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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
AadoSa / O R D E R महावीर स िंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:
This appeal filed by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-6, Mumbai [in short CIT(A)], Appeal No. CIT(A)-6/IT-17/3/2016-17 vide order dated 20.10.2017. The Assessment was framed by the Dy. Commissioner of Income Tax, Central 2 Circle-1(1)(2), Mumbai (in short ‘ITO / AO’) for the A.Y. 2012-13 vide order dated 27.02.2015 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
The only issue in this appeal of Revenue is against the order of CIT(A) deleting the disallowance made by AO on account of expenses relatable to exempt income by invoking the provisions of section 14A of the Act read with Rule 8D of the Rules. For this Revenue has raised he following ground No. 1: -
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) was right in deleting the disallowance of ₹ 2,08,20,931/- made under section 14A of the Act.”
Briefly stated facts are that the AO noted that the assessee has made investment to the tune of ₹ 347,23,94,947/- and also incurred expenditure to the extent of ₹ 92,70,460/-. The AO noted that the assessee has not made any disallowance under section 14A of the Act and therefore made disallowance by invoking the provisions of section 14A of the Act read with Rule 8D of the Rules and made disallowance of ₹ 1,73,61,975/- under Rule 8D(2)(iii) of the Act i.e. half percentage of average value of investment being administrative expenses. Before AO, the assessee contended that the assessee has not earned any exempt income. Before CIT(A), the assessee contended that once there is no exempt income earned no disallowance under section 14A of the Act read with rule 8D can be made. The CIT(A) in para 7.1 has recorded this findings: - 3 “7.1 During the year under consideration, the appellant has not earned any income which is exempt under the provisions of the Act. The Appellant had made it sonly investments in the subsidiary company to the tune of ₹ 411.77 crores which have been made from the share capital and the free reserves which are to the tune of ₹ 688.79 crores.”
The CIT(A) following the decision of Hon'ble Bombay High court in the case of CIT vs Delite Enterprises in of 2009 vide order dated 26.02.2009 deleted the addition by observing in Para 7.3 as under: - “7.3 I have carefully considered the facts of the case, discussion of the AO in the assessment order and gone through the issue and appellant's submission. It may be mentioned that same issue in the case of assessee for A.Y. 2013-14 on similar facts has been already decided by Learned CIT(A)- 2, Mumbai. It is observed that during the year under consideration, the appellant has not received any exempt income. The Hon'ble Bombay case of CIT Vs. Delite Enterprises ITA no. 110 of 2009 order dated 26102/2009 has held that if there is no exempt income earned in that accounting year then there is no need to disallow any expenditure u/s 14A of the l.T. Act with regard to the tax free investments made. Further, in the case of Cheminvest Ltd Vs. CIT [2015] (61 taxrnann.com 118) (Del.), the Hon'ble Delhi High Court has held that:
4 23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression 'does not form part of the total income' in Section 14A of the envisages that there should be an actual receipt of 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. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.
Respectfully following the Hon’ble Delhi High court in the case of Cheminvest Ltd. vs. CIT [2015] (61 taxmann.com 118) (Del.) and Hon'ble Bombay High court in the case of CIT Vs. Delite Enterprises of 2009, I hold that no disallowances u/s 14A need to be made with regard to the tax free investments from which no tax free income is earned in this accounting year. In the instant case, as the appellant has not earned any exempt income during the year, I hold that no disallowance is warranted u/s 14A of the I.T. Act r.w. Rule 8D of the I.T. Rules. Accordingly, the grounds 2,3 and 4 of appeal are allowed. In the facts of the case the ground no. 5 is consequential in nature and is also accordingly allowed.”
5 5. We have noted that this issue is squarely covered in favour of assessee and against Revenue by the decision of Hon’ble Bombay High Court, Nagpur Bench in the case of Pr. CIT vs. Ballarpur Industries Limited in Income Tax Appeal No. 51 of 2016, wherein this issue has been considered and finally following the judgment of Hon’ble Delhi High Court in the case of Cheminvest 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 6 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.” When this was confronted to the learned Departmental Representative he could not controvert the above factual position.
After hearing rival contentions and going through the facts and circumstances of the case, admitted position on facts is that there is no exempt income claimed by assessee. This fact is noted by the AO on the page 3 of the assessment order para 5.5 and the relevant is on page 4, stating, “Therefore, the disallowance is to be worked out, even if there is no exempt income earned”. Once there is no exempt income, the issue is squarely covered by the decision of Hon’ble Bombay High Court in the case of Ballarpur Industries Limited (supra). Respectfully following the Hon’ble Jurisdictional High Court, we confirm the order of CIT(A) deleting the disallowance. Hence, Revenue’s appeal is dismissed.
In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 18-04-2019. (राजेश कुमार / RAJESH KUMAR) (महावीर स िंह /MAHAVIR SINGH) (लेखा दस्य / ACCOUNTANT MEMBER) (न्याययक दस्य/ JUDICIAL MEMBER) मुिंबई, ददनािंक/ Mumbai, Dated: 18-04-2019 स दीप सरकार, व.निजी सधिव / Sudip Sarkar, Sr.PS