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Income Tax Appellate Tribunal, MUMBAI BENCHES “B”, MUMBAI
Before: Shri Joginder Singh, & Shri N.K. Pradhan
आदेश / O R D E R
Per Joginder Singh (Judicial Member) The Revenue is aggrieved by the impugned order dated 11/03/2015 of the Ld. First Appellate Authority, Mumbai, on the ground the First Appellate Authority erred in deleting the disallowance of Rs.1,54,33,285/- made u/s 14A of the Income Tax Act, 1961 (hereinafter the Act) read with Rule 8D of the Income Tax Rules, as the assessee made the investment in equity shares.
During hearing, the ld. DR, Shri Sushil Kumar Poddar, contended that the assessee is having controlling interest in the company, therefore, in view of the decision from Hon'ble Karnataka High Court in M/s United Breweries Ltd. vs DCIT (ITA No.419 of 2009) order dated 31/05/2016, the order of the Ld. Commissioner of Income Tax (Appeal) deserves to be reversed as the assessee was having controlling interest in the company. On the other hand, the ld. counsel for the assessee, Shri Ajay R. Singh, contended that no exempt income was earned by the assessee and he relied upon by the decision from Hon'ble Delhi High Court in Chem Invest ltd. vs CIT (2015) 378 ITR 33 (Del.) and another decision of the Tribunal in the case of DCIT vs M/s Rooftop Infra Projects Pvt. Ltd. (ITA No.3481/Mum/2015).
2.1. We have considered the rival submissions and perused the material available on record. The facts, in brief,
3 M/s Maxima Agrotrade Pvt Ltd. are that the ld. Assessing Officer disallowed expenditure amounting to Rs.1,54,33,285/- u/s 14A read with Rule-8D of the Act. In appeal, before the Ld. Commissioner of Income Tax (Appeal), it was explained that the assessee company had invested in equity shares of its group companies to the tune of Rs.18,10,22,126/- as a passive investment for the purposes of holding controlling interest/stay in the group concerns and no dividend/exempt income was earned. The First Appellate Authority considering the decision from Hon'ble Allahabad High Court in CIT vs Shivam Motors Pvt. Ltd. (ITA No.88 of 2014) and Hon'ble Delhi High Court in CIT vs Holcim India Pvt. Ltd. (ITA No.486 of 2014 and of 214) order dated 05/09/2014 deleted the disallowance. The Revenue is aggrieved and is in appeal before this Tribunal.
2.2. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, We find that the case of the assessee is squarely covered by the decision of the various High Courts. The Hon’ble Delhi High Court in the case of Joint Investment Private Limited reported in 372 ITR 694 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 4 M/s Maxima Agrotrade Pvt Ltd. 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 also 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, has 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.
2.4. 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.
5 M/s Maxima Agrotrade Pvt Ltd.
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, wherein, 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”.
2.5. 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:
The revenue is in appeal and we have considered the rival contentions. IN our view, the recent judgment of the Special Bench in Bombay in ITO v. Daga Capital Management Pvt. Ltd.., ('2009) 312 ITR (AT) 1, is applicable to the facts of the present case. In this order, it has been. held. that section 14A is applicable even where the motive in acquiring the shares was to obtain controlling interest in the companies. The finding of the Commissioner of Income-tax (Appeals) cannot, therefore, be upheld as it is contrary to the decision of the Special Bench. We,
6 M/s Maxima Agrotrade Pvt Ltd. accordingly, uphold in principle the applicability of section 14A. However, it is for 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. 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 7 M/s Maxima Agrotrade Pvt Ltd. 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.
The learned Counsel for the appellant relied upon various decisions of the High Court and of the Apex Court, but in none of the decisions, the question arisen before the respective Court as to whether the finding of fact recorded by the Tribunal can be disturbed or upset at the stage of appeal before this Court, which is limited to the question of law. All decisions proceed on the basis that the nexus is established, which as per the finding of fact recorded by the Tribunal is not established in the present case. Hence, the said decisions are of no help to the appellant.
11. Hence, subject to the aforesaid observations, the appeal is dismissed.
2.6. 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 8 M/s Maxima Agrotrade Pvt Ltd.
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 from the strategic investment made in group companies, 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,
9 M/s Maxima Agrotrade Pvt Ltd.
Maxopp Investment Ltd. vs CIT (2012) 347 ITR 272 (Del.)(para- 12) 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 from both sides at the conclusion of the hearing on 17/11/2016.