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Facts
The revenue filed appeals against the deletion of disallowance made under Section 14A of the Income Tax Act, 1961, read with Rule 8D. The Assessing Officer (AO) had disallowed expenses for AY 2013-14 to 2017-18, amounting to substantial sums, based on investments made by the assessee in subsidiaries, even though the assessee claimed no exempt income was earned.
Held
The Tribunal held that if the assessee has not earned any exempt income, then disallowance under Section 14A and Rule 8D cannot be made. The Tribunal relied on a co-ordinate bench's decision in the assessee's own case.
Key Issues
Whether disallowance under Section 14A is sustainable when the assessee has not earned any exempt income.
Sections Cited
14A, 8D, 250, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI ANIKESH BANERJEE & SHRIGIRISH AGRAWAL
& 2940/Mum/2024 HCC Infrastructure Co Ltd (Pursuant to merger of HCC Concessions Ltd) Act’) dated 12/03/204, 29/03/2024, 31/03/2024 & 31/03/2024 for A.Ys. 2013-14, 2014-15, 2015-16 & 2017-18, respectively. The impugned orders arise from the orders passed by the ld. Deputy Commissioner of Income-tax – 15(1)(2), Mumbai (in brevity the “AO”), order passed U/s 143(3) of the Act.
At the outset, it may be mentioned on 22/07/2024 when the matter was called up for hearing, the Ld.AR for the assessee, vide letter dated July 19,2024 had sought adjournment on the following grounds: -
“Re: HCC Concessions Limited, now merged with HCC Infrastructure Company Limited ('Assessee') PAN-AACCH0024L - AY 2013-14 - Filed by Department Sub: Direction to Department to amend form 36 and request for adjournment
The captioned Department's appeal is coming up for hearing before Your Honors on 22nd July.
Your Honors may please note that the Assessee, formerly HCC Concessions Limited, was merged into HCC INFRASTRUCTURE COMPANY LIMITED with effect from April 1, 2021, vide order dated February 9, 2023, passed by the Hon'ble National Company Law Tribunal (NCLT), Mumbai Bench in Company Scheme Petition bearing CP(CAA)/117/MB-IV/2022. A copy of the said merger order is enclosed herewith as Annexure 1 for reference.
Due to aforesaid merger, the Department will be required to take necessary steps for amending the appeal Form 36, which is presently in the old name to incorporate the new name of the Assessee.
Accordingly, we would request Your Honors to kindly direct the learned DR to do the needful asabove and, in the meantime, adjourn the hearing fixed for 22nd to a suitable future date.”
The matter was accordingly adjourned to 03/09/2024. Finally, Form-36 of all the appeals is amended by the department. We proceed to dispose of the appeals accordingly.
3. In all the 4 appeals, the revenue has agitated the issue of deletion of disallowance made under section 14A of the Act read with Rule 8D of Income Tax Rules, 1962 (in short, the ‘Rule’) we deem it fit to extract the grounds raised for A.Y. 2014-15, which are as under: -
“1.Whether on the facts and circumstances of the case, I the CIT{A) has erred in deleting the addition of Rs. 14,61,63,938/- made on account of disallowance of expenses u/s. 14A of the Income Tax Act, 1961 holding that no disallowance u/s. 14A is called for, ' when there is no exempt income received by the assessee during the year under consideration.
2.Whether on the facts and circumstances of the case, the CIT(A) erred in law in deleting the addition of Rs, 14,61,63,938/- u/s. 14A ignoring the CBDT : Circular No, 5/2014 dated 11.02,2014 wherein it is clarified that even if there is no exempt income earned by the assessee in the year under consideration, disallowance under Rule 8D read with section 14A is required to be made.
The Appellant prays that the order of the CIT(A)on the groundsbe set aside and that of the Assessing Officerbe restored.
The appellant craves leave to amend, or alter anygrounds or add new grounds, which may be necessary.”
