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Income Tax Appellate Tribunal, ‘C’ BENCH, BENGALURU
Before: SHRI N.V.VASUDEVAN & SHRI INTURI RAMA RAO
IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, BENGALURU BEFORE SHRI N.V.VASUDEVAN, VICE PRESIDENT and SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER (Assessment year:2014-15) Assistant Commissioner of Income-tax, Circle 4(1)(2), Bengaluru. … Appellant Vs. M/s.Mantri Technology Constellations Pvt.Ltd. Mantri House, 41, Vittal Mallya Road, Bengaluru-560001. PAN:AAFCM 1653 D … Respondent AND Cross Objn.No.50/Bang/2018 (In (Assessment year:2014-15) **** Assessee by : Dr. P.V.Pradeep Kumar, Addl.CIT(DR) Revenue by : Shri V.Srinivasan, Advocate. Date of hearing : 12/11/2018 Date of pronouncement : 16/11/2018 O R D E R Per INTURI RAMA RAO, AM :
This is an appeal filed by the revenue and cross objection by the assessee company directed against the order of the ld. Commissioner of Income-tax(Appeals)-4, [CIT(A)], Bangalore, dated 21/11/2017 for the assessment year 2014-15.
Briefly, the facts of the case are that the respondent- assessee is a duly incorporated under the provisions of the Companies Act 1956. It is engaged in the business of real estate development. The return of income for the assessment year 2014- 15 was filed on 30/09/2014 declaring total loss of Rs.3,47,89,878/-. Against the said return of income, the Assessing Officer completed the assessment under section 143(3) vide order dated 29/12/2016 & CO 50/Bang/2018 Page 2 of 4 after making the disallowance of Rs.49,53,669/-under section 14A of the of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short]. During the course of assessment proceedings, the Assessing Officer noticed that the assessee-company made investments in equity shares of certain companies and mutual funds etc. Therefore invoking the provisions of section 14A of the Act, the Assessing Officer made disallowance under clause (iii) of sub-rule (2) of rule 8D of Rs.44,49,214/- and under clause (ii) of sub-rule(2) of rule 8D of Rs.5,04,459/-.
Being aggrieved, an appeal was preferred before the ld.CIT(A) who, vide impugned order, held that the amount of disallowance cannot exceed exempt income. Disallowance under clause (ii) of rule 8D, i.e. interest expenditure, ld.CIT(A), accepted the contention of the assessee that in the absence of specified exempt income, no disallowance can be made and accordingly deleted the addition, as regards disallowance under clause (iii) of sub-rule (2) of rule 8D, disallowance under clause (ii) of sub-rule (2) of rule 8D, ld.CIT(A) directed the Assessing Officer to restrict it to the extent of exempt income i.e. Rs.2,15,500/-.
Being aggrieved by that part of the order of the ld.CIT(A), the revenue is in appeal. The assessee had filed cross objections being aggrieved by the direction of the ld.CIT(A) to restrict disallowance under clause (iii) of sub-rule (2) of rule 8D to the extent of exempt income.
We shall take up the revenue appeal. The revenue raised the following grounds of appeal:
6. We heard rival submissions and perused the material on record. The order of the ld.CIT(A) is in consonance with the settled position of law that in the absence of exempt income provisions of 14A cannot be invoked. This issue is now covered by the decision of the Special Bench of Tribunal (Delhi) in the case of ACIT vs. Vireet Investment (P) Ltd. 82 taxmann.com 415. The relevant paragraph is extracted hereunder:
“11.16. Therefore, in our considered opinion, no contrary view can be taken under these circumstances. We, accordingly, hold that only those investments are to be considered for computing average value of investment which yielded exempt income during the year.” Thus the proposition that the amount of disallowance cannot exceed exempt income is settled. Therefore we don't find any reason to interfere with the order of the ld.CIT(A).
In the result, the appeal filed by the revenue is dismissed.
The assessee had filed cross objections being aggrieved by the order of the ld.CIT(A) to restrict the amount of disallowance under clause (iii) of sub-rule(2) of rule 8D to the extent of exempt income. From the perusal of annual report, it is clear that there is no exemption income for the year under consideration. Since in the revenue appeal, we have held that the provisions of section 14A & CO 50/Bang/2018 Page 4 of 4 cannot be invoked in the absence of any exempt income, the present cross objections filed by the assessee are allowed.
In the result, the appeal filed by the revenue is dismissed and the cross objection filed by the assessee is allowed.