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Income Tax Appellate Tribunal, DELHI BENCH “E”: NEW DELHI
INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “E”: NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER AND MS. ASTHA CHANDRA, JUDICIAL MEMBER Asstt. Year: 2013-14 Monnet Power Co. Ltd. Vs. DCIT, Circle-17(1) 11, Masjid Moth, New Delhi. Gr. Kailash, Part-II, New Delhi – 110 048. PAN AAFCM0061R (Appellant) (Respondent) Assessee by: Shri V.K. Jain, CA Shri Vikas Singh, CA Department by: Shri Sumit Kumar Verma, Sr. DR Date of Hearing: 23.03.2023 Date of 23.05.2023 pronouncement: O R D E R PER ASTHA CHANDRA, JM
The appeal filed by the assessee is directed against the order dated 17.08.2017 of the Ld. Commissioner of Income Tax (Appeals) - 37, New Delhi (“CIT(A)”) pertaining to Assessment Year (“AY”) 2013-14.
The grounds raised
by the assessee are as under:- “1. The order passed by the Ld. CIT(A) is bad in law, wrong on facts and against the principles of natural justice.
2. The Ld. CIT (A) has grossly erred in holding that provisions of Section 14A read with Rule 8D are applicable and failed to appreciate that total expenses of Rs.3,16,78,497/- debited to Profit & Loss Account for Year Ended 31.03.2013 which were disallowed in the computation of income as preoperative expenses to be capitalized to fixed assets and therefore no expenses claimed on taxable income and / or exempted income hence the question of disallowance of Rs.97,13,193/- u/s 14A does not arise at all.
That on the facts and in circumstances of the case Ld. CIT(A) has erred in directing to the Assessing Officer to verify the opening and closing amount of investment for calculating disallowance u/s 14A r.w.r. 8D as the Ld. AO while computing the disallowance u/r 8(iii) has wrongly considered the investments as on 01.04.2012 at Rs. 51,000/- instead of Rs 1000/- and on 31.03.2013 at Rs. 3,885,226,591/- instead of Rs. 51,000/- duly disclosed in audited Balance Sheet. The figure of Rs. 3885226591/-as on 31.03.2013 is repeated from AY 2012-13 and is nowhere appearing in AY 2013- 14.” 3. All the three grounds relate to disallowance of Rs. 97,13,193/- under section 14A of the Income Tax, 1961 (the “Act”). The Ld. Assessing officer (“AO”) has discussed the issue in para 3 of the assessment order. On examination of the balance sheet, the Ld. AO found that the assessee has made investment in shares and earned exempted income of Rs. 52,04,367/- during the year. However, no disallowance under section 14A of the Act was made while computing income of the year. According to the Ld. AO the assessee has made investment of Rs. 51,000/- during the year but in the preceding year i.e. AY 2012-13 the assessee had made investment of Rs. 3,88,52,591/- which continued in the year of account i.e. AY 2013-14. The assessee must have incurred expenditure in taking decisions pertaining to investment made and certain other administrative expenses. The Ld. AO, therefore, calculated the disallowance under section 14A r.w. Rule 8D of the Income Tax Rules, 1962 (“Rule”) as under:- S, No. Particulars Amounts(Rs.) Amounts(Rs.) (i) Expenditure directly relating to Nil income which does not form part of total income (ii) Expenditure incurred by way of Interest (A*B/C) (iii) One half % of average value of Investment income from which Does not form part of total income Investment as on 01,04.2012 51000/-. Investment as on 01.04.2013 3885226591/- Average of investment 1942638795/- One half % of average value of 97,13,193/- Investment subject to maximum Of expenditure (avg. X 0.5%) Total disallowance as per Rule 97,13,193/- 8D This resulted in the impugned disallowance.
On appeal filed by the assessee before the Ld. CIT(A), the disallowance was confirmed subject to verification of the figure of investment picked up from the records of the earlier year(s) while working out the disallowance under Rule 8D. This has brought the assessee before the Tribunal.
The Ld. AR reiterated the submissions made before the Ld. CIT(A), a copy thereof is placed at page 45 to 56 of the Paper Book. His argument was that if no expenditure has been incurred, no disallowance under section 14A of the Act is called for. Drawing our attention to computation of total income appearing at page 2 of the Paper Book, the Ld. AR submitted that the assessee declared total income (receipts) at Rs. 5,26,14,687/- against which expenses at Rs. 31678497/- were claimed, giving net profit of Rs. 2,09,36,189/-. Out of total income dividend income of Rs. 52,04,367/- was claimed as exempt under section 10(34) of the Act. The Ld. AR further submitted that during the year the total expenses incurred by the assessee amounted to Rs. 3,16,78,497/- which the assessee debited to its profit and loss account. The details of expenses are at page 12 of the Paper Book. However, the assessee suo moto disallowed the said expenditure in its computation of total income as pre-operative expenses and capitalised the same under the head ‘Capital Work-in-Progress’. The Ld. AR argued that when the assessee has not claimed deduction of any expenses in its return, the question of any disallowance under section 14A r.w. Rule 8D(iii) does not arise.
The Ld. AR pointed out that during the course of assessment proceedings, the assessee vide letter dated 19.03.2016 submitted before the Ld. AO that similar disallowance under section 14A made in AY 2011-12 was deleted by the Ld. CIT(A) vide his order dated 26.06.2014 as no business expenditure was claimed in the computation of income. The assessee placed on record working of disallowance under section 14A r.w. Rule 8D at page 37 of Paper Book as per which, disallowance, if at all, works out to Rs. 130/- only. Similar disallowance of Rs. 97,13,069/- made in AY 2012-13 has also been deleted by the predecessor Ld. CIT(A), copy of which is placed at pages 38 to 44 of the Paper Book.
The Ld. DR supported the order of the Ld. CIT(A).
We have given careful thought to the submission of the parties and perused the record. Assessment order reveals that the only reason given by the Ld. AO for the impugned disallowance is that the assessee did not make any disallowance under section 14A in computation of income completely ignoring the assessee’s explanation offered before him that the expenditure claimed in profit and loss account amounting to Rs. 3,16,78,497/- has duly been disallowed in computation of total income and treated as pre-operative expenses capitalised as fixed assets. During the year the assessee had no business income and therefore, no expenses were claimed as business expenses or any expense under the head “other sources”. Hence, no disallowance of expenses is called for under section 14A r.w. Rule 8D. The Ld. CIT(A) also misapplied the decision of the Hon’ble Supreme Court in Godrej & Boyce’s case reported in (2017) 81 taxmann.com 111(SC) to the facts of the assessee’s case. The legal import of the decision (supra) is that the expenditure incurred in earning the exempt income cannot be allowed to be deducted which is as per law enshrined in section 14A of the Act. The Ld. CIT(A) also discarded the explanation of the assessee that no expenditure was incurred to earn dividend income since the entire expenditure had been capitalised as ‘Capital Work-in Progress’ without assigning any valid legal and tenable reasons. Identical disallowances made in preceding AY 2011-12 and 2012-13 have been deleted by the Ld. predecessors of the Ld. CIT(A). Rule of consistency must be adhered to if the facts and circumstances of the case remain the same. We, therefore, decide ground No. 1 and 2 in favour of the assessee.
As regards ground No. 3 the Ld. CIT(A) has already given direction for verification of opening and closing amount of investment for calculating disallowance under section 14A r.w. Rule 8D. We reiterate the same direction. The Ld. AO shall do the needful after allowing reasonable opportunity of hearing to the assessee.
In the result, the appeal of the assessee is allowed subject to the above directions.
Order pronounced in the open court on 23rd May, 2023.