UNIPRES INDIA PVT. LTD.,KANCHEEPURAM vs. ITO, CORPORATE WARD - 3 (2),, CHENNAI

आयकर अपील"य अ"धकरण, ’सी’ "यायपीठ, चे"नई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH: CHENNAI "ी एन.आर.एस. गणेशन, "या"यक सद"य एवं "ी र!मत कोचर, लेखा सद"य के सम& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER "नधा'रण वष' /Assessment Year: 2014-15

v. M/s.Unipres India Pvt. Ltd., The Income Tax Officer, RNS-6, SIPCOT Industrial Growth Corporate Ward-3(2), Centre, Oragadam, Nungambakkam, Vadakupattu Post, Chennai-600 034. Sriperumbudur Taluk, Kancheepuram District, Tamil Nadu-603 204. [PAN: AAACU 9830 B] (अपीलाथ*/Appellant) (+,यथ*/Respondent) : Mr. SP.Chidambaram, अपीलाथ* क- ओर से/ Appellant by Advocate : Mr. J.Pavithran Kumar, JCIT +,यथ* क- ओर से /Respondent by : 30.09.2019 सुनवाई क- तार"ख/Date of Hearing : 26.11.2019 घोषणा क- तार"ख /Date of Pronouncement आदेश / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER:

This appeal filed by assessee is directed against appellate Order dated 25.11.2018 passed by learned Commissioner of Income Tax (Appeals)-11, Chennai (hereinafter called “the CIT(A)”), in ITA No.205/16- 17 for assessment Year (ay) 2014-15, the appellate proceedings before learned CIT(A) had arisen from assessment order dated 25.11.2016 :- 2 -:

passed by learned Assessing Officer (hereinafter called “the AO”)

u/s.143(3) of the Income-tax Act, 1961 (hereinafter called “the Act”).

with Income-Tax Appellate Tribunal, Chennai (hereinafter called “the tribunal”) read as under:-

“1. The order of the Commissioner of Income Tax (Appeals) ["CIT (A)"] is contrary to the law, facts and circumstances of the case.

Under normal provisions of the Act

2.1 The CIT (A) has erred in confirming the disallowance made by the Assessing Officer ("AO”) of INR 15,01,125 as expenditure incurred for earning the exempt dividend income under section 14A of the Act.

2.2 The CTT (A) ought to have appreciated that disallowance under section 14A of the Act is not warranted when the Appellant has not earned any exempt dividend income during the subject Assessment Year.

2.3 The CIT (A) ought to have appreciated that the Appellant has not incurred any expenditure an as such disallowance under section 14A of the Act is uncalled for.

2.4 The CIT (A) and the AO ought to have appreciated that provisions of section 14A of the A are not applicable in case of strategic investments made for the purpose of acquiring controlling interest.

2.5 The CIT (A) ought to have appreciated that the Appellant had taken a business decision to invest in a joint venture entity and it did not make the investments with a view to earn exempt income and as such notional attribution of expenses is unsustainable.

2.6 The CIT (A) has failed to appreciate that the Appellant has made investments out of its surplus funds and no borrowed funds were utilised for the investments.

2.7 The CIT (A) has erred in rejecting the claim of the Appellant that AO has not formed an opinion regarding the necessity of invoking the provisions of section 14A of the Act.

2.8 Without prejudice to the above, the CIT (A)/AO erred in considering average value of investments which did not yield exempt dividend income while computing the disallowance under section 14A read with Rule 8D of the Income Tax Rules (the Rules).

2.9 Without prejudice to the above, the CIT(A) erred in confirming the action of the AO in considering interest paid on long term loans while computing the quantum of disallowance under clause (ii) of Rule 8D(2) of the Rules.

2.10 Without prejudice to the above, the CIT (A) and the AO have erred in law and in facts in riot appreciating that the formula under clause (ii) to sub-rule (2) to Rule 8D of the Rules does not apply to the Appellant as there is no interest attributable to earning the dividend income.

Under section 115JB of the Act :- 3 -:

27.09.2019 filed by Managing Director of the assessee company, which is placed on record in file. The assessee has explained in the said affidavit

that there was a change of officer who was looking after taxation matter

and due to this change over of relevant officer incharge , it could not file

its appeal in time with tribunal as there was not proper handover by outgoing officer looking after taxation matter to a new officer incharge of taxation matter. It was explained that on similar facts, learned CIT(A)

allowed appeal of the assessee for ay: 2013-14 on merits , while for year

under consideration viz. ay: 2015-16 , the appeal is decided by learned

CIT(A) against assessee. It was explained in affidavit that when statutory

auditors were reviewing contingent liabilities of the assessee for year

ended 31st March 2019, then this fact of non filing of an appeal with tribunal came to notice and steps were taken to file this appeal with :- 4 -:

tribunal. It is also explained in the aforesaid affidavit that Managing

Director of assessee company was not in India and after coming back to India , steps were taken to file this appeal with tribunal. The learned

