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Income Tax Appellate Tribunal, “F BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
Date of Hearing – 08.01.2019 Date of Order – 30.01.2019
O R D E R PER SAKTIJIT DEY, J.M.
This appeal has been filed by the Revenue challenging the order dated 14TH June 2017, passed by the learned Commissioner (Appeals)–16, Mumbai, for the assessment year 2013–14.
The issue in this appeal relates to deletion of disallowance made
2 Future Market Networks Ltd. under section 14A r/w rule 8D.
Brief facts are, the assessee company is engaged in the business of mall management and project management consultancy. For the assessment year under dispute, the assessee filed its return of income on 28th September 2013, declaring loss of ` 61,65,90,809. During the assessment proceedings, the Assessing Officer while examining the balance sheet of the company noticed that it has shown investment of ` 217,39,30,000 in unquoted shares. Whereas, the assessee has not disallowed any expenditure under section 14A of the Act in computation of total income. Therefore, he called upon the assessee to explain why disallowance under section 14A r/w rule 8D should not be made. In reply, it was submitted by the assessee, since in the relevant previous year the assessee has not earned any dividend income from the shares, no disallowance under section 14A of the Act can be made. Rejecting the explanation of the assessee, the Assessing Officer proceeded to disallow an amount of ` 25,54,84,936 under section 14A r/w rule 8D. Being aggrieved, the assessee challenged the aforesaid disallowance before the first appellate authority.
Learned Commissioner (Appeals) after considering the submissions of the assessee and taking note of the fact that in the relevant previous year, the assessee had not earned any exempt
3 Future Market Networks Ltd. income, deleted the disallowance made by the Assessing Officer. Of– course, while doing so, the learned Commissioner (Appeals) also observed that since the investments were made for strategic purpose, the provisions of section 14A of the Act will not apply.
Shri S.K.Poddar, learned Departmental Representative submitted, irrespective of the fact that the assessee has not earned any exempt income in the relevant previous year, disallowance under section 14A r/w rule 8D has to be made. In support of his contention, the learned Departmental Representative relied upon the following decisions:–
i) M.A. Alagappan v/s ACIT, [2017] 82 taxmann.com 276 (Chh.); ii) Maxopp Investments Ltd. v/s CIT, 91 taxmann.com 154 (SC); & iii) Lally Motors India Pvt. Ltd. v/s PCIT, [2018] 93 taxmann.com 39.
The learned Authorised Representative submitted, since in the relevant previous year, the assessee has not earned any exempt income no disallowance under section 14A r/w rule 8D can be made. Without prejudice to the aforesaid submissions, she submitted, the assessee had sufficient surplus fund for making the investment, hence, no disallowance of interest expenditure can be made under section 8D(2)(ii). Further, she submitted, the investments which have not yielded income during the relevant previous year should be excluded
4 Future Market Networks Ltd. while computing disallowance under section 14A r/w rule 8D. In support of her contention, the learned Authorised Representative relied upon the following decisions:– i) PCIT v/s Ballarpur Industries Ltd., dated 13.10.2016, (Bom.); ii) CIT v/s Delite Enterprises, ITA no.110 of 2009, order dated 26.02.2009 (Bom.) iii) CIT v/s Chettinad Logistics Pvt. Ltd., [2017] 80 taxmann.com 221 (Mad.); iv) Cheminvest Ltd. v/s CIT, [2015] 378 ITR 33 (Del.); v) CIT v/s Corrtech Energy Pvt. Ltd., [2015] 372 ITR 97 (Guj.); vi) CIT v/s Shivam Motors Pvt. Ltd., [2014] 272 CTR 277 (All.); vii) CIT v/s Lakhani Marketing Inc. [2014] 272 CTR 265 (P&H); viii) ACIT v/s Gini &Jony Ltd., [2018] 172 ITD 472 (Mum. Trib.); ix) ACIT v/s dish TV India Ltd. [2018] 194 TTJ 897 (Mum.); x) DCIT v/s Instant Traders Pvt. Ltd. [2018] 96 taxmann.com 378 (Mum.); xi) DCIT v/s Piramal Realty Pvt. Ltd., [2018] 100 taxmann.com 294 (Mum. Trib.); xii) Pyramid Consulting Engineers Pvt. Ltd. v/s DCIT, [2018] 90 taxmann.com 411 (Mum. Trib.); and xiii) ACIT v/s Janak Global Resources Pvt. Ltd., ITA
