DCIT 3(3)(2), MUMBAI vs. SMART CHIP LTD, MUMBAI
In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal held that if an assessee has not earned any exempt income and has not claimed any expenditure against such income, no disallowance can be made. The Tribunal confirmed the order of the CIT(A) which had deleted the addition.
What were the facts?
The Assessing Officer disallowed expenses under Section 14A read with Rule 8D, amounting to Rs. 39.49 lakhs, for investments made by the assessee. The assessee argued that it had not earned any exempt income and its own funds exceeded its investments.
What were the issues?
Whether disallowance under Section 14A read with Rule 8D is permissible when no exempt income is earned by the assessee and own funds are sufficient to cover investments.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Cases cited in this judgment(2)Show listHide list
Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.
- CIT v. Reliance Utilities & Power Ltd.2,118 citing313 ITR 340 · 2009 · HC
- Wimco Seedlings v. DCIT40 citing107 ITD 267 · 2007 · ITAT
Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद"य लेखा लेखा सद"य सद"य, राजे"" सद"य राजे"" राजे"" केकेकेके अनुसार राजे"" अनुसार अनुसार /PER RAJENDRA, AM- अनुसार Challenging the order,dated 29/07/2016, of CIT (A)-8, Mumbai the Assessing Officer(AO) has filed the present appeal.The assessee has filed cross objection (CO).Assessee-company, engaged in the business of personalisation of smartcards and smartcard system,filed its return of income on 30/01/2012,declaring total income of Rs.12.10 crores.The AO completed the assessment, u/s. 143(3) of the Act, on 27/03/2015, determining its income at Rs. 12.49 crores. 2.Effective ground of appeal is about deleting the disallowance,made by the AO, u/s.14 A of the Act.During the assessment proceedings,the AO found that the assessee had made investment in shares which are capable of earning exempt income. He directed the assessee to explain as to why expenses,attributable for making investment,should not be computed as per the provisions of section 14A read with Rule 8D of the Income Tax Rules, 1962 (Rules). While completing the assessment,he added disallowance of Rs. 39.49 lakhs,u/s.14A read r.w. r.8D,to the normal income of the assessee as well as to the book profit computed u/s.115 JB of the Act. 3.Aggrieved by the order of the AO,the assessee filed an appeal before the First Appellate Authority(FAA)and made elaborate submissions.It also relied upon certain case laws.After considering the submission of the assessee and the assessment order,the FAA held that as 6301/Mum/16-(12-13)- M/s. Smart Chip Ltd.
against average value of investment of Rs.16.95 crores,taken by the AO,assessee’s own funds (share capital and reserves + surplus) stood at Rs. 43.19 crores, that the amount in question was way above the investments, that the AO had not established any nexus between the expenditure disallowed under rule 8D. He relied upon the cases of Reliance Utilities and Power Ltd.(313 ITR 340),Food Links Services (I) Pvt. Ltd. (ITA/2079 to 84/Mum/ 2011), Wimco Seedlings Ltd (107 ITD 267)and deleted the addition made by the AO under the regular provisions as well as under the MAT provisions. 4.Before us,the Departmental Representative(DR)supported the order of the AO. The Authorised Representative(AR)relied upon the order of the FAA and stated that the assessee had not earned any exempt income during the year under consideration, that the funds owned by it were more than the investments made. 5.We have heard the rival submissions and perused the material on record.We find that the assessee had not earned any exempt income nor had it claimed any expenditure against such income during the year under appeal,that the AO had made the disallowance invoking the provisions of section 14 A read with rule 8D of the Rules, that the FAA had given a categorical finding of fact that own funds of the assessee were far more than the investment made by it during the year under consideration.In our opinion,if no exempt income is earned by an assessee and no expenditure is claimed against such income, the AO.s are not entitled to make any disallowance.Considering the availability of the funds with the assessee and other above-mentioned circumstances,we are of the opinion that order of the FAA does not suffer from any legal or factual infirmity.So confirming the same, we decide the effective ground of appeal against the AO. In the cross objection,the assessee has supported the order of the FAA.We have already dismissed the appeal filed by the AO in the earlier part of our order. So we allow the cross objection for statistical purposes. As a result,appeal filed by the AO is dismissed and the cross objection is allowed for statistical purposes. फलतः िनधा"रती अिधकारी क" अपील नामंजूर क" जाती है और िनधा"रती का ""या"ेप सांि"यक" "प से मंजूर "कया जाता है. Order pronounced in the open court on 3rd January, 2018. आदेश क" घोषणा खुले यायालय म! "दनांक 03 जनवरी, 2018 को क" गई । (रिवश सूद रिवश सूद रिवश सूद /Ravish Sood) (राजे"" / RAJENDRA) रिवश सूद "याियक सद"य / JUDICIAL MEMBER लेखा लेखा लेखा सद"य लेखा सद"य / ACCOUNTANT MEMBER सद"य सद"य मुंबई Mumbai; "दनांक/Dated : 03 .01.2018. Jv.Sr.PS. 2 6301/Mum/16-(12-13)- M/s. Smart Chip Ltd.
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