counsel for the assessee prayed that this delay of 133 days in filing this appeal late with tribunal be condoned and this appeal be adjudicated on merits in accordance with law. The sum and substance of affidavit and prayers for condonation of delay is that there is no malafide in filing this appeal late with tribunal and there was a sufficient cause shown for filing

this appeal late with tribunal. The Ld.DR, on the other hand, fairly stated

that it is left to discretion of the Bench to take a decision so far as condonation of delay in admitting this appeal is concerned. In our

considered view based on averments made in affidavit as well contentions

advanced by learned counsel for the assessee, the assessee has shown

sufficient cause in filing this appeal late with tribunal with a delay of 133

days beyond time prescribed u/s 253(3) of the 1961 Act and it is now a well settled position of law that if technicalities are pitted against

substantial justice, the Court will lean towards substantial justice and in our considered view the assessee has shown sufficient cause in explaining

delay of 133 days in filing of this appeal with tribunal beyond time

prescribed u/s 253(3) of the 1961 Act and hence keeping in view, interest

of substantial justice, we are inclined to condone this delay of 133 days in filing of this appeal late by assessee beyond time prescribed u/s 253(3) of the 1961 Act, by invoking our powers u/s 253(5) of the 1961 Act and admit this appeal to be adjudicated on merits in accordance with law. It is :- 5 -:

pertinent to mention that no averments are made by Revenue nor there is any material on record to show that there is an malafide on part of assessee in filing this appeal late with tribunal and rather it is contended

that learned CIT(A) decided the appeal of assessee for immediately

preceding year viz. ay: 2013-14 in favour of assessee and on same sets of facts has decided assessee’s appeal for this year viz. ay: 2014-15 against

assessee on same set of facts and infact it will be traversity of justice, if this appeal will not be allowed to be admitted for reasons of delay and is thrown out at threshold on ground of aforesaid delay in filing this appeal

late with tribunal beyond time prescribed u/s 253(3) of the 1961 Act . We

condone aforesaid delay and admit this appeal. We order accordingly

4 Briefly stated facts of case are that assessee is engaged in business of manufacturing and supplying automotive ancillary parts. It was observed

by AO from Balance Sheet of the assessee that assessee has made

investments to the tune of ` 5,17,44,000/- in equity share of group

company namely M/s.Kanaech India Pvt. Ltd., as on 31.03.2014. Admittedly, assessee did not earn any dividend income during year under consideration and hence no exempt income was claimed by assessee in return of income filed with Revenue. The AO invoked provisions of Sec.14A of the 1961 Act r.w.r.8D of the Income-tax Rules, 1962, to make

following disallowance , vide assessment order dated 25.11.2016 passed

by AO u/s 143(3) of the 1961 Act:- :- 6 -:

Exempted income - 0 (i) The amount of expenditure directly relating to income which does 0 not form part of total income (ii) A. Amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year Rs.10,17,46,593/- B. The average value of investment, income from which does not or shall not form part of the total income, as appearing in the Balance Sheet of the assessee, on the first day and the last day of the previous year Rs.4,64,52,000/- Value of investment on the first day of the previous year Rs.4,11,60,000/- Value of investment on the last day of the previous year Rs. 5,17,44,000/- C. The average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. Rs.3,72,48,49,292/- Increase on account of revaluation of assets in the previous financial year 0 Increase on account of revaluation of assets in the current financial year 0 Total assets on the first day of the previous year Rs.3,87,19,81,741/- Total assets on the last day of the previous year Rs.3,57,77,16,843/- A X B/C Rs.12,68,865/- (iii) One half per cent of average value of investment, income from which does not or shall not form part of the total income, as appearing in the Balance Sheet of the assessee, on the first day and the last day of the previous year Rs.2,32,260/- Disallowance under section 14A r.w.Rule 8D Rs.15,01,125/-

The assessee had claimed before AO that it has not incurred any expenditure in respect of the aforesaid investments made by it.

Act, the assessee filed first appeal before learned CIR(A) but same was dismissed by Ld.CIT(A) , vide appellate order dated 25.11.2018 passed by learned CIT(A). The assessee , however, claimed before learned CIT(A)

that it has not incurred any expenditure in respect of investments made

by it and also that no exempt income was received by it during previous

year under consideration .

CIT(A), the assessee has filed an appeal before tribunal. At outset,

Ld.Counsel for assessee submitted before the Bench that assessee has not :- 7 -:

earned any dividend income during the year under consideration and hence no exempt income was claimed by it in return of income filed with Revenue . The learned counsel for assessee would submit that in view of no exempt income earned by assessee, no disallowance of expenditure is warranted u/s.14A of 1961 Act. The assessee has relied upon decision of Hon’ble Madras High Court in the case of CIT v. Chettinad Logistics (P.)

