DCIT, CC-I, LUDHIANA vs. M/S COSMOS INFRA ENGINEERING (INDIA) LTD., DELHI

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ITA 1636/CHANDI/2017Status: DisposedITAT Chandigarh26 April 2018AY 2014-155 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 the CIT(Appeals) correctly deleted the disallowance by following the ITAT's decision in the assessee's own case for earlier years, which stated that no disallowance under Section 14A is warranted if no exempt income is earned. The Tribunal also noted that CBDT circulars are not binding on courts.

What were the facts?

The Assessing Officer disallowed expenses under Section 14A, invoking Rule 8D, despite the assessee claiming no exempt income was earned and sufficient interest-free funds were available. The CIT(Appeals) deleted the disallowance, following ITAT's decision in the assessee's own case for earlier years.

What were the issues?

Whether disallowance under Section 14A is attracted even if no exempt income is earned during the year, and whether CBDT circulars override judicial pronouncements.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(2)Show list

Detected automatically from the text. Citations are also linked where they appear in the judgment. The count shows how many other judgments on BharatTax rely on the same authority.

Income Tax Appellate Tribunal, DIVISION BENCH ‘A’, CHANDIGARH

Before: SHRI SANJAY GARG & MS. ANNAPURNA GUPTA

For Respondent: Shri Sudhir Sehgal, Adv
Hearing: 16.04.2018Pronounced: 26.04.2018

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH ‘A’, CHANDIGARH

BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.1636/Chd/2017 (Assessment Year : 2014-15) The D.C.I.T., Vs. M/s Cosmos Infra Engineering CC-1, (India)Ltd., 4-Battry Line, Civil Ludhiana. Lines, Delhi. PAN: AAACC0017C (Appellant) (Respondent)

Appellant by : Smt.Zenia Handa, Addl.CIT Respondent by : Shri Sudhir Sehgal, Adv. Date of hearing :16.04.2018 Date of Pronouncement :26.04.2018

ORDER PER ANNAPURNA GUPTA, A.M. :

This appeal has been preferred by the assessee against

the order of Ld. Commissioner of Income Tax (Appeals)-5,

Ludhiana (hereinafter referred to as (‘Ld.CIT(Appeals)’)

dated 26.9.2017 relating to assessment year 2014-15.

2.

The sole issue in the present appeal pertains to

deletion of disallowance made to expenses u/s 14A of the

Income Tax Act, 1961 (in short ‘the Act’) incurred in

relation to earning exempt income as per the provisions of

section 14A of the Act. The grounds raised by the Revenue

read as under:

“1. The Ld. C1T(A) has erred both in law and on facts while holding that no disallowance u/s 14A can be made if there is no tax free income earned during the year by ignoring the CBDT circular no. 5/2014 dated 1st Feb 2014 which states that disallowance of expense for earning exempt income u/s 14A read with rule 8D would be attracted even if

corresponding exempt income has not been earned during the year. 2. The Ld. CIT(A) has erred both in law and on facts in deleting the addition of Rs.1,67,95,000/- made u/s 14A r.w.r 8D of the Income Tax Act, 1961 ignoring the fact that the assessee has not maintained any separate account for interest free/interest bearing funds vis-à-vis exempted investments. 3. The C1T(A) has erred in re-storing the aforesaid issue/(s) ignoring that C1T(A) has no power u/s 251 of the I.T. Act,1961 to restore the issuers) under appeal. 4. The Appellant craves leave to add or amend the grounds of appeal on or before is heard and disposed off.” 3. Brief facts relevant to the issue are that during

assessment proceedings the Assessing Officer noted that the

assessee had shown investments in shares amounting to

Rs.641.14 lacs. The assessee was asked as to why

disallowance u/s 14A r.w.r. 8D of the Income Tax Rules not

be made in relation to the income earned on these

investments by way of dividend which are exempt from

taxation. Due reply was filed by the assessee which is

reproduced at page 2 of the assessment order wherein the

assessee submitted and established the nexus of the

interest bearing funds with the business of the assessee

ruling out any expenditure incurred by way of interest for

earning the exempt income. It was also submitted that no

exempt income had been earned during the relevant

assessment year and further that it had sufficient interest

free funds available in the form of share capital, reserves

and surplus for making the impugned investments. The

Assessing Officer, however, was not satisfied with the reply

of the assessee and invoking the provisions of section 14A

r.w.r. 8D calculated the disallowance to be made at

Rs.1,67,95,000/- and added the same to the income of the

assessee.

