SHRI GOPAL PRASAD AGRAWAL,RAIPUR vs. INCOME TAX OFFICER, WARD 2(2), RAIPUR, RAIPUR

आयकर अपीलीय अधिकरण, रायपुर न्यायपीठ, रायपुर IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR श्री रविश सूद, न्याधयक सदस्य एिं श्री अरुण खोड़वपया, लेखा सदस्य के समक्ष । BEFORE SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM आयकर अपील सं./ITA No.86/RPR/2022 (Assessment Years: 2014-2015) Shri Gopal Prasad Agrawal, Vs Income Tax Officer, Near Maharashtra Manda, Ward-2(2), Raipur (C.G.) Choubey Colony, Raipur (C.G.) PAN No. :AEDPA 0380 A (अपीलार्थी /Appellant) (प्रत्यर्थी / Respondent) .. : Shri Prafulla Pendse, CA धििााररती की ओर से /Assessee by राजस्ि की ओर से /Revenue by : Shri Choudhary N.C.Roy, Sr. DR सुििाई की तारीख / Date of Hearing : 11/07/2023 घोषणा की तारीख/Date of Pronouncement : 11/07/2023 आदेश / O R D E R Per Arun Khodpia, AM : The present appeal by the assessee is directed against the order passed by the CIT(A), National Faceless Appeal Centre (NFAC), Delhi, dated 21.03.2022 for the assessment year 2014-2015, on the following grounds:- 1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in sustaining disallowance of Rs. 5,72,606/- made under section 14A r/w Rule 8D, contrary to the provisions of the Income Tax Act, 1961 therefore, the said order is bad in law, unwarranted and deserves to be deleted. 2. On the facts and circumstances of the case, the order of the Ld. CIT(A) is bad, both in the eyes of Law and on facts, having been passed without abiding by the judicial precedents of the Hon'ble Apex Court/High Court which categorically state that disallowance under section 14A should not be invoked when no exempt income was earned during the year and moreover the disallowance, if any, at best ought to be restricted to amount of exempt income for the said assessment year. 3. On the facts and circumstances of the case, the order of the Ld. CIT(A) is bad in Law, having been passed in a mechanical manner without recording his satisfaction as mandated by Section 14A r/w Rule 8D of the Income Tax Act, 1961.

2 ITA No.86/RPR/22 4. The above grounds are independent and without prejudice to one and another. 5. The appellant craves leave to urge, add, amend, alter, enlarge, modify, substitute, delete or withdraw any of the ground or ground and to adduce fresh evidence at the time of hearing of the appeal. 2. The sole controversy raised in the appeal is regarding the addition made by the AO for Rs.5,72,606/- by invoking provisions of Section 14A of the Act, r.w.R.8D of the IT Rules, 1962 regarding disallowance of interest of Rs.5,21,098/- and half percent of the aforesaid investment towards administrative expenses amounting to Rs.51,508/- in aggregating the total disallowance was Rs.5,72,606/-. 3. Dissatisfied with the said disallowance, the assessee preferred an appeal before the ld. CIT(A) but the contention of the assessee was rejected and the addition made by the ld. AO was confirmed by the ld. CIT(A). 4. The assessee assailed this issue before us by filing the present appeal. 5. Ld. AR submitted that since there was no exempted income earned by the assessee during the relevant assessment year, therefore, as per the settled legal position no disallowance/addition can be made u/s.14A r.w.rule 8D. It was further submitted by the ld. AR that by overshight while preparing the return of income an amount of Rs.2990/- was put as exempted income i.e. dividend from shares, therefore, even if a disallowance is made the same may kindly be restricted to Rs.2990/- only. To support his contentions, ld. AR relied on the following case laws :-

3 ITA No.86/RPR/22 i) Pr.CIT Vs. Oil Industry Development Board, [2019] 103 taxmann.com 326 (SC), wherein the Hon’ble Supreme Court has held as under: Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income (Applicability of) - In course of appellate proceedings, Tribunal held that in absence of any exempt income, disallowance under section 14-A of any amount was not permissible - High Court upheld order passed by Tribunal - Whether, on facts, SLP filed against decision of High Court was to be dismissed - Held, yes [Para 3] [In favour of assessee] ii) Pr.CIT Vs. State Bank of Patiala, [2018]; 99 taxmann.com 286 (SC); wherein the Hon’ble Supreme Court has held as under :- Section 14A, read with section 263, of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income (Computation of) - Assessment year 2010-11 - In course of assessment, Assessing Officer made addition on account of apportionment of expenses against exempted income under section 14A - Commissioner passed a revisional order directing Assessing Officer to enhance amount of addition under section 14A - Tribunal set aside revisional order as well as consequent assessment order passed by Assessing Officer enhancing addition made under section 14A - High Court upheld order of Tribunal holding that amount of disallowance under section 14A could be restricted to amount of exempt income only and not a higher figure - Whether on facts, SLP filed against decision of High Court was to be dismissed - Held, yes [Para 1 ][l n favour of assessee] iii) Pr.CIT Vs. Reliance Chemotex Industries Ltd., [2022] 138 taxmann.com 199 (Calcutta), wherein the hon’ble High Court has held as under :- Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income (General) - Assessment year 2010-11 - Whether disallowance under section 14A cannot exceed exempt income - Held, yes [Para 5] [In favour of assessee] iv) Pr.CIT Vs. Empire Package (P.) Ltd., [2017] 81 taxmann.com 198 (Punjab & Haryana), wherein the Hon’ble High Court has held as under :- Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income (Extent of disallowance) - Assessment year 2009-10 - Disallowance of entire

