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Income Tax Appellate Tribunal, DELHI BENCH “B” BENCH NEW DELHI
Before: SHRI N.K. SAINI & SHRI AMIT SHUKLA
ORDER
PER AMIT SHUKLA, JUDICIAL MEMBER:
The aforesaid appeal has been filed by the assessee against impugned order dated 08.9.2016, passed by the ld. CIT (Appeals) Ghaziabad for the quantum of assessment passed u/s 143(3) for the A.Y. 2012-13. The assessee has taken following grounds:- “
1.Because the Ld. CIT(A) has erred on facts and in law in confirming the action of the AO assuming jurisdiction in order to make disallowance under section 14A read with Rule 8D(2).
2. Because while confirming the disallowance the Ld. CIT (A) has grossly erred in confirming the disallowance ignoring that 'appellant' has no income which is claimed as exempt and therefore, legally no disallowance under section 14A is warranted.
Because application of section 14A read with Rule 8D (2) is not automatic unless and until the Assessing Officer records his satisfaction . In the present case neither there is any satisfaction nor the Assessing Officer has brought any material in the form of any nexus between the borrowed funds on which interest has been paid and the investment made.
4. Because the investment made by the assessee company is out of own funds in the form of share capital and reserve and surplus. No nexus has been brought on records that any borrowed on which interest has been paid has been applied for investment. On this ground also the disallowance confirmed by Ld. CIT (A) is wrong and bad in law.
Because considering the factual position that the appellant is NBFC and in view of the legal position the disallowance under section 14A made by the Assessing Officer and confirmed by Ld. CIT (A) being wrong, bad in law, un warranted deserves to be deleted.”
The brief facts qua the issue of disallowance u/s 14A are that, the Assessing Officer noted that the assessee had made huge investment in shares; however it has not allocated any expenses for the purpose of disallowance u/s 14A. He further noted that the assessee has claimed interest expenses of Rs. 22,33,997/- which he inferred that the interest bearing funds must have been utilized for making the investment in shares and accordingly, he computed the disallowance as per Rule 8D which worked out to Rs. 11,66,811/-, which included disallowance u/r 8D(2)(ii) & 8D(2)(iii).
3. Before Learned CIT (Appeals), the assessee submitted that it has earned no dividend income and there is no exempt income claimed in the return of income, hence there is no question of making any disallowance u/s 14A. The assessee’s detailed submission in this regard before the Learned CIT (Appeals) has been incorporated at pages 2 to 11 of the appellate order. However, the Learned CIT (Appeals) held that even if there is no dividend income earned by the assessee but fact remains that assessee has made investment in shares; this itself warrants disallowance u/s 14A.
Before us the Learned Counsel submitted that now this issue stands covered by the decision of Hon’ble Jurisdictional High Court in the case of Cheminvest Ltd. vs. CIT (2015) 378 ITR 33 (Delhi), wherein the Hon’ble High Court has held that there should be an actual receipt of income which is not included in total income and when there is no exempt income then disallowance u/s 14A cannot be made. On the other hand the ld. DR relied upon the order of the Learned CIT(Appeals).
5. After considering the relevant finding given in the impugned order and also the submissions made by the parties, we find that it is an undisputed fact that the assessee has not earned any dividend or any kind of exempt income during the year. Whence there is no exempt income claimed by the assessee, then the ratio laid down by the Hon’ble Jurisdictional High Court in Cheminvest Ltd. vs. CIT (Supra) that if the assessee has not earned any exempt income or when there is no actual receipt of any income which does not form part of the total income, no disallowance u/s 14A can be made, is clearly applicable here. We therefore, respectfully following the said Page 3 of 5 principle laid down by the Hon’ble Jurisdictional High Court, hold no disallowance u/s 14A can made in this year, because, admittedly there is no exempt income earned by the assessee in this year. Thus, the disallowance as confirmed by the Learned CIT(Appeals) stands deleted.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 20.04.2017.