PR. COMMISSIONER OF INCOME TAX - 4 vs. M/S STERLING DEVELOPERS

The facts of the case reveal that the assessee is a company engaged in the business of development and construction of houses, buildings and other related activities. The assessee has filed its return of income for the Assessment Year 2014-15.

This Court on 3.07.2019 has framed the following substantial question of law: "Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in deleting the disallowances made under Section 14W read with Rule 8D(2)(ii) of the Income Tax Act, 1961 without appreciating the Board's Circular No.05/2014 dated 11.02.2014 which remphasises that the only expenditure allowable is related to earnings of income, and therefore the expenses which are relatable to earnings of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial year or not?"

The learned counsel for the parties at the outset drawn the attention of this Court towards the Judgment delivered in ITA No.658/2015 and their contention is that in respect of Assessment Year 2009-10, a similar question of law has already been answered. The Judgment delivered by the Division Bench in ITA No.685/2015 reads as under: "This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) has been filed by the revenue. The subject matter of the appeal pertains to the Assessment Year 2009-10. The appeal was admitted by a Bench of this Court vide order dated 05.04.2016 on the following substantial question of law: "Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in deleting the disallowances made under Section 14A read with Rule 8D(2)(ii) and 8(D)(2)(iii) of the Act without appreciating the contents of Circular No.5/2014 dated 11.02.2014, which emphasized that only expenditure allowable is relatable to earning of income and therefore, the expenses which are relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether such income has been earned during the financial year or not?"

Facts leading to filing of this appeal briefly stated are that the assessee filed its return of

The revenue filed an appeal against the order passed by the Commissioner of Income Tax (Appeals) before the Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short) namely ITA No.168/Bang/2013, whereas the assessee filed cross-appeal before the Tribunal against the order of the Commissioner of Income Tax (Appeals) to the extent it was passed against it in ITA No.1417/Bang/2012. The Tribunal, vide

Learned counsel for the revenue, while inviting the attention of this Court to the order passed by the Assessing Officer, pointed out that the reasoning / satisfaction has been recorded by the Assessing Officer for disallowing the claim made by the assessee under Section 14A of the Act. It is further submitted that the finding recorded by the Tribunal that there is no exempt income in respect of the relevant assessment year which was claimed by the assessee, is perverse. In this connection, our attention has been invited to paragraph 19 of the order passed by the Tribunal. Learned counsel for the revenue has placed reliance on the decision of this Court in 'COMMISSIONER OF INCOME-TAX, BANGALORE Vs. KINGFISHER FINVEST INDIA LTD.' (2020) 121 TAXMANN.COM 233 (KAR).

On the other hand, learned Senior counsel for the assessee, while inviting our attention to paragraph 19 of the order passed by the Tribunal, pointed out that it is an admitted fact before the Tribunal that no exempt income was claimed by the assessee during the relevant previous year. It has further been submitted that from the perusal of the letter dated 15.11.2011 which was submitted by the assessee before the Assessing Officer, the assessee had taken a specific stand that the assessee has not earned any income which is exempt from tax and therefore, the provisions of Section 14A of the Act are not applicable to the fact situation of the case. The aforesaid aspect of the matter was even disputed by the revenue before the Tribunal. Therefore, on admitted facts, the Tribunal has set aside the disallowance of the claim under Section 14A of the Act.

We have considered the submissions made on both sides and have perused the record. From perusal of paragraph 6 of the communication dated 15.11.2011, it is evident

Thus, in the fact situation of the case, it was an admitted position that no dividend or exempt income was claimed by the assessee during the relevant previous year. It is well settled in law that if no exempt income has accrued to the assessee, the provisions of Section 14A do not apply to the fact situation of the case. The aforesaid view has been taken by this Court in 'PRL. COMMISSIONER OF INCOME-TAX AND ANOTHER Vs. M/s. NOVELL SOFTWARE DEVELOPMENT (INDIA) PVT. LTD.' in ITA No.271/2017 decided on 16.01.2021 as well as by Delhi and Madras High Courts, reference of which has been made in paragraph 6 of the aforesaid decision.

For the aforementioned reasons, the substantial question of law framed in this appeal is answered against the revenue and in favour of the assessee.

In the light of the aforesaid Judgment, after hearing learned counsel for the parties, we are of the opinion that the question of law framed in the present appeal has already been answered against the revenue, in favour of the assessee and therefore, in the present case also, the question of law is answered against the revenue and in favour of the assessee.

The appeal is accordingly dismissed.”

In the light of the aforesaid, no further orders are necessary in the present appeal and the judgment delivered in ITA No.49/2019 shall be applicable mutatis mutandis in the present case also. The appeal stands dismissed.