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2015 (11) TMI 1548 - ITAT DELHI

2015 (11) TMI 1548 - ITAT DELHI - TMI - Disallowance u/s 14A - Held that:- No disallowance u/s 14A of the Act can be made if there is no income earned. - Decided in favour of assessee. - ITA Nos. 1150 & 1151/Del./2013 - Dated:- 27-11-2015 - N. K. Saini, AM And A. T. Varkey, JM For the Appellants : Shri Salil Kapoor, Shubham Rastogi & Sumit Lokchandani, Advs For the Respondent : Smt Sunita Kejriwal, CIT DR ORDER Per A. T. Varkey, Judicial Member These appeals, at the instance of the assessee, .....

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order passed by the Ld. Income Tax Officer [ ITO ] under section 153A r.w.s. 143 (3) of the Income Tax Act, 1961 [ Act ] is bad in law. 2. That in the facts and circumstances of the case & in law the Ld. CIT (A) grossly erred in interpreting Section 14A and Rule 8D by concluding that Rule 8D provides for allocation of expenditure relatable to exempt income and that such expenditure is to be disallowed even when there is actually no exempt income during the previous year." 3. The facts a .....

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8377; 23,01,940/- on 07.09.2010. The AO issued notice u/s 143(2) on 14.09.2010 and subsequently another notice u/s 143(2) was issued on 12.07.2011. Thereafter, a detailed questionnaire u/s 142(1) was issued on 12.08.2011. In response to the same, the AR for the assessee attended the proceedings from time to time and filed necessary details / clarifications. 3.1 During the course of assessment proceedings, the AO observed that the assessee had investment of ₹ 3,35,00,000/- during the year u .....

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section 14A of Income Tax Act, 1961 has no applicability during the year under consideration." The AO, after examining the reply of the assessee, did not find it tenable because of the following reasons :- (i) As per the provisions of Section 14A, it is not at all mandatory that assessee should have actually earned the exempt income (here in this case dividend income from shares) or even that he should have actually incurred any expense for earning such income during that year for disallowi .....

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t (which are to be calculated as per Rule 8D) from where such exempt income has been generated. Hence whatever expenses (as calculated as per rule 80) have been incurred shall be reduced from that exempt income and there will be loss in exempt income head, where such loss (loss in exempt income head) cannot be claimed from non-exempt income. (iii) In this context, the decision of ITAT, Delhi in the case of ACIT Vs. Cheminvest Ltd. 317 ITR 86 is relied upon. In the above mentioned case the ITAT h .....

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from which does not or shall not form part of the total income [(Rs.Nil + ₹ 3,35,00,000) / 2] C 1,67,50,000 4 The average of total asset appearing in the balance sheet of the assessee [(Rs.2,47,24,108/- + ₹ 8,89,27,895/-) / 2] D 5,68,26,002 5 B X C/D 23,91,408 6 ½ % of the average of the value of investment, income from which does not or shall not form part of the total income. E 83,750 TOTAL (Sl.No.5 + Sl.No.6) 24,75,158 Thus, the AO completed the assessment u/s 153A read wit .....

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₹ 78,43,899/- (Total income as declared in ITR ₹ 34,58,360/- + disallowance made by the AO ₹ 43,85,539/- = ₹ 78,43,899/-). 4. Aggrieved, the assessee filed appeals for both the assessment years in appeal before the first appellate authority and the ld. CIT (A) confirmed the orders of the AO in both the assessment years. 5. The assessee, being aggrieved, filed the appeals for both the assessment years before us. 6. The ld. Counsel for the assessee reiterated the submission .....

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14 Hon ble P & H High Court; (ii) CIT Vs Holcim India (P) Ltd. in ITA Nos. 486/2014 and 299/2014 order dated 05.09.2014 of Hon ble Delhi High Court; (iii) CIT vs. Holcim India (P) Ltd. in ITA Nos.486 & 299/2014 vide order dated 05.09.2014 7. On the other hand, ld. DR relied on the orders of the authorities below and further submitted that the earning of income is not a criteria for making the disallowance u/s 14A of the Act and even if no income has been earned the disallowance has to be .....

