M/S. RWL HEALTHWORLD LTD.,NEW DELHI vs. DCIT, NEW DELHI

Assessee by : Sh.Alok Vasant, CA Revenue by: Sh. Shravan Gotru, Sr. DR Date of Hearing 07/04/2016 Date of pronouncement 25/05/2016 O R D E R PER PRASHANT MAHARISHI, A. M. This is appeal filed by the assessee against the order 24.01.2014 of the ld 1. CIT (A)-XVIII, New Delhi for the Assessment Year 2009-10. The assessee has raised the following grounds:-

2. “1. The Learned Commissioner of Income Tax (Appeals) (Ld. CIT-A) has erred on the facts of the case and in law, in upholding the action of the Assessing Officer in misinterpreting 'investment' referred to in Rule 8D of the Rules, to include interest free loans given by the Appellant to its subsidiaries while computing disallowance under section 14A of the Act read with Rule 8D of the Rules.

2. That on the facts and circumstances of the case and in law, the Ld. CIT-A has erred by not considering the submissions of the Appellant in relation to computing disallowance under section 14A of the Act read with Rule 8D of the Rules where-in the Assessing Officer has erred in including interest on car loan (Rs.1,24,606), interest in franchisee deposits (Rs 2,00,000) and bank charges (Rs.6,80,250), aggregating to Rs.10,04,856 in the total interest expenditure, while apportioning interest, which is not directly relatable to investment made.”

3. The brief facts of the case are that the appellant is a private limited company filed its return of income showing total loss of Rs. 171306901/- on 27.09.2009. The main business of the company is retailing of pharmaceutical and healthcare products. During the course of the scrutiny assessment, it was found that assessee company is engaged in the Page 2 of 3 investment activities and has invested in the subsidiaries to support their business. In the original computation filed, the assessee did not make any disallowance u/s 14A of the Income Tax Act but in the revised computation of income but no revised return was filed. Assessee made a disallowance of Rs. 44,11,010/-. Ld Assessing Officer noted that while calculating the disallowance, that assessee has only taken equity shares for the purpose of disallowance and according to Assessing Officer, even the loan and advances should have been included. Therefore, ld Assessing Officer worked out the total disallowance u/s 14A of Rs. 7943608/-. Against this the assessee preferred an appeal before the ld CIT(A), and submitted that no disallowance u/s 14A should have been made over and above disallowance of Rs. 3532598/- which is admitted by the assessee vide letter 06.01.2014. However, the ld CIT (A) rejected the contention of the assessee and confirmed the disallowance; however, the credit of disallowance already made in the computation of Rs. 4411010/- was granted.

4. Before us, the ld AR submitted that assessee has not earned any exempt income during the year, it is strategic investment in three subsidiaries and short-term interest free loan cannot be included for the purpose of disallowance.

5. The ld DR relied on the orders of the lower authorities and submitted that ld CIT (A) is correct in upholding disallowance u/s 14A of the Act.

6. We have carefully considered the rival contentions. The first ground of the assessee’s appeal is that ld Assessing Officer has misinterpreted the investment referred to Rule 8D by including interest free loans given by the assessee to the subsidiaries and further, ground No.2 is inclusion of interest expenditure which are not related to investment made. The assessee itself has worked out a disallowance u/s 14A of the Act of Rs. 4411010/-. The revised computation is also placed at Pg. No.26 of the paper Book filed. The assessee has submitted that it has not earned any income which is exempt from tax and for this it has submitted its audited financial statements wherein at Pg. 13 of the Paper Book details of other income is shown at schedule 15. On perusal of that schedule, it is apparent that assessee has not earned any dividend or any other income, which is exempt from tax. However, undisputedly assessee disallowed Rs. 4411010/-

Page 3 of 3 by filing revised computation of total income as it could not revise the return of income therefore, the amount of disallowance of Rs.4411010/- is admitted disallowance by the assessee itself. However, where there is no exempt income there cannot be any disallowance u/s 14A of the Income Tax Act. This view has been propounded by Hon’ble Delhi High Court in Cheminvest Ltd. Vs. CIT [378 ITR 33 ]as under:- “23. In the context of the facts enumerated hereinbefore the court answers the question framed by holding 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 includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, section 14A will not apply if no exempt income is received or receivable during the relevant previous year.”