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Income Tax Appellate Tribunal, DELHI BENCH “F”, NEW DELHI
Before: SHRI. AMIT SHUKLA & SHRI PRASHANT MAHARISHI
The aforesaid appeals have been filed by the Revenue against common order dated 1/8/2014, passed by the ld. CIT (Appeals)-XXXIII, New Delhi for quantum of assessment passed under section 153A/143(3) for assessment years 2007-08, 2008- 09 and 2011-12.
Common issue raised in all the appeals relates to the disallowance under section 14A r.w. Rule 8D which are arising out of identical set of facts, therefore, same were heard together and are being disposed of by this consolidated order.
Before us, the ld. counsel for the assessee submitted that so far as disallowance under section 14A for assessment years 2007-08 and 2011-12 are concerned, i.e., for the amount of Rs.22,71,940/- and Rs.40,85,760/- respectively, the accepted fact is that the assessee has not earned any exempt income and once there is no exempt income, then no disallowance under section 14A can be made in view of the decision of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT reported in 61 taxmann.com 118 (Del). Apart from that, he submitted that both the assessment years were unabated at the time of search and without there being any incriminating material qua the issue of disallowance under section 14A, no addition could have been made in view of the principle laid down by the Hon'ble Delhi High Court in the case of CIT vs. Kabul Chawla reported in [2015] 61 taxmann.com 412 (Delhi).
On the other hand, the ld. CIT (DR) relied upon the orders of the ld. CIT (A).
Here in this case, so far as assessment year 2007-08 is concerned, it is an admitted fact that no exempt income has been earned by the assessee and, therefore, disallowance under section 14A cannot be triggered in view of the law laid down by the Hon'ble Jurisdictional High Court in the case of Cheminvest Ltd. Vs. CIT (supra), wherein the Hon'ble High Court has held that provisions of section 14A will not apply if no exempt income is receivable during the relevant previous year. Accordingly, disallowance made by the AO u/s 14A cannot be sustained.
So far as assessment year 2008-09 is concerned, we find that assessee has made suo-moto disallowance of Rs.12,61,260/-. However, the Assessing Officer, as noted by the ld. CIT (A), has neither given any opportunity nor raised any query to the assessee on the disallowance under section 14A before making the disallowance. The Assessing Officer, before proceeding to make disallowance, has to first examine the nature of accounts maintained by the assessee and also the expenditure debited and then only after having being satisfied that the expenditure incurred are attributable for earning of exempt income, then only he can proceed to make disallowance in terms of rule 8D. Without complying with the mandatory requirement as laid down in section 14(2) such a mechanical application of rule 8D cannot be upheld. The Assessing Officer has not even mentioned as to whether any exempt income has been earned by the assessee or not in this year. Accordingly, the finding of the ld. CIT(A) that the Assessing Officer has not arrived at his satisfaction on the assessee’s claim of attribution of expense, cannot attribute further disallowance by applying rule 8D. Accordingly, we hold that the addition made over and above the amount offered by the assessee cannot be added and is thus, directed to be deleted.
Again in the assessment year 2011-12, the Assessing Officer, without examining as to whether assessee has earned any exempt income or not; and without examining the nature of accounts maintained or examining the expenditure debited, has proceeded to mechanically apply rule 8D and thereby making huge disallowance of Rs.1,62,22,105/-. In this year also, the ld. counsel for the assessee submitted that no exempt income has been earned by the assessee, which is evident from the Schedules forming part of the profit & loss account and, therefore, no disallowance under section 14A can be made in view of the judgment of Hon'ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT (supra).
On perusal of the audited balance sheet and profit & loss account, we find that under the head “other income” as given in Schedule “O”, no exempt income has been shown by the assessee and once that is so, then no disallowance under section 14A can be made. Accordingly, applying the ratio laid down by the Hon'ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT (supra), we hold that no disallowance can be made by the Assessing Officer u/s 14A in this year and same has rightly been deleted by CIT (A). Thus, Revenue’s appeals for all the assessment years are dismissed.
In the result, all the appeals of the Revenue are dismissed.
Order pronounced in the open Court on 7th November, 2017.