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Income Tax Appellate Tribunal, MUMBAI BENCHES “A”, MUMBAI
Before: SHRI G.S. PANNU (AM) & SHRI RAM LAL NEGI (JM)
O R D E R
PER RAM LAL NEGI, JM
This appeal has been preferred by the revenue against the order dated 23/03/2016 passed by the Ld. Commissioner of Income Tax (Appeals)-12, Mumbai, for the assessment year 2011-12, whereby the Ld. CIT (A) has partly allowed the appeal filed by the assessee against assessment order passed u/s 143 (3) of the Income Tax Act, 1961 (for short ‘the Act’).
Brief facts of the case are that the assessee company engaged in the business of rendering infrastructure facility, investment in shares and security filed its return of income for the assessment year under consideration declaring Nil income. Since, the case was selected for scrutiny, the AO issued notice u/s 143 (2) and 142 (1) of the Act. In response to the said notices, the authorized 2 Assessment Year: 2011-12 representative (AR) appeared before the AO and furnished the details called for. The AO after examining the details furnished by the assessee and hearing the AR, inter alia made addition of Rs. 25,64,591/- u/s 14A read with rule 8D of the Act and disallowed the brought forward unabsorbed depreciation against the income of the current year holding that in view of the amendment u/s 32(2) of the Act, the assessee is not entitled for such benefit w.e.f. assessment year 2002-03. In the first appeal, the Ld. CIT (A) deleted both the additions. The revenue has filed the present appeal against the findings of the Ld. CIT (A).
Aggrieved by the order of Ld. CIT (Appeals), the revenue has preferred this appeal before the Tribunal on the following effective grounds:-
1. “On the facts and in the circumstances of the case and in law, the ld. CIT (A) has erred in deleting the disallowance made u/s 14A r.w.r 8D of Rs. 25,64,591/- ignoring the CBDT circular no. 5/2014 dated 11.02.2014 that disallowance u/s 14A has to be made irrespective of the fact whether any exempt income has been earned during the year by the assessee or not.
2. On the facts and circumstances and in law, the Ld. CIT (A) was right in holding that the unabsorbed depreciation pertaining to A.Y. 1997-98 to A.Y. 2001-02 was allowable to be carried forward and adjusted after the lapse of 8 assessment years in view of the section 32(2) as amended by the Finance Act, 2001? 3. On the facts and circumstances and in law, the Ld. CIT (A) has erred in holding that the amendment brought into the section 32(20 by the Finance Act, (No. 2) of 1996 in respect of unabsorbed depreciation pertaining to A.Y. 1997-98 to A.Y. 2001-02 is no longer applicable ignoring the decision in Times Guaranty Ltd. (ITA No. 4917 & 4918/Mum/2008) for A.Y. 2003-04 & A.Y. 2004-05 on which the Revenue’s contention has been upheld.” 4. Before us, the Ld. departmental representative (DR) submitted that the Ld. CIT(A) has deleted the addition u/s 14A read with Rule 8D of the Income 3 Assessment Year: 2011-12 Tax Rules made by the AO in contravention of CBDT Circular No 5/2014 dated 11.02.2014, which contemplates that disallowance u/s 14A has to be made irrespective of the fact whether the assessee has earned exempt income or not during the relevant assessment year. The Ld. DR further submitted since the impugned order is not in accordance with the CBDT Circular aforesaid, the same is liable to be set aside. As regards unabsorbed depreciation pertaining to the assessment year 1997-98 to 2001-02, the Ld. DR submitted that the Ld.CIT (A) has wrongly held that the amendment brought in section 32(2) by the Finance Act 2 of 1996 not applicable to the case of the assessee ignoring the decision of the Mumbai Tribunal rendered in the case of Times Guaranty Ltd. and 4918/Mum/2008 in which the contention of the revenue has been upheld. 5. On the other hand, the Ld. counsel for the assessee relying on the findings of the Ld. CIT(A) submitted that there is no infirmity in the findings of the Ld. CIT(A) as the first issue is covered in favour of the assessee by the judgments of the Hon’ble High courts of Delhi, Punjab & Haryana and the Allahabad. So far as the second issue is concerned, the Ld. counsel submitted that the Ld. CIT(A) has decided the issue of unabsorbed depreciation in favour of the assessee by following the decision of the then CIT(A) passed in assessee’s own case for the assessment year 2009-10. The Ld. counsel accordingly contended that there is no merit in the appeal of the revenue.
We have heard the rival submissions and also perused the material on record. Vide Ground No. 1, the assessee has challenged the action of the Ld. CIT (A) in deleting the addition made by AO u/s 14A read with rule 8D. The Ld. CIT (A) has deleted the addition holding as under:-
“11. Ground of Appeal
No. 3 relates to the disallowance of expenses of Rs. 25,64,591/- u/s 14A of the Act. It is seen that the appellant’s main contention is that if there is no exempt income, then the 4. Assessment Year: 2011-12 disallowance u/s 14 was not triggered off. The appellant has not disputed the facts that the appellant has not received the exempt income during the year. I find merit in the submission of the appellant that unless and until, there is receipt of exempted income for concerned assessment years, section 14A cannot be invoked. This view has also been held by Hon’ble Delhi High Court Holeim India Pvt. Ltd. and 299/2014, Hon’ble High Court of Punjab & Haryana in the case of Lakhani Marketing Inc (49 taxmann.com 257) and Hon’ble High Court of Allahabad in the case of CIT Vs. M/s Shivam Motors (P) Ltd. ( 55.taxmann.com 262). Thus the addition is liable to deleted.”
7. We notice that the Ld. CIT (A) has deleted the addition by following the judgments of Hon’ble High Courts referred above. Further in the cases of Cheminvest Ltd. vs. CIT –IV 378 ITR 33 (Del), the Hon’ble Delhi High Court has held that section 14A does not apply where no exempt income is received or receivable during the relevant previous year. In the present case, since the assessee has not received any exempt income during the previous year relevant to the assessment year under consideration, no question of disallowance does arise in the light of the ratio laid down by the Hon’ble High Courts in the cases discussed above. Since, the findings of the Ld.CIT (A) are based on the principles of law laid down by the Hon’ble High Courts referred above, we uphold the findings of the Ld. CIT
(A) and dismiss this ground of appeal of the revenue.
8. Vide Ground No. 2, the revenue has challenged the action of the Ld. CIT (A) in holding that the unabsorbed depreciation pertaining to the A.Y. 1997-98 to 2001-02 was allowable to be carried forward and adjusted after the lapse of 8 assessment years. In the return of income, the assessee company claimed unabsorbed depreciation pertaining to the assessment year 1998-99 and 1999-2000 amounting to Rs. 17,10,26,398/-. The AO disallowed the claim on the ground that as per 5 Assessment Year: 2011-12 the provisions u/s 32(2) applicable during the relevant period unabsorbed depreciation could be carried forward up to eight years. The Ld. CIT (A) has decided this issue in favour of the assessee by following the decision of the then CIT (A) passed in the assessee’s own case for the A.Y. 2009-10. The findings of the Ld. CIT (A) are as under:-
Attention was invited to order in appellant’s own case for A.Y. 2009- 10 vide CIT (A)-9/ITO 5(1)(4)/436/2011-12 DT. 27.8.2013 wherein the CIT (A) has allowed the issue in favour of the appellant. Therefore since the issue here is also identical to the appellant’s own case for A.Y. 2009-10 respectfully following the CIT (A)’s order this Ground of Appeal No. 4 is allowed