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Income Tax Appellate Tribunal, NAGPUR BENCH : : NAGPUR
Before: SHRI S.S.GODARA & DR. DIPAK P. RIPOTE
ORDER PER DR. DIPAK P. RIPOTE, AM: These two appeals were heard together as common issue is involved. Both these appeals are against the order of ld.Commissioner of Income Tax(Appeals)-2, Nagpur dated 29.03.2019 for A.Y. 2013-14 and 2014-15 emanating from two different assessment orders passed under section 143(3) of the & 20/NAG/2021 Bhandara Urban Co-operative Bank Ltd., [A] Income Tax Act, 1961. We take appeal in as lead case. The grounds of appeal
for A.Y.2013-14 as under : “1. That on the facts and circumstances of the case, the Order passed by Ld. CIT (Appeals) is bad in law.
2. That on the facts and circumstances of the case, the Ld. CIT (Appeals) erred in confirming the disallowance u/s 14A of the IT Act. Learned CIT (Appeals) erred in confirming that appellant Bank has not earned any exempt income and therefore the disallowance u/s 14A of the IT Act r.w.r 8D of the IT Rules cannot be sustained.
3. That on the facts and circumstances of the case, Ld. CIT (Appeals) erred in not appreciating the CBDT circulars and notifications relied by the assessee and deleted the disallowance made u/s 14A of the Act.
4. That any other ground that may be raised during the course of hearing of the appeal may be admitted.
2. The grounds of appeal for A.Y.2014-15 as under :
5. That on the facts and circumstances of the case, the Order passed by Ld. CIT (Appeals) is bad in law.
6. That on the facts and circumstances of the case, the Ld. CIT (Appeals) erred in confirming the disallowance u/s 14A of the IT Act. Learned CIT (Appeals) erred in confirming that appellant Bank has not earned any exempt income and therefore the disallowance u/s 14A of the IT Act r.w.r 8D of the IT Rules cannot be sustained.
7. That on the facts and- circumstances of the case, Ld. CIT (Appeals) erred in not appreciating the CBDT circulars and notifications relied by the assessee and deleted the disallowance made u/s 14A of the Act.
8. That any other ground that may be raised during the course of hearing of the appeal may be admitted. & 20/NAG/2021 Bhandara Urban Co-operative Bank Ltd., [A] Findings and Analysis : 3. We have heard both the parties and perused the records. It has been submitted by the ld.Authorised Representative(ld.AR) of the assessee, there was no exempt income for both these assessment years and hence there should not have been any disallowance under section 14A of the Act.
4. On perusal of the assessment order, it is observed that Assessing Officer has mentioned that there was no exempt income for A.Y.2013-14 and A.Y.2014-15. The Hon'ble Bombay High Court in the case of Pr.CIT Vs Kohinoor Project (P.) Ltd [2020] 121 taxmann.com 177 (Bombay) has held as under : Quote, “ Section 14A of the Act deals with expenditure incurred in relation to income not includible in total income. As per sub-section (1) of section 14A, for the purpose of computing the total income, 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. In Cheminvest Ltd. (supra) Delhi High Court examined the expression "does not form part of the total income" as appearing in sub-section (1) of section 14A of the Act. Delhi High Court held that the said expression 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. It was clarified that section 14A will not apply & 20/NAG/2021 Bhandara Urban Co-operative Bank Ltd., [A] if no exempt income is received or receivable during the relevant previous year.
9. This view has been followed in several decisions by this Court. In fact in Pr. CIT v. Man Infraprojects Ltd. [IT Appeal No. 259 of 2017, dated 9-4-2019], this Court followed the decision of the Delhi High Court in Cheminvest Ltd. (supra). It was further noted in MAN Infraprojects Ltd. that the decision of the Delhi High Court was challenged by the revenue before the Supreme Court by fling SLP but the SLP was dismissed.
10. In the light of the above, we hold that no substantial question of law arises from the order of the Tribunal. The appeal is devoid of merit and is accordingly, dismissed.” Unquote.
The ITAT Pune Bench in the case of Kumar Properties and Real Estate (P.) Ltd. Vs DCIT ,[2021] 128 taxmann.com 364 (Pune - Trib.) has held as under : Quote, “Having heard the rival submissions gone through the relevant material on record, it is found as an admitted position that the assessee, in fact, did not earn any exempt income from the investment made in Marigold Properties during the year under consideration. The Hon'ble Delhi High Court in Cheminvest Ltd. v. CIT [2015] 61 taxmann.com 118/234 Taxman 761/378 ITR 33 has held that if there is no exempt income, there can be no question of making any disallowance u/s 14A of the Act. Similar view has been taken by the Hon'ble Delhi High Court in CIT v. Holcim India (P.) Ltd . [2015] 57 taxmann.com 28. More recently the Hon'ble jurisdictional High Court in Pr. CIT v. Kohinoor Projects (P.) Ltd . [2021] 276 Taxman 180/[2020] 121 taxmann.com 177/425 ITR 700 (Bom.) has held that in the absence of any exempt income, there cannot be any disallowance of expenses u/s 14A of the Act.
The raison d'etre given by the ld. first appellate authority for sustaining the disallowance that the computation of income of the firm may result into positive income as well as negative income, i.e. loss and therefore, the provision of section 14A do not prohibit disallowance of expenditure in relation to exempt & 20/NAG/2021 Bhandara Urban Co-operative Bank Ltd., [A] loss incurred by the assessee, is neither here nor there. The Hon'ble jurisdictional High Court in Pr. CIT v. HSBC Invest Direct (India) Ltd. [2020] 421 ITR 125 (Bom.) has held 'that disallowance cannot exceed the exempt income so earned by the assessee during the year under consideration.' If the disallowance is to be restricted to the amount of exempt income, the sequitur is that there can never be any disallowance u/s 14A in the absence of positive exempt income for the year. Insofar as section 14A is concerned, there is no qualitative difference between two situations, first, where the exempt income is Nil and second, where there is negative income for the year joined with a possibility of earning positive income in future. As the assessee in the instant case admittedly did not earn any exempt income during the year, respectfully following the ratio of the above decisions, we hold that no disallowance was called for. ” Unquote.
Respectfully following the Hon'ble Bombay High Court and ITAT Pune it is held that since there was no exempt income during the year; disallowance under section 14A is not maintainable. Accordingly, Assessing Officer is directed to delete the disallowance made under section 14A of the Act. Accordingly, grounds of appeal raised by the assessee are allowed.
In the result, appeal of the assessee in is allowed.
ITA No.20/NAG/2021 : 8. The facts of are similar to the facts of ITA & 20/NAG/2021 Bhandara Urban Co-operative Bank Ltd., [A] No.19/NAG/2021 shall apply mutatis mutandis to this appeal also, accordingly, grounds of appeal raised by the assessee in is allowed.
In the result, appeal of the assessee in is allowed.
To sum up, both appeals of assessee are allowed.
Order pronounced in the open Court on 9th October, 2023.