ROSE FINANCIERS & COMMERCIALS PVT. LTD., ,KOLKATA vs. ITO, WARD - 12(4), KOLKATA , KOLKATA

The sole issue involved in this appeal is that the CIT(A) has erred in confirming the order of the Assessing Officer disallowing Rs.1,83,895/- u/s 14A of the Income Tax Act, 1961 (Act).

The brief facts of the case are that the Assessing Officer observed that CBDT’s Circular No.5/2014 dated 11.02.2014 states that “Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where tax payer in a particular year has not earned any exempt income. “ He observed that the assessee made investment of Rs.15,91,82,710/- in F.Y. 1010-11 and Rs.11,27,73,650/- in F.Y.2011-12. Average investment amounts to Rs.13,59,78,180/- but no income earned from the said investment during the year . He observed that as per section 14A read with rule 8D(iii) 0.5% of average investment comes to Rs.6,79,890/-. Further the Rose Financiers & Commercials Pvt. Ltd. A.Y.2012-13 assessee has claimed expenditure only Rs.1,83,895/- for A.Y.2012-13. Hence he disallowed Rs.1,83,895/- u/s 14A r.w.rule 8D of the Act and added to the income of the assessee.

On appeal the CIT(A) confirmed the action of the Assessing Officer.

Before me the only argument of the Authorised Representative of the assessee is that no exempt income was earned by the assessee during the year under appeal. No disallowance u/s 14A r.w.r. 8D was warranted. For his contention he placed reliance on the decision of the following high courts :- “(1) Cheminvest Ltd. Vs. CIT281 CTR447 (2) CIT Vs. Holcin India (P) Ltd. 272 CTR (Delhi) 282 (3) CIT Vs. Lakhani Marketing India 272 CTR 265 Haryana &. Punjab) (4) C1T vs. Shivam Motor (P) Ltd., Allahabad High Court of 2014 dated 05.05.2014.

On the other hand, the Learned Departmental Representative submitted that as per CBDT Circular No.5/2014 dated 11.02.2014 relied on by the Assessing Officer Rose Financiers & Commercials Pvt. Ltd. A.Y.2012-13 disallowance u/s 14A is to be made even where the assessee has earned no exempt income since the Circular is binding on the Assessing Officer he has no alternative but to make the disallowance as made by him in the assessment order.

I have heard the rival submissions and perused the orders of the lower authorities and materials available on record. I find that the Hon’ble Delhi High Court in the case of Cheminvest Ltd v CIT 378 ITR 33 (Delhi) held as follows :- “15. Turning to the central question that arises for consideration, the Court finds that the complete answer is provided by the decision of this Court in CIT v. Holcim India (P) Ltd. (decision dated 5th September 2014 in ITA No. 486/2014). In that case a similar question arose, viz., whether the ITAT was justified in deleting the disallowance under Section 14A of the Act when no dividend income had been earned by the Assessee in the relevant AY? The Court referred to the decision of this Court in Maxopp Investment Ltd. (supra) and to the decision of the Special Bench of the ITAT in this very case i.e. Cheminvest Ltd. v. CIT (2009) 317 ITR 86. The Court also referred to three decisions of different High Courts which have decided the issue against Revenue. The first was the decision in Commissioner of Income Tax, Faridabad v. M/s. Lakhani Marketing Incl. (decision dated 2nd April 2014 of the High Court of Punjab and Haryana in which in turn referred to two earlier decisions of the same Court in CIT v. Hero Cycles Limited [2010] 323 ITR 518 and CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204. The second was of the Gujarat High Court in Commissioner of Income Tax-I v. Corrtech Energy (P) Ltd. [2014] 223 Taxmann 130 (Guj.) and the third of the Allahabad High Court in Commissioner of Income Tax, Kanpur v. Shivam Motors (P) Ltd. (decision dated 5th May 2014 in ITA No. 88/2014). These three decisions reiterated the position that when an Assessee had not earned any taxable income in the relevant AY in question "corresponding expenditure could not be worked out for disallowance."

It is not in dispute that the assessee has earned no tax free income during the year under consideration on the investments made by him. Therefore the decision quoted above of the Hon’ble Delhi High Court applies to the facts of the case. The Hon’ble Delhi High Court in the case of IL & FS Energy Development Company Ltd (supra) has held that CBDT circular cannot override the expressed provisions of section 14A read with Rule 8D. Respectfully following same I set aside the orders of Rose Financiers & Commercials Pvt. Ltd. A.Y.2012-13 the lower authorities and delete the disallowance of Rs.1,83,895/- made u/s 14A r.w.r. 8D and allow the grounds of appeal