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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: MS. SUCHITRA KAMBLE & SHRI B.M. BIYANI
आदेश / / O R D E R O R D E R / / O R D E R O R D E R
Per B.M. Biyani, A.M.:
These two appeals by assessee are directed against the orders dated 20.10.2021 passed by Ld. CIT(A)-National Faceless Appeal Centre in Appeal No. CIT(A), Ahmedabad-1/11064/2016-17 and No. CIT(A), Indore- 1/10464/2017-18, which in turn arise out of the respective assessment- orders dated 25.11.2016 and 06.12.2017 passed by respective assessing
M/s Calama Sales Pvt. Ltd. ITA No.265 & 266/Ind/2021 Assessment year 2014-15 & 2015-16 officers [“Ld. AO”] u/s 143(3) of the Income-tax Act, 1961 [“the Act”] for Assessment-Year 2014-15 and 2015-16, on following Grounds:
ITA No. 265/Ind/2021: “1. That the Ld. CIT(A) erred in upholding the disallowance of a sum of Rs. 12,14,502/- made u/s 14A ignoring the fact that the appellant had not earned any tax free income during the year. It is prayed that since there is no tax free income the disallowance u/s 14A is uncalled for and hence may very kindly be deleted. 2. That the Ld. CIT(A) erred in confirming the disallowance of a sum of Rs. 12,14,502/- made u/s 14A of the Income Tax Act, 1961, ignoring the fact that the entire investment is only in the shares of unlisted private limited associate companies from which no exempt income is earned, is uncalled for and is prayed to be deleted. 3. The Ld. CIT(A) erred in dismissing the appeal of the appellant ignoring the fact that the Ld. AO erred in applying the rules provided under rule 8D in a mechanical manner and working out the disallowance at Rs. 12,14,502/- without satisfying the pre-requisite conditions prescribed u/s 14A in this respect. That, on the facts and in the circumstances of the case, the said disallowance is bad in law and wrong and prayed to be deleted as such. 4. Without prejudice to the above, the appellant submits that the AO has also erred in not reducing the amount of interest received from the interest paid for working out the said disallowance. 5. That by way of dismissal of the appeal, the Ld. CIT(A) erred in conforming the separate addition made to the book profit computed u/s 115JB of Rs. 12,14,502/- made u/s 14A of the Income Tax Act, 1961 without appreciating the fact that section 115JB is a complete code of law for computing the book profits in certain cases and it is a settled preposition that the disallowance under section 14A cannot be made overriding the methodology prescribed under section 115JB to compute the book profit. That, on the facts and in the circumstances of the case, the said disallowance added to the book profits u/s 115JB is bad in law and wrong and prayed to be deleted as such. 6. The appellant craves leave to add, to alter, amend, modify, substitute, delete and/or rescind all or any of the grounds of appeal on or before final hearing, if necessity so arises.” ITA No. 266/Ind/2021: “1. That the Ld. CIT(A) erred in upholding the disallowance of a sum of Rs. 9,04,314/- made u/s 14A ignoring the fact that the appellant had not earned any tax free income during the year. It is prayed that since Page 2 of 7
M/s Calama Sales Pvt. Ltd. ITA No.265 & 266/Ind/2021 Assessment year 2014-15 & 2015-16 there is no tax free income the disallowance u/s 14A is uncalled for and hence may very kindly be deleted. 2. That the Ld. CIT(A) erred in confirming the disallowance of a sum of Rs. 9,04,314/- made u/s 14A of the Income Tax Act, 1961, ignoring the fact that the entire investment is only in the shares of unlisted private limited associate companies from which no exempt income is earned, is uncalled for and is prayed to be deleted. 3. The Ld. CIT(A) erred in dismissing the appeal of the appellant ignoring the fact that the Ld. AO erred in applying the rules provided under rule 8D in a mechanical manner and working out the disallowance at Rs. 9,04,314/- without satisfying the pre-requisite conditions prescribed u/s 14A in this respect. That, on the facts and in the circumstances of the case, the said disallowance is bad in law and wrong and prayed to be deleted as such. 4. Without prejudice to the above, the appellant submits that the AO has also erred in not reducing the amount of interest received from the interest paid for working out the said disallowance. 5. That by way of dismissal of the appeal, the Ld. CIT(A) erred in conforming the separate addition made to the book profit computed u/s 115JB of Rs. 9,04,314/- made u/s 14A of the Income Tax Act, 1961 without appreciating the fact that section 115JB is a complete code of law for computing the book profits in certain cases and it is a settled preposition that the disallowance under section 14A cannot be made overriding the methodology prescribed under section 115JB to compute the book profit. That, on the facts and in the circumstances of the case, the said disallowance added to the book profits u/s 115JB is bad in law and wrong and prayed to be deleted as such. 6. The appellant craves leave to add, to alter, amend, modify, substitute, delete and/or rescind all or any of the grounds of appeal on or before final hearing, if necessity so arises.” 2. Precisely stated, both of these appeals involve following issues:
(i) Ld. AO was not justified to make disallowance u/s 14A in absence of exempted income.
(ii) Ld. AO was not justified to make addition u/s 14A while determining Book-Profit for the purpose of section 115JB.
