DCIT 14(3)(2), MUMBAI vs. SUNDARAM MULTICAP LTD, MUMBAI

The only issue in these cross appeals is against the order of CIT(A) in restricting the disallowance of expenses relatable to exempt income under the provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (hereinafter the ‘Rules’) as computed by the assessee suo moto . For the deletion of disallowance Revenue has raised the following ground No. 1: -

In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the ITAs No. 6269/Mum/2017 & Co No. 128/Mum/2019 expression 'does not form pail 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."

We have heard rival contentions and gone through the facts and circumstances of the case. We find that the revenue is in appeal against deletion of disallowance of expenses relatable to exempt income under rule 8D(2)(ii) & 8D(2)(iii) assessee is in cross objection against sustenance suo moto disallowance made by CIT(A) at ₹ 7,50,000/-. The learned Counsel for the assessee stated that the fact is that the assessee has earned dividend income of ₹ 7500/- from investment in Abhyudaya ITAs No. 6269/Mum/2017 & Co No. 128/Mum/2019 Co-operative Bank which is taxable under the head of income from other sources and this is not exempt income. When this fact was confronted to the learned Sr. Departmental Representative, he agreed that the income earned on account of dividend income a cooperative bank is taxable. Hence, there is no exempt income claimed by assessee under section 10(34) of the Act. We find that this issue is covered by Tribunal’s decision in assessee’s own case for AY 2012-13 in CO No. 272/Mum/2017 vide order dated 20.04.2018, wherein the Tribunal has been deleted the disallowance confirmed by CIT(A) on account of suo moto disallowance by observing in para 18 as under: - “18. In the instant case also, the assessee has made voluntary disallowance u/s 14A of the Act even though it did not receive any dividend income. As per the decisions rendered by various courts, no disallowance is required to be made in the absence of exempt income. Hence the assessee has filed CO with the plea to delete the voluntarily disallowance made by it, which is supported by various decisions referred above. Accordingly, we allow the CO filed by the assessee. The relief granted to the assessee in CO may reduce the assessed income, which may also go below the returned income. This issue, i.e, whether the assessed income can go below the returned income (which was urged by Ld DR), has been examined and decided in favour of the assessee by the co-ordinate bench in the case of Tata Industries Ltd (supra), which has followed the decision rendered by another ITAs No. 6269/Mum/2017 & Co No. 128/Mum/2019 co-ordinate bench in the case of Shri Chandrashekhar Bahirwani (supra). Consistent with the view taken in the above said decisions rendered by the co-ordinate benches, we reject the contentions of the Ld D.R. Accordingly we direct the assessing officer to exclude the disallowance voluntarily made by the assessee also u/s 14A of the Act.”

Even, otherwise this issue is covered 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 8 ITAs No. 6269/Mum/2017 & Co No. 128/Mum/2019 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.”

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 delete the disallowance and affirm the order of CIT(A) in respect to deletion made by him of the expenses relatable to exempt income under Rule 8D(2)(ii) and 8D(2)(iii). We also delete the disallowance suo moto offered by assessee because there is no exempt income and once there is no exempt income no disallowance can be made relatable to exempt income by invoking the provisions of section 14A of the Act read with Rule 8D of the Rules.

In the result, the appeal of Revenue is dismissed and CO of assessee is allowed.