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Income Tax Appellate Tribunal, “SMC” Bench, Mumbai
Before: Shri Shamim Yahya (AM)
These are appeals by the assessee against separate orders of learned CIT(A) for A.Y. 2012-13 and 2015-16 respectively. Since appeals were heard together, these are being consolidated and disposed of together, for the sale of convenience.
A.Y. 2012-13
First issue raised in ground No. 1 is learned CIT(A) erred in confirming re-assessment made u/s 147, despite the fact that the AO did not make an addition/ disallowance on the grounds that the assessment was re-opened but the disallowance was made on issue not at all connected with the issue on which reasons were recorded.
The second issue raised in ground No. 2 is the Learned CIT(A) erred in confirming disallowance U/S 14A r.w. Rule 8D (iii) Of Rs. 2,45,467/-. The learned CIT(A) failed to consider that the dividend received & subject to tax
2 Oasis Securities Ltd. was a sum of Rs. 39,735/- & not treated as tax exempt. The learned CIT(A) erred in confirming disallowance under Rule 8D (iii) On investments and stock in trade & if only investment was considered, then the disallowance would not exceed a sum of Rs. 1,125/-
Brief facts of the case are that the assessee is engaged in the business of NBFC activities, which includes share trading and investment and funds lending. Present appeal relates to reopening of assessment u/s. 147 of the Act. Reopening of the case was done on the reasoning that the assessee has taken loan of Rs. 102.02 crores and the same was actually an accommodation entry. However, in course of assessment pursuant to reopening, no addition was made on this issue. However, the Assessing Officer proceeded to make disallowance on account of invocation of provisions of section 14A.
Before learned CIT(A), assessee, inter alia contended that the Assessing Officer cannot make addition u/s. 14A since the issue on which reopening was done, no disallowance was made therein. In this connection, the assessee also referred to Hon'ble Bombay High Court decision in the case of Jet Airways Ltd. (331 ITR 236) and in the case of ICICI Bank Ltd. (349 ITR 482). Considering the aforesaid case laws, learned CIT(A) concluded as under :- In the instant case, it is observed that the assessment in the case of the assessee was reopened on the ground that the loan advanced by the assessee to Shri Vivek Mehrotra of Rs. 102.02 crores is of the nature of an accommodation entry. The AO while completing the re-assessment did not make any addition on the said ground for which the assessment was reopened. Therefore, in view of the decision of the jurisdictional High Court in the case of Jet Airways (supra), the AO could not have completed the re-assessment after making any further addition/ disallowance on a fresh issue. However, in the instant case, the AO has proceeded to make a disallowance u/s. 14A in the re-assessment proceedings, though, no addition was made by him on the ground for which the assessment was re-opened. Therefore, in view of the decision of the jurisdictional High Court in the case of Jet Airways (supra), the action of the Assessing Officer of making the disallowance u/s. 14A is found to be not as per law.
3 Oasis Securities Ltd.
Despite holding so learned CIT(A) proceeded to partly upholding the disallowance u/s. 14A of the Act.
Against this order, the assessee is in appeal before the ITAT. I have heard both the counsel and perused the records.
Learned Counsel of the assessee submitted that learned CIT(A) has clearly held that no disallowance u/s. 14A as permissible when the issue on which reopening was done was not a subject matter of any disallowance in the reassessment order. Learned counsel submitted that having so held learned CIT(A) has erred in partly upholding disallowance u/s. 14A. Learned counsel submitted that proposition that when the assessment is reopened, in the reopened assessment other allowances are permissible only if disallowance is also done on the issue on which assessment is reopened. Learned counsel submitted that this is duly supported by Hon'ble Jurisdictional High Court decisions referred above.
Per contra, learned Departmental Representative relied upon the orders of the authorities below.
Upon careful consideration, I find that learned CIT(A) has clearly held that no disallowance is permissible in this case u/s. 14A on the touchstone of Hon'ble Jurisdictional High Court decision in the case of Jet Airways Ltd. (supra) in as much as no disallowance has been done on the issue on which reopening has been done. As a matter of fact, he Revenue is not in appeal against this order of learned CIT(A). Thus, I hold that learned CIT(A) has erred in upholding part of the disallowance u/s. 14A, when he held at the threshold that no disallowance u/s. 14A is permissible in as much as no disallowance was done on the issue on which reopening was made. Accordingly, I set aside the order of learned CIT(A) and delete the disallowance.
In the result, assessee’s appeal for A.Y. 2012-13 stands allowed.
4 Oasis Securities Ltd.
A.Y. 2015-16
In this case also assessee is aggrieved in as much as learned CIT(A) has confirmed the disallowance u/s. 14A of a sum of Rs. 1,37,643/-. In this case it is the contention of learned Counsel of the assessee that the assessee has only earned dividend income of Rs. 14,077/-. Learned counsel submitted that the disallowance u/s. 14A cannot exceed exempt income earned. Furthermore, learned counsel pleaded that in this case even the dividend income so earned Rs. 14,077/- has been offered to tax. Hence, learned counsel pleaded that no disallowance u/s. 14A is required in this case.
13. Upon hearing both the counsel and perusing the records, I find that Hon'ble Apex Court in the case of Maxopp Investment (402 ITR 640) has upheld Hon'ble Punjab & Haryana High Court decision in the case of PCIT vs. State Bank of Patiala [2017] 391 ITR 218, wherein restriction of disallowance u/s. 14A to the extent of exempt income earned has been upheld. Hence, it is now settled that no disallowance can be done over and above exempt income earned. Now in this case, it is the submission of learned Counsel of the assessee that the assessee has not earned any exempt income in as much as dividend income of Rs. 14,077/- has been offered to tax, hence, no disallowance u/s. 14A is permissible.
I find myself in agreement with the above said proposition. However, the Assessing Officer requires to examine this aspect that the assessee has not shown any exempt income and whatever dividend income has been earned has been offered to tax. If above is found factually correct, no disallowance u/s. 14A is sustainable. Hence, this issue allowed for statistical purposes.
5 Oasis Securities Ltd.
In the result, appeal for A.Y. 2012-13 is allowed and appeal for A.Y. 2015-16 is allowed for statistical purposes.
Order has been pronounced in the Court on 29.7.2019.