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Income Tax Appellate Tribunal, DELHI BENCH ‘E’, NEW DELHI
ORDER
Per N. K. Saini, AM:
This is an appeal by the department against the order dated 22.12.2015 of ld. CIT(A)-4, New Delhi.
The only effective ground raised
in this appeal reads as under:
1. On the facts and in the circumstances of the case, the Id. CIT(A) has erred in deleting the addition of Rs.1,48,12,500/- made by Assessing Officer by applying Rule 8D without appreciating the directions laid down in CBDT's Circular No.5/2014 dated 11-02-2014 wherein it has been mentioned that disallowance u/s.14A of the Income Tax Act,1961 is to be made even if there is no exempt income during the year.”
Rattan India Infrastructure Ltd.
Facts of the case in brief are that the assessee e-filed its return of income on 21.09.2012 declaring total loss of Rs.1,63,39,401/-. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had made investment in equity shares amounting to Rs.5,92,50,00,000/- as on 31.03.2012 which yielded tax free dividend income or long term capital gain or short term capital gain on which tax was charged at less than the normal rate of taxation. He asked the assessee to furnish the working of disallowance u/s 14A of the Income Tax Act, 1961 (hereinafter referred to as the Act) read with Rule 8D of the Income Tax Rules, 1962. In response, the assessee submitted that during the relevant assessment year, there was no exempted income so this clause was not applicable. The AO did not find merit in the submissions of the assessee and made the disallowance of Rs.1,48,12,500/- by observing in paras 6 & 7 of the assessment order dated 14.01.2015 as under: “6. Further, the CBDT vide circular No. 5/2014 dated 11.02.2014 has clarified that disallowance of expenses u/s 14A of the Act, 1961 shall be made even in the cases where corresponding exempt income has not been earned during the year. The relevant portion of the circular is reproduced below for reference:
Rattan India Infrastructure Ltd. The above position is further clarified by the usage of term 'includible' in the Heading to Section 14A of the Act and also the Heading to Rule 8D of I.T. Rules, 1962 which indicates that it is not necessary that exempt income should necessarily be included in a particular year's income, for disallowance to be triggered. Also, section 14A of the Act does not use the word "income of the year" but "income under the Act". This also indicates that for invoking disallowance under section 14A, it is not material that assessee should have earned such exempt income during the financial year under consideration.
In view of the above, it is held that the case of the assessee is a fit case for computing the disallowance u/s 14A in accordance with Rule 8D. The computation of disallowance is as under: Value of investment as on 01/04/2011 NIL Value of investment as on 31/03/2012 5,925,000,000/- Average value of investment 296,25,00,000/- 0.5% of average investment 1,48,12,500/- Therefore, the disallowance u/s 14A r.w. Rule 8D(2)(iii) is computed at Rs.1,48,12,500/-. For the reasons mentioned above, I am satisfied that the assessee has failed to furnish accurate particulars of its income in the return, therefore, penalty proceedings u/s 271(1)(c) of the Act are initiated separately. (Disallowance of Rs.1,48,12,500/-)
Rattan India Infrastructure Ltd. Keeping in view of the details filed and after discussion with the assessee's representative, total income of the assessee is computed as under: Income as per Return (-)Rs. 1,63,39,401/- Add: Disallowance u/s 14A r.w. Rs. 1,48,12,500/- Rule 8D Total Income (-)Rs. 15,26,901 Assessed u/s 143(3) of the I.T. Act at total income of (-) Rs.15,26,901/-. Issue Demand Notice accordingly. Charge interest u/s 234B and 234C of the I.T. Act, 1961. Give credit for the prepaid taxes. Issue penalty notice u/s 271(1)(c) of the Act.”
Being aggrieved the assessee carried the matter to the ld. CIT(A) and furnished the written submission which has been incorporated in para 3 of the impugned order by the ld. CIT(A), for the cost of repetition, the same is not reproduced herein.
The ld. CIT(A) after considering the submissions of the assessee deleted the addition by observing in para 4 of the impugned order as under: “4. There is only one addition that is of Rs1,48,12,500/- u/s 14A read with Rule 8D. I have gone through the assessment order as well as the submissions made by the appellant. The most important point is that the appellant did not have any exempt income during the year and, if there is Rattan India Infrastructure Ltd. no exempt income, the disallowance u/s 14A cannot be made. The appellant has cited few judicial decisions and 1 fully agree that such a disallowance u/s 14A cannot be made. Therefore, I hereby delete the addition of Rs.1,48,12,500/-.”
Now the department is in appeal. The ld. DR strongly supported the assessment order dated 14.01.2015 and reiterated the observations made by the AO in the said order.
7. In his rival submissions, the ld. Counsel for the assessee reiterated the submission made before the authorities below and strongly supported the impugned order passed by the ld. CIT(A). It was further submitted that the issue is covered by the various decisions of different High Courts which had been considered by the ld. CIT(A) wherein it has been held that no disallowance u/s 14A of the Act r.w.r. 8D of the Income Tax Rules, 1962 can be made, if the assessee does not have tax free income and no claim for exemption is sought. A reference was made to the following case laws: � CIT Vs Corrtcch Energy Pvt. Ltd. in of 2014, order dated 24.03.2014 (Guj. HC) � CIT Vs Winsome Textiles Industries Ltd. 319 ITR 204 (P&H) � Cheminvest Ltd. Vs CIT (2015) 378 ITR 33 (Del.) 8. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the Rattan India Infrastructure Ltd. assessee did not have any exempt income during the year under consideration. On a similar issue the Hon’ble Punjab & Haryana High Court in the case of CIT Vs Winsome Textiles Industries Ltd. (supra) held as under: “In the present case, admittedly the assessee did not make any claim for exemption in such a situation u/s 14A would have no application.” 9. Similarly, the Hon’ble Jurisdictional High Court in the case of Cheminvest Ltd. Vs CIT (supra) held as under: “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 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 income. In other words, section 14A will not apply if no exempt income is received or receivable during the relevant previous year.” 10. We, therefore, by keeping in view the ratio laid down in the aforesaid referred to cases, do not see any merit in the appeal of the department and are of the confirmed view that the ld. CIT(A) was fully justified in deleting the disallowance made by the AO u/s 14A of the Act r.w.r. 8D of the Income Tax Rules, 1962, since no exempt income was claimed by the assessee.
Rattan India Infrastructure Ltd. 11. In the result, the appeal of the department is dismissed. (Order Pronounced in the Court on 28/09/2017)