4 ITA No.86/RPR/22 tax exempt income under section 14A is not permissible [In favour of assessee] 6. On the other hand, ld. Sr. DR vehemently supported the orders of the authorities below. 7. We have considered the rival submissions and perused the relevant material available on record. Since the similar issue was dealt with by the coordinate bench of the Tribunal in the case of DCIT Vs. M/s Real Ispat and Powers Ltd., passed in ITA No.101/RPR/2021, vide order dated 14.06.2023, the relevant observations of the Tribunal are as under :- 9. We have considered the contentions of ld. AR, perused the material available on record, have kept in our consideration the submissions of revenue in the earlier hearing and perused the case laws referred to and relied upon in the instant case, it is settled principle of law now that in a case where there were no utilization of interest bearing funds for making the investment to earn exempted income, no other expenses incurred to earn the exempted income and no exempted income was earned during the relevant assessment year then disallowance u/s 14A read with rule 8D cannot be made. On perusal of facts of the present case which were presented before us by the ld. AR and the substance of the same is reproduced in the forgoing paras of this order in the form of statements of investment, interest etc. filed by the ld. AR, since in the case before us, it was established that no interest bearing funds were used for investment to earn exempted income, no other expenses were incurred to achieve exempted income, the interest paid also has no nexus with the amount of investment in question, however, an exempt income of Rs. 46,500/- was earned by the assessee in the form of dividend earned from long term investments. Therefore, we are of the considered view that disallowance u/s 14A read with rule 8D was not in accordance with law and therefore, the same is liable to be deleted, however, since, the assessee has gained an exempt income of Rs. 46,500/- during the relevant earlier year which was taken as Rs. 1,94,593/- by the ld. AO, this fact needs verification and thus, we restore the issue to the files of ld. AO, for the limited purpose to verify the amount of exempted income earned by the assessee during the year, with direction to restrict the disallowance made u/s 14A read with rule 8D to the amount of actual exempted income earned by the assessee during the year. Needless to say that assessee should cooperate with the ld. AO in verification of the issue remand back to the files of AO.

5 ITA No.86/RPR/22 8. Respectfully following the ratio of law as laid down by the Hon’ble Supreme Court in the case South Indian Bank Ld. Vs. CIT, reported in [2021] 438 ITR 1 (SC), followed by the coordinate bench of this Tribunal and other judgments as relied upon by the assessee, we are of the view that if there is no exempt income, no disallowance can be made u/s.14A r.w.r.8D, however, as fairly admitted by the ld. AR that there was a disclosure of exempt income of Rs.2990/-, therefore, the disallowance should be restricted to the said amount. Consequently, the order of the ld. CIT(A) and ld. AO are set aside on this issue and it is directed to restrict the disallowance made u/s.14A r.w.r.8D to the amount of actual exempt income earned by the assessee during the year i.e. Rs.2990/-. 9. In the result, appeal of the assessee is partly allowed. Order pronounced in the court on 11/07/2023. Sd/- Sd/- (RAVISH SOOD) (ARUN KHODPIA) न्याधयक सदस्य / JUDICIAL MEMBER लेखा सदस्य / ACCOUNTANT MEMBER रायपुर/Raipur; ददिांक Dated 11/07/2023 Prakash Kumar Mishra, Sr.P.S(on tour) आदेश की प्रधतधलवप अग्रेवषत/Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant- प्रत्यर्थी / The Respondent- 2. आयकर आयुक्त(अपील) / The CIT(A), 3. 4. आयकर आयुक्त / CIT 5. विभागीय प्रविविवि, आयकर अपीलीय अविकरण, रायपुर/ DR, ITAT, Raipur 6. गार्ा फाईल / Guard file. आदेशािुसार/ BY ORDER, सत्यावपत प्रधत //True Copy//

(Assistant Registrar) आयकर अपीलीय अधिकरण, रायपुर/ITAT, Raipur