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Income Tax Appellate Tribunal, DELHI BENCH: ‘F’: NEW DELHI
Before: SH. INTURI RAMA RAO & MS. SUCHITRA KAMBLE
ORDER PER INTURI RAMA RAO, A.M.: for AY 2008-09: This appeal filed by the assessee is directed against the order of learned CIT(A), dated 21.08.2013 passed for the assessment year 2008-09. The assessee raised the following grounds of appeal:
1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax [CIT(A)] is bad, both in the eye of law and on the facts. 2(i)On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the action of the AO in making disallowance of an amount of Rs.11,96,000/- invoking the provision of section 14A of the Act. (ii)That the said disallowance has been confirmed rejecting the contention of the assessee that there being no tax free income earned by the assessee, the expenses relating to such income were NIL.
2 3(i)On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the Ao in disallowing an amount of Rs.15,85,328/- invoking the provision of section 40(a)(ia) of the Act. (ii) That the disallowance has been confirmed ignoring the fact that TDS has been deposited before the due date of filing the return and in view of the amendment to section 40(a)(ia) the same are allowable during the year under consideration. (iii)Without prejudice to the above and in the alternative, TDS being deposited in the succeeding year, the expenses are allowable in the next year.
On the facts and circumstances of the case, the learned CIT(A) has erred in both on facts and in law in confirming the action of the AO in disallowing an amount of Rs.14,02,250/- claimed by the assessee as deduction under section 80G of the Act.
5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the action of the AO in disallowing an amount of Rs.15,000/- holding the same be prior period expenses.
The appellant craves leave to add, amend or alter any of the grounds of appeal
2. The brief facts of the case are that the appellant is a company duly incorporated under the provisions of Companies Act, 1956. It is engaged in the business of management consultancy, training & development and human resource consultancy. The return of income for the assessment year 2008-09 was filed on 29th September, 2008 declaring total income of Rs. 25,95,08,010/-. After processing the return of income under Section 143(1) of the Act, the assessment was complete under Section 143(3) of the Act vide order dated 19.11.2010 at total income of Rs. 27,27,56,494/- after making the following disallowances: i. Expenses allocated towards earning of exempted income u/s 14A of Rs. 11,96,000/- ii. Employees contribution towards PF & ESI of Rs. 88,24,215/- iii. Additions under Section 40(a)(ia) of Rs. 15,85,328/- iv. Excess claim made u/s 80G of the I.T. Act of 14,02,250/- 3 Being aggrieved from the assessment order, the assessee filed an appeal before the learned CIT(A) who vide impugned order date 21.08.2013 partly allowed the appeal. Being aggrieved, the appellant is before us with the present appeal.
3. We shall now deal with the appeal ground-wise. Ground nos. 1 and 6 are general in nature which do not require adjudication.
4. Ground no.2 relates to the addition towards expenditure alleged to be incurred in earning exempt income of Rs. 11,96,000/-. 4.1 Learned counsel for the appellant submitted that the disallowance u/s 14A was made despite the fact that there was no exempt income. He submitted that in the absence of any exempt income no addition can be made in this regard. He placed reliance on the decisions of the Hon’ble Jurisdictional High Court in the cases of Cheminvest Vs. ITO, dated 02.09.2015 and CIT Vs. Holcim India P. Ltd., ITA No. 486/2014 & 299/2014, dated 5th September, 2014. 4.2 On the other hand, the ld. Senior DR relied on the orders of the lower authorities. 4.3 We heard the rival submissions and perused the material on record. It is undisputed fact that there was no exempt income earned during the previous relevant assessment year under consideration. It is trite law that in the absence of any exempt income, no addition under Section 14A can be made. In this regard, it is worthwhile to reproduce findings of the Hon’ble Jurisdictional High Court in the following two cases:
4 (i) The aforesaid case relied upon by the ld. CIT(A) i.e. Cheminvest Vs. ITO, has been recently overruled by the Jurisdictional High Court in dated. 02.09.2015 and held under:- "23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression "does not form part of the total income" in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. " (ii) Further reliance has been placed on following judgments of High court in respect of no addition can be made under Section 14A in case there is no exempt income earned: i. The jurisdictional Delhi High Court has also considered this issue in the case of Commissioner of Income Tax vs Holcim India P. Ltd.ITA No. 486/2014 & ITA No. 299/2014 Dated Sth September 2014.ln this case the Hon'ble jurisdictional High Court has held that disallowance can be made under Section 14A when there is a tax free income. Merely by holding shares it cannot be said that on sale of such shares income will be exempt. Income of listed company's shares that too when sold on Exchange is exempt in case there is a long term capital gain. Thus sale of share per se is not exempt. Further the issue of dividend income being taxable or non- taxable will be in the year in which such dividend is received. In the absence of any dividend being received it cannot be said that income is exempt. The observation of the Hon'ble High Court are as under:- "14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been shown to us. The Punjeb and Haryana High Court in Commissioner of Income Tax, Faridabad Vs. M/s. Lakhani Marketing Incl., ITA No. 970/2008, decided on 02.04.2014, made reference to two earlier decisions of the same Court in CIT Vs. Hero Cycles Limited, [2010J 323 ITR 518 and CIT Vs. Winsome Textile Industries Limited, [2009J 319 ITR 204 to hold that Section 14A cannot be invoked when no exempt income was earned. The second decision is of the Gujarat High Court in Commissioner of Income Tax-I Vs. Corrtech Energy (P.) Ltd. [2014J 223 Taxmann 130 (Guj.). The third decision is of the Allahabad High Court in Income Tax Appeal No. 88 5 of 2014, Commissioner of Income Tax (Ii) Kanpur, Vs. M/s. Shivam Motors (P) Ltd. decided on 05.05.2014. In the said decision it has been held: 'As regards the second question, Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A) , which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of 0 2,03,752/- made by the Assessing Officer was in order" .
