ACIT CENTRAL-2, INDORE vs. M/S KALLYAN TOLL INFRASTRUCTURE LTD, INDORE

PER MANISH BORAD, A.M: The above captioned appeal filed at the instance of the Revenue in the case of different assesses for Assessment Year 2017- 18 & 2015-16 are directed against the order of Ld. Commissioner of Income Tax(Appeals) (in short ‘Ld.CIT]-3, Bhopal dated 27.08.2020 & 19.08.2020 which are arising out of the order u/s 143(3) of the Income Tax Act 1961(In short the ‘Act’) dated 29.12.2017 & 15.12.2017 respectively framed by DCIT(Central)-2, Indore.

The revenue has raised following ground of appeal In ITA 14/Ind/20121 in the case of Keti Sangam Infrastructure India ltd. for A.Y. 2017-18:

“ On the facts and in the circumstances of the case, the ld. CIT(A) has erred in law in deleting the addition of Rs. 1,91,29,465/- made by the Assessing officer on account of disallowance made u/s 14A of the Income Tax Act,1961” The revenue has raised following revised/corrected ground of appeal In ITA 15/Ind/2021, in the case of Kalyan Toll Infrastructure Ltd for A.Y. 2015-16:

“ On the facts and in the circumstances of the case, the ld. CIT(A) has erred in law in deleting the addition of Rs. 6,34,77,810/- made by the Assessing officer on account of disallowance made u/s 14A of the Income Tax Act, without appreciating the facts and evidences mentioned in the assessment order.” 2. These appeals were filed on 22.01.2021 and Registry has informed that this appeal is time-barred by 77 days. Ld. CIT-DR submitted that due to current pandemic, the delay occurred which may be condoned in view of guidelines of Govt. of India and Hon’ble Supreme Court. On the other hand, Ld. counsel for the assessee 2

M/s.Kalyan Toll Infrastructure Ltd., Indore

submitted that delay should not be condoned. We find that vide Gazette “CG-DL-E-29092020-222110 No.63 New Delhi, 29/2020 issued by Secretary to Govt. of India, it has been directed that in computing the period of limitation for any appeal, the period for 20.3.2020 till 31.12.2020 or 31.3.202, as the case may be, shall stand excluded. Further, the Hon’ble Supreme Court in Suo Motu Writ Petition (Civil) No.3 of 2020 dated 08.3.2021 has issued directions that in computing the period of limitation for any suit/appeal, the period for 15.3.2020 till 14.3.2021 shall stand excluded. Considering the same, we condone the delay in filing the revenue’s appeal and admit the same for hearing.

M/s.Kalyan Toll Infrastructure Ltd., Indore

30.05.2019 and therefore, the present appeals of the revenue deserve to be dismissed.

4.1 Ground No 1 :- through this ground of appeal, the appellant has challenged addition of Rs. 6,34,77,810/- on account of disallowance u/s 14A of the Act. On perusal of balance sheet of the appellant, the AO noted that the assessee has made investments amounting to Rs. 82,22,81,6441- in the shares and has also paid huge interest on loans which has been claimed as deduction. The AO has also stated that the assessee has incurred interest expenditure which is not directly attributable to any particular receipt or income. It is also observed by theAO that the appellant has not made any disallowance u/s 14A of the Act. It is stated by the AO that the assessee, during the assessment proceedings stated that its investments are in unlisted companies and were not made 4

M/s.Kalyan Toll Infrastructure Ltd., Indore

with the intention of earning any tax free income nor any such income has been earned by the assessee therefore, the provision of section I4A are not applicable. The AO contended that there is no bifurcation of listed or unlisted companies and also that even if exempt income is not received by the assessee, the provisions of section 14A are applicable. The AO has also referred to the CBDT circular no. 5 of 2014 for the proposition that disallowance u/s 14A is warranted even if no exempt income is earned during the year. It is also the case of the AO that the assessee has not filed any separate fund flow for tax free investments and its regular business activities and has also not filed separate details of expenses related to such investment. The AO has also stated that the investment in shares are capable of earning income which is either taxable or exempt depending on the period of holding and other conditions specified under the Act. The AO has contended that for disallowance r.r/s 14,A. the presence of intention to earn exempt income is not a prerequisite condition and by whatever means if the assessee happens to earn exempt income, the disallowance u/s 14A would be attracted. The AO has also contended that even if any expenditure is allowable u/s 36 or section 37, yet it can be disallowed u/sl4A if such expenditure has been incurred in relation to the income not forming part of the total income. It is also stated that no one to one nexus of funds received and utilised was filed by the appellant. Therefore, it can be inferred that interest bearing loans were utilised for making the investment in shares, the income received on it by way of dividend has been claimed as exempt. Even if the investments were made out of own funds, still, to hold and maintain I manage the investments the assessee has incurred various expenditure for maintenance of such investments. Finally the AO applied Rule SD(2Xii) concluding that the expenditure incurred by the assessee by way of interest during the previous year is not directly attributable to any particular income or receipt. The AO has also invoked the provisions of section l4A(2) stating that the claim of the assessee that no expenditure was incurred in relation to income which does not form part of total income is incorrect. It is seen that the AO has also applied section 1aA(3) while holding that all expenses connected with the exempt income have to be disallowed u/s l4A whether such expenses are direct or indirect, fixed or variable and managerial or financial in accordance with law. It is seen that the AO has worked out the total disallowance of Rs. 6,34,77,810/- under section 14A r.w.r. 8D. 4.1.1 The appellant on the other has stated that it has never received any exempt income and also that all its investments were made in the shares of associate / group companies which are all unlisted and closely held, therefore, there is no scope of earning any 5

