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Income Tax Appellate Tribunal, DELHI BENCH - ‘A’ NEW DELHI
Before: HonbleSHRI G.D. AGRAWAL & SHRI BHAVNESH SAINI
Per BHAVNESH SAINI, Judicial Member ORDER , 4158/Del/2014 Bhushan Energy Ltd. vs. ACIT And ACIT vs. Bhushan Energy Ltd.
Both the cross appeals are directed against the order of Ld. CIT(A) I, New Delhi dated 8th May, 2014 for asstt. year 2011-12.
We have heard Ld. Representative of both the parties and perused the material on record.
The assessee filed the appeal on the following ground:-
1. That the order dated 8.5.2014 passed u/s 250 of the Income Tax Act, 1961 by the Learned Commissioner of Income- Tax (Appeals) 1, New Delhi is against law and facts on the file in as much as he was not justified in partly upholding the action of the Learned Assistant Commissioner of Income Tax, Central Circle-13, New Delhi in restricting the disallowance under section 14-A of the Income Tax Act, 1961 on account of expenditure incurred in relation to exempt income to Rs. 76,46,670/- while computing income under the normal provisions of the Income-tax Act, 1961 by ignoring the factual position and the submissions made on behalf of the Appellant Company.”
The revenue has filed the appeal on the following grounds :-
“1.The order of Ld. CIT(A) is not correct in law and facts.
2. On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the addition of Rs. 8,52,27,557/- on account of disallowance u/s 14A read with rule 8D made by the AO.
3. On the facts and circumstances of the case the Ld. CIT(A) has erred in deleting the addition made in book profit under the MAT provisions u/s 115JB of Rs. 9,28,74,227/- on account of expenses incurred for earning exempt income made by AO.”
Briefly the facts of the case are that assessee is a company and declared total income of Rs. 81.98 crore. The AO asked the assessee to give detailed note on applicability of section 14A of the Income Tax Act,.
The assessee submitted that assessee company has earned exempt , 4158/Del/2014 Bhushan Energy Ltd. vs. ACIT And ACIT vs. Bhushan Energy Ltd. income during the year and disallowed a sum of Rs. 1,75,063/- u/s 14A of the I.T. Act. AO however did not accept contention of the assessee and noted that as per provision of section 14A, it is not at all mandatory that assessee should have actually earned the exempt income or even that he should have actually incurred any expenses for earning such income during the year under consideration. The AO applied Rule 8D of the I.T. Act and relied upon order of ITAT Delhi Bench in the case of ACIT vs. Cheminvest Ltd. 317 ITR 86 in which the Tribunal has observed that disallowance u/s 14A of the I.T. Act can be made even if there is no exempt income generated from that investment. The AO accordingly disallowed Rs. 9,28,74,227/- u/s 14A r.w.r. 8D of the I.T. Rules.
The assessee challenged the addition before Ld. CIT(A) and made detailed submissions and also submitted that assessee did not make any claim of exemption, therefore no disallowance can be made. The assessee also demonstrated that the substantial expenditure was relatable to its manufacturing / business activities i.e activities distinct from passive activity of investment in shares. Ld. CIT(A) following the decision of the Delhi High Court in the case of Maxopp Investment Ltd. vs. CIT 347 ITR 272 (Delhi) substantially accepted the explanation of assessee because the interest expenditure of the assessee was entirely attributable to the funds raised from the financial institutions for setting up the 150 MW power plant in Orissa. The disallowance u/s 14A r.w.r 8D , 4158/Del/2014 Bhushan Energy Ltd. vs. ACIT And ACIT vs. Bhushan Energy Ltd.
was restricted to Rs. 78,21,733/- and by reducing Rs. 1,75,062/- restricted the disallowance to Rs. 76,46,670/-. Appeal of assessee was partly allowed.
Both the parties are in appeals as per their respective grounds of appeal.
8. Ld. Counsel for assessee restricted his arguments to the point that assessee has earned exempt income in a sum of Rs. 1,75,063/- in assessment year under appeal which was disallowed while computing the income and complete details were also shown by reducing the exempt income u/s 10 of the I.T. Act. He has therefore submitted that the disallowance u/s 14A could not be more than the exempt income of Rs. 1,75,063/- which assessee has already added to the income, as per computation of income filed on record. He has therefore submitted that no further addition is required in the matter. He has relied upon decision of Delhi High Court in the case of Joint Investments Pvt. Ltd. vs. CIT dated 25th February, 2015. He has also relied upon decision of Delhi High Court in the case of Cheminvest Ltd s CIT 378 ITR
He has stated liberty may be given to assessee to raise other contentions in other years as raised in grounds of appeal. , 4158/Del/2014 Bhushan Energy Ltd. vs. ACIT And ACIT vs. Bhushan Energy Ltd.
9. On the other hand, Ld. DR relied upon order of the AO and submitted that as per Rule 8D AO made correct disallowance in the matter.
10. We have considered rival submissions. It is not in dispute that in assessment year under appeal the assessee has earned Rs. 1,75,063/- as exempt income from its investments. The assessee has added the same in computation of income and later on reduced the same u/s 10 of the I.T. Act. Therefore assessee has disallowed entire amount of Rs. 1,75,063/- u/s 14A r.w.r. 8D of the I.T. Act. Hon'ble Delhi High Court in the case of Joint Investments Pvt. Ltd. vs. CIT (supra) in para 9 and 10 held as under :-
“9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing Rs. 2,97,440/- as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO - an aspect which is completely unnoticed by the CIT (A) and the ITAT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is Rs. 48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., Rs.52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A, and is only to the extent of disallowing expenditure "incurred bv the assessee in relation to the tax exempt income". This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case.
, 4158/Del/2014 Bhushan Energy Ltd. vs. ACIT And ACIT vs. Bhushan Energy Ltd.
For the above reasons, the impugned order of the ITAT is set aside. The question of law is answered in favour of the assessee. Consequently, order of the AO is set aside. The initiation of penalty proceedings also is set aside. The matter is remitted to the AO for fresh consideration in accordance with the above directions. The appeal is partly allowed.”
The AO while disallowing the deduction u/s 14A relied upon order of ITAT in the case of Cheminvest Ltd vs. CIT (supra). However Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT 378 ITR 33 (Delhi) held as under :-
“ that no exempted income was earned by the assessee in the relevant assessment year and since the genuineness of the expenditure incurred by the assessee was not in doubt, no disallowance could be made under section 14A.”
Considering the facts of the case in the light of the above decisions of Delhi High Court, it is clear that assessee earned only exempted income in a sum of Rs. 1,75,063/- which is already added to the income of the assessee. Therefore, no further disallowance should be made on the matter in issue. We accordingly set aside the orders of the authorities below and delete the entire addition. In the result appeal of assessee is allowed and departmental appeal is dismissed. We may note that the assessee is at liberty to raise other contentions in other years as per law if so advised in accordance with law. These appeals have decided only on sole contention raised by Ld. Counsel for assessee as recorded in this order. With these observations, we allow the appeal of assessee and dismiss the departmental appeal. , 4158/Del/2014 Bhushan Energy Ltd. vs. ACIT And ACIT vs. Bhushan Energy Ltd.
In the result appeal of assessee is allowed and departmental appeal is dismissed.
Pronounced in the Open Court.