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Income Tax Appellate Tribunal, BANGALORE BENCH ‘A’
Before: SHRI SUNIL KUMAR YADAV & SHRI JASON P BOAZ
PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER :
These appeals by the Revenue are directed against the orders of the CIT(A)-6, Bangalore dated 25.11.2016 for Assessment Years 2011-12 and 2012-13. 2. Briefly stated, the facts relevant for disposal of these appeals are as under:-
2.1 The assessee is a company engaged in business as builders and developers. For both asst. years 2011-12 and 2012-13, the assessments in these case were concluded u/s 143(1) of the Income-tax Act, 1961 (in short ‘the Act’) vide orders dated 20/2/2014 and 22/1/2015 respectively; wherein the incomes were determined at Rs.4,92,23,004/- and Rs.10,16,54,633/-. In these orders of assessment the only disallowance made by the AO was u/s 14A r.w Rule 80(2)(ii) and (iii) of Rs.2,73,55,043/- for both asst. year 2011-12 and asst. year 2012-13. 2.2 Aggrieved by the orders of assessment dated 20/2/2014 for asst. year 2011-12 and dated 22/1/2015 for asst. year 2012-13, the assessee preferred appeals before the CIT(A)-6, Bangalore. The ld CIT(A) allowed the assessee’s appeals vide the impugned order dated 25/11/2016. The ld CIT(A) deleted the aforesaid disallowances made u/s 14A r.w Rule 8D(ii) and (iii) following these judicial pronouncements:- (i) the decision of the co-ordinate bench of this Tribunal in the assessee’s own case in and CO:89/Bang/2013 for asst. year 2009-10 dated 20/2/2015 and rendering the finding of fact that the investments were made during Fin Year 2005-06 and also that the assessee had substantial own/interest free funds which were higher than investments made. (ii) Since the assessee had earned no exempt/tax free interest income during these two years under consideration, the ld CIT(A) held that no disallowance u/s 14A of the Act could be made. In doing so she followed the decision of the co-ordinate bench in the case of Bhuwalkha Steel Investments Ltd., in ITA No.349/Bang/2013 dated 4/7/2014.
3.1 Aggrieved by the separate orders of the CIT(A)-6, Bangalore dated 25/11/2016 for asst. years 2011-12 and 2012-13, Revenue has preferred these appeals for both asst. years raising the following identical grounds:- “1. The order of the CIT (Appeals) is opposed to law and the facts and circumstances of the case.
On the facts and in circumstances of the case, the C1T(A) erred in deleting the disallowance made by the Assessing Officer, without appreciating the fact that the assessee company had tax exempt investment in the form of shares and the provisions of Section14A read with Rule 8D(2)(i), 8D(2)(ii) and 8D(2)(iii) are applicable in this case.
For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer be restored.
The appellant craves leave to add, alter, amend or delete any of the grounds that may be urged at the time of hearing of the appeal.”
3.2.1 We have heard the rival contentions of both the parties and perused and carefully considered the material on record. It is a matter of record that the assessee had not earned any exempt income in the two asst. years under consideration and this fact is admitted by both the authorities below in the impugned orders. The applicability of the provisions of section 14A of the Act is in respect of expenditure incurred in relation to the earning of income not includible in total income. A plain reading of the provisions of section 14A of the Act envisages that there should be an actual receipt of income which is not includible in the total income. Therefore, the provisions of section 14A of the Act will not apply where no exempt income is received or receivable by the assessee during the relevant previous year. This proposition was upheld by the Hon’ble Delhi High Court in the case of Chemnivest Ltd. vs. CIT [(2015) 61 taxmann.com 118] (Del) vide order dated 02.09.2015; wherein at para 23 thereof their Lordships have held as under:- “23.In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression ‘does not form part of the total income’ in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year of the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.”