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Income Tax Appellate Tribunal, G BENCH, MUMBAI
Before: SHRI C.N. PRASAD & SHRI ASHWANI TANEJA
PER ASHWANI TANEJA, A.M.: The present appeals have been filed by the Revenue in the case of same assessee for different assessment years involving identical issue. The solitary issue involved in all the three appeals is with regard to disallowance made by AO u/s-14A which was deleted by the Ld. CIT(A) passed in assessment years 2008-09, 2010-11 and 2011- 12.
M/S. BGH Exim Ltd. Mumhai
In this case, the brief background is that the Ld. AO made disallowanc u/s14A read with Rule-8D(2) and (3) only. No disallowance has been mad under rule 8D (2) (i) and (iii). It is noted that assessment year 2008-09, Ld.CIT(A restricted the disallowance to the amount of exempt income of dividen received in the said year under consideration by observing as under.:
(a) I have gone through the findings of the A.O. as well the contentions made by the A/R for the appellant. Keeping in view the above facts and circumstances of the case it is held that the A.O. was not correct in applying Rule 8D by disallowing the expenditure of Rs.2,84,11,415/- under Rule 8D(iii). It was incumbent on the Assessing Officer to establish a nexus between the expenditure incurred and the income which was exempt under the Act. Facts clearly do not support the action of the A.O. as Assessee has received dividend of Rs.37,83,000/- during the subject year. Disallowance under clause Rule 8D (iii) is accordingly restricted to Rs.37,83,000/-. The A.O. is directed to recompute the income accordingly.
Likewise, for assessment year 2010-11, It was held by the Ld. CIT(A) 3. that no exempt income has been received by the assessee, therefore entire disallowance made by the A.O. was deleted by observing as under.: After careful perusal of the assessment order and written submissions filed by the A/R of the appellant it has been observed that the A.0 has disallowed Rs.2,83,73,000/- u/s-14A while applying the provisions of Rule 8D of the Income Tax Rules, 1962 against which the appellant has filed an appeal because it had disallowed Rs.25,000/- while making computation of income. The A.O. while making disallowance u/s-14A has given the finding in the assessment order that the term "expenditure" occurring in section 14A would take in its sweep not only direct expenditure but also all forms of expenditure regardless of whether they are fixed, variable, direct, indirect, administrative, managerial or financial. The A.O. has further relied upon the judgment of Citicorp Finance (I) Ltd. in which it has been held that it is no longer open to the Assessing Officer to apply his discretion in computing the disallowance or make adhoc disallowance 14A. He has also relied on the order of Special Bench of Hon'ble ITAT in the case of Cheminvest Limited Vs. ITO and Technipak Advisor Private Limited for his finding that even if no exempt income is actually earned or received during the year the disallowance u/s-14A can be made. The appellant during the course of appellate proceedings has relied on th following facts:-
(i) No direct expenditure "in relation to earning dividend income" has been incurred. The disallowance of Rs.25,000/- was made suo moto. No dividend income has been earned during the year. The appellant relied on the judgments discussed supra in support of its contention that no disallowance can be made u/s-14A where no income has been claimed exempt. The case laws cited by the A/R of the appellant has been carefully considered and it has been observed that the Hon'ble Bombay High Court in the case of Delite Enterprises has held that since there is no exempted profit for the relevant assessment year no disallowance u/s-14A can be made. The jurisdictional bench of the Hon'ble ITAT in case of Avshesh Mercantile (P) Ltd. has followed the above said judgment of the jurisdictional high court. The Allahabad/Gujarat High Court has also decided the identical issue on identical lines in the case of Shivam Motor (P) Ltd. and Corrtech Energy Pvt. Ltd. The Hon'ble Gujarat High Court has followed the judgment of Winsome Textile Industries delivered by Hon'ble Punjab & Haryana High Court in the case of Corrtech Energy Pvt. Ltd. in which it has been held that where the appellant has not claimed any exempt income, no disallowance u/s-14A can be made. The Hon lble Punjab & Haryana High Court has again decided this issue in the case of Lakhani Marketing Inc. The argument of the A/R of the appellant that in the case of M Bhaskaran the Chennai "B" Bench of the Hon'ble ITAT has held that the decision of Cheminvest Limited of Mumbai Bench stands overruled by the judgments of various high courts. The A/R of the appellant has further relied on the orders of the different benches of the Hon`ble ITAT which have also been carefully perused.
Moreover, the law of Binding Precedent provides that the judgment of the jurisdictional bench of the high court is binding on the Income Tax Authorities working in the territorial jurisdiction of a high court. The reference can be made to the decision of the Honible Bombay High Court in the case of K Subramanian v. Siemens India Ltd.(1983) 15 Taxman 594{Page 23 to 24 of judgment Index) that the ITO is bound by the decision of a single judge or Division Bench of the court within whose jurisdiction is operating. The above said judgment has been followed by the Hyderabad Bench 'A' of the Hon`ble ITAT in the case of KMC Construction Ltd. (2013) 36 Taxmann.com 416 [Page 7 to 22 of Judgment Index] in which it has been held as under;-
"At this juncture, it is pertinent to mention the observations of the High Court, by placing reliance on the judgment of the Bombay High Court in the case of K. Subramanian, ITO v. Siemens India Ltd. [1985) 156 ITR 11/15 Taxman 594 (Bom), which are as follows. "Reference may also be invited to the decision of the Bombay high Court in Subramanian, ITO v. Siemens India Ltd. [1985] 156 ITR 11. The question that arose for consideration in this case is whether the Income-tax Officer is bound by the decision of a single Judge or a Division Bench of the Court within whose jurisdiction he is operating even if an appeal has been preferred against such decision and is pending. The following observations of the Bombay High Court may be extracted: "So far as the legal position is concerned, the ITO would be bound by a decision of the Supreme Court as also by a decision of the High Court of the State within whose jurisdiction he is (functioning, irrespective of the pendency of any appeal or special leave application against that judgment (Emphasis supplied). Respectfully following the judgment of Hon'ble Bombay High court/the orders of jurisdictional ITAT and also the judgments of other Hon'ble High Courts/benches of the Hon'ble ITAT and keeping in view the facts and law, supra, the A.O. is directed to delete the disallowance made u/s-14A by the A.O. The ground of appeal no.2 is treated as allowed.
