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Income Tax Appellate Tribunal, DELHI BENCH: ‘SMC-3’ NEW DELHI
Before: SMT DIVA SINGH
Date of Hearing 21.06.2016 Date of Pronouncement 19.08.2016 ORDER
PER DIVA SINGH, JM
The present appeal has been filed by the assessee assailing the correctness of the order dated 13.06.2014 of CIT(A)-II, New Delhi pertaining to 2010-11 assessment year on various grounds. However, at the time of arguments the Ld.AR argued only Ground No.2 which reads as under:-
2. “On the facts and circumstances of the case, the order passed by the learned CIT(A) is bad as the same has been passed without giving assessee a proper and adequate opportunity of being heard in violation of the principle of natural justice.”
Inviting attention to the assessment order, it was submitted that the assessee had filed a return declaring income of Rs27,02,070/-. After issuance of notice u/s 143(2) etc. the AO made a disallowance u/s 40A of Rs.4,50,651/- and added the same to the income of the assessee ignoring the fact that the assessee had not earned/received any exempt
I.T.A .No.-4306/Del/2014 income in the year under consideration. The said fact it was submitted was specifically pleaded by the assessee before the AO vide letter dated 26.12.2012 and the said argument has been recorded by the AO himself in the assessment order. The said addition was confirmed by the CIT(A). Reliance was placed by the CIT(A) upon the decision of the Special Bench in the case of Chem Invest Ltd. vs ITO [2009] 121 ITD 318 (Del.) (SB) by the CIT(A). Relying upon the decision of the Hon’ble Delhi High Court in the case of Chem Invest Ltd. vs CIT [2015] 61 taxmann.com 118 (Del.)
378 ITR 33 (Delhi) (copy filed). It was submitted by the Ld.AR that the Hon’ble Court has held that section 14A was not applicable when no exempt income is received.
2.1. Inviting attention to the said decision it was submitted that the Hon’ble Court was considering the following substantial question of law:-
“Whether disallowance under Section 14A of the Act can be made in a year in which no exempt income has been earned or received by the Assessee?”
2.2. The said question was decided by the Hon’ble Court in favour of the assessee.
Reliance had been placed on CIT vs Holcim India P. Ltd. [2015] 57 taxmann.com 28 [Del.] and distinguished the earlier decision of Maxopp Investment Ltd. vs CIT [2012] 347 ITR 272 (Del.) by holding as under:-
“In light of the clear exposition of the law in Holcim India P. Ltd.’s case (supra) and in view of the admitted factual position in this case that the assessee has made strategic investment in shares of Max India Ltd.; that no exempted income was earned by the Assessee in the relevant AY and since the genuineness of the expenditure incurred by the Assessee is not in doubt, the question framed is required to be answered in favour of the assessee and against the Revenue. ………………………………………… 23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression 'does not form part of the total income' in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred
I.T.A .No.-4306/Del/2014 in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. 2.3. Accordingly, it was his submission that the addition made may be deleted.
Ld. Sr. DR relied upon the orders of the authorities below however he did not refer to any contrary decision either of the Jurisdictional High Court or the Apex Court so as to canvass a contrary view.
Having heard the rival submissions and perused the material, I am of the view that the assessee’s prayer deserves to be allowed. The record shows that the assessee made the investment in its sister concern and the decision to so invest , it has been consistently stated was so taken solely by the Directors and did not involve any other person. It has also been consistently stated that it was not guided so as to earn exemption whenever income is earned. Admittedly no exempt income was earned in the year under consideration. In the absence of any contrary argument on fact or law by the Revenue, respectfully following the precedent as laid down by the Jurisdictional High Court in the case of Chem Invest Ltd. (cited supra) which follows the decision rendered in CIT vs Holcim India P. Ltd. (cited supra), I find that the addition made is to be deleted. The said order was pronounced in the open Court at the time of hearing.
In the result, the appeal of the assessee is allowed. The order is pronounced in the open court on 19th August 2016.