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Income Tax Appellate Tribunal, : PANAJI BENCH: GOA
Before: SHRI CHANDRA MOHAN GARG & SHRI GIRISH AGRAWAL
IN THE INCOME TAX APPELLATE TRIBUNAL : PANAJI BENCH: GOA BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.340/PAN/2018 Assessment Year: 2013-14 M/s. Kineco (P) Ltd. Income Tax officer, Ward- 60, Pilerne Industrial 2(4), Panaji. Vs. Estate, Pilerne, Bardez Goa- 403511. (PAN: AABCM8681P) (Appellant) (Respondent) Present for: Appellant by : Shri Jitendra Jain, Advocate Respondent by : Shri Mayur Kamble, Sr. DR Date of Hearing : 15.06.2022 Date of Pronouncement : 30.08.2022 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: This appeal by the assessee is directed against the order of ld. CIT(A)-2, Panaji vide ITA No. 418/CIT(A)-2/PNJ/2017-18 dated 01.06.2018 for A.Y. 2013-14 passed against the assessment order u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) by ITO, Ward-2(4), Panaji dated 22.03.2016.
Shri Jitendra Jain, Advocate appeared on behalf of the assessee and Shri Mayur Kamble, Sr. DR appeared on behalf of the revenue.
The only issue in this appeal is in respect of disallowance of expenses relating to exempt income by invoking the provisions of section 14A of the Act read with Rule 8D(2)(ii) of the Income Tax Rules, 1962 (hereinafter referred to as the “Rules”) of Rs.27,94,090/- and under rule 8D(2)(iii) of the Rules of Rs.1,13,725/-, both totaling to Rs.29,07,815/-. Assessee has raised following three grounds relating to the disallowance made u/s. 14A of the Act.
2 ITA No.340/PAN/2018 Kineco (P) Ltd., A.Y: 2013-14 “1. In the facts and circumstances of the case the Commissioner of Income Tax (Appeal) erred in confirming the action of the Assessing officer of disallowing of expenditure (other than the interest) of Rs.1,13,725 u/s 14A of I.T. Act read with Rule 8D(iii) despite the fact that no dividend income exempt from tax was received by the appellant company during the year under consideration. 2. In the facts and circumstances of the case the Commissioner of Income Tax (Appeal) erred in directing the Assessing officer to examine the claim of the appellant company that no portion of interest on borrowed funds could be disallowed u/s 14A of LT. Act read with Rule 8D(ii) since it had not utilised borrowed funds for the purpose of making investment in shares, instead of directing him to delete the disallowance of Rs.29,07,815/- made by him u/s 14A of I.T. Act read with Rule 8D (ii) in his assessment order for the reason that no dividend income exempt from tax was received by the appellant company during the year under consideration. 3. In the facts and circumstances of the case the Commissioner of Income Tax (Appeal) erred in partially confirming the disallowance made u/s 14A of I.T. Act by the assessing officer in his assessment order although it is well settled that the provisions of section 14A are not applicable to the case of the appellant company for the year as no dividend income exempt from tax was received or receivable by it during the year under consideration.” 4. Brief facts as culled out from records are that assessee filed its return of income on 30.09.2013 reporting total loss of Rs.10,49,28,735/-. In the course of assessment it was noted by the Ld. AO that assessee has made investments in shares of subsidiary companies, for which total investments at the end of the year is at Rs.3,49,38,670/- as against investments held at the beginning of the year which was at Rs.1,05,51,500/-. Ld. AO further noted that assessee has not disallowed any expenditure u/s. 14A read with Rule 8D against the exempt income on account of direct or indirect expenses incurred. Ld. AO further noted that assessee had taken interest bearing unsecured loans and has not produced any evidence to prove that the investments are not from the borrowed funds. Assessee submitted that disallowance under section 14A of the Act is not applicable since it has not earned any exempt income during the year. Ld. AO rejecting the contention of the assessee proceeded to compute the disallowance by applying rule 8D and thus made a disallowance of Rs.28,94,090/- under rule 8D(2)(ii) and of Rs.1,13,725/- under rule
3 ITA No.340/PAN/2018 Kineco (P) Ltd., A.Y: 2013-14 8D(2)(iii) of the Rules. Aggrieved, the assessee went in appeal before the ld. CIT(A), who confirmed the disallowance made by the Ld. AO. Aggrieved, the assessee is in appeal before this Tribunal.
Ld. Counsel for the assessee pointed out that since assessee did not receive any exempt income during the year on the investments, the question of incurring any interest and administrative expenses for earning exempt income does not arise at all. He also submitted that assessee had not taken any loans for making the investments. It was also pointed out that the Ld. AO, without linking the investments in shares with interest bearing loans proceeded to make the disallowance of interest by applying Rule 8D(2)(ii). Ld. Counsel for the assessee submitted that investments of Rs.3,31,33,500/- were made during the year in the shares of company called Kineco Kaman Composites India Pvt. Ltd. by transferring to that company the fixed assets of similar value and another investment of Rs.17,96,670/- were made in company called Kineco Alte Train Technologies Pvt. Ltd. by utilizing profits before depreciation of Rs.1,73,42,813/- earned by the assessee during the year. Thus, based on this factual position, Ld. Counsel strongly submitted that non-utilization of interest bearing funds for making the investment should lead to no disallowance of any portion of interest of Rs.44,30,021/- claimed by the assessee in its P&L Account for the year.
