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Income Tax Appellate Tribunal, “D” BENCH : KOLKATA
Before: Hon’ble Sri N.V.Vasudevan, JM & Shri Waseem Ahmed, AM]
This is an appeal by the Revenue against the order dated 11.3.2016 of CIT(A)- I, Kolkata, relating to AY 2012-13. 2. The grounds of appeal raised by the Revenue reads as follows:
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition u/s 14A solely on the ground that no exempt income was earned during the year, given the fact that the expenditure incurred for earning exempt income for other years cannot be used to reduce the taxable income of the current year.
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition u/ s 14A solely on the ground that no exempt income was earned during the year, while ignoring the direction of the CBDT Circular No. 5/2014, which clarified that expenses can be allowed only to the extent they are relatable to the earning of taxable income.
3. The revenue shall crave to add or amend its ground on or before the. date of hearing.”
M/s. Kanishka Merchants (P)LTd A.Y.2012-13 1
The Assessee is a company engaged in the business of trading in shares. The issue raised in ground no.1 is with regard to disallowance of expenses incurred in earning exempt income. The Assessee did not earn any dividend income during the relevant previous year. The AO disallowed a sum of Rs.2,91,79,775/- as expenses incurred to earn exempt income in terms of Sec.14A of the Income Tax Act, 1961 (Act) r.w.Rule 8D(2)(ii) & (iii) of the Income Tax Rules, 1962 (Rules), which lays down that any expenditure incurred to earn income which does not form part of the total income under the Act, shall not be allowed as a deduction.
On appeal by the Assessee, the CIT(A) deleted the disallowance made under Sec.14A read with Rule 8D(2)(ii)& (iii) of the Rules by holding that since there was no exempt income earned, there can be no disallowance u/s.14A of the Act.
Aggrieved by the order of the CIT(A), the revenue has filed the present appeal before the Tribunal. As can be seen from the grounds of appeal
of the revenue, the revenue is aggrieved only by the deletion of addition made by the AO under Sec.14A of the Act read with Rule 8D(2)(ii) & (iii) of the rules. The grievance of the revenue as projected in the grounds of appeal is that the CIT(A) ought to have rejected the claim of the assessee by placing reliance on the CBDT Circular No.5 of 2014 dated 11.2.2014 wherein it was held that the disallowance u/s 14A of the Act can be made even in the year where there is no exempt income earned or received by the assessee and the ITAT special decision in the case of Cheminvest Ltd. [2009] 121 ITD 318 (SB) (Delhi) wherein it was held disallowance under Sec.14A of the Act can be made even when there is no exempt income. Before us it was not disputed by the revenue that the CBDT Circular on which has been referred to in the CBDT Circular and the decision of the Special Bench in the case of Cheminvest Ltd. (supra) is contrary to the decision of Hon’ble Delhi High Court in the case of Cheminvest Ltd. Vs CIT 317 ITD
33. (Delhi) wherein it was held that there can be no disallowance of expenses u/s.14A of the Act, if there is no exempt income during the relevant previous year. It was brought to our notice that the Hon’ble ITAT Kolkata in the case of REI Agro Ltd. Vs. DCIT 144 ITD 141 (Kol-Trib) has held that it is only the investments which yields M/s. Kanishka Merchants (P)LTd A.Y.2012-13 2 dividend during the previous year that has to be considered while adopting the average value of investments for the purpose of Rule 8D(2)(iii) of the Rules. The aforesaid view of the Tribunal has since been affirmed as correct by the Hon’ble Calcutta High Court in G.A.No.3581 of 2013 in the appeal against the order of the Tribunal in the case of REI Agro Ltd. (supra). In the light of the aforesaid decisions, we are of the view that the order of the CIT(A) is just and proper and calls for no interference. Accordingly the appeal by the revenue is dismissed.
In the result, appeal by the revenue is dismissed.