M/S. PRIME CELLULAR LTD.,NEW DELHI vs. ITO, NEW DELHI

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ITA 156/DEL/2014Status: DisposedITAT Delhi27 May 2016AY 2009-104 pages

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

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that since the assessee had not earned any dividend income during the relevant assessment year, no disallowance under Section 14A was warranted. This decision was based on the ratio of the Delhi High Court's ruling in the Cheminvest case.

What were the facts?

The assessee company had invested substantial funds in its joint venture company. The Assessing Officer (AO) made a disallowance under Section 14A as no such disallowance was made by the assessee. The assessee contended that no dividend income was earned, and thus no expenses were incurred in relation to such investments.

What were the issues?

Whether disallowance under Section 14A is permissible when no exempt income has been earned by the assessee during the assessment year.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, DELHI BENCH “F” NEW DELHI

For Appellant: Shri K.V.S. R. Krishna CA
For Respondent: Ms. Rakhi Bimal Sr DR
Hearing: 12/05/2016

This is assessee’s appeal against the order dated 01.11.2013, passed by the ld. CIT(A)-XVII, New Delhi, relating to A.Y. 2009-10.

2.

Brief facts of the case are that during the previous year the assessee company had earned income on funds given on loan to its joint venture company M/s Kujjal Builders Pvt. Ltd. Assessee had filed return of income declaring total income of Rs. 17,67,393/-. AO noticed from the balance- sheet of the assessee company that it had made substantial investments amounting to Rs. 40.00 crores as on 01.4.2008 as well as on 31.3.2009.He noticed that assessee had made no disallowance u/s 14A of the I.T. Act.

Accordingly, assessee was show caused as to why disallowance u/s 14A/Rule 8D be not made. The assessee in its reply, inter alia, pointed out as under:

“…. The funds received on account of share capital had been invested in 4,00,00,000 fully paid up equity shares of Rs.10/- each of Joint Venture Company i.e. Kujjal Builders Pvt. Ltd. in the earlier financial years .... .No dividend has been received by the assessee company from the date of investment till date. Also no expenses has proximate relationship with the amount of investments made even in the absence of dividend income ..... The proportionate expenditure to be disallowed as per rule 8D is to be calculated only when there is an expenses incurred in, relation to the investments, made irrespective of the fact whether exempted income is, derived from such investments or not. However, during the financial year relevant to the assessment year 2009-10, no such expenditure has been incurred by the assessee which can be said to be directly or indirectly relatable to the investments of the assessee company. … In view of above it is respectfully submitted that the provisions of section 14A of the Income Tax Act 1961 read with Rule 8D of the Income Tax Rules, 1962 are not at all applicable to the assessee company.”

3.

AO, however, did not accept the assessee’s contention and computed the disallowance u/s 14A at Rs. 20 lacs and limited the same to personnel and operating and other expenses to the extent of Rs. 7,88,713/-.

4.

Ld. CIT(A) dismissed the assessee’s appeal, inter alia, relying on the decision of the ITAT Delhi Special Bench in the case of Cheminvest v. ITO.

5.

Being aggrieved, the assessee is in appeal and has taken following grounds of appeal:

1. The CIT(A) has erred on facts and in law in upholding the disallowance of Rs. 7,88,713/- u/s 14A read with Rule 8D. The disallowance is made without appreciating the assessee's explanation that the investments were made by the assessee company in the financial year 2006-07 relevant to the assessment year 2007-08, out of its own funds Which are non- interest bearing, and the assessee company has not received any dividend from the date of investment till date. Hence, no expenditure has been incurred for earning tax free income. The disallowance made should be deleted.

2. The appellant contends that it has given all evidences to the A.O. and CIT(A) to prove that no expenditure has been incurred which would suffer any disallowance u/s 14A. Consequently, the Order of the CIT(A) upholding the AO's Order is wrong and bad in law on surmises and conjectures, the disallowance of Rs 7,88,713/- would be deleted. 3. The appellant contends that interest u/ s 244A and 234D of Income Tax, 1961 have been wrongly charged.

6. Ld. counsel for the assessee submitted that as is evident from the submissions made before AO, the assessee did not earn any dividend income during the year and, therefore, no disallowance was called for u/s 14A. He relied on the ratio of decision of Hon’ble Delhi High Court in the case of Cheminvest Vs. CIT 378 ITR 33.

7. Having heard both the parties, we find that since no dividend income has been earned during the year, therefore, in view of the decision of Hon’ble Delhi High Court in the case of Cheminvest, supra, no disallowance u/s 14A is called for.

8.

In the result, assessee’s appeal is allowed. Order pronouncement in open court on 27/05/2016.

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