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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
AadoSa / O R D E R महावीर स ुंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
This appeal filed by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)]-52, Mumbai (in short CIT(A)) in appeal No. CIT(A)-52/IT-361/DCIT 4(2)/2016-17 vide dated 03.11.2017. The Assessment was framed by the Dy. Commissioner of Income Tax- Central Circle 4(2), Mumbai (in short DCIT/ITO/ AO) for the A.Y. 2014-15 vide order dated 17.11.2016, 2 under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in making disallowance of expenses relatable to exempt income under section 14A of the Act read with rule under rule 8D(2) of the Income Tax Rules, 1962 (in Short ‘the Rules’). For this assessee has raised the following grounds: - “Ground I I. On the facts and circumstances of the case, the learned CIT (A) erred in confirming the action oldie A.O.in in disallowing a sum of Rs19,59,359/-under rule 8D(2)(ii).
2. The learned CIT (A) has failed to appreciate that the appellant suo moto disallowed interest of Rs.2,24,00,000/- on such investment.
Ground II
On the facts and circumstances of the ease, the learned CIT (A) erred in confirming the action of the A.O. in disallowing a sum of Rs. 7,71,240/- u/s 14A read with rule 8D(2)(iii) on the ground that certain portion of expenditure is attributable to earning exempt income.
The appellant has not claimed any part of the expenditure that could be said to have been 3 incurred for investment on which income is exempt.
3. It is a settled principle that if no expenditure is incurred is relation to exempt income. no disallowance can he made u/s 14A of the Act.”
At the outset, the learned Counsel for the assessee drew our attention to the assessment order and stated that the assessee has made claim vide letter dated 23.06.2016 and 07.09.2016 that there is no exempt income claimed in the return of income by assessee. The relevant fact is noted in Para 3.1 of AO’s order as under: - “3.1 Neither the assessee nor the AR submitted any explanation regarding' allowance u/s 14A r.w.r. 8D. The assessee stated vide letter dated 23-06- 016 and 07-09-2016 that there is no claim u/s 14A r.w.r. 8D during the year. Even if the assessee opposes the disallowance u/s 14A r.w.r 8D, the same is not acceptable because of following reasons.”
Then, the learned Counsel for the assessee again drew our attention to the order of CIT(A) Para 5.4, wherein it was contended that the assessee has not earned any exempt income during the year and hence, no disallowance under section 14A of the Act r.w.r. 8D(2) of the Rules can be made and the relevant noting in Para 5.4 read as under: - “The assessee contends that it has not earned any exempt income during the year and 4 therefore, no disallowance u/s 14A can be made. To understand as to whether this contention of the assessee that disallowance under section 14A can be made. To understand as to whether this contention of the assessee that disallowance u/s 14A can be made only if exempt income has been earned during the year is correct or not, it is relevant to understand as to which expenses can be disallowed u/s 14A. As per the provisions of section 14A, the expenses incurred “in relation to” income which does not form of total income under the Act is to be disallowed…………………..”
When these facts were confronted to the learned Sr. Departmental Representative, he could not controvert the above fact that the assessee has not earned any exempt income.
After hearing both the sides, we noted that the fact is that the assessee has not claimed any exempt income in the return of income. Once, there is no exempt income earned by assessee and claimed in the return of income, no disallowance under section 14A of the Act read with section 8D(2) of the Rules can be made. We noted that this issue is squarely covered by the decision of Hon’ble Bombay High Court 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: - 5 “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.”