KESAR TERMINALS AND INFRASTRUCTURE LIMITED,CHURCHGATE, MUMBAI vs. DEPUTY COMMISSIONER OF INCOME TAX - 1(2)(1), AAYAKAR BHAVAN, MUMBAI

Coming to the second ground which pertains to the addition made by the AO and affirmed by the Ld. Commissioner to the tune of Rs.69,22,693/- on account of disallowance u/s 14A r.w.s. 8D of the Income Tax Rules, 1962 (in short “Rules”) we observe that the Assessee has not earned any exempt income/dividend during the assessment year under consideration, however, still the Ld. Commissioner affirmed this addition by relying on the judgment passed by the Hon’ble Bombay High Court in the case of Godrej Boyce Mfg. Co. Ltd. vs. DCIT & Ant. Reported in 234 CTR (Bombay) 1 (2020) and Hon’ble Special Bench of the ITAT, Delhi in the case of Cheminvest Ltd. vs. ITO 317 ITR 86 (80), whereas it is a fact that in the case of Godrej Boyce Mfg. Co. Ltd. (supra) the Hon’ble High Court has held that the AO could invoke the provision of section 14A(2) & (3) of the Act and disallow the expenditure in accordance with Rule 8D of the ITAT Rules, only when dividend income was received by the Assessee and the Assessee has neither offered any disallowance or the AO is not satisfied with the Assessee after having regards to the books of the Assessee. Further, the Special Bench judgment in the case of Cheminvest Ltd. (supra) has been reversed by the Hon’ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT (2015) 281 CTR 447 (Del.- Trib) wherein the Hon’ble High Court has laid down in para-no.23 clearly & M/s. Kesar Terminals and Infrastructure Limited “that section 14A will not apply if no exempt income is received or receivable during the relevant previous year”.

Admittedly in the instant case, admittedly the Assessee was having sufficient/more funds in the form of share capital reserves and surplus than the amount invested and has also not earned any exempt income, hence, respectfully following the judgments of the Hon’ble High Court in the case of Cheminvest Ltd. (supra) wherein it was held “that section 14A will not apply if no exempt income is received or receivable during the relevant previous year”, as well as by the Jurisdictional High Court in the case of CIT vs. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom.), wherein it was held “that where the Assessee has its own funds and other non-interest bearing funds more than the investment in tax free securities, therefore, it can be presumed that investment made by the Assessee would be out of the interest free funds available with the Assessee”, hence, we are inclined to delete the addition under consideration, thus the same is deleted.

In the result, the appeal filed by the Assessee i.e. is partly allowed. we observe that in this case sole addition pertains to section 14A of the Act which has been made without considering and in the absence of any exempt income earned during the AY under consideration, hence in view of our decision on addition u/s 14A in this appeal is also allowed.