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Facts
The assessee filed its return of income declaring a loss, which was subsequently scrutinized, and an assessment was made with various additions/disallowances. The assessee appealed to CIT(A), which partly allowed the appeal. Aggrieved by the CIT(A)'s order, the revenue filed this appeal raising two grounds: disallowance under section 14A read with Rule 8D and disallowance of foreign travel expenses.
Held
The Tribunal upheld the CIT(A)'s decision to delete the disallowance under section 14A read with Rule 8D, affirming that no disallowance is warranted for investments not yielding tax-free income and in the absence of exempt income. It also upheld the deletion of foreign travel expense disallowance, finding that the expenses were incurred wholly and exclusively for business purposes.
Key Issues
1. Whether the CIT(A) erred in deleting the disallowance under section 14A r.w. Rule 8D. 2. Whether the CIT(A) erred in deleting the disallowance of foreign travel expenses.
Sections Cited
250, 14A, 143, 144B, Rule 8D, 37(1)
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Before: SHRI AMIT SHUKLA & SMT RENU JAUHRI
Appellant by : Shri. Yogesh Thar & Shri Karan Jain Respondent by : Shri H. M. Bhatt Date of Hearing 01.05.2024 Date of Pronouncement 31.05.2024 आदेश / O R D E R PER RENU JAUHRI [A.M.] :-
This appeal is filed by the revenue against the order of the Learned Commissioner of Income-tax (Appeals), Mumbai/National Faceless Appeal Centre, Delhi [NFAC] dated 13.09.2023 passed u/s. 250 of the Income-tax Act, 1961 [hereinafter referred to as “Act”] for the Assessment Year [A.Y.] 2020-21.
The revenue has raised following grounds of appeal:
P a g e | Paranjapee Scemes Constructions Ltd. 1. “Whether on the fact and in the circumstances of the case and in law, the Id. CIT(A) has erred in deleting the disallowance u/s. 144 of the Act, without realizing the fact that the assessee is also earning exempt income on the strategic investments and expenses incurred on the same should be disallowed u/s 144 r.w.rule 8D.
2. Whether on the fact and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the disallowance of foreign travel expense amounting to Rs. 20,38,038/- with realizing the fact that the expenditure should be wholly and exclusively for business or profession, and the assessee had failed to validate that expenditure have been incurred wholly or exclusively for Business or profession.”
The brief facts of the case are as under: a. The return of income was e-filed by the assessee on 15.02.2021 declaring loss of Rs. 70,00,42,429/-. The case was selected for scrutiny and the assessment u/s 143 r.w.s. 144B of the Act was made vide order dated 26.09.2022 determining the total income at Rs. 436,79,15,715/-after making various additions/disallowances. b. Aggrieved with the assessment order, the assessee filed appeal before CIT(A)/NFAC which was partly allowed vide order u/s 250 of the Act dated 13.09.2023. c. However, aggrieved with the said order, the revenue has preferred appeal on two grounds which are discussed hereinbelow: Ground No. 1 : Disallowance under section 14A r.w.rule 8D: i. Facts of the case are that the assessee had made suo-moto disallowance to the tune of Rs. 53,79,526/- in respect of expenses incurred on exempt income. The assessing officer (AO) prop0sed to disallow Rs. P a g e | Paranjapee Scemes Constructions Ltd. 4,08,32,574/- by applying section 14A r.w. rule 8D of the Act. In response, the assessee submitted the break-up of investments as under:.
