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Income Tax Appellate Tribunal, “J” BENCH, MUMBAI
This appeal by the Assessee is arising out of the order of Commissioner of Income Tax (Appeals)-20, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-20/ACIT-12(20(2)/IT-611/2015-16 dated 26-08-2016. The Assessment was framed by the Assistant Commissioner of Income Tax, Circle 20(2)(2), Mumbai (in short ACIT) for the assessment year 2013-14 vide order dated 17-02-2016 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
The only issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of expenses relatable to exempt income by invoking the provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules 1962 (hereinafter the Rules) amounting to Rs. 7,53,151/-. For this assessee has raised following ground No.1: -
Hamon India Thermal Engineers & Contractors Pvt. Ltd. (A.Y. 2013-14) A) Disallowance u/s 14A-₹. 7,53,151/-
1) The learned Commissioner of Income Tax (Appeals)-20, Mumbai [CIT(A)] erred on facts and in law in confirming the disallowance made by the Assistant Commissioner of Income Tax - 12 (2)(2), Mumbai (AO) Under section 14A of ₹. 7,53,151/- without appreciating that the appellant had not earned any exempt income which would warrant a disallowance under section 14A.
We have heard the rival contentions and gone through the facts and circumstances of the case. At the outset, it is noticed that the assessee before AO contended that the company has not earned any exempt income and has not claimed in the return of income as exempt income. The assessee vide his submission dated 12-02-2016, before the AO contended that “details of disallowance under section 14A not applicable as company has not earned any Exempt Income". However, the AO disallowed expenses by relying on Rule 8D(2)(iii) being 0.5% of average value of investment of Rs.7,53,151/-. The CIT(A) also confirmed the action of the AO.
We find that even before CIT(A), assessee categorically submitted that it has not earned any exempt income, hence, no question of disallowance under section 14A arise and for this, he relied on the Delhi High Court decision in the case of Cheminvest Ltd. vs. CIT (2015) 378 ITR 33 (Delhi). From the above, it is clear that the assessee has not earned any exempt income and hence, the issue is squarely covered by the decision of Delhi High Court in the case of Cheminvest Limited (supra), wherein it is held as under: -
“23. In the context of the facts enumerated hereinbefore the Court answers the question framed
Hamon India Thermal Engineers & Contractors Pvt. Ltd. (A.Y. 2013-14) by holding that the expression „does not form part of the total income‟ in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.”
Respectfully, following the Hon'ble Delhi High Court in the case of Cheminvest Limited (supra), we delete the disallowance. This issue of assessee’s appeal is allowed.
In the result, the appeal of assessee is allowed.
Order pronounced in the open court on 16-11-2017.