ACIT, CENTRAL CIRCLE - 3(3), KOLKATA, KOLKATA vs. M/S. CYGNUS INVESTMENT & FINANCE P. LTD., KOLKATA

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ITA 2286/KOL/2017Status: DisposedITAT Kolkata31 January 2018AY 2012-135 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that no disallowance under Section 14A can be made if the assessee has not earned any exempt income in the relevant year. This decision followed the Delhi High Court's ruling in Cheminvest Ltd. vs CIT.

What were the facts?

The Assessing Officer (AO) disallowed expenses under Section 14A read with Rule 8D for investments made by the assessee, an investment and finance company. The assessee had made significant investments in shares but earned no exempt dividend income during the assessment year.

What were the issues?

Whether disallowance under Section 14A r.w. Rule 8D is applicable when no exempt income is earned by the assessee in the relevant assessment year.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, KOLKATA BENCH ‘SMC’, KOLKATA

Before: Shri P.M. Jagtap, AM]

Heard together (2 matters)

I.T.A. No. 2286/Kol/2017
C.O. No. 3/Kol/2018

Read from the judgment's own cause title. This page is filed under one of them.

order

: January 31, 2018 ORDER

PER P.M. JAGTAP, AM

1.

This appeal is preferred by the revenue against the order of Ld. CIT (A) – 16, Kolkata dated 07.09.2017 and the same is being disposed of along with the cross-objection filed by the assessee being C.O. No. 3/Kol/2018.

C.O. No. 3/Kol/2018 Cygnus Investment & Finance Pvt. Ltd. 2. The solitary common issue involved in this appeal of the revenue and the cross-objection of the assessee relates to the disallowance under section 14A r/w rule 8D and the same is raised by way of the following grounds:

Grounds raised in the revenue’s appeal

1. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in law to hold that disallowance under section 14A read with rule 8D will not apply where no exempt income is received or receivable during the relevant previous year by ignoring the provision of Rule 8D that provides for computation of expenditure in respect of not only those investments, income from which does not form part of total income but also those investments, income from which shall not form part of total income.

2. That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in law in deciding that disallowance u/s 14A read with Rule 8D cannot be made in a year in which no exempt income has been earned or received by the assessee without considering the CBDT’s Circular No. 5/2014 dated 11.02.2014.

3. That on the facts and in the circumstances of the case the Ld. CIT(A) has erred in law in holding that the issue in dispute is in the line with the decision of the ITAT Kolkata Benches in the case of REI Agro Ltd. vs CIT in order dated 19.06.2013 which has been subsequently approved by the Hon’ble Delhi High Court, Calcutta wherein such issues were not even considered and adjudicated by the Hon’ble High Court in its order dated April 09, 2014.

4. That on the facts and in the circumstances of the case and in the law, the Ld. CIT(A) has erred in deleting disallowance of Rs. 38,50,262/- u/s 14A read with Rule 8D by interpreting these provisions.

5. That the revenue reserves their rights to substantiate, modify, delete, supplement and / or alter the grounds at the time of hearing. Grounds raised in assessee’s cross-objection

1. For that the Ld. CIT(A) was justified in deleting the addition made u/s 14A when no satisfaction as required under the law was recorded that C.O. No. 3/Kol/2018 Cygnus Investment & Finance Pvt. Ltd. any expenses have been incurred so as to attract the provisions of section 14A.

2. For that on the facts of the case the Ld. CIT(A) was fully justified in deleting the addition.

3. The assessee in the present cases is an investment and finance company. The return of income for the year under consideration was filed by it on 25.09.2012 declaring a total income of Rs. 8,53,920/-. As noted by the A.O. during the course of assessment proceedings, the assessee company had made investment of Rs. 17.37 crores in shares. According to the A.O., since the dividend income from the said investment in shares was exempt from tax, the expenditure incurred in relation thereto was liable to be disallowed in accordance with section 14A of the Act. He accordingly worked out such expenditure by applying Rule 8D at Rs. 38,50,262/- and made a disallowance to that extent under section 14A in the assessment completed under section 143(3) vide an order dated 28.03.2015.

4. Against the order passed by the A.O. under section 143(3), an appeal was preferred by the assessee before the Ld. CIT (A) and keeping in view the fact that the assessee company had not earned any dividend income during the year under consideration, the Ld. CIT(A) deleted the disallowance made by the A.O. under section 14A of the Act. For this conclusion, the Ld. CIT(A) derived support from the decision of this Tribunal in the case of REI Agro Ltd. vs CIT in ITA No. 1331/Kol/2011. Aggrieved by the order of the Ld. CIT(A), the revenue has preferred this appeal before the Tribunal while the assessee company has also filed its cross-objection.

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