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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
This appeal by the revenue is arising out of the order of Commissioner of Income Tax (Appeals)-8, Mumbai [in short CIT(A)], in appeal No. CIT(A)-8/IT-126/15-16 vide order dated 13-10-216. The Assessment was framed by the Dy. Commissioner of Income Tax, Circle 3(1)(1) Mumbai (in short ‘DCIT/ AO’) for the A.Y. 2012-13 vide order dated 04.03.2015 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).
2. The only issue in this appeal of Revenue is against the order of CIT(A) deleting the disallowance of expenses relatable to exempt income by invoking the provisions of section 14A of the Act read with Rule 8D of the Rules, 1962 (hereinafter the ‘Rules’). The Revenue has also raised that the CIT(A) erred in disallowing expenses relatable to exempt income while computing book profit under section 115JB of the Act. For this Revenue has raised the following five grounds: -
“1. Whether oil facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs.52,54,000/- u/s. 14A r.w.r. 8D without appreciating the fact that the amount of disallowance u/s. 14A of the I.T. Act, 1961 has to be computed as per Rule 8D of I. T. Rules, 1962 as held in the order of the Hon’ble High Court in the case M/s. Godrej & Boyce Manufacturing Co. Ltd.
Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs.52,54,000/-u/s 14A r.w.r. 8D without appreciating the fact that the assessee has neither established that no part of interest bearing fund as well as expenses so claimed has found its way into the investments in Shares nor adduced any documentary evidences
during the course of assessment proceedings before the Assessing Officer.
3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of ₹ 52,54,000/- u/s 14A r.w.r 8D without appreciating the fact that the AO had duly recorded dissatisfaction u/s 14A(2) and in such a situation, the interest expenditure needs to be disallowed in terms of Rule 8D.
4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 52,54,000/- u/s 14A r.w.r 8D since no dividend income is received without appreciating the fact that section 14A provides for disallowance of expenditure incurred in relation to and not incurred for earning such exempt income which was later clarified in the CBDT circular No.5 of 2014 dated 11.02.2014 laying down the condition that it is not necessary that exempt income should necessarily be included in a particular year’s income for the disallowance under section 14A of the IT Act, 1961 to be triggered.
5. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance under section 14A to the book profit under section 115JB of the IT Act,
1961 ignoring the decisions of the Hon’ble ITAT, Mumbai in the case of M/s.Viraj Profiles Ltd. in dated 21.10.2015 – 46ITR (T) 626 (Mumbai-Trib.) [2016] and in Ferani Hotels Pvt. Ltd. in ITA No. 857/Mum/2013 dated 17/11/2014.
At the outset, the learned Counsel for the assessee took us through the assessment order, wherein the AO has reproduced the assessee’s letter dated 12.01.2015, wherein it is claimed that the assessee company has not earned any exempt income and as such the provisions of section 14A of the Act read with Rule 8D of the Rules are not applicable. The learned Counsel for the assessee took us through the order of CIT(A) who has recorded the facts in para 5.12 as under: -
“5.12 The A.O. has not challenged or disputed the fact that the appellants fund in term of share capital and Reserve & surplus is Rs. 183.95 crores which are way above the investments of Rs. 32.82 crores. Similarly, it is not in dispute that during the year the appellant has earned no exempt income.”
He took us through the accounts of the assessee and computation of income and particularly, he took us through the schedule 19 of the profit and loss account, wherein details and other income are enclosed. He also took us through the computation of income and stated that the assessee has suo moto disallowed the expenses relatable to exempt income at ₹ 9,39,000/- but no exempt income has been earned by assessee. Hence, according to him, the issue is squarely 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 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.”
Further, the learned Counsel for the assessee stated that in the immediately preceding assessment year i.e. AY 2011-12, the Tribunal in assessee’s own case in vide order dated 24.05.2017 has considered this issue and vide Para 10, dismissed the Revenue’s appeal, which reads as under: -
“10. We have carefully considered the rival submissions. Factually speaking, there is no dispute to the fact that during the year under consideration assessee has not received any exempt income and, therefore, on this count alone no disallowance under section 14A of the Act is merited following the ratio of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. (supra). The other finding of the CIT(A) with regard to the availability of sufficient interest free funds is also quite justified and is borne out of record as there is no material led by the Revenue to controvert the same. For the said reason also the disallowance of interest expenditure under section 14A of the Act is quite unjustified. Considering the aforesaid, we therefore, deem it fit and proper to affirm the action of the CIT(A) in deleting the disallowance made by the Assessing Officer under section 14A of the Act. Thus, on this aspect, Revenue fails.”
When these facts were confronted to the learned Sr. Departmental Representative, he could not controvert the above submissions and facts. As the issue is squarely covered in favour of assessee in the given facts of the case that no exempt income has been claimed by assessee, we confirm the order of CIT(A) and dismiss this issue of Revenue’s appeal.
In the result, the appeal of Revenue is dismissed.
Order pronounced in the open court on 11-10-2018. AadoSa kI GaaoYaNaa Kulao mao idnaMk 11-10-2018kao kI ga[- .