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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
आदेश / O R D E R महावीर ससुंह, न्याययक सदस्य/ PER MAHAVIR SINGH, JM:
This appeal of assessee is arising out of the order of the Commissioner of Income Tax (Appeals)]-9, Mumbai, in short CIT(A), in No. CIT(A)-9/Cir.4/21/2015-16 vide order dated 13.04.2018. The Assessment was framed by the Dy. Commissioner of Income Tax, Central Circle 4(3)(2) (in short DCIT/ AO) for AY 2012-13 vide order dated. 21.03.2015 under section 143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’).
The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in disallowing the expenses relatable to exempt income by invoking the provisions of section 14A of the Act read with Rule 8D(2) of the Rules. For this assessee has raised the following ground No. 1 and 2: -
“1. The commissioner of Income tax (appeals)-9 (CIT(A)] erred in not directing the Assessing Officer to delete the disallowance made under section 14A of the Income-tax Act, 1961 (‘The Act’) without appreciating the fact that the Appellant company has not earned any exempt income during the year under consideration.
2. The CIT(A) erred in not adjudicating/ dealing with the contentions/ arguments raised by the appellant company that as there is no exempt income there cannot be any disallowance under section 14A of the Act.”
We have heard rival contentions and gone through the facts and circumstances of the case. The AO during the course of assessment proceedings invoked the provisions of section 14A of the Act read with Rule 8D(2). Accordingly, the AO made disallowance under Rule 8D(2)(ii) of the Rules on account of interest expenditure amounting to ₹ 67,91,392/- and under Rule 8D(2)(iii) being average value of investment being an amount equal to 1½ % and the disallowance was to the tune of ₹ 2,01,042/-. Thereby, the total disallowance made by AO was to the tune of ₹ 69,92,434/-. The CIT(A) also confirmed the action of the Assessing Officer.
We noted that the assessee has not earned exempt income and the learned Counsel for the assessee before us fairly conceded that in case the disallowance is to be restricted to the exempt income in view of the decision of Hon'ble Bombay High Court in the case of in the case of Pr. CIT vs. Ballarpur Industries Limited in Income Tax Appeal No. 51 of 2016, wherein this issue has been considered following the judgment of Hon’ble Delhi High Court in the case of Chem invest Limited vs. CIT (2015) 378 ITR 33 (Delhi) held 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 in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income.”
On the other hand, the learned Sr. Departmental Representative did not object to the same.
We noted from the facts of the case that neither the AO nor CIT(A) has specifically mentioned what is the exempt income earned by assessee and claimed in the computation of income. In the absence of this fact, we restore this issue back to the file of the AO for limited verification purpose to ascertain what is the amount of exempt income claimed by assessee and in case he has earned exempt income and claim the same, the AO will restrict the disallowance to that extent only. In