Summary of Amount in Rs. Exempt Taxable Remarks Investment Income Income In Equity 2,19,61,86,337/- - - No exempt income earned instrument from Equity instruments of during the year Companies Investment 86,27,13,379/- 10,22,70,532/- - Share of Proft from in investment in Partnership Partnership Firms/ AOP is Rs. Firms/ 10,22,70,532/- and share of AOP’s Loss is Rs. 1,33,08,293/-. Certain balances related to Partnership Firm/AOP are reflecting in Other Financial Liabilities and current investment which has been duly considered for 14A working by the assessee. In 2,56,07,64,644/- 9,12,84,971/- Income from Debenture Debentures investment in PSC Instrument Properties Pvt. Ltd., Lavim s of Developers Pvt . Ltd. And Companies Nalanda Shelter Pvt. Ltd. Debenture interest has been duly offered to tax in the return of income. It has not been claimed as an exempt income for the year. In equity 15,37,525/- - - No exempt income earned instrument from Equity Instruments in of co-op banks during the companies- year. Co- operative Banks National 1,000/- - - No exempt income earned Saving from NSC during the year Certificate- Banglore Total 4,62,12,02,885/- 10,22,70,532/- 9,12,84,971/- - Investment - 1,18,574/- Exempt income earned in Mutual from Mutual fund Funds Grand 10,23,89,106/- 9,12,84,971/- - Total P a g e | Paranjapee Scemes Constructions Ltd.
The AO took into consideration total non-current investments of the assessee of Rs. 306,04,37,241/- and calculated the disallowance u/s 14A r.w.rule 8D @ 1% at Rs. 3,06,04,372/-. After reducing disallowance made by the assessee, balance amount of Rs. 2,52,24,846/- (3,06,04,372-53,79,526) was added on account of disallowance under section 14A and rule 8D. ii. Before the Ld. CIT(A), the assessee contended that the AO cannot invoke rule 8D without recording any satisfaction with regard to the assessee’s claim that no expenditure is relatable to earning of exempt income apart from the suo-moto disallowance offered by assessee in its return of income. Even otherwise only those investments which have yielded exempt income can be considered for the purpose of making disallowance and lastly in the absence of exempt income, disallowance of expenditure is not permissible. It was further submitted that the amendments in provisions of section 14A introduced vide Finance Act 2022 w.e.f. 01.04.2022 cannot be presumed to have retrospective effect. iii. The Ld. CIT(A) after observing that although AO had recorded his satisfaction before making disallowance u/s 14A, but in view of the decisions of the Hon’ble Jurisdictional Bombay High Court and also of the co-ordinate bench of ITAT, Mumbai relied upon by the appellant, held that the disallowance made by the AO over and above the suo- moto disallowance is not justified. iv. We have carefully considered the submissions made by the Ld. AR as well as Ld. DR. The statement of monthly average of investments has been submitted based on which the total average has been worked out at 5,32,99,615/-. Based on this suo-moto disallowance at Rs.
P a g e | Paranjapee Scemes Constructions Ltd. 53,79,626/- has been rightly calculated by the Assessee. The AO has taken into account the investments which have not yielded income. In this regard, decision of the Hon’ble Jurisdictional Bombay High in the case of Pr. CIT v/s Ballarpur Industries Ltd (ITA No. 51/2016, order dated 13.10.2016) has been relied upon by the Ld. CIT(A) in which has been held that no disallowance u/s 14A is warranted in respect of investments not yielding tax free income for the appellant. Similar view has been taken by the Special Bench of the ITAT, Delhi in the case of ACIT v/s Vireet Investments Pvt. Ltd. (2017) 58 ITR (T.) 313 (Delhi Trib,). Similarly, Mumbai Bench of ITAT in the case of S. Krishnamurthy v/s ACIT (ITA No. 6207/Mum/2012) has also held that the disallowance has to be worked out on the basis of investment which yielded dividend during the year and not by factoring in the total amount of investment. v. The appellant’s contention is that it has not earned any exempt income during the year from investments in equity and debenture instruments and hence no disallowance of expenditure is permitted. In view of the various judicial pronouncement on this regard reliance was placed on the Hon’ble Supreme Court’s decision PCIT v/s Oil Industry Development Board (2019) 103 taxmann.com 326 wherein the Hon’ble Supreme Court has dismissed the SLP filed against the Hon’ble Delhi High Court’s order upholding the ITAT’s decision to delete the disallowance u/s 14A in the absence of any exempt income. vi. Considering the factual matrix, in the light of the various judicial pronouncements, we are of the view that the decision of the Ld. CIT(A) on this issue deserves to be upheld. Ground No. 2 :- Disallowance of foreign travel expenses a. Facts in this regard are that the assessee had claimed foreign travel expenses to the tune of Rs. 20,38,038/- as mentioned in point No. 23 of the Tax Audit report. As the assessee did not