DCIT (OSD) 2(3), MUMBAI vs. NRC LTD, MUMBAI

आदेश / O R D E R

Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 12/03/2014 of the Ld. First Appellate Authority, Mumbai. The only ground raised

81. (Bom.).

. The Ld. DR relied upon the decision from Hon'ble Karnataka High Court in the case of M/s United Brewereis Ltd. vs DCIT (ITA No.419/2009) order dated 31/05/2016. On the other hand, Shri Rohan Deshpande, ld. counsel for the assessee, contended that no exempt income was earned by the assessee during the relevant Assessment Year and further no new investment was made by the assessee. Reliance was placed upon the decision of the Tribunal in the case of assessee itself for Assessment Year 2009

10. (ITA No.2508/Mum/2013) order dated 06/07/2015 and Godrej Consumer Products Ltd. vs ACIT (2016) 69 taxman.com 436 (Mum. Trib.), order dated 20/04/2016. This factual assertion of the assessee was not controverted by the Revenue.

2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief, are that the assessee company, during the relevant period, was in the business of manufacturing manmade fibers, viscose filament yarn, nylon tyre cord, chemical and generation of power, declared loss of Rs.59,22,98,978/- in its return filed on 14/10/2010. During assessment proceedings, the assessee submitted the details, information, clarification and explanation asked by the Ld. Assessing Officer. The assessee company only earned dividend income of Rs.475 from cooperative credit society, which was taxable and included in the total income. The assessee was having long term investment, made in earlier years, was from own sources/funds. The ld. Assessing Officer while framing the assessment u/s 143(3) of the Act made addition by disallowing the sum of Rs.38,69,129/- as proportionate interest expenditure u/s 14A of the Act r.w.r.8D of the Rules. The assessee vide communication dated 06/12/2012 also explained that entire net worth of the assessee company wiped out/eroded and the assessee company filed reference before BIFR under the provisions of sick industrial companies (special provision) Act 1985. The companies was declared as sick industrial unit under section 3(1)(o) of the SICA on 16/07/2009.

2.2. On appeal before the Ld. Commissioner of Income Tax (Appeal), the disallowance made by the Assessing Officer was deleted. The Revenue is aggrieved and is in appeal before this Tribunal. In the light of the foregoing discussion, the contention of the assessee, before us, is that during the relevant assessment year, assessee did not earn any exempt income, therefore, we are of the view, that no disallowance u/s 14A of the Act r.w.r. 8D can be made. Our view find support from the decision from Hon'ble Delhi High Court in Chem Invest Ltd. vs CIT (2015) 234 taxman 761 (Del.) and Hon'ble Apex Court in Rajendra Prasad Moody (1978) 115 ITR 519 (SC) and another decision in Maxopp Investment Ltd. vs CIT (2011) 203 taxman 364 (Del.). The Hon’ble Delhi High Court in the case of Joint Investment Private Limited reported in 372 ITR 694 (Del.), has held that section 14 of the Act or rule 8D cannot be interpreted so as to mean that the entire tax exempt income of the assessee is to be disallowed. That the window for disallowance is indicated in Section 14A and is only to the extent of disallowing expenditure incurred by the assessee in relation to the tax exempt income. This proportion or portion of the tax exempt income surely cannot swallow the entire amount of tax exempt income. Similar view has been taken by the Hon’ble Punjab & Haryana High Court in the case of ‘PCIT vs. Empire Package Pvt. Ltd.’ in of 2015 dt.12/1/16 (P&H).

2.3. The Hon’ble Delhi High Court in the case of “M/s Cheminvest Ltd. vs. CIT” (2015) 61 taxman.com 118; 378 ITR 33 (Del.), wherein, the assessee had made strategic investments in subsidiaries/Group Companies for retaining control over them but has not received any dividend income from such investments, held that section 14A will not apply if no exempt income is received or receivable during the relevant previous year and that the expression ‘does not form part of the total income’, in section 14A of the Act envisages that there should be an actual receipt of income which is not included in the total income during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income.

Almost identical issue has been taken by the Hon’ble Allahabad High Court in the case of “CIT Kanpur vs. M/s. Shivam Motors Pvt. Ltd.” in of 2014 vide order dated 05.05.2014; by the Hon’ble Gujarat High Court in the case of “CIT vs. Corrtecth Energy Pvt. Ltd.” in ITA No.239 of 2014 vide order dated 24.03.2014 and by the Hon’ble Bombay High Court in the case of “CIT vs. M/s. Delite Enterprises” in ITA No.110 of 2009 vide order dated 26/02/2009.