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isdictional High Court in Holcim (P) Ltd (supra) and by Punjab and Haryana High Court in M/s Lakhani Marketing Incl (Supra). We take a look at section 14 A(1) of the Act which is reproduced as under below: "For the purposes of computing the total income under this Chapter, 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 under this Act." From a bare perusal of the section it is clear that .....

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rom the aforesaid condition it would be clear that in the concerned assessment year as there is no income which does not form part of the taxable income under the Act i.e. dividend from the shares, in our opinion, the provisions of section 14A of the Act cannot be invoked. In the present case, it is an admitted fact that the assessee was not in receipt of any dividend income as such there was no income from the investment in question which was taxable under the Act, therefore, the AO wrongly inv .....

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expenditure on account of interest amounting to ₹ 46,91,684/-. It was incumbent on the AO to establish a nexus between the expenditure incurred and the income which was exempt under the Act. Facts clearly do not support the action of the AO. Disallowance is accordingly deleted. The AO is directed to recompute the income accordingly." 10. Vide order dated 16.5.2008, Annexure A.III, the Tribunal on appeal by the revenue while upholding the finding recorded by the CIT(A) noticed as under .....

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f the total income under the Act. 9. Therefore, unless and until, there is receipt of exempted income for the concerned assessment years (dividend from shares), we are of the view, Section 14A of the Act cannot be invoked. In this appeal, the revenue has not dispelled the findings of the CIT(A), nor the statement of the assessee before AO that assessee is not in receipt of any dividend income and hence according to us, the Assessing Officer has erred in invoking Section 14A of the Act, to disall .....

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to be rejected on the face of it inasmuch as the entire income of the assessee is taxable under the Act. Section 14A is applicable only when any part of the income is not to be included in the total income of the assessee and the expenditure relating to that part of income is claimed by the assessee as deduction. In such cases only, the expenditure relating to the exempted income can be disallowed and not otherwise. Since in the present case, the entire income is found to be taxable, no disallow .....

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ase of shares. 11. For the aforesaid reasons, we see no reason to interfere with the order of CIT(A) concerning assessment year 2000-01 and 2001-02 and hence the decision of CIT (A) in deleting the disallowance of interest by invoking section 14A of the Act is correct and in accordance with law." 11. In view of the aforesaid findings, which could not be shown to be erroneous, the plea of the revenue cannot be accepted. Further, this Court in Hero Cycles Limited s case (supra) recorded as un .....

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incurred which must be disallowed under section 14A and the impact of expenditure so incurred cannot be allowed to be set off against the business income which may nullify the mandate of section 14A, cannot be accepted. Disallowance under section 14A requires finding of incurring of expenditure; where it is found that for earning exempted income no expenditure has been incurred, disallowance under section 14A cannot stand. In the present case finding on this aspect, against the revenue, is not .....

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held by this Court in CIT vs. Abhishek Industries Limited , (2006) 205 CTR (P&H) 304 : (2006) 286 ITR 1 (P&H) and therefore, disallowance under section 14A was justified. 7. We do not find any merit in this submission. Judgment of this Court in Abhishek Industries (supra) was on the issue of allowability of interest paid on loans given to sister concerns, without interest. It was held that deduction for interest was permissible when loan was taken for business purpose and not for diverti .....

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"14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad Vs. M/s. Lakhani Marketing Incl., ITA No. 970/ .....

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88 of 2014, Commissioner of Income Tax (II) Kanpur, Vs. M/s. Shivam Motors (P) Ltd. decided on 05.05.2014. In the said decision it has been held :- "As regards the second question, Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, 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 under the Act. Hence, what Section 14A provides is that if ther .....

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law. Hence, the deletion of the disallowance of ₹ 2,03,752/- made by the Assessing Officer was in order." We take note of the fact that the Hon ble jurisdictional High Court has also considered the decisions of the Hon ble Punjab and Haryana, Gujarat and Allahabad High Court which are in favour of the assessee and as per the ratio laid down by the Hon ble Jurisdictional High Court in the case of CIT Vs Holcim India (P.) Ltd. order dated 05.09.2014 and the Hon ble P & H High Court .....

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