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Income Tax Appellate Tribunal, “SMC-B” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA
O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the assessee and the same is directed against the order of ld. CIT(A)-9, Bangalore dated 31.10.2018 for Assessment Year 2013-14.
The grounds raised
by the assessee are as under. “1. The learned Assessing Officer had erred in passing the order in the manner passed by him and the learned Commissioner of Income tax (Appeals) has erred in confirming the same. The impugned orders being bad in law, void ab-initio are required to be quashed.
2. In any case and without prejudice, the learned Assessing Officer had erred in disallowing a sum of Rs.28,52,795/- U/s. 14A r.w.rule 8D of the Act and the learned CIT(A) has erred in confirming the same. On the facts and circumstances of the case and the law applicable, the provisions of sec. 14A are not at all applicable to the case of the appellant.
3. The authorities below have erred in not appreciating the fact that during the year under consideration, the appellant had not received any exempt. In the absence of any exempt income, the provisions of section 14A of the Act are not applicable at all. The disallowance as made and confirmed is to be deleted.
Page 2 of 4 4. In any case, the authorities below have erred in not appreciating the fact that no part of borrowed funds were utilized for making investments in tax exempt investments. The disallowance made on erroneous assumption of facts is to be deleted.
In any case and without prejudice, appellant's own funds are sufficient to cover investments made in subsidiary companies, the provisions of section 14A of the I.T. Act, are not applicable to the facts of case. The conclusion of the Commissioner of Income tax (Appeals) that there was negative funds is not based on any material and is totally erroneous and is not to be quashed.
6. The disallowance as done being contrary to facts and law is to be deleted.
7. In any case, and without prejudice the disallowance made is erroneous and in fact excessive.
The appellant denies the liability to pay interest u/s 234A and 234B of the Act. The interest having been levied erroneously is to be deleted.
In view of the above and on other grounds to be adduced at the time of hearing, it is requested that the order passed be quashed or at least (i) the disallowance made u/s 14A r.w. rule 8D be deleted, (ii) Interest levied u/s 234A and 234B of the Act is to be deleted.”
At the very outset, it was submitted by ld. AR of assessee that there is no exempt income in the present year and in support of this contention, it was submitted by her that on page no. 66 of the paper book is the P&L account and on page no. 72 of the paper book is the details of other income and it can be seen that there is no exempt income in the present year. The assessee also pointed out that even the profit on sale of long-term investments of Rs. 3,88,660/- is not exempt. She submitted that the computation of Income is available on page 49 of the paper book and as per the same, two amounts of Rs. 119,463/- and Rs. 125,224/- are Short term capital gains, which are taxable. In respect of Long term capital gain, she submitted that the same are in respect of unlisted shares as per details on page 50 of the paper book on which Long Term capital Loss is computed at Rs. 46,62,728/- after indexation. She submitted that therefore, it has to be accepted that there is no exempt income in the present year. She placed
Page 3 of 4 reliance on the judgement of Hon’ble Delhi High Court rendered in the case of Cheminvest Pvt. Ltd. Vs. CIT as reported in (2015) 378 ITR 33 and pointed out that as per this judgment, if there is no actual receipt of exempt income which is not part of the total income then in that year, no disallowance is to be made u/s. 14A of IT Act. The ld. DR of revenue supported the orders of authorities below. In particular, he drawn our attention to para no. 33 in the order of CIT(A) and submitted that in this Para, it is held by CIT(A) that the applicability of section 14A does not hinge on actual earning of tax-exempt income and since the assessee has made investments in shares and the assessee was having negative net worth during relevant year and therefore the entire investment was financed by borrowed capital and, administrative expenditure was also incurred by the assessee, this disallowance u/s. 14A is justified.
We have considered the rival submissions. First of all, we reproduce para no. 33 from the order of CIT(A) which is as under. “33. In this case it has been held that the applicability of section 14A does not hinge on actual earning of tax-exempt income. In this case the assessee made investment in shares and claimed that it had not earned any income by way of dividend on said shares, thus, claimed that section 14A would not apply. Further, it claimed that it had not incurred any expenditure in relation to said investment in shares, so that section 14A even otherwise would not apply. it was noted that assessee firm had negative net worth during relevant year and entire investment was financed by borrowed capital and, administrative expenditure was incurred by assessee. It was held that the section 14A would apply even if no tax-exempt income (i.e., income not forming part of total income) had in fact been earned, as long as expenditure was incurred for earning such income. Therefore, administrative expenses incurred on money borrowed for investment in shares, which had not yielded any dividend, was not to be allowed.”
5. From the above para, we find that this is not the case of the CIT(A) that assessee was having any exempt income in the present year. Hence in the light of these facts, we examine the applicability of the judgement of Hon’ble Delhi High Court rendered in the case of Cheminvest Pvt. Ltd. Vs. CIT (supra). Moreover the Hon’ble Delhi High Court in this case has also considered the judgement of Hon’ble Apex Court rendered in the case of Page 4 of 4 CIT v. Rajendra Prasad Moody[1978] 115 ITR 519 (SC). Para 21 of this judgement is relevant which is reproduced hereinbelow. “21. There is merit in the contention of Mr. Vohra that the decision of the Supreme Court in Rajendra Prasad Moody (supra) was rendered in the context of allowability of deduction under Section 57(iii) of the Act, where the expression used is „for the purpose of making or earning such income‟. Section 14A of the Act on the other hand contains the expression „in relation to income which does not form part of the total income.‟ The decision in Rajendra Prasad Moody (supra) cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed under Section 14A of the Act.”
From the above para reproduced from this judgement of Hon’ble Delhi High Court rendered in the case of Cheminvest Pvt. Ltd. Vs. CIT (supra), it is seen that this was held by Hon’ble Delhi High Court that the judgement of Hon’ble Apex Court rendered in the case of CIT v. Rajendra Prasad Moody (supra) is in the context of allowability of deduction under the provisions of section 57(iii) of IT Act and therefore, the same cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed under Section 14A of IT Act. Respectfully following this judgement of Hon’ble Delhi High Court, we decide the issue in favour of the assessee.
In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on the date mentioned on the caption page.