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Facts
The assessee company is an investment company that filed its return of income. The Assessing Officer made a disallowance of Rs. 58,75,000/- u/s. 14A read with Rule 8D towards expenses claimed by the assessee. The first appellate authority upheld this disallowance.
Held
The Tribunal observed that the lower authorities did not deny that the assessee had not earned any exempt income during the year. However, they held that earning exempt income was irrelevant for disallowing expenses under Section 14A. The Tribunal, following precedents, held that disallowance u/s. 14A r.w. Rule 8D cannot be made in the absence of any exempt income.
Key Issues
Whether disallowance u/s. 14A r.w. Rule 8D can be made when the assessee has not earned any exempt income during the year?
Sections Cited
14A, Rule 8D, 250, 143(2), 143(3), 115JB
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI B R BASKARAN, AM & MS. KAVITHA RAJAGOPAL, JM
O R D E R Per Kavitha Rajagopal, J M:
This appeal has been filed by the assessee, challenging the order of the learned Commissioner of Income Tax (Appeals) (‘ld.CIT(A) for short), National Faceless Appeal Centre (‘NFAC’ for short) passed u/s.250 of the Income Tax Act, 1961 (‘the Act'), pertaining to the Assessment Year (‘A.Y.’ for short) 2017-18.
The assessee has challenged the solitary ground of disallowance made u/s. 14A read with Rule 8D amounting to Rs.58,75,000/- on the ground that the assessee has not earned dividend income during the year under consideration which warrants no disallowance u/s. 14A r.w. Rule 8D of the Rules.
(A.Y.2017-18) M/s. Hem Sil Trading and Manufacturing Private Limited vs. Asst. CIT 3. The brief facts of the case are that the assessee company is an investment company and had e-filed its return of income on 28.10.2017, declaring total income at Rs.2,05,97,250/- as income from house property amounting to Rs.12,24,506/- and short term capital gain of Rs.1,86,38,699/-. The assessee’s case was selected for limited scrutiny and notices u/s. 143(2) of the Act 142(1) were issued and served upon the assessee.
The learned Assessing Officer (ld. A.O. for short) vide order dated 30.10.2019 passed u/s. 143(3) of the Act, determined the total income at Rs.2,64,72,250/- under the normal provisions and Rs.2,10,83,103/- u/s. 115JB of the Act on the book profit, by making a disallowance of Rs.58,75,000/- towards the expenses claimed by the assessee u/s. 14A read with Rule 8D of the Act.
The assessee was in appeal before the first appellate authority who vide order dated 19.10.2023 upheld the disallowance made by the ld. A.O. for the reason that the assessee has failed to substantiate its claim of interest expenses during the appellate proceeding.
The assessee is in appeal before us, challenging the order of the ld. CIT(A).
We have heard the rival submissions and perused the materials available on record. It is observed that the assessee company had made investment in various companies, aggregating to Rs.59,60,87,490/- at the beginning of the year and Rs.61,20,87,490/- on the date of closing as per the financials. The assessee has declared business income out of the interest receipt of Rs.59,73,866/- on Rs.3.47 crores advanced
(A.Y.2017-18) M/s. Hem Sil Trading and Manufacturing Private Limited vs. Asst. CIT as business loans and against which the assessee has claimed an expenses of Rs.52.40 lacs and liabilities written back at Rs.33,878/-. The ld. A.O. disallowed the interest expenses claimed by the assessee for the reason that the assessee has invested more than Rs.60 crores for which the assessee contends that there was no expenditure incurred for the same and the expenditure claimed by the assessee was only towards earning of taxable income. The ld. A.O. rejected the assessee’s contention that no disallowance is warranted u/s. 14A r.w. Rule 8D of the Rules when the assessee has not earned any exempt income during the year under consideration.
The learned Authorised Representative (ld. AR for short) for the assessee submitted that the assessee did not earn any exempt income during this year and contended that no disallowance u/s.14A is required to be made when there is no exempt income. The ld. AR relied on the decision of Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs. ITO 124 TTJ 577 and the Delhi Special Bench decision in the case of Vireet Investment Pvt. Ltd. [2018] 165 ITD 27.
On the above factual matrix of the case, it is observed that the lower authorities have not denied the fact that the assessee has not earned any exempt income during the year under consideration but has held that the criteria whether the assessee has earned any exempt income or not, is irrelevant for disallowing the expenditure claimed by the assessee and thereby proceeded to disallow the expenses claimed as per section 14 read with Rule 8D of the Rules. It is pertinent to point out that the issue whether disallowance could be made u/s. 14A r.w Rule 8D in the absence of any exempt income during the (A.Y.2017-18) M/s. Hem Sil Trading and Manufacturing Private Limited vs. Asst. CIT year under consideration, is a settled proposition of law which has held this issue in favour of the assessee.
By respectfully following the decision of Hon’ble Delhi High Court in the case of Cheminvest Ltd. vs. ITO (supra) and the Delhi Special Bench in the case of Vireet Investment Pvt. Ltd. (supra), we decide this issue in favour of the assessee.
Hence, ground no. 1 raised by the assessee is allowed. Ground no. 2 being a consequential ground requires no separate adjudication. As ground no. 3 is also not adjudicated for the reason that the counsels for both the sides have not placed their arguments on this issue.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 05.08.2024