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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI SUDHANSHU SRIVASTAVA & SHRI PRASHANT MAHARISHI
O R D E R PER PRASHANT MAHARISHI, A. M. 1. This is an appeal by the assessee against the order of the ld CIT (A)-XVII, New Delhi dated 03.02.2014 for the Assessment Year 2009-10. 2. The assessee has raised the following grounds of appeal:-
1. That the ld Commissioner of Income Tax (Appeals) has erred in confirming the disallowance of Rs. 6525649/- made by the assessing officer u/s 14A read with Rule 8D of the Income Tax Act, 1961 without appreciating the fact that the investments in the shares of group concern were made out of “commercial expediency” and as such the expenditure incurred for that purpose could not be disallowed u/s 14A and Rule 8D.”
The assessee has also raised additional grounds of appeal as under:- 1 | P a g e
M/s Preah Renewable Energy private Limited V ITO Ward 14(2), New Delhi CIT (A) has erred in confirming the disallowance under section 14A of the Act envisages that there should be an actual receipt of 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.”
Brief facts 4. The assessee company is engaged in the business of trading and this is the 1st year of its business. The assessee filed its return of income for assessment year 2009 – 10 on 28/09/2009 declaring loss of Rs. 1 052 4670/–.
Assessment Proceedings 5. during the course of assessment proceedings it was found that the assessee has shown investment of Rs. 10.73 crores as at 31st of March 2009 and therefore, Ld. assessing officer asked why the disallowance under section 14 A of the income tax act should not be made to the total income of the assessee. The assessee submitted wide letter dated 19 2011. That assessee has not claimed any exempt income and therefore the dividend received on investment made during the year is nil. Further, the investment is us business interest of the assessee as the investor or and investee both have mutual business interest being marketing of energy products in India. However, the assessee further submitted that as assessee has advanced interest-bearing loans to free play on which interest income of Rs. 3 451253/– has been received. Accordingly, the interest income having nexus with the interest paid is to be reduced from the total interest expenditure and the balance interest may be considered for disallowance under section 14 A of the income tax act. Further assessee submitted the working of disallowance under section 14 A of the income tax act, amounting to Rs. 6 525694/–. 2 | P a g e
M/s Preah Renewable Energy private Limited V ITO Ward 14(2), New Delhi
The Ld. assessing officer considering the reply of the assessee applied the provisions of rule 8D of the income tax rules, 1962 and accepted the disallowance to be made of Rs. 6525649/–. Consequently, the assessment under section 143 (3) of the income tax act was passed on 16/12/2011 reducing the assessed loss at Rs. 3 999021/- against the returned loss of Rs. 10524670/-. The assessee being aggrieved with the order of the Ld. assessing officer preferred an appeal before the Ld. CIT (A).
Appellate proceedings before the Ld. CIT (A) 7. The Ld. CIT (A) relying upon the several decisions of the coordinate benches upheld the disallowance under section 14 A of Rs. 6 525649/–. The assessee aggrieved with the order of the Ld. CIT (A) is preferred an appeal before us.
Additional ground of appeal
8. During the course of hearing before us. The assessee has filed an application for additional ground of appeal contesting that there should be an actual receipt of exempt income and only then the provisions of section 14 A of the income tax are applicable. It was submitted on behalf of the assessee that these are the pure question of law and no fresh facts are required to be investigated and therefore the additional ground filed by the assessee may be admitted. Regarding the facts of the case, it was submitted by the assessee that in para No. 4.1 of the assessment order, the facts are available that the assessee is not claimed any exempt income during the year.
9. The Ld. departmental representative vehemently objected to the admission of the additional ground stating that the above contention has not been raised before the lower authorities.
10. We have carefully considered the rival contentions and also perused the relevant orders. At para No. 4. 1 of the assessment order, the assessee
M/s Preah Renewable Energy private Limited V ITO Ward 14(2), New Delhi 19 2011. That during the year the assessee has not claimed any exempt income. Therefore, no fresh facts are required to be investigated to adjudicate on the additional ground of appeal. Further, the additional ground of appeal is purely legal in nature and therefore in the interest of Justice same is required to be admitted. Hence, we admit the same.
Argument of the Ld. authorized representative 11. The Ld. authorized representative submitted that when there is no exempt income received by the assessee during the year there cannot be any disallowance. For this purpose, he submitted the copy of the return of income for assessment year 2009 – 10 as well as the computation of total income attached there with where there is no exempt income claimed by the assessee. He therefore submitted that that issue is now squarely covered in favour of the assessee by the decision of the jurisdictional High Court wherein it has been held that in absence of any exempt income no disallowance under section 14 A of the income tax act can be made.
Arguments of the Ld. departmental representative. 12. The Ld. departmental representative vehemently supported the orders of the lower authorities and submitted that even if in the absence of the exempt income earned by the assessee during the year the disallowances required to be made.
Decision and reasons 13. We have carefully considered the rival contentions. It is an admitted fact that there is no exempt income earned by the assessee during the year. At the assessee is already submitted the computation of total income and the income tax return submitted before the assessing officer. The Ld. departmental representative could not controvert that assessee has M/s Preah Renewable Energy private Limited V ITO Ward 14(2), New Delhi received any exempt income during the year. The Hon’ble Delhi High Court in case of Cheminvest Ltd versus CIT 378 ITR 33, has 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 Act envisages that there should be an actual receipt of 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. In other words, section 14A will not apply if no exempt income is received or receivable during the relevant previous year.”
Therefore respectfully following the decision of the Hon’ble Delhi High Court we also hold that provisions of section 14 A will not apply if no exempt income is received or receivable during the relevant previous year. As the assessee has neither received any income during the year which is not forming part of the total income, no disallowance under section 14 A of the income tax act can be made. In view of this, the additional ground of the appeal of the assessee is allowed accordingly and we reverse the finding of the Ld. CIT (A) confirming the disallowance under section 14 A of the income tax act, we direct the Ld. assessing officer to delete the about disallowance. In the result additional ground of the appeal of the assessee is allowed.
As the ground No. 1 of the appeal of the assessee is also contesting the about disallowance holding that the investment has been made in the shares of group concern is out of commercial expediency and therefore the provisions of the section 14 A of the act do not apply in such circumstances.
M/s Preah Renewable Energy private Limited V ITO Ward 14(2), New Delhi