Income exempt under Section 10 in a particular assessment year, may not have been exempt earlier and can become taxable in future years. Further, whether income earned in a subsequent year would or would not be taxable, may depend upon the nature of transaction entered into in the subsequent assessment year. For example, long term capital gain on sale of shares is presently not taxable where security transaction. tax has been paid, but a private sale of shares in an off market transaction attracts capital gains tax. It is an undisputed position that respondent assessee is an investment company and had invested by purchasing a substantial number of shares and thereby securing right to management. Possibility of sale of shares by private placement etc. cannot be ruled out and is not an improbability. Dividend may or may not be declared. Dividend is declared by the company and strictly in legal sense, a shareholder has no control and cannot insist on payment of dividend. When declared, it is subjected to dividend distribution tax.
What is also noticeable is that the entire or whole expenditure has been disallowed as if there was no expenditure incurred by the respondent-assessee for conducting business. The CIT(A) has positively held that the business was set up and had commenced. The said finding is accepted. The respondent- assessee, therefore, had to incur expenditure for the business in the form of investment in shares of cement companies and to further expand and consolidate their business. Expenditure had to be also incurred to protect the investment made. The genuineness of the said expenditure and the fact that it was incurred for business activities was not doubted by the Assessing Officer and has also not been doubted by the CIT(A).
In these circumstances, we do not find any merit in the present appeals. The same are dismissed in limine.”
4.4 In the light of the law laid down by the Hon’ble Jurisdictional High Court, we hold that no addition is called for on account of any alleged expenditure towards any exempt income. According, ground no. 2 is allowed.
Ground no. 3 relates to the disallowance of Rs. 15,85,328/- made under Section 40(a)(ia) of the Act. The undisputed facts of the case are that the amount of TDS deducted was remitted to the account of the Government before the due date of filing of the return of income. This fact is emerging out of the assessment order vide page no. 13 of the assessment order. It is settled principle of law that the second proviso to section 40(a)(ia) is applicable with retrospective effect and in this connection reliance is placed on the following decisions: i. ITO Vs. Anil Kumar & Co., 354 ITR 170 (Kar.) ii. CIT Vs. Virgin Creation, of 2011, dated 23.11.2011 (Cal.) iii. CIT Vs. Talbros P. Ltd., ITA No. 218 of 2013, dated 06.09.2013 (Del.) iv. CIT Vs. Santosh Kumar Shetty, ITA No. 590/2013, dated 15.07.2014 (Del. ) 5.1 Following the ratio laid down in the above cases, we allow this ground of appeal
6. Ground no. 4 relates to the disallowance of Rs. 14,02,250/- under Section 80G of the Act claimed by the assessee company. There is no evidence on record to show that the receipts are produced before the Assessing Office. Accordingly, we restore the matter to the file of the Assessing Officer for verification of the donations made. Accordingly, this ground of appeal allowed for statistical purposes.
7 7. Ground no. 5 is not pressed by the learned counsel for the assesee. Accordingly, the same is dismissed as not pressed. 8. Hence, this appeal is allowed for statistical purposes.
AY 2009-10: 9. This appeal filed by the assessee is directed against the order of learned CIT(A), dated 21.08.2013 passed for the assessment year 2009-10. The assessee raised the following grounds of appeal:
1. On the facts and circumstances of the case, the order passed by the learned Commissioner of Income Tax [CIT(A)] is bad, both in the eye of law and on the facts. 2(i) On the facts and circumstances of the case, the learned CIT(A) has erred, both on facts and in law, in confirming the action of the AO in making disallowance of an amount of Rs.7,48,6001- invoking the provision of section 14A of the Act. (ii) That the said disallowance has been confirmed rejecting the contention of the assesse that there being no tax free income earned by the assesse, the expenses relating to such income were NIL. 3(i) On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming disallowance of an amount of Rs.6,90,324/- made by the AO on account of gifts and awards expenses incurred by the asses se on trainees. (ii) That the disallowance has been confirmed rejecting the contention of the assesse that the same has been incurred wholly and exclusively for the purposes of business.
4. The appellant craves leave to add, amend or alter any of the grounds of appeal.
10. The assessee raised four grounds of appeal. Ground nos. 1 and 4 are general in nature which does not require any adjudication.
11. Ground no. 2 relates to the addition made of Rs. 7,48,600/- made under the provisions of Section 14A of the Act. For the reasons mentioned in appeal 8 i.e. for AY 2008-09, we allow this ground of appeal in favour of the assessee.
12. Ground no. 3 relates to the disallowance of Rs. 6,90,324/- incurred towards gifts and awards which were distributed to the trainees for the best performance. Since the assesee company was engaged in the business of management consultancy and training, it is not in dispute that the expenditure was actually incurred. The Assessing Officer only disallowed the same on the ground that the expenditure is not for business purposes. In the absence of management consultancy, training & development and human resource development, this expenditure cannot be considered to be non-business purposes and the reasoning of the Assessing Officer cannot be accepted. Accordingly, this ground is allowed. Hence, this appeal is allowed.
13. In the result, the appeal in ITA No. 5752/Del/2013 is allowed for statistical purposes and the appeal in is allowed. The decision is pronounced in the open court on 6th November, 2015.