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Income Tax Appellate Tribunal, G Bench, Mumbai
Before: Shri B.R. Baskaran & Shri Ravish Sood
Per Ravish Sood, JM
The aforesaid appeals filed by the revenue are directed against the consolidate order passed by the CIT(A)-22, Mumbai for A.Ys. 2012-13 & 2013-14, dated 04.11.2016, which in turn arises from the respective orders passed by the A.O under Sec. 143(3), dated 14.11.2014 and 22.03.2016. As a common issue is involved in the aforementioned appeals, therefore, the same are taken up and disposed off by way of a consolidate order. We shall first take up the appeal filed by the revenue for A.Y 2012-13. The revenue assailing the order of the CIT(A) has raised before us the following grounds of appeal:
P a g e | 2 & 893/Mum/2017 The ITO-10(2)(3) Vs. Supreme Realty Pvt. Ltd. “1. on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs.1,82,80,184/- u/s 14A nw. Rule 8D in respect of exempt income as worked out @ 0.5% of the average value of investments on account of administrative and management expenses." 2. The appellant craves leave to add, amend, very omit or substitute any of the aforesaid ground of appeal at any time before or at the time of hearing of appeal.
3. The appellant prays that the order of CIT(A) on the above ground be set-aside and that of the assessing officer be restored.”
Briefly stated, the assessee company which is engaged in the business of real estate had e-filed its return of income on 29.09.2012, declaring total income at Rs.5,880/- under normal provisions of the Act, and book profit of Rs. 5,875/- under Sec. 115JB. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec.143(2).
The A.O while framing the assessment observed that the assessee had made an investment of Rs. 27.50 crores in a partnership firm viz. M/s CSV Developers, during the year ended 31.03.2011. Subsequently, the assessee had made further capital contribution in the aforesaid partnership firm, and the aggregate value of its capital as on 31.03.2012 was Rs. 35,75,00,000/-. It was observed by the A.O, that the assessee company in order to facilitate making of the aforesaid investment had raised funds of Rs. 27,59,50,000/- by issuing 10% Optional Fully Convertible Debentures (OFCD) to two parties ,bearing an interest rate of 10% per annum. Further, it was observed by the A.O that the assessee had incurred interest expenditure on the aforesaid OFCD of Rs.2,74,45,000/-. 4. The A.O noticed that being a partner the assessee was entitled to a share of profit from the investment made in the partnership firm viz. M/s CSV Developers, which would be exempt under Sec. 10(2A) of the Act. The A.O called upon the assessee to explain as to why disallowance under Sec. 14A r.w Rule 8D may not be made in respect of the expenditure incurred for earning of the said exempt income. In its reply, the assessee submitted that during the year, though it had earned taxable income by way of interest from the partnership firm which had a direct nexus with the payment of P a g e | 3 & 893/Mum/2017 The ITO-10(2)(3) Vs. Supreme Realty Pvt. Ltd. interest on the OFCD, but as it had not earned any tax free income, therefore, no disallowance was called for under Sec. 14A of the Act. However, the A.O being of the view that the CBDT Circular No. 5/2014, dated 11.02.2014 provided that disallowance of expenditure was to be made even where the assessee in a particular year has not earned any exempt income, thus, declined to accept the aforesaid explanation of the assessee. In the backdrop of his aforesaid deliberations, the A.O worked out the disallowance under Sec. 14A r.w. Rule 8D at Rs. 1,82,80,184/- and assessed the income at Rs. 182,86,064/- under the normal provisions.
Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) observed, that as the assessee had not earned any exempt income during the year under consideration, hence no exemption under Sec. 10(2A) was claimed by it. It was observed by the CIT(A) that his predecessor while disposing off the appeal of the assessee for A.Y 2009-10, had concluded that if the assessee had not earned any exempt income, then no disallowance under Sec. 14A was liable to be made in its hands. Further, it was noticed by the CIT(A) that the said order of his predecessor on an appeal by the revenue was upheld by the Tribunal, vide its order dated 30.06.2016. Still further, the CIT(A) observed that a similar view was also taken by the Hon‟ble High Court of Punjab and Haryana in the case of CIT Vs. Lakhani Marketing (ITA No. 970 of 2008); Hon‟ble High Court of Gujarat in the case of CIT Vs. Cortech Energy (P) Ltd. (2014) 223 taxman 130 (Guj); Hon‟ble High Court of Allahabad in the case of CIT vs. Shivam Motors (P) Ltd. (ITA No. 88/2014); and the Hon‟ble High Court of Delhi in the case of Cheminvest Ltd. Vs. CIT (2015) 378 ITR 33 (Del). The CIT(A) taking support of the aforesaid facts read with view taken by the Hon‟ble courts, thus, did find favour with the contention of the assessee and deleted the disallowance of Rs. 1,82,80,184/- made by the A.O under Sec. 14A of the Act.
The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The ld. Authorized Representative (for short „A.R‟) at the very outset of the hearing of the appeal submitted, that the P a g e | 4 & 893/Mum/2017 The ITO-10(2)(3) Vs. Supreme Realty Pvt. Ltd. issue that in the absence of any exempt income, no disallowance under Sec. 14A could be made, was no more res-integra in light of the recent order of the Hon‟ble Supreme Court in the case of CIT (Central)-1 Vs. M/s Chettinad Logistics Pvt. Ltd. [SLP (Civil)] diary No. 15631/2018, dated 02.07.2018. (copy placed on record). It was averred by the ld. A.R, that the Hon‟ble Apex Court had dismissed the „SLP‟ filed by the revenue against the order passed by the High Court of Madras in the case of CIT Vs. Chettinad Logistics (P) Ltd (2017) 80 taxman.com 221 (Mad). The ld. A.R further submitted that the issue involved in the present appeal was squarely covered by the order passed by the Tribunal in the assesses own case for A.Y 2009-10 viz. DCIT- 10(1), Mumbai Vs. M/s Supreme Realty Pvt. Ltd. [ITA No. 4265/Mum/2014; dated 30.06.2016] (copy placed on record).
Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the CBDT Circular No. 5/2014, dated 11.02.2014. It was the contention of the ld. D.R, that as per the aforesaid CBDT Circular No. 5/2014, disallowance contemplated under Sec. 14A r.w. Rule 8D was to be made even if the assessee had not earned any exempt income.
We have heard the authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record. We find that our indulgence in the present appeal, has been sought by the revenue to adjudicate as to whether the CIT(A) was right in law and the facts of the case in deleting the disallowance of Rs. 1,82,80,184/- made by the A.O under Sec 14A r.w. rule 8D, on the ground that as the assessee had not earned any exempt income, thus, no disallowance of any expense under the aforesaid statutory provision was called for in its hands. We have deliberated at length on the issue under consideration, and find that admittedly the assessee during the year under consideration had not earned any exempt income. We are of the considered view that the issue as to whether any disallowance under Sec. 14A r.w. Rule 8D would be called for in a case where the assessee had not earned any exempt income is squarely covered by the order passed by a coordinate bench of the Tribunal viz. ITAT, P a g e | 5 ITA No. 892 & 893/Mum/2017 The ITO-10(2)(3) Vs. Supreme Realty Pvt. Ltd. Mumbai, “E” Bench, Mumbai in the assesses own case for A.Y 2009-10 i.e DCIT-10(1), Mumbai Vs. M/s Supreme, Realty Pvt. Ltd. (ITA No. 4265/Mum/2014; dated 30.06.2016). The Tribunal while disposing off the aforesaid appeal had deleted the disallowance made by the A.O under Sec. 14A, involving identical facts, by observing as under:
