ITO - 9(3)(3), MUMBAI vs. FUTURE IDEA COMPANY LTD., MUMBAI

This is an appeal filed by the Revenue against the order of CIT(A)- 16, Mumbai dated 05/05/2017 for A.Y.2013-14 in the matter of order passed u/s.143(3) of the IT Act, 1961. 2. Grievance of Revenue relates to deletion of disallowance made by the AO u/s.14A r.w.Rule 8D of the Act. 3. At the outset, it was submitted by learned AR that issue is covered by the decision of the Tribunal in assessee’s own case for the immediately M/s. Future Idea Company Ltd., preceding assessment year 2012-13 vide order dated 22/11/2017. We had carefully gone through the orders of the authorities below as well as the order of the Tribunal in assessee’s own case, wherein exactly similar issue was raised by the Revenue and the Tribunal has upheld the order of CIT(A) after observing as under:- “5. We have heard both the parties and perused the materials available on record. The facts with regard to earning no exempt income for the relevant financial year under consideration is not disputed by the revenue. The AO disallowed expenditure incurred in relation to exempt income by invoking Rule 8D(2)(iii) @0.5% of average value of investments. It is the contention of the assessee that it has not earned any exempt income for the year under consideration and also its investments are strategic investments in group companies to have control over the business, but not for the purpose of earning exempt income. The assessee further contended that when there is no exempt income which is includible in total income, the question of disallowance u/s 14A towards expenditure incurred in relation to exempt income does not arise. We find force in the arguments of the assessee for the reason that the Hon'ble Delhi High Court in the case of Cheminvest Ltd vs CIT (supra) observed that where assessee had not shown any income under the head exempt income’, disallowance u/s 14A was not justified. The co-ordinate bench of ITAT, Mumbai Bench in the case of Garware Walfropes Ltd vs C1T (2014) 65 SOT 86 (Mum) observed that where assessee made certain investments with an object of acquiring controlling stake in a group concern and not for earning any income out of investment, the AO was not justified in invoking provisions of section 14A r.w.r. 8D in order to disallow a part of incidental dividend income earned on said investment. In yet another case, the co-ordinate bench of ITAT, Mumbai in the case of S.M. Energy Tehchnique & Electronics Ltd vs DCIT 70 SOT 324 (Mum) observed that where assessee had not shown any income under the head, 'exempt income' for which it claimed expenditure, disallowance u/s 14A was not justified.

In this, view of the matter arid respectfully following the decision of Hon'ble Delhi High Court in the case of Cheminvest Ltd vs CIT-- (supra) and also consistent with the view taken by the co-ordinate benches in number of cases, as discussed above, we are of the view that when there is. no exempt income earned during the financial year, no disallowance can be made u/s 14A r.w.r. 80 of IT. Rules, 1962. The CIT(A), after considering relevant submissions has rightly deleted the additions made by the AO. We do not find any error in the