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Income Tax Appellate Tribunal, “SMC”, BENCH MUMBAI
Before: SHRI R.C.SHARMA, AM
आदेश / O R D E R PER R.C.SHARMA (A.M): This is an appeal filed by assessee against the order of CIT(A)-20, Mumbai dated 19/11/2016 for A.Y.2012-13 in the matter of order passed u/s.143(3) of the IT Act. 2. In this appeal, assessee is aggrieved for disallowance made u/s.14A r.w.r. 8D. 3. Rival contentions have been heard and record perused. 4. During the course of scrutiny assessment, AO disallowed a sum of Rs. 1,57,500/- u/s.14A. The contention of learned AR was that no exempt income was earned by the assessee during the year under consideration, therefore, no disallowance was warranted. The fact that assessee was not in receipt of any dividend income or exempt income has not been M/s. Ayuvardhan Project Consultants (P) Ltd., controverted by any of the lower authorities or by the learned DR during the course of hearing before us.
I have considered rival contentions, carefully gone through the orders of the authorities below and found that assessee has not earned any exempt income in the form of dividend during the year under consideration, however, the AO has disallowed assessee’s claim by relying on the ITAT Special Bench decision in the case of Cheminvest Ltd.121 ITD 318 and stated that even if the assessee has not earned any exempt income, still disallowance u/s.14A r.w.r.8D is to be made and it is mandatory. I found that ITAT coordinate (Chennai) bench in the case of Mr. M. Baskaran (supra), vide order dated 31-7-2014 has considered the decision of ITAT Special Bench in the case of Cheminvest Ltd.(supra) and after relying on the decisions of Hon’ble Allahabad High Court, Gujarat High Court and Bombay High Court, deleted the disallowance of expenses made u/s.14A r.w.r.8D, where the assessee has no exempt income. The precise observation of the Bench was as under :- 5. Heard both sides. Perused orders of lower authorities and submissions made by the assessee and the decisions in relied on. No doubt in the decision of the Special Bench of Delhi Tribunal in the case of Cheminvest Ltd. Vs. ITO (supra), the Special Bench held that disallowance under section 14A can be made even in the year in which no exempt income has been earned or received by the assessee. This decision of Special Bench of the Tribunal has been impliedly overruled by the decisions of High Courts in the following cases: 6. In the case of M/s. Shivam Motors P.Ltd. (supra), before the Hon’ble Allahabad High Court, the Revenue raised the following question of law:- “Whether on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal was justified in upholding M/s. Ayuvardhan Project Consultants (P) Ltd., the decision of CIT(A) in deleting the disallowance of ` 2,03,752/- u/s.14A ignoring the fact that there is difference of opinion of various courts on the view taken by the ITAT that in the absence of tax free income, no disallowance u/s.14A is permissible.”
The High Court while answering the said question held as under:- “As regards the second question, Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A), which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of Rs.2,03,752/- made by the Assessing Officer was in order.”
The Gujarat High Court in the case of CIT Vs. Corrtech Energy Pvt.Ltd.(supra) held as under:- “We have given our thoughtful consideration to the facts and the decision relied upon by the Id AR. The Hon'ble Punjab & Haryana High Court in the case of CIT vs. Winsome Textile Industries Ltd. reported at (2009) 3191TR 204(P&H) has held that in the present case, admittedly, the assessee did not make any claim for exemption. In such a situation, section 14A could have no application. In this case also, the assessee has not claimed any exempt income in this year. Therefore, respectfully following the judgement of Hon'ble High Court of Punjab & Haryana in the case of CIT vs. Winsome Textile Industries Ltd. (supra), we hereby allow this ground and direct the AO to delete the addition. Therefore, ground Nos 1 to 1.2 raised by the assessee in its cross objection are allowed." “The Revenue is in appeal on the following questions:- 11. In the case of CIT Vs. Winsome Textiles Industries Ltd. (319 ITR 204) the Hon’ble Punjab & Haryana High Court held that when there is no claim for exemption of income in such situation section 14A has no application. Respectfully following the above decisions, we delete the disallowance made under section 14A as the assessee has not earned / received for exempt income during the previous year relevant to the assessment year under appeal. Thus, we sustain the order of the Commissioner of Income Tax (Appeals) on this issue.
M/s. Ayuvardhan Project Consultants (P) Ltd.,