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Income Tax Appellate Tribunal, DELHI BENCH “E”, NEW DELHI
Before: SHRI R. K. PANDA & SMT. BEENA A. PILLAI
O R D E R
PER R. K. PANDA, AM :
This appeal filed by the Revenue is directed against the order dated 09.10.2015 of the CIT(A)- 3, Delhi relating to assessment year 2012-13.
The Revenue in its only effective ground of appeal
has challenged the order of the ld. CIT(A) in deleting the addition of Rs.46,37,354/- made by the Assessing Officer u/s 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962.
3. Facts of the case, in brief, are that the assessee is a company engaged inter-alia in the business of manufacturing and trading of bulk drugs and drug formulations. It filed its return of income on 29.09.2012 declaring income of Rs.1,61,69,533/-. During the course of assessment proceedings, the Assessing Officer observed from the Balance Sheet as on 31.03.2012 that the assessee company has invested its funds in equity shares, which stood at Rs.10,14,99,590/- as at the beginning of the year and Rs.10,14,99,590/- as at the end of the year. However, the assessee has not attributed any expenses which have been incurred to carry out the activity of investments. According to the Assessing Officer, it is an accepted fact that for carrying out any such activity, some kind of expenditure necessary has to be incurred. He, therefore, asked the assessee to explain as to why the addition u/s 14A should not be made for disallowance of expenses relatable to exempt income. The assessee in response to the same submitted that the company has not incurred any expenditure in relation to earning exempt income or for making fresh investment. It was submitted that the investment has been made in Otsuka Chemical (India) Pvt. Ltd. as a part of strategic investment as the main raw material for manufacturing bulk drugs by the assessee company is procured from the aforesaid company. It was submitted that the primary object of the investment is holding controlling stake in the group company and not for earning any income out of investment.
The assessee further submitted that no exempt income has been earned by the assessee company from investments in shares during any of the years including the year under assessment. Various decisions were also brought to the notice of the Assessing Officer.
However, the Assessing Officer was not satisfied with the explanation given by the assessee. According to him, merely because assessee has not earned any exempt income on its investments cannot be a ground for not making any disallowance u/s 14A of the I.T. Act. According to him, the investments made being a conscious decision and having deployment of funds clearly brings into picture expenditure by way of cost of funds invested.
Incidental expenditure, according to the Assessing Officer, are bound to be incurred such as collection, telephone, follow-up, even director’s time and energy etc. Therefore, the claim that the assessee has not incurred any expenditure is not acceptable. Accordingly, the Assessing Officer held that expenditure incurred for earning of exempt income are embedded in indirect expenditures. Relying on Circular No.5/2014 issued by CBDT and distinguishing the various other decisions cited before him, the Assessing Officer made disallowance of Rs.46,37,354/- u/s 14A r.w. Rule 8D.
In appeal, the ld. CIT(A) relying on the decision of the Hon’ble Delhi High Court in the case of Holcim India Pvt. Ltd. reported in 273 CTR 283 and in the case of Cheminvest Ltd. vs. ITO reported in 317 ITR 86 deleted the disallowance made by the Assessing Officer on the ground that the assessee has not earned any exempt income which form part of the total income during the year under consideration.
Aggrieved with such order of the ld. CIT(A), the Revenue is in appeal before the Tribunal.
We have heard the rival arguments made by both the sides and perused the material available on record. We have also considered the various decisions cited before us. It is an admitted fact that the assessee has not received any exempt income during the year, a fact stated by the assessee during the assessment proceedings and not disputed by the Assessing Officer. Therefore, when the assessee has not received any exempt income, the question of disallowance u/s 14A r.w. Rule 8D does not arise in view of the decision of the Hon’ble Delhi High Court in the case of Cheminvest Ltd. (supra) and Holcim India Pvt. Ltd. (supra). Since the ld. CIT(A) has followed the decisions of the Jurisdictional High Court while deleting the disallowance made by the Assessing Officer, therefore, in absence of any contrary material brought to our notice, we find no infirmity in the same. Accordingly, the same is upheld and the ground raised by the Revenue is dismissed.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open Court on this 23rd February, 2018.