5 Future Market Networks Ltd. no.470/Chd./ 2018, order dated 16.10.2018 (Chd. Trib.).
We have considered rival submissions and perused material on record. The primary and fundamental issue which arises for our consideration is, if in the relevant assessment year the assessee has not earned any exempt income, whether disallowance under section 14A r/w rule 8D can at all be made? On a careful reading of section 14A of the Act we are of the view that disallowance of expenditure under the said provision can be made only if the assessee has earned exempt income in the relevant previous year. The aforesaid view has been expressed by the Hon’ble Delhi High Court in Cheminvest Ltd. v/s CIT, [2015] 378 ITR 33 (Del.). Following the aforesaid decision, the Hon'ble Jurisdictional High Court in PCIT v/s Ballarpur Industries Ltd., of 2016, order dated 13th October 2016, has held that no disallowance under section 14A of the Act can be made if the assessee has not earned any exempt income in the relevant previous year. The Hon’ble Madras High Court in CIT v/s Chettinad Logistics Pvt. Ltd., [2017] 80 taxmann.com 221 (Mad.), held that where no exempt income was earned by the assessee in the relevant assessment year, provisions of section 14A of the Act could not be invoked. It is worth mentioning, SLP filed by the Department against the aforesaid decision in the Hon'ble Supreme Court was dismissed and the judgment of 6 Future Market Networks Ltd.
Hon’ble Madras High Court was upheld in CIT v/s Chettinad Logistics (P.) Ltd., 95 taxmann.com 250 (SC) and the decision of Hon’ble High Court was upheld. The Hon’ble Gujarat High Court in CIT v/s Corrtech Energy India Pvt. Ltd., [2015] 272 ITR 97, the Hon’ble Allahabad High Court in CIT v/s Shivam Motors Pvt. Ltd., [2014] 272 CTR 277, and Hon’ble Punjab & Haryana High Court in CIT v/s Lakshmi Marketing Inc., [2014] 272 CTR 265, have expressed similar view. Following the aforesaid decisions, different Benches of the Tribunal, including Mumbai Benches, have also held that no disallowance under section 14A of the Act can be made if the assessee has not earned any exempt income in the relevant assessment year. In this context, following decisions can be referred to. i) ACIT v/s Gini &Jony Ltd., [2018] 172 ITD 472 (Mum. Trib.); ii) ACIT v/s Dish TV India Ltd. [2018] 194 TTJ 897 (Mum.); iii) DCIT v/s Instant Traders Pvt. Ltd. [2018] 96 taxmann. com 378 (Mum.); iv) DCIT v/s Piramal Realty Pvt. Ltd., [2018] 100 taxmann. com 294 (Mum. Trib.); and v) Pyramid Consulting Engineers Pvt. Ltd. v/s DCIT, [2018] 90 taxmann.com 411 (Mum. Trib.).