Ltd. reported in [2017] 80 taxmann.com 221 (Madras), wherein, Hon’ble

Madras High Court has held that no disallowance of expenditure can be made by invoking provisions of Section 14A of the 1961 Act , when there

is no exempt income earned by taxpayer. The SLP filed by Revenue

before Hon’ble Supreme Court in CIT v. Chettinad Logistics (P.) Ltd.,

reported in [2018] 95 taxmann.com 250 (SC) , has since been dismissed

by Hon’ble Supreme Court. Similarly, it was submitted that no addition

can be made to book profit u/s.115JB as the assessee has not incurred

any expenditure in relation to earning of an exempt income. It is claimed

that no expenditure has been incurred and debited to P&L A/c which is incurred in relation to earning of an exempt income. On merits, Ld.DR

submitted that disallowance of expenditure u/s.14A is to be made even if no exempt income is earned by the assessee. The learned DR would rely

on orders of authorities below.

including cited case laws. We have observed that assessee is engaged in business of manufacturing and supplying of automotive ancillary parts.

The assessee has made investments to the tune of ` 5,17,44,000/- in :- 8 -:

equity shares of group company namely M/s.Kanaech India Pvt. Ltd., as on 31.03.2014. Admittedly, assessee did not earn any dividend income

during the year under consideration and hence no exempt income was claimed by assessee in return of income filed with Revenue . The AO

invoked provisions of Sec.14A of the 1961 Act r.w.r.8D of the Income-tax

Rules, 1962, to make disallowance of expenditure to the tune of `

15,01,125/- , which was confirmed by learned CIT(A). Now it is a well

settled proposition that in case no exempt income is received during year

under consideration , no disallowance of expenditure can be made by invoking provisions of Section 14A of the 1961 Act. The assessee has also consistently claimed that no expenditure was incurred by assessee in relation to earning of an exempt income wherein it is matter of fact that the assessee earned no exempt income during the year under consideration . Further, it is observed that AO has not recorded any satisfaction before invoking Rule 8D of the 1962 Rules and has simply

invoked provisions of Section 14A of the 1961 Act r.w.r. 8D of the 1962

Rules. The AO has not analyzed modus operandi followed by assesseein

making investments, personnel deployed nor has looked into books of accounts of the assessee to rebut contention of the assessee that no expenditure was incurred by it in relation to earning of an exempt income.

The assessee is consistently claiming before authorities below that no expenditure was incurred by it relatable to earning of an exempt income .

We have observed that Hon’ble Madras High Court has in the case of Chettinad Logistics Private Limited(supra) has held that no disallowance of :- 9 -:

expenditure u/s 14A can be made when no exempt income is earned by taxpayer. The SLP filed by Revenue against decision of Hon’ble Madras

High Court decision in case of Chettinad Logsitics Private Limited(supra)

has been dismissed by Hon’ble Supreme Court. It is also relevant here to mention decision of Hon’ble Madras High Court in case of Redington(India)

Limited v. Addl. CIT reported in (2017) 392 ITR 633(Mad.) wherein similar

view is taken and infact Hon’ble Madras High Court in case of Chettinad

Logistics Private Limited(supra) relied upon this decision of Hon’ble Madras

High Court in case of Redington India(supra) to hold and decide the issue

in favour of tax-payer. The decision of Hon’ble Delhi High Court in case of Cheminvest Limited v. CIT reported in (2015) 378 ITR 33(Delhi) is relevant. The decision of Hon’ble Bombay High Court in the case of PCIT

v. Ballarpur Industries Limited ITA no. 51 of 2016,vide judgment dated

13.10.2016 has also held that when no exempt income is earned by tax-

payer, no disallowances of expenditure u/s 14A are warranted. Thus,

keeping in view decision of Hon’ble jurisdictional High Court cited above,

we are of considered view that no disallowance of expenditure by invoking

provisions of Section 14A of the 1961 Act is warranted as assessee has not earned any exempt income during the year under consideration and hence we hereby order deletion of disallowances of expenditure made by AO by invoking provisions of Section 14A of the 1961 Act read with Rule

8D of the 1962 Rules, which additions were later confirmed by Ld.CIT(A).

Our above decisions shall also apply mutatis mutandis while making

disallowance of expenditure incurred for earning of exempt income while :- 10 -:

computing book profits u/s 115JB of the 1961 Act. The decision of Hon’ble Special Bench of Delhi-tribunal in the case of ACIT v. Vireet Investment Private Limited reported in (2017) 165ITD 27(Delh-trib.)(SB) is relevant wherein it is held at para 6.22 that computation under clause (f) of Explanation 1 to Section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the 1962 Rules. We order accordingly.

Order pronounced on the 26th day of November, 2019 in Chennai. (एन.आर.एस. गणेशन) (र!मत कोचर) (N.R.S. GANESAN) (RAMIT KOCHAR) "या"यक सद"य/JUDICIAL MEMBER लेखा सद"य/ACCOUNTANT MEMBER चे"नई/Chennai, 1दनांक/Dated: 26th November, 2019. TLN

आदेश क- +"त!ल2प अ3े2षत/Copy to: 4. आयकर आयु4त/CIT 1. अपीलाथ*/Appellant 5. 2वभागीय +"त"न"ध/DR 2. +,यथ*/Respondent 3. आयकर आयु4त (अपील)/CIT(A) 6. गाड' फाईल/GF