5.1. He also submitted that since no exempt income was earned during the year, disallowance of Rs.1,13,725/- under Rule 8D(2)(iii) of the Rules is ought to be deleted.
To buttress his contentions, Ld. Counsel placed reliance on the decision of Hon’ble jurisdictional High Court of Bombay, Nagpur Bench in the case of PCIT Vs. Ballarpur Industries Ltd. in ITA No. 51 of 2016 dated 13.10.2016 wherein it was held that when there was no exempt income earned by the assessee, provisions of section 14A of the Act
4 ITA No.340/PAN/2018 Kineco (P) Ltd., A.Y: 2013-14 would not apply for the purpose of making disallowance. The brief judgment is reproduced as under:
“By this income tax appeal, the appellant-Department challenges the' orders of the Commissioner of Income Tax and the Income Tax Appellate Tribunal, Nagpur. On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding of fact that there was no exempt income earned by the assessee. While doing so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression "does not form part of the total income" in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the 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. The Income Tax Appellate Tribunal held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income. The findings of facts recorded by both the Authorities do not give rise to any substantial question of law. Since no substantial question of law arises in this income tax appeal, the income tax appeal is dismissed with no order as to costs.” (emphasis supplied by us by underline) 6.1. Ld. Counsel further placed reliance on the decision of PCIT Vs. GVK Project & Technical Services Ltd. (2019) 106 taxmann.com 181 (SC) wherein the SLP was dismissed for the appeal filed by the Department against the order of Hon’ble High Court of Delhi in CIT Vs. GVK Project & Technical Services Ltd. (2019) 106 taxmann.com 180 (Del.) dated 28.05.2018. It was held by the Hon’ble Delhi High Court that in absence of any exempt income, disallowance was impermissible. Ld. Counsel pointed to the computation of income placed at page 1 of the paper book to demonstrate that assessee did not earn any exempt income during the year and thus, no disallowance u/s. 14A of the Act is warranted.
5 ITA No.340/PAN/2018 Kineco (P) Ltd., A.Y: 2013-14 6.2. During the course of his arguments, Ld. Counsel for the assessee also referred to the amendment inserted by way of an explanation to section 14A of the Act by the Finance Act, 2022, w.e.f. 01.04.2022. He submitted that the said amendment is prospective i.e. applicable from 01.04.2022 as stated in the Finance Act, 2022 itself and cannot be applied retrospectively even if no exempt income has been earned by the assessee during the year.
On the other hand, Ld. CIT, DR relied on the order of the authorities below.
We have heard the rival submissions and gone through the facts and circumstances of the case. Admittedly, it is a fact on record that assessee did not earn any exempt income during the year as referred to by the Ld. Counsel from the computation of income placed in the paper book. Both, Ld. AO and Ld. CIT(A) have not disputed this fact and also Ld. Sr. DR did not bring anything contrary for the same. Accordingly, respectfully following the judgment of Hon’ble jurisdictional High Court of Bombay, Nagpur Bench in the case of PCIT Vs. Ballarpur Industries Ltd. (supra), so also the decision of Hon’ble Delhi High Court in the case of GVK Project & Technical Services Ltd. (supra), we direct the Ld. AO to delete the disallowance made under Rule 8D(2)(ii) and Rule 8D(2)(iii) totaling to Rs.29,07,815/-. In respect of the reference made by the Ld. Counsel of the assessee to the amendment inserted by way of explanation to section 14A of the Act for its applicability prospectively or retrospectively in a case where no exempt income is earned, we note that subsequent to the conclusion of the instant hearing, the Coordinate Bench of ITAT, Mumbai held it to be prospectively applicable in the case of ACIT Vs. K. Raheja Corporate Services Pvt. Ltd. in ITA Nos. 2521-2527/Mum/2021 dated 17.06.2022. However, on the same issue Coordinate Bench of ITAT, Guwahati held it to be applicable retrospectively in the case of ACIT Vs. Williamson Financial Services
6 ITA No.340/PAN/2018 Kineco (P) Ltd., A.Y: 2013-14 Ltd. in ITA Nos. 154-156/Gau/2019 dated 06.07.2022. We find that this aspect has been considered by the Hon’ble High Court of Delhi in its judgment dated 20.07.2022 in the case of PCIT Vs. Era Infrastructure (India) Ltd. in ITA No. 204/2022 & C. M. Application No. 31445/2022 wherein it has held the amendment to be applicable prospectively. Respectfully following the decision of Hon’ble Delhi High Court also, we are of the view that no disallowance is required to be made as no exempt income has been earned by the assessee. Therefore, this ground of appeal of the assessee is allowed.
In the result, appeal of assessee is allowed.
Order pronounced under Rule 34(4) of the IT (AT) rules, 1963 on 30.08.2022. Sd/- Sd/- (CHANDRA MOHAN GARG) (GIRISH AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 30.08.2022 JD, Sr. P.S. Copy to: 1. The Appellant: 2. The Respondent:. 3. CIT(A)-2, Panaji 4. The CIT- Panaji. 5. The DR, ITAT, Panaji Bench, Goa //True Copy// [ By Order
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