DCIT, BANGALORE vs. M/S SANSERA ENGG. LTD., BANGALORE

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ITA 468/BANG/2014Status: DisposedITAT Bangalore04 March 20154 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The Tribunal held that Section 14A disallowance is not warranted when the assessee has not claimed any income as exempt and such income does not form part of the total income. Therefore, the order of the CIT(A) was upheld.

What were the facts?

The assessee company earned dividend income exempt under Section 10(35) but did not claim it as exempt in its return. The Assessing Officer disallowed expenses under Section 14A. The CIT(A) deleted this disallowance.

What were the issues?

Whether disallowance under Section 14A is applicable when exempt income is earned but not claimed as exempt by the assessee.

Which sections of the Income-tax Act were involved?

Section 14A,Section 10(35)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH : BANGALORE BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER and SHRI ABRAHAM P GEORGE, ACCOUNTANT MEMBER (Assessment year: 2010-11) Joint Commissioner of Income-tax(LTU) Bangalore. … Appellant Vs. M/s.Sansera Engg. Pvt.Ltd. No.261/C, Bommasandra Industrial Area, Hebbagodi, Anekal taluk, Bangalore-560099/ … Respondent PAN:AAECS 2440 M Appellant by: Dr.K.Shankar Prasad, JCIT(DR). Respondent by: Shri Bharath, CA. Date of hearing : 25/02/2015. Date of pronouncement: 04/03/2015. O R D E R Per Smt. P.MADHAVI DEVI, JM:

This is an appeal filed by the Revenue against the order of the CIT(A),LTU, Bangalore, dated 10/04/2013 for the assessment year 2010-11. The Revenue is aggrieved by the order of the CIT(A) in deleting the disallowance made by the Assessing Officer (AO) u/s 14A of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short].

2.

Brief facts of the case are that the assessee-company which is in the business of manufacture of automobile components, filed its return of income for the assessment year 2010-11 on 25/9/2010 declaring income of Rs.10,66,08,420/-. M/s.Sansera Engg.Pvt.Ltd. Page 2 of 4 During the assessment proceedings u/s 143(3) of the Act, the AO observed that the assessee had earned income of Rs.88,800/- being dividend from mutual fund which is exempt from taxation u/s 10(35) of the Act. As this income does not form part of the total income, he asked the assessee to explain as to why the provisions of section 14A should not be applied. Since the assessee did not offer any explanation, the AO proceeded to compute disallowance u/s 14A of the Act read with rule 8D of the IT Rules at Rs.1,11,92,410/- and brought it to tax.

Aggrieved by the said addition, the assessee preferred an appeal before the CIT(A) stating that the assessee had not claimed any income as exempt and hence the application of sec.14A was not warranted ab initio. After considering the assessee’s contention and perusing the records, the CIT(A) found the assessee’s contention to be correct. He accordingly deleted the addition. Aggrieved by the relief given by the CIT(A), the revenue is in appeal before us.

3.

The learned Departmental Representative supported the order of the AO while the learned counsel for the assessee placed reliance upon the order of the CIT(A). The learned Departmental Representative also placed reliance upon the following decisions in support of his contention:

i. M/s Priya Ltd. vs. DCIT in dt.2/8/2013 and M/s.Sansera Engg.Pvt.Ltd. Page 3 of 4 ii. Binayak Tex Processors Ltd. vs. ACIT (2014) 44 taxman.com179(Mumbai-Trib.)

He submitted that in these cases, the assessee therein had not earned any exempt income and hence it was held that the provisions of sec.14A were not applicable, whereas in the case before us, the assessee had earned exempt income though may not have claimed it as exempt. Therefore, according to him, since facts are distinguishable, reliance of the CIT(A) on the decision of the Mumbai Tribunal in the case of Priya Ltd., is not justified. The learned counsel for the assessee, on the other hand, placed reliance upon the decision of the Mumbai Tribunal in the case of Priya Ltd.(supra)

4.

Having heard both the parties and having regard to the rival contentions and the material on record, we find that the assessee had earned only a sum of Rs.88,880/- as dividend income exempt from tax u/s 10(35) of the Act. On perusal of the Profit & Loss Account as well as the return of income filed by the assessee, we find that the assessee had not claimed any income as exempt from taxation. In such circumstances, where assessee has not claimed income as exempt and it is not forming part of total income, the disallowance u/s 14A is not warranted as held by the Mumbai Tribunal in the case of M/s.Priya Ltd., (cited supra). In view of the same, we see no reason to M/s.Sansera Engg.Pvt.Ltd. Page 4 of 4 interfere with the order of the CIT(A) and the Revenue’s appeal is accordingly dismissed.

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