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Income Tax Appellate Tribunal, “L” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI SANDEEP GOSAIN, JM
O R D E R Per Shamim Yahya, A. M.: This appeal by the Revenue is directed against the Order by the Commissioner of Income Tax (Appeals)-12, Mumbai (‘CIT(A)’ for short) dated 09.05.2016 and pertains to the assessment year (A.Y.) 2012-13. The grounds of appeal
read as under:
1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs.45,03,43,030/- being disallowance u/s. 14A r.w.r. 8D of the Income Tax Act without appreciating the fact that disallowance of expenditure u/s. 14A r.w.r. 8D of the Act is applicable even where tax payer in particular year has not earned any exempt income and the decision in the case of J.K. Investors (Bombay) Ltd. [ITA No.7858/Mum/2011] relied upon by the CIT(A) has not been accepted by the department.
(A.Y. 2012-13) ITO vs. M/s. Adelwise Investments Pvt. Ltd. 2. The assessee company is engaged in the business of finance and investment activities. During the year under consideration, the assessee company has not earned any exempt income. However, the Assessing Officer noted that the assessee has made capital investment in Gliders Buildcon LLP, for which the assessee has used interest bearing borrowed funds. The assessee has received interest income of Rs.45,21,74,296/- from this concern, which was offered for taxation. However, the assessee had not received any share profit from the said company, i.e., Gliders Buildcon LLP. Hence, despite noting that the assessee has not earned any exempt income during the year, the Assessing Officer made disallowance u/s. 14A read with Rule 8D amounting to Rs.45,03,43,030/-.
Upon the assessee’s appeal, the ld. CIT(A) deleted the addition on the ground that no disallowance is required as no exempt income has actually been received or accrued in the year under consideration. For this preposition, the ld. CIT(A) placed reliance upon the decision of Hon'ble Bombay High Court in the case of CIT vs. Delite Enterprises (ITA No.110 of 2009) and also several decisions from the ITAT, Mumbai.
Against this order, the Revenue is in appeal before us.
In the ground of appeal itself, it has been urged the proposition that when no exempt income is earned, no disallowance is required to be made, has not been accepted by the Revenue.
(A.Y. 2012-13) ITO vs. M/s. Adelwise Investments Pvt. Ltd. 6. Upon hearing both the counsel and perusing the records, we find that the preposition that when no exempt income has been earned, no disallowance for earning the exempt income is required has been considered by the Hon'ble jurisdictional High Court in the case of Pr. LD. CIT(A) vs. Ballarpur Industries Ltd. (in of 2016). In the said case, the Hon’ble High Court has held as under:
By this income tax appeal the appellant – Department challenges the orders of the Commissioner of Income Tax and the Income Tax Appellate Tribunal, Nagpur.
On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding of fact that there was no exempt income earned by the assessee While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression "does not form part of the total income" in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the 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. The Income Tax Appellate Tribunal held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income. The findings of facts recorded by both the Authorities do not give rise to any substantial question of law. Since no substantial question of law arises in this income tax appeal, the income tax appeal is dismissed with no order as to costs.
Thus respectfully following the precedent, since it is undisputed that the assessee has not earned any exempt income during the assessment year, we uphold the order of ld. CIT(A).