4.

The matter was carried in appeal before the

Ld.CIT(Appeals) wherein the assessee filed copies of various

judgments on the issue including the copy of the

CIT(Appeals)’s order in assessee’s case itself granting relief

to the assessee and pertaining to assessment year 2011-12.

Further it was pointed out that the ITAT Chandigarh Bench

had decided the issue in favour of the assessee in

assessee’s case itself pertaining to assessment years 2011-

12, 2012-13 in ITA Nos.409 & 406/2015 and ITA

No.467/Chd/2016. The Ld.CIT(Appeals) taking into account

the above and following the decision of the I.T.A.T. in the

case of assessee itself in earlier assessment years directed

the Assessing Officer to carry out the same exercise with

respect to tax free income and held that if there was no tax

free income during the year, the Assessing Officer need not

make any disallowance u/s 14A of the Act and otherwise he

may decide the issue as per law. The relevant findings of

the Ld.CIT(Appeals) at para 4.2 of the order are as under:

“The facts of the case, the order passed by the A.O. and the arguments of the AR during the appellate proceedings have been considered. The orders passed by the CIT(A) and the ITAT for earlier years have also been perused. There is merit in the arguments of the AR that the facts of the present case under consideration are similar to the facts of assessment year 2011-12 & 2012-13 decided by the Hon'ble ITAT vide order dated 21/12/2016 mentioned above and hence the disallowance made by the AO is liable to be deleted. Therefore, respectfully following the above mentioned order passed by the Hon'ble ITAT, Chandigarh Bench, in the case of the assessee itself for assessment year 2011-12 & 2012-13, the present appeal is decided in the same manner as per the decision of the

Hon'ble ITAT referred above. The AO is directed to carry out the same exercise w.r.t. tax free income and if there is no tax free income during the year, the Assessing Officer is directed not to make disallowance under section 14A of the Act, otherwise, the Assessing Officer has to decide the case As per law.” 5. Aggrieved by the same the Revenue has come up in

assessment proceedings before us.

6.

During the course of hearing the Ld. DR reiterated the

contentions raised in its grounds that the directions of the

Ld.CIT(Appeals) to make no disallowance of expenditure u/s

14A in the absence of any tax free income was against the

directions given by the CBDT in its Circular No.5 of 2014

which categorically stated that even in the absence of

earning any exempt income disallowance u/s 14A is to be

made.

7.

The Ld. counsel for assessee, on the other hand, relied

upon the order of the CIT(Appeals) reiterating the fact that

identical issue had been decided in favour of the assessee

in earlier years i.e. assessment years 2011-12 and 2012-13

by the I.T.A.T. in its aforementioned order and further that

it was settled law that in the absence of any exempt income

no disallowance u/s 14A of the Act was warranted.

8.

We have heard the rival contentions, perused the

orders of the authorities below and gone through the

documents placed before us. We have also gone through the

order of the ITAT in the case of the assessee for preceding

years i.e. A.Y. 2011-12 and 2012-13. We find no infirmity in

the order of the Ld.CIT(Appeals), considering that he has

decided the issue following the decision of the ITAT in the

assessees own case in earlier years on identical facts and

circumstances wherein the disallowance was deleted

following the decision of the Jurisdictional High Court in

the case of CIT Vs. Lakhani Marketing Incl. (2014) 272 CTR

265,laying down the proposition that where no exempt

income had been earned during the year no disallowance

u/s 14A is warranted. No distinguishing facts have been

brought to our notice by the Ld.DR in the present case as

compared to the earlier years decided by the ITAT. Therefore

the order of the CIT(A) warrants no interference. Moreover

the reliance placed by the Ld.DR on the CBDT Circular

merits no consideration since the same are not binding on

courts but only on authorities under the respective statutes

as held by the apex court in Commissioner of Central Excise

vs Ratan Melting and Wire Industries reported in 220 CTR

98.

9.

In view of the above, the grounds of appeal raised by

the Revenue are dismissed.

10.

In the result, the appeal of the Revenue is dismissed.

Order pronounced in the Open Court.

Sd/- Sd/-

(SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 26th April, 2018 *Rati* Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) 4. The CIT 5. The DR Assistant Registrar, ITAT, Chandigarh

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