2.4. So far as, the reliance placed upon by Ld. DR on the decision from Hon'ble Karnataka High Court in the case of M/s United Brewereis Ltd. vs DCIT (ITA No.419/2009) order dated 31/05/2016, is concerned, following substantial question of law arose for consideration:-

“Whether in law, the provision of section 14A of the Act are applicable to the expenses incurred by the appellant towards interest and others on the loan borrowed for advanced made to the subsidiaries in the course of business for its expansion”.

Vide para-8 onwards of the order from Hon'ble Karnataka High Court, it was observed/held as under:-

“8. So far as second question of applicability of Sec.14A of the Act to the expenses incurred by the appellant towards interest and others on the loan borrowed is concerned, the finding of the Tribunal is at paragraph 11 which reads as under:

as to how much interest bearing borrowings was utilized to acquire shares in the companies. It is also necessary to see as to whether any interest bearing borrowed funds were used in making the advances and expenditure in the case of Castle Breweries. This factual exercise has to be carried out by the Assessing Officer after giving due opportunity to the assessee of being heard. The Assessing Officer may make the disallowance of interest u/ s.14A only if it is found that interest bearing borrowed funds were used to acquire shares in the companies or fur making advances to Castle Breweries. We, therefore, restore this issue to the file of the Assessing Officer with the above directions. The ground is treated as partly allowed.

9.The aforesaid shows that the Tribunal after holding in principle the applicability of Sec. 14A, has further directed the Assessing Officer to ascertain from the facts of the case as to how much interest bearing borrowings was utilized to acquire shares in the companies and the matter is relegated to the Assessing Officer. As per the language in Sec. 14A, the enquiry has to be undertaken by the Assessing Officer which has been so ordered by the Tribunal. Hence, it can be said that the Tribunal has exercised the discretion where rights of both sides are kept open for admissible deduction under Sec.14A. When such a discretion is exercised and the rights of the appellant -assessee is also kept open to satisfy the Assessing Officer, it cannot be said that any substantial questions of law would arise for consideration, as sought to be canvassed. In our view, at the stage of enquiry under Sec. 14A, it is open to the Assessing Officer to independently consider the matter for admissibility of the interest on borrowings and if yes to what extent. Hence, when the question at large is further to be considered by the Assessing Officer, we do not find that any further observations are required to be made in this regard. In any case, the question of law as sought to be canvassed would not arise for consideration at this stage on the said aspects as sought to be canvassed.

11. Hence, subject to the aforesaid observations, the appeal is dismissed.

2.5. If the aforesaid observation is analyzed, we find that in para-9 of the order of the Hon'ble Karnataka High Court, it has been clarified that in accordance with section 14A of the Act, the enquiry has to be undertaken by the Assessing Officer and the Tribunal has exercised the discretion where rights of both sides are kept open for admissible deduction u/s 14A. When such a discretion is exercised and the rights of the assessee is also kept upon to satisfy the Assessing Officer, it cannot be said that any substantial question of law would arise for consideration, as sought to be canvassed. It was further observed that, at the stage of enquiry u/s 14A, the Assessing Officer is free to independently consider the matter for admissibility of interest on borrowings and its extent. In the present appeal, we note that no exempt income was earned by the assessee nor any new investment was made during the relevant period, therefore, no disallowance was required to be made u/s 14A of the Act. The expression “does not form part of the total income” in section 14A of the Act, envisage 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 in relation to the income. In other words, section 14A will not apply if no exempt income is received or receivable during the relevant previous year. Since, no exempt income was earned by the assessee and since the genuineness of the expenditure, incurred by the assessee, was not in doubt, no disallowance could be made u/s 14A of the Act. The ratio laid down in CIT vs Corrtech Energy P. Ltd. (2015) 372 ITR 97 (Guj.)(para-15), CIT vs Hero Cycle Ltd. 323 ITR 518 (P & H)(para-15), Eicher Goodearth Ltd. vs CIT (2015) 378 ITR 28 (Del), Para-14, and consistent stand taken by the Tribunal, considering the decisions from Hon'ble jurisdictional High Court, we, therefore, do not find any infirmity in the order of the Ld. Commissioner of Income Tax (Appeal), consequently, the appeal of the Revenue is dismissed.

Finally, the appeal of the Revenue is dismissed.

This Order was pronounced in the open court in the presence of ld. representatives of both sides at the conclusion of the hearing on 12/01/2017.