4. Similarly for assessment year 2011-12 also, Ld. CIT(A) deleted disallowance fully on the ground that no exempt income has been received by the assessee during the said year by making identical observation which were made in assessment year 2010-11.
During the course of hearing, Ld. Counsel of the assessee drew our attention upon the relevant pages of the paper book and contended that the balance-sheet in all the 3 years is in support of the fact that no dividend income or exempt income has been credited by the assessee in the profit and loss account. It was also submitted that no disallowance u/s14A can be made in absence of any exempted income. Reliance was placed by him on the following judgments in support of his claim.
Sr.No Particulars Page No.
Disallowance u/s-14A, if any, should be restricted to exempt income 1 Joint Investments Pvt. Ltd. v. CIT (372 ITR 1-3 694)
2 M/s Daga Global Chemicals Pvt. Ltd. v. ACIT 4-8 (I.T.Act No.5592/Mum/2012)
3 Nimbus Communications Ltd. v. ACIT 9-24 (I.T.No.1424/Mum/2014 4 ACIT V. M/S Claridges Hotels Pvt. Ltd (I.T.Act 25-55 No 2733/Del/2012)
No disallowance is to be made when capital gains are chargeable to tax 5 CIT v. Holcim India P. Ltd. (272 CTR 282) (Del. 56-62 High Court)
6 Sundaram Asset Management Co. Ltd. v. 63-73 DCIT (145 ITD 17) (Chennai)
No disallowance u/s. 14A when no dividend income is earned 7 CIT v. Delite Enterprised (income Tax Appeal 74-85 No. 110 of 2009 (Bom)
8 Cheminvest Ltd.v. CIT (378 ITR 33) (Del) (High 86-92 Court)
9 Avshesh Mercantile P. Ltd. v. DCIT(26 93-103 taxmann.comm43) (Mum)
10 Wind World Wind Farms (India) Ltd. v. DCIT 104-110 (I.T. Act No. 2712/Mum.2014)
11 ACIT v. M. Baskaran (152 ITD 844) (Chennai) 115-116
Ld. Counsel submitted that the case was covered in his favour in view of the aforesaid judgment, therefore, order passed by the Ld. IT(A)is to be upheld.
Per contra Ld. D.R. submitted that assessee is having Preference Shares as part of investment as shown in the balance-sheet, therefore, it cannot be said that no income has accrued to the assessee because Preference Shares carry fixed rate of dividend.
In response, Ld. Counsel of the assessee submitted that perusal of the MIS. BGH Exim Ltd. Mumbai no dividend income has been declared by these companies on the Preference Shares held by the assessee, no income has accrued to the assessee. Therefore, Ld. CIT(A) has deleted the disallowance based upon a factual finding. It was also argued that in the assessment year under consideration also the A.O. has not brought out any such facts and has not mentioned any such things to indicate any type of receipt of exempt income by the assessee during A.Y. 2010-11 & 2011-12. Therefore, order of the Ld. CIT(A) is to be upheld. It was also submitted that nothing has been brought on record by the Ld. D.R. to show that the case of the assessee is not squarely covered in its favour by the aforesaid judgments as has been relied upon by Ld. CIT(A) and has been cited by the learned counsel before us.
We have gone through the orders passed by the A.O. as well as by the Ld. CIT(A). It is noted that Ld. CIT(A) recorded categorical finding in his order that no exempt income has been received by the assessee in A.Y. 2010-11 & 2011-12. It has been mentioned by Ld. CIT(A) that dividend income of Rs.37,83,000/- was received during A.Y. 2008-09, accordingly disallowance made under section 14A was restricted to the extent attributable to said amount. However, in the remaining two years since no income was received, disallowance was deleted fully. It is noted that Ld. CIT(A) has followed various judgments wherein it was held that 9 in case no exempt has been received by the assessee during year) then no disallowance u/s 14A read with Rule 8D (2)(iii) shall be required to be made. It is further noted that Ld. counsel has also cited various judgments as reproduced in earlier part of order. No contrary judgments have been cited by the Ld. D.R. on this issue. Thus, taking facts and circumstances of the case and well settled legal position into account as has been submitted by the Ld. Counsel of the assessee, we find that no interference is called for in the order of the Ld. CIT(A). Thus, his orders are upheld for all the 3 years.
As a result, the appeals filed by the Revenue in all the three assessment years are dismissed. Order pronounced in the open court on 03/03/2017.