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Income Tax Appellate Tribunal, DELHI ‘C’ BENCH,
Before: SHRI B.P. JAIN & SHRI KULDIP SINGH.
Revenue by : Shri Arun Kumar Yadav, Sr.DR Assessee by : None ORDER PER B.P. JAIN, ACCOUNTANT MEMBER:
Both the above appeals filed by the Revenue arise from two different orders of the ld. CIT(A)-6, Delhi vide orders dated 22.05.2015 and 21.05.2015 respectively for assessment years 2010-11 & 2011-12. Since the appeals pertain to same assessee and were heard together
In both the appeals, the Assessing Officer made disallowance under the provisions of section 14A of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] which, in fact, was deleted by the ld. CIT(A).
Brief facts of the case are that the Assessing Officer observed that the assessee has investments in shares, income from which does not and shall not form part of total income. Therefore, the assessee was asked by the AO as to why addition/disallowance u/s 14A of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] r.w.r. 8D of the Income tax Rules, 1962 may not be made. In response, the assessee stated that since the assessee company has not earned any tax free income, no disallowance u/s 14A of the Act is called for. The AO was of the view that no deduction shall be allowed in respect of expenditure incurred by the assessee on account of income which does not form part of the total income under the Act. Therefore, following the decision in the case of M/s Cheminvest Ltd. v/s 1TO(2009) 317 ITR(AT)86(Delhi SB), AO held that the disallowance
3 & 5148 /DEL/2015 u/s 14A is to be made even if no income has resulted or earned by the assessee in the year under consideration. Therefore, Rs 37,36,500/- was disallowed by the AO u/s 14A r.w. rule 8D(2).
None appeared on behalf of the assessee. On going through the case, we find that the matter could be decided in the absence of the ld. counsel for the assessee. Therefore, we heard the ld. DR and carefully perused the relevant material on record. The ld. DR relied on the assessment order of the A.O. After carefully perusing the relevant material on record we find that the ld. CIT(A) has dealt with this issue in detail at paras 3.3 and 3.4 by observing that there is no dispute that no exempt income was earned by the assessee during the year under consideration and AO made the disallowance following the decision of ITAT in the case of M/s Cheminvest Ltd. (supra). The issue as to whether disallowance under section 14A can be made even in a year in which there is no exempt income, is no longer res integra. Hon'ble jurisdictional High Court has in the case of CIT Vs Holcim India Pvt Ltd (2014 TOL 1586 DEL IT), observed as follows:
“14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance
4 & 5148 /DEL/2015 of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been show to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad Vs. M/s. Lakhani Marketing Inch, ITA No. 970/2008, decided on 02.04.2014, made reference to two earlier decisions of the same Court in CIT Vs. Hero Cycles Limited, [2010] 323 ITR 518 and CIT Vs. Winsome Textile Industries Limited, [2009] 319 ITR 204 to hold that Section 14A cannot be invoked when no exempt income was earned. The second decision is of the Gujarat High Court in Commissioner of Income Tax-I Vs. Corrtech Energy (P) Ltd. [2014] 223 Taxmann 130 (Guj). The third decision is of the Allahabad High Court in Income Tax Appeal No.88 of 2014, Commissioner of Income Tax (ii) Kanpur, Vs. M/s. Shivam Motors (P) Ltd. decided on 05.05.2014. In the said decision it has been held:
"As regards the second question. Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act. the expenditure which is incurred for earning the income is not an allowable
5 & 5148 /DEL/2015 deduction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A). which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of Rs 37,36,500/- made by the Assessing Officer was in order" .
Income exempt under Section 10 in a particular assessment year, may not have been exempt earlier and can become taxable in future years. Further, whether income earned in a subsequent year would or would not be taxable, may depend upon the nature of transaction entered into in the subsequent Assessment Year. For example, long term capital gain on sale of shares is presently not taxable where security transaction tax has been paid, but a private sale of shares in an off market transaction attracts capital gains tax. It is an undisputed position that respondent assessee is an investment company and had invested by purchasing a substantial number of shares and thereby securing right to management. Possibility of sale of shares by private placement etc. cannot be ruled out and is not an improbability. Dividend may or may
6 & 5148 /DEL/2015 not be declared. Dividend is declared by the company and strictly in legal sense, a shareholder has no control and cannot insist on payment of dividend. When declared, it is subjected to dividend distribution tax.
6. Following the above decisions ITAT Delhi in the case of Mitsubishi Corporation India Pvt. Ltd. v. DCIT AY 2009-10, LG Chemical India Pvt. Ltd. v. ACIT ITA No.331/Del/2013 and ITO v/s Milk Food Ltd. in ITA No. 3298/Del/2013 deleted the additions made by the AO u/s 14A on the ground that no exempt income has been earned by the assessee from the investment made. In view of the esteemed views of Hon’ble Courts above, the aforesaid disallowance made by the AO u/s 14A is not sustainable as admittedly there was no tax exempt income in this assessment year the investment made. In view of the above, the disallowance made by the AO was rightly deleted.
5. In view of the above detailed discussion and findings of the ld. CIT(A), we are left with no other alternative than to agree with the conclusion arrived at by the ld. CIT(A). Finding no infirmity in the well justified and reasoned order
In the result, both the appeals of the Revenue are dismissed.
The order is pronounced in the open court on 19.09.2017.