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Income Tax Appellate Tribunal, “B” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI RAMIT KOCHAR
सुनवाई क� तार�ख /Date of Hearing : 09-03-2016 घोषणा क� तार�ख /Date of Pronouncement : 03-06-2016 आदेश / O R D E R PER RAMIT KOCHAR, Accountant Member
This appeal, filed by the assessee company, being is directed against the order dated 31-07-2013 passed by learned Commissioner of Income Tax (Appeals)- 17, Mumbai (hereinafter called “the CIT(A)”), for the assessment year 2010-11, the appellate proceedings before the learned CIT(A) arising from the assessment order dated 18-01-2013 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 143(3) of the Income Tax Act,1961 (Hereinafter called “the Act”).
ITA 5775/Mum/2013 2
2. The grounds of appeal raised by the assessee company in the memo of appeal filed with the Income Tax Appellate Tribunal, Mumbai (hereinafter called “the Tribunal”) read as under:-
“1. The learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs. 80,10,897/- by way of disallowance u/s 14A of the Income Tax Act, 1961. 2. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the disallowance is arbitrary & illegal. 3. The learned Commissioner of Income Tax (Appeals) failed to appreciate that the provisions of Section 14A are not applicable in the instant case.”
The brief facts of the case are that the assessee company is engaged in the business of construction, real estate and construction contractors. During the course of assessment proceedings u/s. 143(2) read with Section 143(3) of the Act, it was observed by the A.O. from the audited financial statements and details filed that the assessee company has made investments to the tune of Rs. 55,12,50,000/- and had incurred an amount of Rs. 2.49 crores by way of interest on loans. It was observed by the AO that as per clause 17(B)(1) to Form 3CD of the Tax Audit report, the auditors have reported Rs. 80,10,897/- as an expenditure incurred in relation to income which does not form part of the total income. The A.O. noted that the assessee company had not made any disallowance u/s 14A of the Act. The assessee company was show caused as to why expenses relating to investment, income from which does not form part of the total income should not be disallowed u/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. In reply, the assessee company submitted that the investments have been made in 100% subsidiary of the company and no income has been earned during the previous year relevant to the assessment year from such investments, even it is not profitable in future also was the contention of the assessee company.
ITA 5775/Mum/2013 3 The A.O. considered the submissions of the assessee company but rejected the same on the ground that a company cannot earn dividend without its existence and management and the investment decisions are very complex in nature. He held that the investment decisions require substantial market research, day-to-day analysis of market trends and decisions with regard to acquisition, retention and sale of shares at the most appropriate time and hence the assessee company was not correct to say that dividend income could be earned by incurring nominal expenditure. The A.O. held that the assessee company’s contention that a company can earn substantial dividend income without incurring any expenses in the absence of management or administrative expenses is not possible as the decisions are generally taken in the Board of Directors meeting. Thus, the A.O. worked out the disallowance u/s 14A of the Act read with Rule 8D of Income Tax Rules, 1962 in the light of the decision of Hon’ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. v. DCIT & Anr., (2010) 234 CTR (Bom) 1. The A.O. also relied on the decision of Special Bench of ITAT in the case of Cheminvest Ltd. v. ITO , 317 ITR 86 (AT) and worked out the disallowance as under , vide assessment orders dated18-01-2013 passed by the AO u/s 143(3) of the Act:-
Sl No. Particulars Amt(Rs) Amt (Rs) 1. Amount of expenses directly related to the income A Amount of interest expenses other than 1(A) 24,884,206 B1 Investments as on 01-04-09 501,250,000 B2 Investments as on 31-03-10 551,250,000 B Average value of investment [B=(B1+B2)/2] 526,250,000 C1 assets as on 01-04-09 2,148,716,096 C2 assets as on 31-03-10 2,719,749,454 C Average of total assets [C=(C1+C2)/2] 2,434,232,775 2 Attributable indirect interest expenses[A*B/C] 5,379,647 2,631,250 3 ½ % of the average value of investment ITA 5775/Mum/2013 4 Disallowance under section 14A(1+2+3) 8,010,897
Aggrieved by the assessment orders dated 18-01-2013 passed by the A.O. u/s 143(3) of the Act, the assessee company has filed its first appeal before the learned CIT(A).