M/s.Kalyan Toll Infrastructure Ltd., Indore

exempt long term capital gain in respect of these investments. It is also contended that it has not incurred any expenditure in relation to any income which shall not form part of total income or earn any income which is exempt from tax. Al1 the investments held were fixed and long term investment in nature and the appellant is not required to monitor this investment on day to day basis. It is also contended by the appellant that the AO has invoked both section 14A(2) and section 14A(3), which operate in altogether different circumstances and both the sections cannot be invoked simultaneously. The main thrust of the appellant is that it has not earned any exempt income during the year under consideration hence disallowance u/s 14A is not called for. For this proposition the appellant has placed reliance on various case laws, which have already been abstracted above. It is also stated by the appellant that all these investments were made in the shares of companies engaged in similar business of infrastructure and toll operation. It is also the contention of the appellant that as per the terms and conditions of the infrastructure policies of the State Government as well as the Central Government, different companies are required to be incorporated for different toll projects. Therefore, the investments in these associates / group companies are necessitated out of technical compulsion to facilitate and promote the business. The appellant has also contended that only dividend yielding investment should be considered for computing the disallowance u/s 14A and the disallowance in any case cannot exceed the exempt income. The appellant has placed reliance on various cases for this proposition and contended that since no exempt income has been earned by it, no disallowance is attracted in this case. The appellant has also submitted that there is no satisfaction recorded by the AO before invoking the disallowance u/s 14A. In respect of the reliance placed by the AO on circular no. 5 of 2014, the appellant submitted that the circular and rules cannot be over ride the statute and that such circular are neither binding on the appellate authorities nor on the assessee. The appellant has also pointed out that similar disallowance made u/s 14A for the immediately preceding year i.e. AY 2014-15 in its own case stand deleted at the first appellate stage, which decision was also affirmed by the Honourable Jurisdictional ITAT of Indore Bench and decided the issue of disallowance u/s 14A in favour of the appellant. 4.1.2 A fter going through the observation of the Ao made in the assessment order as well as the detailed written submissions of the appellant and also after considering the various case laws, the issue under consideration i.e. disallowance u/s 14A is decided as under. I find that the appellant has not earned any exempt incomb as evident from the computation and also from the profit and loss 6

M/s.Kalyan Toll Infrastructure Ltd., Indore

account of the appellant. This fact is also accepted in the assessment. Therefore, the provisions of section l4A as contemplated for disallowing the expenses incurred in relation to earning of any exempt income cannot be invoked in this case. There ,are various decision of various appellate authorities including the Honourable ITAT and the Honourable High Court that disallowance u/s 14A is attracted only when the assessee is in receipt of any exempt income. I find that the similar issue was decided in favour of the appellant in the appellant's own case for the immediately preceding year by the first appellate authority, which decision was challenged by the department before the Honourable ITAT Indore. The Honourable jurisdictional ITAT dismissed the said appeal of the department after discussing the issue at length and also after discussing the various decisions in this behalf. The conclusion drawn by the Honourable ITAT in the appellants own case in ITA No. 834/lnd/2Ol7 for AY 2Ot4-15 vide order dated 30.05.2019, copy of which has been filed by the appellant, Pata 8 of the said order is abstracted hereunder "8. The fact that no exempt income has been earned by the assessee during the year is not disputed at any stage by the revenue authorities. Hon'ble Delhi High Court in the case of cheminvest Limited (supra) held that where no exempt income has been received by the assessee in the previous year, disallowance u/s 14A of the Act is not warranted. This view was adopted by the co-ordinate Bench in the case of PT.CIT V/s Oil Industries Development Board in ITA No. 197/2018 order doted 16.02.2018. It is also brought to our notice that the Special Leave petition preferred by the department against the judgement of Hon'ble Delhi High Court in the case of Cheminvest Limited (supra) hos recently been dismissed by the Hon'ble Apex Court by order dated 08.02.2019. Therefore we can safely conclude by respectfully following the judgement of Hon'ble Apex Court and Hon'ble Delhi High Court as mentioned herein above that as the assessee has not earned any exempt income during the year therefore no disallowance n/s l4A of the Act is called for. We therefore find no reason to interfere in the finding of Ld. CIT(A deleting the disallowance of Rs. 1,86,82,431/- made by Ld. A.O u/s l4A r.w.r.t rule 8D. This ground of revenue's appeal is dismissed." It is also seen that in a very recent decision the Honourable Delhi ITAT in the case of ACIT vs. Chadha Papers Ltd. ITA No. 5742/Del/20l7 dated 13-07-2020 also dismissed the appeal filed by the revenue by holding that in the absence of any exempt income reported by the assessee, nodisallowance u/s 14A can be made. It has been held as under:

