PR. COMMISSIONER OF vs. M/S STERLING DEVELOPERS

I.T.A. NO.49 OF 2019 1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 10TH DAY OF MARCH, 2021 PRESENT THE HON'BLE MR. JUSTICE SATISH CHANDRA SHARMA AND THE HON'BLE MR. JUSTICE SURAJ GOVINDARAJ I.T.A. NO.49 OF 2019 BETWEEN: 1. PR. COMMISSIONER OF INCOME TAX-4 BMTC COMPLEX KORAMANGALA BANGALORE

…APPELLANTS (BY SRI. E.I. SANMATHI, ADVOCATE-PH) AND: M/S STERLING DEVELOPERS PVT. LTD., NO.8, LEVEL 5 PRESTIGE NEBULA CUBBON ROAD OPP. TO IT OFFICE BUILDING BANGALORE-560001

… RESPONDENT (BY SRI. N. NARENDRA SHARMA, ADVOCATE-PH)

THIS APPEAL IS FILED UNDER SECTION 260A OF THE INCOME-TAX ACT, 1961, ARISING OUT OF ORDER DATED 31.08.2018 PASSED IN ITA NO.1363/BANG/2018, FOR THE ASSESSMENT YEAR 2014-2015 PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND / OR SUCH OTHER

I.T.A. NO.49 OF 2019 2 QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND SET ASIDE THE APPELLATE ORDER DATED 31.08.2018 (ANNEXURE-A) PASSED BY THE INCOME TAX APPELLATE TRIBUNAL. 'C' BENCH, BENGALURU, IN APPEAL PROCEEDINGS BEARING ITA NO.1363/BANG/2018 FOR ASSESSMENT YEAR 2014-2015 AS SOUGHT FOR IN THIS APPEAL; AND TO GRANT SUCH OTHER RELIEF AS DEEMED FIT, IN THE INTEREST OF JUSTICE.

THIS APPEAL COMING ON FOR HEARING, THIS DAY, SATISH CHANDRA SHARMA. J., DELIVERED THE FOLLOWING: JUDGMENT 1. The present Income-tax appeal is arising out of the order dated 31.08.2018 passed by the Income-tax Appellate Tribunal. 2. The facts of the case reveal that the assessee is a company engaged in the business of development and construction of houses, buildings and other related activities. The assessee has filed its return of income for the Assessment Year 2014-15.

During the assessment proceedings, the Assessing Officer made disallowance under Section 14A of the Income Tax Act. The assessee being aggrieved preferred an appeal before the Commissioner,

I.T.A. NO.49 OF 2019 3 Income tax (Appeals) and the Appellate Authority has allowed the appeal and appeals were preferred by the revenue before the Tribunal and the Tribunal by order dated 31.08.2018 has allowed the appeals in respect of the assessment years 2010-11, 2011-12 and 2014-15. 3. This Court on 3.07.2019 has framed the following substantial question of law: "Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in deleting the disallowances made under Section 14W read with Rule 8D(2)(ii) of the Income Tax Act, 1961 without appreciating the Board's Circular No.05/2014 dated 11.02.2014 which remphasises that the only expenditure allowable is related to earnings of income, and therefore the expenses which are relatable to earnings of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial year or not?"

I.T.A. NO.49 OF 2019 4 4. The learned counsel for the parties at the outset drawn the attention of this Court towards the Judgment delivered in ITA No.658/2015 and their contention is that in respect of Assessment Year 2009-10, a similar question of law has already been answered. The Judgment delivered by the Division Bench in ITA No.685/2015 reads as under: "This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) has been filed by the revenue. The subject matter of the appeal pertains to the Assessment Year 2009-10. The appeal was admitted by a Bench of this Court vide order dated 05.04.2016 on the following substantial question of law: "Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in deleting the disallowances made under Section 14A read with Rule 8D(2)(ii) and 8(D)(2)(iii) of the Act without appreciating the contents of Circular No.5/2014 dated 11.02.2014, which emphasized that only expenditure allowable is relatable to earning of income and therefore, the expenses which are relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether such income has been earned during the financial year or not?"