The learned CIT(A) After considering the submissions and the other contentions of the assessee company decided the issue by following his predecessor’s decision for the immediately preceding assessment year 2009- 10 and dismissed the appeal of the assessee company vide appellate orders dated 31/07/2013 passed by the learned CIT(A). The decision of the learned CIT(A) is reproduced below:-
“3.1 I find that this issue came up before the undersigned for AY 2008-09. In that year, vide my order dated 02-11-2011, I have held as under:
“I have examined the issue and position of law. As far as the decision of Siva Industry & Holdings Pvt. Ltd., cited supra, is concerned, I find that in that case the Chennai Tribunal has held that the provisions of section 14A would not be applicable where there is no income which does not form part of the total income under the Act. In this regard, the Tribunal relied upon the decision of the Supreme Court in the case of Walfort Shares & Stock Brokers Pvt. Ltd. and that of the Bombay High Court in the case of Godrej and Boyces Mfg. Co. Pvt. Ltd. and also in the case of Winsome Textiles Industries Ltd. However, I find that a similar issue came up before the Delhi Special Bench in the case of Cheminvest Ltd. ITA No. 87/Del/2008. The question before the Special Bench was :
“Whether disallowance u/s 14A of the I.T. Act can be made in a year in which no exempt income has been earned or received by the assessee.”
The Special Bench held:
ITA 5775/Mum/2013 5
“What one has to see is whether any expenditure was incurred by an assessee in relation to an income that does not form part of total income of the assessee under this Act and is the answer is affirmative then that expenditure cannot be allowed irrespective of the fact that it was allowable under different provisions of the Act where a different phraseology is used in allowing that expenditure as the focus as to on disallowance within parameters of section 14A and overriding provisions over allowance provisions. It would result in disallowance even if no income has resulted or made or earned by the assessee in the year under consideration.”
Thus, I find that the issue has been directly considered in favour of the revenue by a bigger bench. Unfortunately, the coordinate bench of the Chennai tribunal has not considered this decision and to that extent the order of the Chennai Bench is per in curium. The decisions relied upon by the Chennai bench are not directly on this issue and are distinguishable on facts. In the circumstances, relying upon the decision of the Special Bench in the case of M/s Cheminvest Ltd. no relief can be given to the appellant. This ground of appeal is, therefore, dismissed.
1.32. Following the above decision of my Ld. Predecessor, the ground of appeal is therefore dismissed.
In the result, the appeal is dismissed”
Aggrieved by the appellate orders dated 31/07/2013 of the learned CIT(A), the assessee company is in appeal before the Tribunal.
The ld. Counsel for the assessee company submitted that the assessee company had invested Rs. 55,12,50,000/- in its subsidiary company M/s Marino Shelters Pvt. Ltd. which is also in the field of construction work. No exempt income has been earned by the assessee company during the previous year relevant to the assessment year from the said investments made by the assessee company . No dividend income has been earned by the assessee company during the previous year relevant to the assessment year from the said investments made by the assessee company. The ld. Counsel submitted ITA 5775/Mum/2013 6 that this issue under instant appeal is squarely covered by the decision of Mumbai benches of the Tribunal in assessee company’s own case in for the assessment year 2009-10 vide orders dated 20th January, 2016 in favour of the assessee company, whereby the Tribunal has allowed the appeal of the assessee company for the assessment year 2009-10 following the decision of Hon’ble Delhi High Court in the case of Cheminvest Limited v. CIT (2015) 378 ITR 33 (Delhi HC) . It is also submitted that the issue is also covered by the decision of Hon’ble Delhi High Court in the case of Cheminvest Limited v. CIT (2015) 378 ITR 33 (Delhi HC) as the assessee company has also not earned any exempt income during the relevant previous year r and hence disallowance u/s 14A of the Act is not called for.
