TMI Blog2018 (8) TMI 671X X X X Extracts X X X X X X X X Extracts X X X X ..... he Revenue, being ITA No. 874/Mum/2017, is directed against appellate order dated 09.11.2016 passed by learned Commissioner of Income Tax (Appeals)-5, Mumbai (hereinafter called the CIT(A) ), for assessment year 2013-14, the appellate proceedings had arisen before learned CIT(A) from assessment order dated 30.11.2015 passed by learned Assessing Officer (hereinafter called the AO ) u/s 143(3) of the Income-tax Act, 1961 (hereinafter called the Act ) for assessment year 2013-14. 2. The grounds of appeal raised by Revenue in the memo of appeal filed with the Income-Tax Appellate Tribunal, Mumbai (hereinafter called the tribunal ) read as under:- 1. Whether on the facts and in circumstances of the case and in law Ld. CIT(A) was right in deleting the disallowance of ₹ 6,87,36,342/- made u/s. 14A r. w. Rule 8D(iii) of the I. T. Rule without appreciating the fact that assessee cannot earn dividend income without systematic management and that dividend income can be earned by incurring no or nominal expenditure. 2. Whether on the facts and in the circumstances of the case and in law Ld. CIT (A) was right in deleting the disallowance of ₹ 6,87,36,342/- made u/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directly on the issue and against the appellant -Revenue. No contrary decision of a High Court has been shown to us. The Punjab Haryana High Court in CIT v/s Lakhani Marketing Income. IT appeal No 970/2008, dated 02.04.2014, made reference to two earlier decisions of the same Court in CIT V/s Hero Cycles Ltd [2010] 323 ITR 518/189 Taxman 50 (Punj. Har.) and CIT V/s Winsome Textime Industries Ltd [2009] 319 ITR 204 (Punj. And Har) to hold that Section 14A, cannot be invoked when no exempt income was earned. The second decision is of the Gujarat High Court in CIT V/s Corrtech Energy (P) Ltd. [2014] 223 Taxman 130/45 taxmann.com 116. The third decision is of the Allahabad High Court in Income Tax Appeal No 88 of 2014, CIT V/s Shivam Motors (P) LTD [IT Appeal No 88 of 2014, doted 05.08.2014]. 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 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 there is an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can be made u/s 14A of the 1961 Act when no exempt income is earned by the assessee. The aforesaid decision of Mumbai-tribunal in Revenue s appeal in ITA no. 5333/Mum/2015 for AY 2011-12 dated 21.03.2018 , is reproduced hereunder wherein tribunal decided the issue in favour of the assessee by holding as under:- 3. In this appeal, the solitary dispute raised by the assessee arises from the action of CIT(A) in deleting the addition made by the Assessing Officer u/s 14A of the Act amounting to ₹ 3,16,59,443/-. Notably, the CIT(A) has deleted the addition finding that during the year under consideration there was no exempt income claimed by the assessee and thus, there was no necessity of invoking Sec. 14A of the Act. 4. Before us, the ld. DR has not assailed the finding of the CIT(A) to the effect that there was no exempt income earned during the year under consideration. As a consequence, we find that the CIT(A) made no mistake in deleting the addition inasmuch as the same is in conformity with the judgment of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. v. CIT [2015] 61 taxmann.com 118 (Delhi). 5. Before parting, we may also make an observat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year under consideration , no disallowance of expenditure can be made u/s. 14A of the 1961 Act. While passing the aforesaid order dated 19.12.2017 in RKW Developers Private Limited, the Mumbai-tribunal mainly relied upon decision of Hon ble Delhi High Court in the case of Cheminvest Limited v. CIT in ITA No. 749/2014 and also decision of Jurisdictional High Court in the case of Ballarpur Industries Ltd. in ITA no. 51 of 2016 reported in (2016) (10) TMI 1039( Bombay High Court) . The decision of tribunal in the case of RKW Developers P. Ltd.