I.T.A. NO.49 OF 2019 5 2. Facts leading to filing of this appeal briefly stated are that the assessee filed its return of income for the Assessment Year 2009-10 declaring a total income ofRs.4,10,17,850/- on 14.10.2010. The aforesaid return was processed under Section 143(1) of the Act. The case of the assessee was selected for scrutiny and during the course of assessment proceedings, the assessee filed a letter dated 15.11.2011 in which the assessee recomputed its taxable income at Rs.4,79,57,900/- by making certain disallowance in respect of interest claimed by the assessee. The Assessing Officer, after verifying the details filed by the assessee, concluded the assessment by an order dated 29.12.2011 and determined the total income of the assessee at Rs.18,18,36,660/- as against the revised income which was mentioned by the assessee to the extent of Rs.4,79,57,900/- by making certain additions and disallowances. The Assessing Officer also made a disallowance under Section 14A of the Act of Rs.4,92,78,160/- and under Rule 8D(2)(iii) of the Income Tax Rules, 1962, being 0.5% of Rs.27,91,520/- totaling to an amount of Rs.5,20,69,680/-. The assessee filed an appeal before the Commissioner of Income Tax (Appeals), who by an order dated 27.09.2012, partly allowed the appeal and deleted such additions and disallowances made and sustained the disallowance under Rule 8D(2)(ii) of Rs.3,18,30,602/- as against the original calculation made by the Assessing Officer of Rs.4,92,78,160/- and sustained the disallowance made by the Assessing Officer under Rule 8D(2)(iii) to the extent of Rs.18,71,270/- as against the original disallowance under Rule 8D(2)(iii) of Rs.27,91,520/-. However, disallowance of Rs.3,81,18,472/- was sustained. 3. The revenue filed an appeal against the order passed by the Commissioner of Income

I.T.A. NO.49 OF 2019 6 Tax (Appeals) before the Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short) namely ITA No.168/Bang/2013, whereas the assessee filed cross-appeal before the Tribunal against the order of the Commissioner of Income Tax (Appeals) to the extent it was passed against it in ITA No.1417/Bang/2012. The Tribunal, vide its common order dated 23.06.2015, dismissed the appeal preferred by the revenue and partly allowed the appeal preferred by the assessee. Being aggrieved by the aforesaid order of the Tribunal, the revenue has filed this appeal. 4. Learned counsel for the revenue, while inviting the attention of this Court to the order passed by the Assessing Officer, pointed out that the reasoning / satisfaction has been recorded by the Assessing Officer for disallowing the claim made by the assessee under Section 14A of the Act. It is further submitted that the finding recorded by the Tribunal that there is no exempt income in respect of the relevant assessment year which was claimed by the assessee, is perverse. In this connection, our attention has been invited to paragraph 19 of the order passed by the Tribunal. Learned counsel for the revenue has placed reliance on the decision of this Court in 'COMMISSIONER OF INCOME-TAX, BANGALORE Vs. KINGFISHER FINVEST INDIA LTD.' (2020) 121 TAXMANN.COM 233 (KAR). 5. On the other hand, learned Senior counsel for the assessee, while inviting our attention to paragraph 19 of the order passed by the Tribunal, pointed out that it is an admitted fact before the Tribunal that no exempt income was claimed by the assessee during the relevant previous year. It has further been submitted that from the perusal of the letter dated 15.11.2011 which was submitted by the assessee before the Assessing Officer, the assessee had

I.T.A. NO.49 OF 2019 7 taken a specific stand that the assessee has not earned any income which is exempt from tax and therefore, the provisions of Section 14A of the Act are not applicable to the fact situation of the case. The aforesaid aspect of the matter was even disputed by the revenue before the Tribunal. Therefore, on admitted facts, the Tribunal has set aside the disallowance of the claim under Section 14A of the Act. 6. We have considered the submissions made on both sides and have perused the record. From perusal of paragraph 6 of the communication dated 15.11.2011, it is evident that the assessee had taken a specific stand before the Assessing Officer in the assessment proceedings itself that the assessee has not earned any income which is exempted from tax. The relevant extract of paragraph 19 of the order passed by the Tribunal is reproduced below for the facility of reference: "It is not disputed that there was no dividend or exempt income claimed by the assessee during the relevant previous year." 7. Thus, in the fact situation of the case, it was an admitted position that no dividend or exempt income was claimed by the assessee during the relevant previous year. It is well settled in law that if no exempt income has accrued to the assessee, the provisions of Section 14A do not apply to the fact situation of the case. The aforesaid view has been taken by this Court in 'PRL. COMMISSIONER OF INCOME-TAX AND ANOTHER Vs. M/s. NOVELL SOFTWARE DEVELOPMENT (INDIA) PVT. LTD.' in ITA No.271/2017 decided on 16.01.2021 as well as by Delhi and Madras High Courts, reference of which has been made in paragraph 6 of the aforesaid decision.

I.T.A. NO.49 OF 2019 8 8. For the aforementioned reasons, the substantial question of law framed in this appeal is answered against the revenue and in favour of the assessee. In the result, we do not find any merit in the appeal. The same fails and is hereby dismissed." 5. In the light of the aforesaid Judgment, after hearing learned counsel for the parties, we are of the opinion that the question of law framed in the present appeal has already been answered against the revenue, in favour of the assessee and therefore, in the present case also, the question of law is answered against the revenue and in favour of the assessee. 6. The appeal is accordingly dismissed. Sd/- JUDGE

Sd/- JUDGE ln