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Income Tax Appellate Tribunal, PUNE BENCH “A”, PUNE
Before: SHRI R. K. PANDA & MS ASTHA CHANDRA
This appeal filed by the Revenue is directed against the order dated 15.02.2024 of the CIT(A), Pune-13 relating to assessment year 2016-17.
Although a number of grounds have been raised by the assessee, however, these all relate to the order of the CIT(A) in deleting the addition of Rs.3,73,19,882/- made by the Assessing Officer u/s 14A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’).
Facts of the case in brief, are that the assessee is a company engaged in manufacturing of tractors, agricultural equipments like harvesters, micro irrigation equipments and spare parts. It has also technology centre which is primarily involved into catering of information technology and engineering services to Deer Associates. It filed its return of income on 29.11.2016 declaring total income of Rs.775,75,65,910/-. The case was selected for scrutiny through CASS and accordingly statutory notices u/s 143(2) and 142(1) of the Act were issued and served on the assessee, in response to which the assessee filed the requisite details from time to time.
During the course of assessment proceedings the Assessing Officer noted that the assessee has made investments in the subsidiary company, the income from which is exempt to tax. The assessee has suo moto disallowed an amount of Rs.25,000/- u/s 14A of the Act. However, the assessee has not submitted any working, basis and correctness of the disallowance made in accordance with section 14A read with rule 8D. The Assessing Officer therefore, issued a show cause notice asking the assessee to explain as to why the disallowance u/s 14A read with rule 8D should not be made. Not being satisfied with the reply of the assessee, the Assessing Officer disallowed an amount of Rs.3,73,19,882/- by invoking the provisions of section 14A read with rule 8D.
Before the CIT(A) it was argued that the assessee has not received any dividend income and therefore, no disallowance can be made in view of the decision of Hon'ble Supreme Court in the case of CIT vs. Chettinad Logistics Pvt. Ltd. reported in 95 taxmann.com 250 (SC) and the decision of the Hon’ble Delhi High Court in the case of McDonald’s India Pvt. Ltd. reported in 101 taxmann.com 86 (Del). The various other decisions were also brought to the notice of the CIT(A).
Based on the arguments to the proposition that when the investments were made out of assessee’s own funds and no interest expenditure was incurred, therefore, there cannot be any disallowance u/s 14A of the Act advanced by the assessee, the CIT(A) deleted the addition by observing as under: “2.3 I have carefully considered the facts of the case and submission filed by the appellant. As seen from records, the said investment in the equity shares of the subsidiary has been made in the earlier AY 2012-13 and no new investment has been made by the assessee company during the year under consideration. The AO has not rebutted the appellant's submission that the investment was out of appellant's own funds and there has been no interest expenditure for this investment as per decision of Bombay High Court in the case of HDFC Bank Ltd. 366 ITR 505. Secondly, the appellant has not earned any exempt income during the relevant financial year. It is also seen that the similar issue of disallowance u/s 14A of the Act has been decided in favour of the appellant by my predecessors in appellant's own case in AY 2012-13 and in AY 2014-15. The relevant paragraphs of the decision in AY 2014-15 are reproduced below as follows: “QUOTE 11.3 I have carefully considered the submission of the appellant in light of the facts of the case and the judicial decisions relied upon by the appellant. The Ld. A.O. by applying Rule 8D, has worked out the disallowance u/s. 14A of the Income Tax Act, 1961 for Rs.1,48,77,912/- on the tax free investments made by the appellant in its subsidiary company- John Deere Financial India Pvt Ltd (JDFIPL) by way of equity share capital. Before me, the Ld. AR for the appellant has argued that during the year under consideration, there was no exempt income earned by the appellant and in view of the decision of Hon'ble Supreme Court in the case of CIT vs. Chettinad Logistics (P) Ltd. (supra), no disallowance u/s 14A could be made. The Appellant has also submitted that the investments made
by it were only out of its own funds and that the Appellant itself has made a disallowance of Rs 25,000 u/s 14A on its own. Since, no exempt income has been earned by the appellant, following Hon'ble Supreme Court's decision in the case of CIT vs. Chettinad Logistics (P) Ltd. (supra), no disallowance u/s 14A can made. This issue has also been decided by the Hon'ble Bombay High Court in the case of Pr. CIT vs. M/s. Ballarpur Industries Ltd. (supra). Accordingly, I direct the A.O. to delete the addition of Rs.148,77,912/- made on this account. UNQUOTE" Following the above decisions, the appeal on these grounds of appeal is allowed.”
7. Aggrieved with such order of CIT(A), the Revenue is in appeal before the Tribunal.
The Ld. DR heavily relied on the order of the Assessing Officer.
The Ld. Counsel for the assessee on the other hand relied on the order of the CIT(A) and submitted that when there is no dividend income received, there cannot be any disallowance u/s 14A. Since the CIT(A) has followed the decision of the Hon'ble Supreme Court cited (supra) therefore, the same should be upheld and the grounds raised by the Revenue should be dismissed.
We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and the Ld. CIT(A) and the paper book filed on behalf of the assessee. It is an admitted fact that the assessee has not received any dividend income during the year and the statement made by the Ld. Counsel for the assessee at the Bar could not be controverted by the Ld. DR. Further, in assessee’s own case, the CIT(A) has already taken a view in assessment years 2012-13 and 2014-15 that in absence of any exempt income, there cannot be any disallowance u/s 14A of the Act. Nothing contrary was brought to our notice against the order of the CIT(A) for the earlier assessment years where such disallowance made by the Assessing Officer was deleted by him. Further, the CIT(A) while deciding the issue has followed the decision of the Hon'ble Supreme Court in the case of CIT vs. Chettinad Logistics Pvt. Ltd. (supra) where it has been held that in absence of any exempt income, no disallowance can be made u/s 14A of the Act. In view of the detailed reasoning given by the CIT(A) on this issue and in absence of any contrary material brought to our notice by the Revenue, we do not find any infirmity in the order of the CIT(A) deleting the disallowance made by the Assessing Officer. Accordingly, the same is upheld. The grounds raised by the Revenue are according dismissed.
In the result, the appeal filed by the Revenue is dismissed.
Order pronounced in the open Court on 7th October, 2024.