M/s.Kalyan Toll Infrastructure Ltd., Indore

"It is assessee's contention that no exempt income in the form of dividend has been earned by the assessee. The aforesaid submissions of the assessee have not been controverted by the Revenue. Court find that Delhi High Court in the case of PCIT vs. GVK Project and Technical Services Ltd. upheld the Tribunal's order holding that in the absence of any exempt income reported by the assessee, no disallowance u/s l4A can be made. The Revenue filed SLP before the Apex Court challenging the aforesaid decision of High Court. The SLP filed by the Revenue was dismissed. Court find no reason to interfere with the order of CIf@). Thus the ground of Revenue is dismissed." It is also seen that the Honourable ITAT has also considered the decision of the Honourable Supreme Court in the case of the Maxopp Investment (2018) 402 ITR 640 (SC). The Honourable ITAT has also stated that the proposition that disallowance u/s14A cannot be made when no exempt income has been earned by the assessee was upheld by the Honourable Delhi High Court in the case of PCIT V/s GVK Project and Technical Services Ltd. (2019) 106 taxmann.com 180 and the SLP filed before the Honourable Apex Court by the department against this decision of the Honourable Delhi High Court was also dismissed. 4.1.3 Further, reliance has been placed on the decision of Hon'ble High Court of Madras in the case of Redington (India) Ltd. (2016) 97 CCH 0219. The Hon'ble High Court afber considering CBDT Circular No. 5 of 2015 dated lIlO2l2Ol4 has held that the provisions of section 14A r.w.r 8D cannot be made applicable in a vacuum i.e. in the absence income. The Hon'ble High Court has held as under:- "14. Nothing much turns on the use of the word 'includable' and the phrase 'under the act' in s. t4A and we ate not persuaded to accept the emphasis laid or the interpretation of the same by the Revenue. An aSSeSSment in terms of the Income tax Act is specific to an assessment year and the related previous year s. 4 of the Act, which imposes the charge to tax, reads thus: Charge of income-tax 4 (1) Where any Central Act enacts that income-tax shall be charged for any assessment year at any rate or rates, income-tax at that rate or those rates shall be charged for that year in accordance with and subject to the provisions (including provisions for the levy of additional income-tax) of, this Act in respect of the total income of the previous year of every person:

M/s.Kalyan Toll Infrastructure Ltd., Indore

Provided that where by virtue of any provision of this Act income-tax is to be charged in respect of the income of a period other than the previous year, income tax shall be charged accordingly. Thus, where the statute indented that income shall be recognized for taxation in respect of any previous other than that immediately preceding the relevant assessment yeor, the provision shall expressly state so. The provisions of s.10 in Chapter III of the Act dealing with 'Incomes not included in total income' commences with the phrase 'In computing the total income of a previous year, any income falling within any of the following clauses shall not be included....' 15.The exemption extended to dividend income would relate only to the previous year when the income was earned and none other and consequently the expenditure incurred in connection therewith should also be dealt with in the same previous year. Thus, by application of the matching concept, in a year where there is no exempt income. There cannot be a disallowance of expenditure in relation to such assumed income. (Madras Industrial Investment Corporation Ltd vs. CIT (225 ITR 802). The language of s. 14A (1) should be read in that context and such that it advances the scheme of the Act rather than distort it. 16.In conclusion, we are of the view that the provision of s.14A read with rule 8D of the rules cannot be made applicable in a vacuum i.e. in the absence of exempt income. The questios of law are answered in favour of the assessee and against the department and the appeal allowed. no costs 4.1.4 In view of the above facts and circumstances of the case, the addition made by the AO amounting to Rs.6,34,77810/- is Deleted. Therefore, appeal on this ground is Allowed.

M/s.Kalyan Toll Infrastructure Ltd., Indore

held and all the investments are held as long term investment and does not require any monitoring on day to day basis. Ld. CIT-DR failed to controvert that the facts and issues narrated above are similar to the facts and issues dealt by this Tribunal in the case of Keti Sangam Infrastructure India Ltd. for A.Y. 2014-15 in ITAno.834/Ind/2017.

The order pronounced as per Rule 34 of ITAT Rules, 1963

on 08.03.2022. Sd/- Sd/- (MAHAVIR PRASAD) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER �दनांक /Dated : 08 .03.2022 Patel/PS 10

M/s.Kalyan Toll Infrastructure Ltd., Indore

Copy to: The Appellant/Respondent/CIT concerned/CIT(A) concerned/ DR, ITAT, Indore/Guard file. By Order, Sr. Private Secretary , I.T.A.T., Indore