Ltd. (2016) (10) TMI 1039 (Bombay High Court) that section 14A will not apply if no exempt income is received or receivable during the relevant previous year.

5.1 Facts being identical, we follow the ratio laid down in the above judgments of the High Courts instead of the order of the Tribunal in Lally Motors (supra) and confirm the order of the Ld. CIT(A).

In the case of ACIT v. Vireet Investment [2017] 82 taxmann.com415 (Delhi - Trib.) (SB), it is held that computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to computation as contemplated under section 14A read with rule 8D. Thus we confirm the order of the Ld. CIT(A).

6.

In the result, the appeal filed by the revenue is dismissed.

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