DCIT CIR 7(3)(2), MUMBAI vs. PURPLE MEDICAL SOLUTIONS P. LTD, MUMBAI

This appeal by the assessee is arising out of the order of Commissioner of Income Tax (Appeals)-13, Mumbai [in short CIT(A)], in appeal No. CIT(A)-13/DCIT-7(3)(2)/967/2015-16 dated 15.12.2016. The assessment was framed by the Dy. Commissioner Of Income Tax, Circle-

7(3)(2), Mumbai (in short ‘DCIT’/ ‘AO’) for the A.Y. 2013-14 vide order dated 30.01.2016 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).

“1. whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in allowing relief in respect of disallowance u/s 14A r.w. Rule 8D which was made after considering factual and legal aspects involved in the case".

2. whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) is right in deleting disallowance of Rs.80,55,516/- u/s 14A r.w. Rule 8D without appreciating the fact that during assessment proceedings the assessee itself furnished calculation of disallowance of Rs.6,28,350/ -.

3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 80,55,516/- made by the Assessing Officer u/s 14A of the I.T. Act, 1961 read with rule 8D without appreciating the facts brought out by the AO and considering the fact that the Section 14A was intended to cover even those situation whether there is a possibility of exempt income being earned in future and it is not necessary for exempt income to have been included

in the income of a particular year for the disallowance to be triggered.”

“4. Appellants contentions - The AR explained that the appellant had not earned even a rupee of exempt income during the relevant previous year. He contended that the AO was perhaps influenced by the large investments of ₹ 12.03 crores made by the appellant in equity shares. However, the potential dividend-earning capabilities of any investments would be of no concern it comes to computation of disallowance under section 14A of the Act rad with rule 8D of the Rules. Accordingly, he pleaded that the entire add addition made by the AO under section 14A of the Act should be deleted.”

“On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression “does not form part of the total income” in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. The Income Tax Appellate Tribunal held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income.”