DCIT 7(1), MUMBAI vs. PAN INDIA NETWORK INFRAVEST P.LTD, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा लेखा सद�य लेखा लेखा सद�य सद�य राजे�� सद�य राजे�� राजे�� केकेकेके अनुसार राजे�� अनुसार अनुसार PER RAJENDRA, AM- अनुसार Challenging the order dated 12.02.2013 the Assessing Officer (A.O.) and the assessee have filed cross appeals.Assessee-company, engaged in the business of developing and building housing projects,filed its return of income on 26.09.2009,declaring total income at Rs.5,67, 39,335/-.The assessment order was completed, u/s.143(3) of the Act,on 30.12.2011, determin -ing the total income of the assessee at (-)Rs.4,00,57,592/-. 2.The effective Ground of appeal is about disallowance made u/s.14A r.w. Rule 8D of the Income tax Rules,1962,(Rules).During the assessment proceedings the AO found that the assessee had made an investment of Rs.52 crores in equity shares of Western MP Infrastructures, that it had paid interest of Rs.2.22crores, that it had not made any disallowance u/s.14A of the Act.He directed the assessee to explain as to why disallowance should not be made invoking the provisions of the said section.Vide its letter,dt.4.11.2011, the assessee stated that it had not earned any exempt income during the year under appeal, that investment was made out of its own surplus funds, that no disallowance was called for. However,the AO held that there was no direct nexus between the surplus funds and the investment made by the assessee.The AO relied upon the case of Cheminvest Ltd. (124 TTJ 577)and made a disallowance of Rs.1.66crore.

3378/13 & 4170/13-Pan India 3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA).Before him, it was argued that the assessee had made strategic investment in unquoted equity shares out of the non interest bearing funds, that nexus was proved with bank statement submitted during the course of assessment proceedings, that the income from such investment was taxable under the head capital gains,that it had not earned/received any exempt income during the year under appeal, that it had not incurred any expense towards maintaining the investments, that it had sufficient interest free funds available with it.After considering the submission of the assessee and the assessment order, the FAA held that there was increase investment during the year of Rs.51.91crore, that it was having investment in shares, that the income arising from the investment was or would be exempt, that the provisions of section 14A were applicable, that the provisions were applicable irrespective of the fact whether or not the exempt income was received, that the investment was made out of its own funds and the same were not interest bearing funds ,that the possibility of utilisation of borrowed funds for the purpose of making investment could not be ruled out.He directed the AO to work out the disallowance as per the formula provided in sub clause(ii) of Rule 8D(2).Further he directed the AO to adopt the average value of assets to Rs.153.54 crores.He further directed the AO to restrict the disallowance under rule 8D(2)(iii) to Rs.5.00 lakhs only. 4.Before us, the Departmental Representative (DR) stated that matter could be decided on merits.Authorised Representative (AR)contended that the assessee did not earn any exempt income and hence, no disallowance can be made for the year under appeal.He referred to the case of Gateway Distriparks Ltd.( ITA No.5746/Mum/2013-dt.07/04/2016).

5.We have heard the rival submissions and perused the material before us.There is no doubt that the assessee had not earned exempt income during the year under consideration,so,in our considered opinion, no disallowance can be made u/s.14A of the Act.We find that in the case of M/s Gateway Distriparks Ltd.(supra),identical issue was adjudicated by us,as under: “3.The next ground pertains to deleting the disallowance made u/s 14A of the Act ignoring the ratio of the Tribunal in Cheminvest Ltd. (121 ITD 318)(Del.). The crux of argument on behalf of the assessee is that no income was earned by the assessee and merely hypothetical disallowance has been made. Reliance was placed 378 ITR 33 (Del.) order dated 02/09/2015. Considering the totality of facts and the arguments from both sides, we find that the Hon’ble Delhi High Court in the aforesaid order dated 02/09/2015 held that where no exempt income was earned by the assessee in the relevant assessment years and since the genuineness of 3378/13 & 4170/13-Pan India expenditure is not in doubt, there is no question of disallowance u/s 14A of the Act. While coming to this conclusion, the Hon’ble High Court relied upon following decisions:- i. Cheminvest Ltd. v. CIT [2009] 317 ITR (AT) 86 (Delhi) [SB] (para 15) ii. CIT v. Chugandas and Co. [1964] 55 ITR 17 (SC) (para 14) iii. CIT v. Cocanada Radhaswami Bank Ltd. [1965] 57 ITR 306 (SC) (para 14) iv. CIT v. Corrtech Energy (P.) Ltd. [2015] 372 ITR 97 (Guj) (para 15) v. CIT v.Holcim India (P.) Ltd.(I.T.A.No.486 of 2014 decided on 5- 9-2014) (para 15) vi. CIT v. Hero Cycles Ltd. [2010] 323 ITR 518 (P&H) (para 15) vii. CIT v. Lakhani Marketing Incl. [2015] 4 ITR-OL 246 (P&H) (para 15) viii. CIT v. Rajendra Prasad Moody [1978] 115 ITR 519 (SC) (para 10) ix.CIT v.Shivam Motors (P.) Ltd. (ITA No. 88 of 2014 decided on 5-5-2014) (para 15) x. IT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 (P&H) (para 15) , xi. Eicher Goodearth Ltd. vs. CIT [2015] 378 ITR 28 (Delhi) (para 14) xii. Harish Krishnakant Bhatt v. ITA [2005] 278 ITR (AT) 1 (Ahd) (para 10) " xiii. Maxopp Investment Ltd. v. CIT [2012] 347 ITR 272 (Delhi) (para 12) 3.1. In view of the factual matrix and following the aforesaid decision from Hon’ble Delhi High Court and in the absence of any contrary decision brought to our notice by either side, we find no infirmity in the conclusion of the Commissioner of Income Tax (Appeal) and affirmed the same, thus, this ground of the Revenue is also having no merit, consequently, dismissed.” Respectfully,following the same we decide the effective ground of appeal against the AO.