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Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI
Before: SHRI N.K. SAINI & SHRI H.S. SIDHU
These are the Cross Appeals filed by the Assessee and Revenue against the impugned order dated 21.8.2012 pertaining to assessment year 2009-10. Since the issues involved in the these appeals are common and identical, hence, they are being consolidated and disposed of by this common order for the sake of brevity. 2. The grounds raised in Assessee’s Appeal No. 5399/Del/2012 (AY 2009-10) read as under:- “1. On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in confirming the disallowance of Rs. 65,58,705/- out of total disallowance of Rs. 1,80,80,533/- u/s. 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962.
2. That the Ld. CIT(A) erred in not appreciating the fact that the appellant did not earn any exempt income during the year and accordingly did not incur any expenditure attributable to the earning of exempt income.
3. Without prejudice to above, the Ld. CIT(A) ought to have excluded those expenses which are not directly or indirectly attributable to the earning of exempt income for the purpose of computing disallowance u/s. 14A read with Rule 8D.
4. The appellant reserves to itself, the right to add, alter, amend, substitute, withdraw and / or any Ground(s) of Appeal on or before the date of hearing.”
The grounds raised
in Revenue’s Appeal No. 5684/Del/2012 (AY 2009-10) read as under:-
1. The Ld. CIT(A) has erred on facts and circumstances of the case and in law in restricting the expenditure to Rs. 65,58,705/- instead of Rs. 81,79,179/- calculated u/s. 14A read with Rule 8D of the Income Tax At, 1961.
The Ld. CIT(A) has erred on facts and circumstances of the case and in law in giving relief of Rs. 1,29,46,714/- to the assessee by ignoring section 14A read with Rule 8D of the Income Tax Act, 1961.
3. The appellant craves leave to add, alter or amend any ground of appeal raised above at the time of hearing.”
4. The brief facts of the case are that the Assessee filed its Return of Income of Rs. 6,870/- on 30-09-2009. The same was processed under section 143(1) of the Income Tax Act, 1961 (hereinafter referred “Act”) on 24-01-2011. The AO selected the case for scrutiny by issue of notice under section 143(2) of the Act dated 19-08-2010. The AO also issued detailed questionnaire on 20-10-2010 as well as various notices under section 143(2)/143(1) of the Act calling for details and attendance from time to time. In response to these notices, Ld. AR of the Assessee attended the proceedings and filed necessary details. 4.1 The assessee company is engaged in the business of financing and investment activities. During the year under consideration, gross receipts are declared at Rs.1.79 Crores against the preceding years receipts of Rs.2.21 Crores. The assessee company has debited a sum of Rs. 1,13,26,240/- as interest paid. It has also invested a sum of Rs. 163.58 Crores in quoted and unquoted investments. However, as per Profit and Loss Account no dividend income has been shown on such investments. The assessee was asked to explain as to why the provisions of section 14A read with Rule 8D be not invoked as the assessee has claimed interest expenses which is attributable to earning of exempted income. Though no dividend income is earned during the year but the investment has been made in such investments, income from which in the form of dividend is exempt to tax. In response to the same, assessee stated that Company has not claimed any exempt income during the relevant assessment year and therefore, there is no disallowance required u/s. 14A of the Act. Secondly, the entire investments in the shares of various companies has been made by the assessee company out of its own funds. The assessee company had a net worth of Rs. 157.30 crores at the beginning of the assessment year and there has been no further investments as well as borrowings during the relevant assessment year. 4.2 The AO considered the reply of the Assessee and held while invoking the provisions of section 14A, it is not necessary that the investments yield any exempted income during the year under consideration. Since the money borrowed had been utilized in the purchase of shares held as investment, the interest paid on so borrowed monies is allowable against the income from dividend on such shares irrespective of whether or not there is any yield of dividend on the shares purchased and held as investment. In other words, in such a case, the interest is attributable to or relatable to earning of dividend on the shares purchased and held as investment and he held that disallowance u/s. 14A of the Act has to be made towards the expenses incurred on earning of exempt income. He disallowed the total expenditure of Rs. 1,82,80,533/- u/s. 14A of the I.T. Act read with Rule 8D of the I.T. Rules and computed the total income of the assessee at Rs. 1,82,87,403/- and completed the assessment u/s. 143(3) of the I.T. Act, 1961 on 16.11.2011.
5. Against the assessment order dated 16.11.2011 the Assessee filed the Appeal before the Ld. CIT(A) who vide impugned order dated 21.8.2012 partly allowed the appeal of the Assessee and restricted the disallowance to the amount of Rs. 65,58,705/- and allowed the relief to the assessee of Rs. 1,29,46,714/- and passed the impugned order dated 21.8.2012. Aggrieved with the impugned order dated 21.8.2012 both the Assessee and Revenue are in cross appeals before the Tribunal.
At the time of hearing, Sh. RM Mehta, CA/AR of the Assessee stated that the similar issue has already been decided by the Hon’ble Jurisdictional High Court in the case of Cheminvest Limited vs. Commissioner of Income Tax-VI in ITA 749/2014 vide order dated 02.09.2015. He stated that the Hon’ble High Court of Delhi has held that Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. He has also filed the copy of the said order dated 02.9.2015 passed by the Hon’ble High Court.
On the other hand, Ld. DR relied upon the orders of the authorities below.
We have heard both the parties and perused the orders of the revenue authorities alongwith the order dated 02.9.2015 passed by the Hon’ble High Court of Delhi in the case of Cheminvest Limited vs. Commissioner of Income Tax-VI (Supra). For the sake of convenience, we would like to reproduce the following questions of law framed by the Hon’ble High Court on the issue in dispute and its answer, as mentioned in para nos. 3 & 23 at page 1-2 & 13 respectively of the aforesaid Order. “3. The following substantial question of law is arises for determination: “Whether disallowance under Section 14A of the Act can be made in a year in which no exempt income has been earned or received by the Assessee?”
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 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.” 8.1 Keeping in view of the facts and circumstances of the case and in view of the Order dated 02.09.2015 passed by the Hon’ble Delhi High Court in the case of Cheminvest Limited vs. Commissioner of Income Tax-VI (Supra), we are of the considered opinion that the AO has wrongly disallowed the total expenditure by applying the provisions of Section 14A read with Rule 8D of the I.T. Act and similarly, Ld. CIT(A) has also wrongly restricted the disallowance on account of administrative expenses of Rs. 65,58,705/- in spite of the fact that assessee has not received any exempt income during the relevant previous year. Therefore, respectfully, following the decision of the Hon’ble High Court in the case of Cheminvest Limited vs. Commissioner of Income Tax-VI (Supra), we allow the Appeal of the Assessee and dismiss the Appeal filed by the Revenue by holding that the provisions of Section 14A is not applicable in the case of the assesse, because the Assessee Company has not claimed any exempt income during the relevant assessment year and therefore, no disallowance u/s 14A of the Act is permissible.
In the result, the Assessee’s Appeal is allowed and Revenue’s Appeal stand dismissed. Order pronounced in the Open Court on 04/04/2016.