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Income Tax Appellate Tribunal, VISAKHAPATNAM BENCH, VISAKHAPATNAM
Before: SHRI DUVVURU R L REDDY, HON’BLE & SHRI S. BALAKRISHNAN, HONBLE
PER S. BALAKRISHNAN, ACCOUNTANT MEMBER
This appeal filed by the Revenue against the order of the Ld. CIT (A), National Faceless Appeal Centre (NFAC), Delhi DIN & order No. ITBA/NFAC/S/250/2021-22/103504838(1), dated 24/08/2021 passed U/s 143(3) r.w.s 250(6) of the IT Act, 1961 for the AY 2015-16.
The Revenue has raised four grounds in its appeal and they are extracted herein below for reference:
“1. The order of the Ld. CIT(A) is erroneous both on facts and in law.
2. The Ld. CIT(A) has erred in directing the AO to delete the addition made U/s. 14A of the Act, when the CBDT vide its circular No. 5/2014 has clarified that Rule 8D read with sec. 14A of the Act provides disallowance of expenditure even where taxpayers in a particular year has not earned any exempt income.
Besides the merits in facts and law, it is also submitted that the addition is on account of RAP audit objection accepted by Department in this case. Therefore, the case is covered in exceptional clause (c) of para 10 of the CBDT Circular No. 3/2018 ie., Revenue Audit Objection accepted by the Department. 4. The appellant craves leave to add or delete or amend or substitute any ground of appeal
before and/or at the time of hearing of appeal.”
3. Brief facts of the case are that the assessee company is engaged in the business of manufacturing of Ferro Alloys, filed its return of income for the AY 2015-16 on 30/09/2015 admitting an income of Rs. 74,40,610/-. Subsequently, the case was selected for limited scrutiny under CASS and notices u/s. 143(2) and 142(1) were issued to the assessee. The limited scrutiny is with respect to (i) large interest expenses relatable to exempt income (u/s. 14A),
(ii) large increase in investment in unlisted equities during the year (iii) mismatch in amount paid to related persons U/s. 40A(2)(b) reported in Audit Report and ITR.
Accordingly, the Ld. AO completed the assessment u/s. 143(3) of the Act after making a disallowance of Rs.8,97,315/- u/s. 14A of the Act.
Aggrieved by the order of the Ld. AO, the assessee preferred an appeal before the Ld. CIT (A), National Faceless Appeal Centre (NFAC), Delhi.
On appeal, the Ld. CIT (A) following the decision of the Hon’ble Delhi High Court in the case of Cheminvest Limited vs. CIT (2015) 378 ITR 33 (Delhi), following the ratio laid down in Holcim India Private Limited, wherein it was held that the expression ‘does not form part of the total income’ in section 14A envisages that there should be an actual receipt of income which was not includible in the total income, during the relevant year for the purpose of disallowing any expenditure incurred in relation to the said income and granted relief to the assessee. Aggrieved by the order of the Ld. CIT(A), NFAC, Delhi, the Revenue is in appeal before us.
Before us none appeared on behalf of the assessee to represent the case. Considering the nature of the issues involved in the appeal, we proceed to adjudicate the appeal based on the material on record. From the record, it is the submission of the assessee company that it does not have any exempt income for the AY 2015-16. Before us, the Ld. DR submitted that as per the CBDT Circular No. 5/2014, dated 11/2/2014 disallowance of expenditure is warranted even when there is no exempt income includible in the total income of the assessee.
The Ld. DR pleaded that the order of the Ld. AO be upheld.
7. We have heard the Ld. DR and carefully perused the submission of the assessee-company and the documents produced before us as well as the orders of the authorities below. Admitted facts are that the assessee did not earn any exempt income which is forming part of the total income for the AY 2015-16. In the given circumstances, the question for our consideration is that as to whether the disallowance can be made U/s. 14A of the Act in the absence of exempt income. The law in this regard is now fairly well settled. After carefully examining the order of the authorities below, we find that the assessee company has not earned any exempt income for the AY under consideration. The Hon’ble Supreme Court in CIT (Central) 1 vs Chettinad Logistics P Ltd [95 Taxmann.com 250 (SC)] has categorically held that section 14A could not be invoked when there is noo exempt income. There should be actual receipt of income which was not includable in the total income during the relevant previous year for the purpose of disallowing any expenditure in relation to the said income. Wherever there is no exempt income includible in the total income of the assessee, the provisions of section 14A cannot be invoked. The Hon’ble Delhi High Court also referred to the decision of the Special Bench of the ITAT in this very case. The Hon’ble High Court has also referred to three decisions of different High Courts which have decided the issue against the Revenue viz., (i) decision of the Hon’ble High Court of Punjab & Haryana in the case of CIT vs. Lakhani Marketing Incl. in dated 2/4/2014 (ii) CIT vs. Hero Cycles Limited (2010) 323 ITR 158 (P & H High Court) and (iii) decision of the Gujarat High Court in the case of CIT vs. Corrtech Energy (P) Ltd (2014) 223 taxmann 130 (Guj.). These decisions reiterated that when an assessee had not earned any exempt income to be included in the total income, in the relevant AY in question corresponding expenditure could not be worked out for disallowance. Respectfully following the above cited judgments Hon’ble Supreme Court and of various High Courts, we are of the considered opinion that the provisions of section 14A cannot be invoked in the case of the assessee as there is no exempt income in the hands of the assessee company. Accordingly, we find no infirmity in the order of the Ld. CIT(A) who has rightly deleted the addition made by the Ld. AO and there is no need to interfere with the decision of the Ld. CIT (A).
In the result, appeal of the Revenue is dismissed.
Pronounced in the open Court on the 07th April, 2022.