ACIT CORPORATE CIRCLE 3(1), CHENNAI vs. TAMILNADU WATER INVESTMENT COMPANY LIMITED, CHENNAI

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ITA 3085/CHNY/2017Status: DisposedITAT Chennai20 November 2018AY 2014-155 pages
AI SummaryRemanded

What did the Tribunal hold?

The Tribunal set aside the CIT(A)'s order and remitted the matter back to the Assessing Officer. This was to re-examine the disallowance under Section 14A in light of the Supreme Court's decision in Maxopp Investment Ltd.

What were the facts?

The Assessing Officer disallowed expenses under Section 14A based on the assessee's investments, while the CIT(A) partly allowed the assessee's appeal. The Revenue appealed this decision.

What were the issues?

Whether disallowance under Section 14A is permissible without exempt income and the applicability of the dominant purpose theory for investments in subsidiaries.

Which sections of the Income-tax Act were involved?

Section 14A

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Before: Shri Abraham P. George & Shri Duvvuru RL Reddy

Hearing: 12.11.2018Pronounced: 20.11.2018

O R D E R

PER DUVVURU RL REDDY, JUDICIAL MEMBER:

1.

Both the appeals filed by the Revenue are directed against the common order of the ld. Commissioner of Income Tax (Appeals) 11, Chennai dated 29.08.2017 relevant to the assessment years 2013-14 and 2014-15. The common grounds raised in both the appeals of the Revenue are reproduced as under:

1. The order of the learned CIT(A) is erroneous in law and opposed to the facts and circumstances of the case.

2.1 The learned CIT(A) erred in holding that if there is no exempt income in a previous year, there cannot be a disallowance of expenditure during the relevant assessment year. 2.2 The learned CIT(A) ought to have seen that decision of the Hon'ble Delhi High Court in the case of M/s. Cheminvest Limited reported in 378 ITR 33 on similar issue is not accepted by the Department and SLP filed before the Hon'ble Supreme Court is admitted and is pending in Civil Appeal No.121 of 2015. 2.3 The learned CIT(A) failed to consider the CBDT's Circular No.5 of 2014 wherein it is clarified that the Assessing Officer is duty bound to apply section 14A if the assessee has made investments which may fetch exempted income even if the assessee has not declared any exempt income in the previous year. 2.4 The learned CIT(A) erred in directing the AO to recalculate the disallowance u/s 14A read with rule 8D after excluding the investment in SPV (subsidiary companies) without appreciating the fact that the assessee had invested in shares of the subsidiary companies of assessee which are capable of earning exempt income which does not form part of the total income under this Act and thereby attracting disallowance u/s 14A. 2.5 The ld. CIT(A) erred in restricting the disallowance u/s 14A to the extent of exempt income earned by the assessee though there is no such provision in Section 14A of the Income Tax Act, 1961.

3. For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT (A) may be set aside and that of the Assessing Officer be restored.”

2.

Brief facts of the case are that the returns of income filed by the assessee were selected for scrutiny under CASS. The assessee filed details against statutory notices. The Assessing Officer observed that the investment portfolio of the assessee as on 31.12.2013 and as on 31.03.2014 stands at an aggregate value of ₹.193,06,41,330/-. However, the assessee has not quantified the expenditure under section 14A of the Income Tax Act r.w. Rule 8D of the Income Tax Rules. Therefore, by invoking the provisions of section 14A r.w. Rule 8D, the Assessing Officer quantified the expenditure and made disallowance at ₹.9,65,17,006/- for the assessment year 2013-14 and ₹.3,24,08,909/- for the assessment year 2014-15.

3.

On appeal, after considering various case law, the ld. CIT(A) partly allowed the ground raised by the assessee.

4.

Aggrieved, the Revenue is in appeal before the Tribunal for both the assessment years.

5.

We have heard both the sides, perused the materials available on record and gone through the orders of authorities below including paper book. By considering various case law including the decision of Hon’ble High Court of Punjab & Haryana in the case of CIT v. Lakhani Marketing Inc., 49 taxmann.com 257, the ld. CIT(A) has held that unless and until there is receipt of exempted income for concerned assessment years, section 14A of the Act cannot be invoked. Further on perusal of the statement of account, the ld. CIT(A) noticed that it does not show any exempt income, but, there is a credit of other income of ₹.70,66,971/- for the assessment year 2013-14 and ₹.15,15,297/- for the assessment year 2014-15. Further, for the assessment year 2013-14, the schedule of other income reveals interest income of ₹.4,32,932/- and other income of ₹.66,34,039/- without any details. Similarly, for the assessment year 2014-15, other income includes interest income of ₹.13,81,750/- and other income of ₹.1,33,547/-. In the absence of any details, the ld. CIT(A) directed the Assessing Officer to verify whether the receipts classified as other income i.e., ₹.66,34,039/- and ₹.1,33,547/- for the assessment years 2013-14 and 2014-15 respectively are exempt income and held that either entire expenses disallowed will stand deleted or the disallowance will be restricted to the earning of exempt income, as the case may be. Further, by considering various decisions including the decision of the Tribunal in the case of EIH Associated Hotels v. DCIT in & 1624/Mds/2012, the ld. CIT(A) has directed the Assessing Officer to verify as to whether the investment made in SPV is a subsidiary company of the assessee and if so, no disallowance is warranted under section 14A of the Act.

6.

In a recent judgement in the case of Maxopp Investment Ltd. v. CIT in Civil Appeal Nos. 104-109 of 2015 dated12.02.2018, after analysing various judgements of High Courts, the Hon’ble Supreme Court has given concurrent findings on various issues relating to the disallowance under section 14A r.w. Rule 8D. The Hon’ble Supreme Court has ruled out the dominant theory of investment in subsidiary and not relevant for applicability of section 14A and moreover, the Hon’ble Apex Court confirmed the view of restricting the disallowance to the quantum of exempt income, though not subscribed to dominant purpose theory. Various decisions relied on by the ld. CIT(A) are no longer res-integra having regard to the decision of the Hon’ble Apex Court and thus, we set aside the order of the ld. CIT(A) on various issues relating to disallowance under section 14A r.w. Rule 8D and remit the same to the file of the Assessing Officer to re-examine the issues in the light of the above judgement of the Hon’ble Supreme Court and decide the issues afresh after giving an opportunity of being heard to the assessee. Accordingly, both the appeals filed by the Revenue are allowed for statistical purposes.

7.

In the result, both the appeals filed by the Revenue are allowed for statistical purposes. Order pronounced on the 20th November, 2018 at Chennai.

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