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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI M. BALAGANESH
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
Both the appeals of the Revenue are directed against the respective orders of the Commissioner of Income Tax (Appeals)-3, assessee has also filed cross-objections against the same orders of the CIT(Appeals). Therefore, we heard the appeals and the cross- objections together and disposing of the same by this common order.
The first issue arises for consideration is with regard to disallowance of expenditure for earning exempted income under Section 14A of the Income-tax Act, 1961 (in short 'the Act').
Shri AR.V. Sreenivasan, the Ld. Departmental Representative, submitted that disallowance of expenditure for earning exempted income has to be mandatorily computed under Section 8D(2) of the Income-tax Rules, 1962. According to the Ld. D.R., the CIT(Appeals) allowed the claim of the assessee on the ground that the expenditure has to be restricted to the extent of exempted income earned by the assessee. Placing reliance on the judgment of Punjab & Haryana High Court in Punjab Traders Ltd. v.
CIT (2017) 78 taxmann.com 65, the Ld. D.R. submitted that when the assessee has earned tax-free income, the presumption is that the assessee has incurred expenditure towards administrative activities for earning such income, therefore, the Assessing Officer method provided in Rule 8D(2). Hence, according to the Ld. D.R., the CIT(Appeals) is not justified in restricting the disallowance to the extent of exempted income.
On the contrary, Shri V. Ravichandran, the Ld. representative for the assessee, submitted that the CIT(Appeals) by placing reliance on the decision of this Bench of the Tribunal in M/s Royala Corporation Pvt. Ltd. in found that the disallowance shall be restricted to the extent of exempted income earned by the assessee. The Ld. representative further submitted that Rule 8D(2) is mandatory, however, there cannot be any expenditure in the absence of any income. Therefore, according to the Ld. representative, the CIT(Appeals) has rightly directed the Assessing Officer restrict the disallowance to the extent of the exempted income earned by the assessee.
We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, the assessee earned dividend income which is exempted from taxation.
The Madras High Court in the case of Redington (India) Ltd. v. Addl.
CIT (2017) 77 taxmann.com 257 found that when there was no disallowance of expenditure in vacuum. In view of the above, this Tribunal is of the considered opinion that the disallowance has to be restricted only to the extent of income which is exempted from taxation. In the absence of any income, even though the assessee incurred certain expenditure, there cannot be any disallowance as held by Madras High Court in Redington (India) Ltd. (supra). Even though computing disallowance under Rule 8D(2) is mandatory, however, in view of the judgment of Madras High Court in Redington (India) Ltd. (supra), this Tribunal is of the considered opinion that in the absence of any income, there cannot be any disallowance. Consequently, the Assessing Officer has to restrict the disallowance only to the extent of exempted income earned by the assessee. A similar view was taken by this Tribunal in the case of Royala Corporation Pvt. Ltd. (supra). Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
The Revenue has taken one more ground for assessment year 2013-14 with regard to computation of book profit under Section 115JB of the Act.
We heard Shri AR.V. Sreenivasan, the Ld. Departmental Representative and Shri V. Ravichandran, the Ld. representative for the assessee. The CIT(Appeals) by placing reliance on the order of this Tribunal in Beach Minerals Company Pvt. Ltd. v. ACIT (64 taxmann.com 218) found that disallowance made under Section 14A of the Act cannot be disallowed while computing book profit under Section 115JB of the Act. The CIT(Appeals) has rightly placed his reliance on the order of this Tribunal, therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
Now coming to the cross-objections filed by the assessee, the first issue is with regard to investment made by the assessee for strategic purposes.
We heard the Ld. representative for the assessee and the Ld. Departmental Representative. The assessee, even though claims that investments were made for strategic purposes, the details of such investments are not available on record. Unless the assessee establishes that the investments were made in the company in which it was holding 100% shares or atleast majority of purposes are for commercial expediency. In the absence of any details, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
For the assessment year 2013-14, the assessee has taken one more ground in the cross-objection with regard to disallowance made under Section 14A of the Act.
We heard the Ld. representative for the assessee and the Ld. Departmental Representative. The assessee claims that Section 14A of the Act has no application in relation to share application money when the shares remain to be allotted in the respective previous year. The Assessing Officer has also found that the assessee has not incurred any expenditure. From the material available on record it is not known in which company the assessee made application and pending for allotment of shares. Unless the assessee furnishes details with regard to pendency of allotment of shares after investments, this Tribunal is of the considered opinion that the matter cannot be decided. In the absence of such details, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
In the result, both the appeals of the Revenue and both the cross-objections of the assessee stand dismissed.