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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 22.01.2018 passed by the Commissioner of Income Tax (Appeals) -16, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2013- 14.
The revenue has raised the following grounds: -
"1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in granting relief to assessee u/s 14A of the I.T. Act, 1961 by holding that no exempt income was earned during the year under consideration and only strategic investment was made without appreciating the fact that ITA No. 2146/M/2018 A.Y.2012-13 assessee had incurred expenses relating to earning exempt income and therefore provisions of Section 14A are squarely applicable.
2. On the facts and circumstances of the case, the Ld. CIT(A) is ignored the judgment of Hon’ble Supreme Court in the case of Maxopp Investment Pvt. Ltd. Vs. CIT(2018) 91 taxman.co 154 SC.”
The brief facts of the case are that the assessee filed its return of income on 25.09.2013 declaring total income to the tune of Rs.5,68,42,840/-. The return was processed u/s 143(1) of the I.T. Act, 1961. Thereafter, the case was selected for scrutiny. Notices u/s 143(2) and 142(1) of the Act were issued and served upon the assessee. The assessee is engaged in the business of generation of Hydro electric power. The assessee earned the income from operation to the tune of Rs.31,06,34,450/-, other income at Rs.78,88,637/- and net profit is shown at Rs.9,28,37,884/- in the P & L Account. In the balance-sheet, the assessee has shown the investment in sum of Rs.39,87,50,000/-. The AO applied the provision u/s 14A r.w. Rule 8D of the Act and assessed the expenditure to earn the exempt income in sum of Rs.1,25,56,540/-. The total income of the assessee was assessed to the tune of Rs.6,93,99,380/-. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who allowed the claim of the assessee, therefore, the revenue has filed the present appeal before us.
ISSUE NOS. 1 & 2:-
Under these issues the revenue has challenged the deletion of addition raised by AO in view of the provisions u/s 14A r.w. Rule 8D of the Act. Factually, the assessee nowhere earned any exempt income. The Ld. Representative of the revenue has argued that the assessee has made the ITA No. 2146/M/2018 A.Y.2012-13 investment in sum of Rs.39,87,50,000/-, therefore, the AO has rightly assessed the expenditure in view of the provisions u/s 14A r.w. Rule 8D of the Act. It is also argued that the CIT(A) has wrongly allowed the addition raised in view of the provisions u/s 14A r.w. Rule 8D of the Act, therefore, the finding of the CIT(A) is not justifiable, hence, is liable to be set aside. However, on the other hand, the Ld. Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.:-
6.1.1 Vide this ground the appellant has agitated against disallowance of Rs.1,25,56,540/ u/s.14A r.w.r. 8D. In para 4 of the assessment order, the ld.A.O. after perusal of the Balance Sheet has mentioned that the appellant company had shown non-current investment of Rs.39,87,50,000/- made in 0.5% convertible debentures of Ascent Hydro Projects Ltd. Alter relying upon the earlier year's assessment record and considering the facts of the appellant, the ld. A.O. issued a show cause and after considering the reply of the appellant, applied the provisions of section 14A r.w.r. 8D. The total disallowance worked out by the A.O. is Rs.1,15,59,665/- u/ r.8D(2)(ii) and Rs.9,96,875/ - u/r 8D(2)(iii). 6.1.2 During the course of appellate proceedings a written submission was filed in which it was contended that no investment was made by the appellant in the assets from which exempt income can be earned. It was further submitted that during the year under consideration no exempt income was earned by the appellant. In view of these facts the appellant argued that provision of section 14A r.w.r. 8D will not be applicable in the case of appellant. In support of its contention, the appellant company has relied upon the following judgments: Cheminvest Ltd. Vs. CIT-iV (Delhi) of 2014 ii. The Hon'ble Jurisdictional High Court in ITA No. 1398 of 2008 in the case of CTT -3 Vs. Reliance Utilities St Power Ltd. held as under: If there be interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee had raised a loan it can be presumed that the investments were from the interest free funds available."
ITA No. 2146/M/2018 A.Y.2012-13 iii. The Hon'ble Jurisdiction High Court have followed its own judgment in the case of CIT-2 Vs. HDFC in Appeal No. 330 of 2012, the relevant part of the order is reproduced as under: "We find that the facts of the present case are squarely covered by the judgment in the case of Reliance Utilities and Power Ltd. (supra). The finding of fact given by the ITAT in the present case is that the Assessee's own funds and other non-interest bearing funds were more than the investment in the tax-free securities. This factual position is not one that is disputed. In the present case, undisputedly the assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in the tax-free securities. In view of this factual position, as per the judgment of this Court in the case of Reliance Utilities and Power Ltd. (supra), it would have to be presumed that the investment made by the assessee would be out of the interest free funds available with the assessee. We, therefore, are unable to agree with the submission of Mr. Suresh Kumar that the Tribunal had erred in dismissing the appeal of the revenue on this ground. We do not find that question (A) gives rise to any substantial questions of law and is therefore rejected." iv. JM Financial Vs. ACT ( ITAT Mumbai) April 30th 2014 The Hon'ble ITAT, Mumbai has held that 14A disallowance cannot be made for investment in subsidiaries and SPVs out of commercial expediency. v. Garware Wall Ropes Ltd. V. Acrr (ITAT Mumbai), 21st February' 2014. The Hon'ble ITAT, Mumbai has held that No S.14A/ Rule 8D disallowance if primary object of investment is to hold controlling stake in group concern and not to earn tax-free income vi. M/s. Nitishree International Pvt. Ltd. vs. ITO (ITA No.4603/Del/2014) dated 11.09.2015 Hon'ble ITAT Delhi Bench 'SMC-2' held that if assessee had not earned any exempt income during the year no disallowance u/s.14A of Income tax Act, 1961 r.w. Rule 8D was warranted. 6.1.3 Since no exempt income was earned by the appellant company during the year under consideration, the investments made were only strategic investments and own funds were utilized. Therefore, the case of the appellant company is squarely covered by the judgments of ITA No. 2146/M/2018 A.Y.2012-13
Hon’ble Delhi High Court in the case of Cheminvest Ltd. HDFC Bank Ltd. Reliance Utilities and Power Ltd., J.M. Financials Vs. ACIT (supra). In view of the it, the additions made by the AO is deleted and the ground raised by the appellant is allowed.”
5. On appraisal of the above mentioned order, we noticed that the CIT(A) has allowed the claim of the assessee on the basis of the decision of the Delhi High Court in the case of Cheminvest Ltd. Vs. CIT-IV (Delhi) of 2014 and Garware Wall Ropes Ltd. Vs. ACIT (ITAT Mumbai) 21.02.2014 and some other decisions which has been mentioned above. The factual position is not in dispute that the assessee did not earn the exempt income during the year under consideration. If there is no exempt income, then no disallowance u/s 14A r.w. Rule 8D of the Act is required in view of the decision of the Delhi High Court in the case of Cheminvest Ltd (supra). No law contrary to the law relied upon the Ld. Representative of the assessee as well as CIT(A) while deciding the issue has been produced before us. Taking into account all the facts and circumstances, specifically when the Assessee did not earn any exempt income, we are of the view that the CIT(A) has decided the matter of judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, these issues are being decided in favour of the assessee against the revenue.
6. In the result, the appeal filed by the revenue is hereby ordered to be dismissed. Order pronounced in the open court on 24/06/2019 Sd/- Sd/- (SHAMIM YAHYA) (AMARJIT SINGH) लेखध सदस्य / ACCOUNTANT MEMBER न्यधनिक सदस्य/JUDICIAL MEMBER
ITA No. 2146/M/2018 A.Y.2012-13