DCIT 14(3)(1), MUMBAI vs. ROOFTOP INFRA PROJECTS P.LTD, MUMBAI

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ITA 3481/MUM/2015Status: DisposedITAT Mumbai21 October 2016AY 2010-114 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that Section 14A and Rule 8D are applicable only when exempt income is actually earned or receivable. Since the assessee had not earned any exempt income from its strategic investments, no disallowance was attracted.

What were the facts?

The Assessing Officer disallowed Rs. 1,93,69,565/- under Section 14A read with Rule 8D for strategic investments in group companies, despite the assessee not earning any dividend income. The CIT(A) deleted this disallowance.

What were the issues?

Whether disallowance under Section 14A read with Rule 8D is attracted when no exempt income is earned from investments. Interpretation of 'income not forming part of total income' for disallowance purposes.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(2)Show list

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Income Tax Appellate Tribunal, MUMBAI BENCH “D”, MUMBAI

Before: SHRI SANJAY GARG & SHRI ASHWANI TANEJA

For Appellant: Shri Ajay R. Singh, A.R
For Respondent: Shri B.S. Bist, D.R
Hearing: 17.10.2016Pronounced: 21.10.2016

Per Sanjay Garg, Judicial Member:

1.

The present appeal has been preferred by the Revenue against the order dated 11.03.2015 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2010-11. The Revenue is aggrieved by the order of the Ld. CIT(A) in deleting the disallowance of Rs.1,93,69,565/- which was made by the Assessing Officer (hereinafter referred to as the AO) under section 14A read with rule 8D of the Income Tax Rules.

2.

The brief facts of the case are that during the assessment proceedings, the AO found that the assessee company had invested in equity shares of its group companies to the tune of Rs.18,09,33,700/-. The assessee submitted that it was a strategic investment which was made for the purpose of controlling interest/stake in the group concerns and that no dividend income was earned during the year. The AO, however, rejected the above contentions of the 2 M/s. Rooftop Infra Projects Pvt. Ltd. assessee and computed the disallowance under section 14A as per rule 8D of the Income Tax Rules and accordingly added a sum of Rs.1,93,69,565/- into the income of the assessee on account of disallowance of expenditure in relation to earning of tax exempt income.

3.

In appeal, the Ld. CIT(A), however, deleted the disallowance so made by the AO relying upon various decisions of the higher authorities and observing that since the assessee had not earned any exempt income from the strategic investments made in group companies, hence, no disallowance was attracted in this case under section 14A. Being aggrieved by the above order, the Revenue has come in appeal before us.

4.

We have heard the rival contentions and have also gone through the records. 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 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).

The Hon’ble Delhi High Court in the case of “M/s Cheminvest Ltd. vs. CIT” (2015) 61 taxman.com 118, 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 3 M/s. Rooftop Infra Projects Pvt. Ltd. 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 26.02.09.

5.

The Ld. DR has not pointed out any contrary decision to the above proposition.

6.

In view of the overall facts and circumstances of the case, as discussed above, and in the light of the above decisions of the higher courts, which are otherwise binding on this Tribunal, we are of the view that no disallowance under section 14A is attracted in this case.

7.

We, therefore, do not find any infirmity in the order of the Ld. CIT(A) and the same is therefore upheld.

8.

In the result, the appeal of the Revenue is dismissed.

Order pronounced in the open court on 21.10.2016.

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