Since both of these appeals involve identical issues, except the difference of figures, we have heard both appeals together and decide by this common order. Page 3 of 7
M/s Calama Sales Pvt. Ltd. ITA No.265 & 266/Ind/2021 Assessment year 2014-15 & 2015-16 4. The assessee is a company. During the course of assessment proceeding, the Ld. AO observed that the assessee has made investment in equity shares of other company which would generate dividend income exempted u/s 10(34) of the Act. When the Ld. AO confronted the assessee about disallowance u/s 14A read with Rule 8D in respect of expenses incurred for such exempted income, the assessee submitted that the disallowance is not applicable due to several reasons including the primary reason that the assessee has in fact not earned any exempted income during the year. However, the Ld. AO was not satisfied with the assessee’s submissions and made a disallowance as per working made in assessment- order in terms of Rule 8D. Ld. AO made addition of such disallowance in normal income as well as book-profit for the purpose of section 115JB of the act. Being aggrieved by order of Ld. AO, the assessee filed appeal to Ld. CIT(A).
During appellate proceeding before Ld. CIT(A), the assessee reiterated the same submissions but the Ld. CIT(A) was not satisfied and hence he confirmed the additions made by Ld. AO.
Before us, the Ld. AR argued that it is an undisputed fact that the assessee has not earned any exempted income during the year under consideration. Ld. AR carried us to various documents placed in the Paper- Book in the form of Computation of Total Income, Balance-Sheet and P&L A/c with annexures for the relevant financial year to demonstrate that the assessee had not earned any exempted income during the year. Thereafter, Ld. AR submitted that if the exempt income is absent, the provisions of section 14A or Rule 8D do not apply at all and consequently no disallowance can be made. Ld. AR submitted that this proposition is now well-settled by numerous decisions including followings:
i. ITAT. Delhi in case of ACIT vs. Chadha Papers Ltd. ITA No. 5742/Del/2017 dated 13.07.2020.
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M/s Calama Sales Pvt. Ltd. ITA No.265 & 266/Ind/2021 Assessment year 2014-15 & 2015-16 ii. Hon'ble High court of Madras in the case of Redington (India) Ltd. vs. ACIT in TCA No. 520 of 2016 dated 23.12.2016.
iii. Hon’ble Delhi High Court in Cheminvest Limited Vs. CIT (2015) 387 ITR 033
iv. Hon’ble Mumbai High Court in PCIT Vs. Ballarpur Industries Ltd. ITA No. 51 of 2016 dated 13.10.2016
Ld. AR further submitted that even ITAT Indore Bench itself has held in the case of Keti Sangam Infrastructure Ltd. (ITA No. 834/Ind/2017) dated 30.05.2019 for A.Y.2014-15 that if the assessee has not earned any exempt income, the disallowance u/s 14A is not attracted.
Finally Ld. AR submitted that in the case of this assessee itself, identical issue arose in assessment-year 2013-14 wherein the assessee was not having exempted income and yet the AO made disallowance. When the assessee filed appeal to Ld. CIT(A), the Ld. CIT(A) deleted addition vide his order dated 23.02.2017, a copy of which is placed in the Paper-Book. Ld. AR pointed out that the revenue has not filed any appeal against the order of Ld. CIT(A) and thus accepted identical claim of assessee.
With these submissions, Ld. AR strongly argued that the disallowance made by Ld. AO is absolutely wrong and deserves to be deleted.
Ld. DR relied upon the orders of lower authorities. However, he could not controvert the submissions made by Ld. AR.
We have considered rival submissions of both sides, perused material held on record. At the outset we observe that the assessee has not earned any exempt income during the year and this fact not disputed by revenue. Going further, we observe that in such a situation where exempt-income is absent, the courts have consistently held that no disallowance can be made u/s 14A of the Act. We also observe that in the case of this assessee itself, the disallowance made by AO in earlier assessment-year 2013-14 had already been deleted by Ld. CIT(A) and the order of Ld. CIT(A) has been Page 5 of 7
M/s Calama Sales Pvt. Ltd. ITA No.265 & 266/Ind/2021 Assessment year 2014-15 & 2015-16 accepted by revenue. Being so, we find merit in the claim of assessee that no disallowance can be made u/s 14A if the exempt income itself is absent. Therefore, we are of the view that the disallowance made by Ld. AO u/s 14A is unwarranted and deserves to be deleted. Accordingly, we delete the disallowance made by Ld. AO.
Since we have deleted the disallowance u/s 14A itself, the addition made by Ld. AO to the book-profit computed for the purpose of section 115JB is also not sustainable. Even otherwise, this issue is squarely covered by the decision of Special Bench in ACIT Vs. Vireet Investment Pvt. Ltd., ITA No. 502/Del/2012 dated 16.06.2017 in favour of the assessee. Therefore, we delete the addition made by Ld. AO to book-profit for the purpose of section 115JB of the Act.
In the result, these appeals of assessee are allowed.
Order pronounced as per Rule 34 of I.T.A.T. Rules 1963 on 26.07. 2022. Sd/- Sd/-
(SUCHITRA KAMBLE) (B.M. BIYANI) JUDICIAL MEMBER ACCOUNTANT MEMBER
Indore �दनांक /Dated :26.07.2022 Patel/Sr. PS Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File By order UE COPY Sr. Private Secretary Income Tax Appellate Tribunal Indore Bench, Indore
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M/s Calama Sales Pvt. Ltd. ITA No.265 & 266/Ind/2021 Assessment year 2014-15 & 2015-16 1. Date of taking dictation 2. Date of typing & draft order placed before the Dictating Member 3. Date on which the approved draft comes to the Sr. P.S./P.S. 4. Date on which the fair order is placed before the Dictating Member for pronouncement 5. Date on which the file goes to the Bench Clerk 6. Date on which the file goes to the Head Clerk 7. Date on which the file goes to the Assistant Registrar for signature on the order 8. Date of dispatch of the Order
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