“2. The assessee is engaged in the business of investment in Real Estate. Now issue bef ore us is with regards to disallo wance of 2,74 ,56,810/- under the provisions of Section 14A of the Act out of expenses claimed in profit and loss account. Assessing Officer disallowed the said amount u n der th e prov is io ns of Sectio n 1 4 A of th e Act o u t of expenses claimed in P& L account considering them as expenses incurred for earning income exempt u/s.10(2A) of the Act. 2.1 Matter was carried before the First Appellate Authority, wh ere in v ar ious con ten tions were raised on beh alf of assessee and h av ing co ns idered the s ame, C IT ( A) gran ted relief to the assessee by f ollo wing the decis ion of Hon’ble High Court in case of CIT vs. Delite Enterprises in ITA N o . 1 1 0 o f 2 0 0 9 , w h e r e i n i t h a s b e e n h e l d t h a t n o disallowance u/s. 14A is permitted if there is no tax free income earned by assessee for the year under consideration. Facts of M/s Delite Enterprises (supra) are similar to the assessee's case because assessee has not earned any tax free income nor is exemption u/s. 10(2A) of the Act claimed by assessee. Nothing contrary was brought to our knowledge on behalf of Revenue, so, facts being similar, we are not inclined to interfere with the order of CIT(A) who has decide the appeal in favour of assessee by following the ratio of M/s Delite Enterprises (supra), same is upheld.
We have perused the aforesaid observations of the Tribunal and are persuaded to subscribe to the same. We are of the considered view that in terms of our aforesaid observations, as the assessee during the year under consideration had not earned any exempt income, thus, no disallowance under Sec. 14A r.w. Rule 8D could have been made in its hands. We thus, finding no infirmity in the order passed by the CIT(A), uphold the same.
The appeal filed by the revenue is dismissed.
ITA No. 893/Mum/2017 A.Y. 2013-14 P a g e | 6 & 893/Mum/2017 The ITO-10(2)(3) Vs. Supreme Realty Pvt. Ltd. 11. We shall now take up the appeal of the revenue for A.Y 2013-14. The revenue has raised before us the following grounds of appeal:
“1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the disallowance of Rs.1,82,02,281/- u/s 14A r.w. Rule 8D in respect of exempt income as worked out @ 0.5% of the average v1ue of investments on account of administrative and management expenses. 2. The appellant craves leave to add, amend, very omit or substitute any of the aforesaid ground of appeal at any time before or at the time of hearing of appeal.
3. The appellant prays that the order of CIT(A) on the above ground be set-aside and that of the assessing officer be restored.”
Briefly stated, the assessee company had e-filed its return of income on 30.09.2013, declaring total income of Rs.91,330/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act.
The A.O while framing the assessment made a disallowance of Rs.1,82,02,281/- under Sec. 14A r.w. Rule 8D. Aggrieved, the assessee carried the matter in appeal before the CIT(A). The CIT(A) after deliberating on the facts of the case followed the view taken by his predecessor in the assesses own case for A.Y 2009-10, which thereafter was also upheld by the Tribunal, vide its order date 30.06.2016, and thus deleted the aforesaid disallowance made by the A.O under Sec. 14A. 14. The revenue being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. We find that as the issue and the facts involved in the present case remains the same, as were there in the case of the assessee for the immediately preceding year viz. A.Y 2012-13, as had been adjudicated by us hereinabove, therefore, our order passed while disposing off the appeal of the revenue for A.Y 2012-13 shall apply mutatis mutandis for the disposal of the present appeal. We thus, in terms of our aforesaid observations dismiss the appeal of the revenue for A.Y 2013-14.
The appeal of the revenue is dismissed.
P a g e | 7 & 893/Mum/2017 The ITO-10(2)(3) Vs. Supreme Realty Pvt. Ltd. 16. That both the appeals of the revenue for A.Y 2012-13 i.e. A.Y 2013-14 i.e ITA No. 893/Mum/2017 are dismissed.