The ld. D.R., on the other hand, relied upon the orders of learned CIT(A).
We have heard and considered the rival submissions and also perused the relevant material on records including the decision cited by the rival parties. We have observed that the assessee company has made investment of Rs. 55,12,50,000/- in its 100% subsidiary company M/s Marino Shelters Pvt. Ltd. which is also in the field of business of construction and real investment development business. The assessee company has not earned any exempt income or any dividend income during the previous year relevant to the assessment year on these investments made by the assessee company. We find that the Hon’ble Delhi High Court in the case of Cheminvest Limited (supra) has overruled the decision of ITAT Special Bench in the case of Cheminvest Limited(supra) hence, this issue is squarely covered by the decision of Hon’ble Delhi High Court decisions in the case of Cheminvest Limited (supra) . As cited by the ld. Counsel for the assessee company, the co- ordinate Benches of this Tribunal has also decided this issue of disallowance u/s 14A of the Act in favour of the assesse company in assessee company’s ITA 5775/Mum/2013 7 own case for the immediately preceding assessment year i.e. 2009-10 in vide orders dated 20-01-2016 by following the decision of Hon’ble Delhi High Court in the case of Cheminvest Limited (supra) and hence the issues in the instant appeal are squarely covered by the decisions of the Tribunal in assessee’s company own case in immediately preceding assessment year i.e. 2009-10 in ITA no 6191/Mum/2015 vide orders dated 20-01-2016. The relevant findings of the Tribunal in ITA No 6191/Mum/2015 vide orders dated 20-01-2016 in assessee company’s own case for the assessment year 2009-10 i.e. immediately preceding assessment year are reproduced below:-
“8. After considering the relevant finding given in the impugned orders and also material on record, we find that it is an admitted fact that , assessee has not earned any exempt income from the investment made in the equity shares of the subsidiary company. The disallowance u/s 14A has been made by the AO following the Special Bench decision in the case of Cheminvest Limited (supra). Now the said decision has been reversed by the Hon’ble Delhi High Court, wherein it has been held that if no exempt income has been received or is receivable in the relevant previous year, then no disallowance could be made u/s 14A . the relevant observation and the finding by the Hon’ble High Court after considering the decision of the Hon’ble Supreme Court in the case of CIT v. Rajendra Prasad Moody ., reported in (1978) 115 ITR 519 is as under:- “The plain and natural construction of the language of Sec. 57(iii) of the Income Tax Act 1961 irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure. What Sec. 57(iii) requires is ITA 5775/Mum/2013 8 that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. It is the purpose of the expenditure that is relevant in determining the applicability of Sec. 57(iii) and that purpose must be making or earning of income. Sec. 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of Sec. 57(iii) to suggest that the purpose for which expenditure is made should fructify into any benefit.
Thus , respectfully following the ratio laid down by the Hon’ble Delhi High Court , we hold that , no disallowance u/s 14A is called for, once there is no exempt income received or receivable by the assessee during the relevant previous year . Accordingly , the ground raised by the assessee is treated as allowed.
9 In the result, appeal of the assessee stands allowed."
Thus, Respectfully following the decision of Tribunal in assessee company’s own case in immediately preceding assessment year 2009-10 whereby the issues were decided in favour of the assessee company as set out above , we also hold that no disallowance u/s 14A of the Act is called for , once there is no exempt income received or receivable by the assessee company during the relevant previous year. The ground of appeal filed by the assessee company are allowed. We order accordingly.
In the result, the appeal filed by the assessee company in ITA N0. 5775/Mum/2013 for the assessment year 2010-11 is allowed.
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Order pronounced in the open court on 3rd June , 2016. आदेश क� घोषणा खुले �यायालय म� �दनांकः 03-06-2016 को क� गई ।