The brief facts of the case are that theassessee is a company engaged in the business of construction of ‘Built own and Transfer’ (BOT) infrastructure projects & 2940/Mum/2024 HCC Infrastructure Co Ltd (Pursuant to merger of HCC Concessions Ltd) such as Roads and Bridges and has made investments into subsidiaries. For A.Y. 2013-14, in the course of assessment proceedings, the ld. AO noticed that the assessee had investments, the returns of which were exempt from tax. The ld. AO was, therefore, of the opinion that the expenditure incurred for those investments should be disallowed under section 14A of the Act read with rule 8D of the Rule. When showcause notice was issued, the asessee explained that the investment in subsidiary is more of compulsory or strategic investments in order to get contracts and not made to earn any dividend/exempt income.The ld. AO, however, did not find it acceptable, he proceeded to calculate the disallowance and worked out a disallowance of Rs.9,06,44,147/- in the following manner: - “A.Y. 2013-14 Particulars Amt (Rs.) Amt (Rs.) 1 Amount of expenses directly related to the 0 income A Amount of interest expenses other than 1(A) 10,81,23,015 B1 Investments as on 01-04-12 540,47,87,500 B2 Investment as on 31-03-13 649,07,90,700 B Average value of investment [B=(B1 + B2)/2] 594,77,89,100 C1 Assets as on 01-04-12 1043,77,88,401 C2 Assets as on 31-03-13 1068,00,43,217 C Average of total assets [C-(C1+C2)/2] 1055,89,15,809 2 Attributable indirect interest expenses 6,09,05,201 [A*B/C] 3 ½% of the average value of investment 2,97,38,946 Disallowance under Section 14A (1+2+3) 9,06,44,147 Accordingly, the disallowance / addition worked out by the ld.AO in different assessment years was as below: - A.Y. 2013-14 - Rs. 9,06,44,147/- A.Y. 2014-15 - Rs.12,85,92,373/- A.Y. 2015-16 - Rs. 14,61,63,938/- A.Y. 2017-18 - Rs. 6,67,13,654/- The assessee was aggrieved and carried the matter before the ld. CIT(A). The ld.CIT(A) deleted the addition. The revenue is aggrieved on the action of the ld.CIT(A) and filed these appeals before us.
We have heard the rival submission and considered the documents available in the record. The ld. AR confirmed that the assessee has no exempt income during this impugned assessment year. So, the disallowance under section 14A is uncalled for. The ld.AR also relied on assessee’s own case in date of pronouncement 03/01/2018, where the co- ordinate bench of ITAT, Mumbai Bench “I” accepted that if there is no exempt income, the addition cannot be sustained. Considering the appeal order, we find that the ld.CIT(A) had considered the orders of the co-ordinate bench of ITAT- Mumbai and followed accordingly. The relevant part of the order of ITAT-Mumbai Bench is reproduced as below: - “5. We have heard the rival submissions. We find that the assessee had not earned any exempt income during the year under consideration, that the AO had invoked the provisions of Rule 8D of the rules r.w.s. 14A of the Act, that the FAA has given a categorical finding of fact that assessee were much more than the investments made. In our opinion, in absence of exempt income and claim of expenditure made against such income, disallowanceu/s 14A should not have been made. The provisions were brought on statute to prevent the misuse of & 2940/Mum/2024 HCC Infrastructure Co Ltd (Pursuant to merger of HCC Concessions Ltd) double deduction i.e. claiming exempt income and claiming expenditure against such income. No disallowance can be made if assessee does not show any exempt income and expenditure against the income that does not form part of the total income. Considering the above, we are of the opinion that FAA has rightly deleted the disallowance made by the AO. So, confirming his order, we decide the effective ground of appeal against the A.O.”
The ld. DR fully relied on the impugned assessment order but was unable to produce any contrary judgement against the order of the co-ordinate bench of ITAT.
We respectfully follow the order of the co-ordinate bench of ITAT-Mumbai in assessee’s own case (supra) and it is accepted for impugned issue. Hence, we are not interfering in the impugned appeal order. The disallowance U/s 14A r.w.r. 8D amount to Rs. 12,85,92,373/- is deleted. Accordingly, the grounds of the revenue are dismissed.
Since we have decided on the appeal for AY 2014-15 in favour of the assessee, the decision therein shall apply mutatis mutandis to the other three appeals also. 9. In the result, appeals of the revenue bearing ITAs No.2578, 2690, 2940& 2941/Mum/2024 are dismissed. Order pronounced in the open court on 11th day of September, 2024. Sd/- sd/- (GIRISH AGRAWAL) (ANIKESH BANERJEE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai,दिन ांक/Dated: 11/09/2024 Pavanan