Thus, as per the ratio laid down in the aforesaid decisions, if no 7 Future Market Networks Ltd.
exempt income is earned by the assessee in the relevant assessment year, provisions of section 14A of the Act cannot be invoked. The learned Departmental Representative has attempted to distinguish these decisions by relying upon the decision of the Hon'ble Supreme Court in Maxopp Investments Ltd. (supra). However, on a careful reading of the said decision we are of the view, whether in absence of exempt income earned in the relevant assessment year provisions of section 14A of the Act can be invoked, was never an issue which fell for consideration of the Hon'ble Supreme Court. This fact becomes clear from Para–4 of the judgment wherein the Hon'ble Supreme Court has clearly set out the precise issue arising for consideration before them. For better appreciation, the said paragraph is reproduced hereunder:–
“4. However, in these appeals, the question has arisen under varied circumstances where the shares/stocks were purchased of a company for the purpose of gaining control over the said company or as 'stock-in-trade'. However, incidentally income was also generated in the form of dividends as well. On this basis, the assessees contend that the dominant intention for purchasing the share was not to earn dividends income but control of the business in the company in which shares were invested or for the purpose of trading in the shares as a business activity etc. In this backdrop, the issue is as to whether the expenditure incurred can be treated as expenditure 'in relation to income' i.e. dividend income which does not form part of the total income. To put it differently, is the dominant or main object would be a relevant consideration in determining as to whether expenditure incurred is 'in relation to' the dividend income. In most of the appeals, including in Civil Appeal Nos. 104-109 of 2015, aforesaid is the scenario. Though, in some other cases, there may be little difference in fact situation. However, all these
8 Future Market Networks Ltd. cases pertain to dividend income, whether it was for the purpose of investment in order to retain controlling interest in a company or in group of companies or the dominant purpose was to have it as stock-in-trade.”
On a thorough and careful reading of the aforesaid judgment of the Hon'ble Supreme Court we are unable to locate any observation / ratio laid down by the Hon'ble Supreme Court to indicate that even in the absence of exempt income earned by the assessee in the relevant assessment year provisions of section 14A of the Act can be invoked. The issue before the Hon'ble Supreme Court was completely different as to whether the disallowance under section 14A of the Act can be made in respect of shares / mutual fund held by the assessee as stock–in–trade or strategic investment in subsidiary company would not attract the provisions of section 14A of the Act. Therefore, it cannot be said that the Hon'ble Supreme Court in the aforesaid decision has laid down any ratio holding that even in the absence of any exempt income earned in the assessment year provision of section 14A of the Act would still be attracted. It is well settled proposition of law that what is binding is the ratio of a decision and not what can be inferred from the judgment by implication. Even, observations made by the Court as a obiter dicta do not constitute binding precedent. Considered in the aforesaid perspective, the contention of the learned Departmental Representative that the decision of the Hon'ble Supreme
9 Future Market Networks Ltd.
Court lays down the ratio that even in the absence of exempt income provision of section 14A of the Act is applicable, is unacceptable. Further, it is relevant to observe, the Special Bench of the Tribunal, Delhi Bench, in ACIT v/s Vireet Investment Pvt. Ltd. [2017] 165 ITD 27 (Del.), has held that for computing disallowance under section 14A r/w rule 8D, the investments not giving raise to any exempt income in the relevant assessment year have to be excluded. Thus, in view of the ratio laid down in the decisions of different High Courts including Hon'ble Jurisdictional High Court in Ballarpur Industries Ltd. (supra), as referred to above as well as the Special Bench decision of the Tribunal, Delhi Bench, in Vireet Investment Pvt. Ltd. (supra) and other decisions referred to above, it has to be concluded that in the absence of any exempt income earned in the relevant assessment year, no disallowance under section 14A of the Act can be made. Further, being bound by the decision of the Hon'ble Jurisdictional High Court as well as other High Courts as referred to above, we are unable to accept the proposition laid down in Lally Motors India Pvt. Ltd. (supra) and M.A. Alagappan (supra) cited by the learned Departmental Representative. In view of the aforesaid, we uphold the decision of the learned Commissioner (Appeals) in deleting the disallowance made under section 14A of the Act only on the proposition that in absence of any exempt income earned by the assessee in the relevant assessment
10 Future Market Networks Ltd. year no disallowance under section 14A of the Act can be made. Ground raised is dismissed.
In the result, Revenue’s appeal is dismissed. Order pronounced in the open Court on 30.01.2019