(supra) is reproduced here under:- 6. We have heard Ld. DR and we have perused the material on record including relevant case laws as well written submissions made by learned DR. We have observed the assessee is in the business of property development. The assessee has made investments in equity shares which are capable of yielding exempt income , however during the year no exempt income has been received by the assessee by way of dividend etc. . The A.O has disallowed ₹ 97,90,947/- by invoking Section 14A read with Rule 8D as under:- Disallowance u/s. 14A of the IT. Act, 1961 Aggregate of the following i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividend income or even otherwise no exempt income was received during the relevant previous year under consideration before us. The assessee filed before the tribunal audited financial statements as well computation of income to make its point that no dividend or as a matter no exempt income was received during the year under consideration as also to make its point that all investments are in shares of companies and no investments were made in Mutual Funds. The said audited financial statements as well computation of income are placed in file. The finding of the AO that the assessee had made investments in Mutual funds is already discarded by learned CIT(A) while it is concurrent finding by both the authorities namely the AO and learned CIT(A) that the assessee did not receive any exempt income during the year under consideration. The AO has disallowed expenditure of ₹ 6,87,36,432/- purported to be incurred in relation to earning of an exempt income by invoking provisions of Section 14A of the 1961 Act r.w.r. 8D(2)(iii) of the 1962 Rules . The learned CIT(A) has given relief to the assessee based upon the proposition that if no exempt income has been received during the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that invocation of Sec. 14A of the Act is permissible even in the absence of exempt income during a particular year. In our considered opinion, the said Circular of CBDT does not distract from the legal position laid down by the Hon'ble Delhi High Court in the case of Cheminvest Ltd. (supra), and we further noticed that our co-ordinate Bench in assessee s own case for Assessment Year 2010- 11 (supra) has considered the said Circular and thereafter, applied the ratio of Hon'ble Delhi High Court and deleted the addition. 7. In view of the aforesaid discussion, we hereby affirm the order of CIT(A) and appeal of the Revenue is dismissed. 8. In the result, appeal of the Revenue is dismissed. We have also observed that Mumbai Tribunal in the case of DCIT v. RKW Developers Private Ltd. wherein Accountant Member is part of Division Bench who passed the said order granting relief to the assessee based on the same proposition that if no exempt income was received or receivable during the relevant previous year under consideration , no disallowance of expenditure can be made u/s. 14A of the 1961 Act. While passing the aforesaid order dated 19.12.2017 in ITA no. 6267/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y relying upon Section 14 A of the Act, was completely contrary to the provisions of the said Section. 10.2 Mr.Senthil Kumar, who appears for the Revenue, submitted that the Revenue could disallow the expenditure even in such a circumstance by taking recourse to Rule 8D. 10.3 According to us, Rule 8D, only provides for a method to determine the amount of expenditure incurred in relation to income, which does not form part of the total income of the Assessee. 10.4 Rule 8 D, in our view, cannot go beyond what is provided in Section 14 A of the Act. 11. Furthermore, we may note that a similar argument was sought to be advanced by the Revenue in the matter concerning, Redington (India) Ltd. v. Addl. CIT [2017] 77 taxmann.com 257 (Mad.)which was, subject matter of T.C.A.No.520 of 2016. 11.1 A Co-ordinate Bench of this Court, vide judgment dated 23.12.2016, rejected the plea of the Revenue advanced in that behalf. 11.2 As a matter of fact, a perusal of the judgment would show that the Revenue had sought to argue that because exempt income could be earned in future years, therefore, recourse could be taken to the provisions of Section 14A of the Act, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. According to the Learned Standing Counsel, the provisions of s.14A are made applicable, in terms of sub section (1) thereof to income 'under the act' and not 'of the year' and a disallowance under s.14A r.w.Rule 8D can thus be effected even in a situation where a tax payer has not earned any taxable income in a particular year. 9. We are unable to subscribe to the aforesaid view. The provisions of section 14A were inserted as a response to the judgments of the Supreme Court in Commissioner of Income Tax v. Maharashtra Sugar Mills Limited [1971] 82 ITR 452 and Rajasthan State Ware Housing Corporation v. Commissioner of Income-tax [2002] 242 ITR 450 in terms of which, expenditure incurred by an assessee carrying on a composite business giving rise to both taxable as well as non-taxable income, was allowable in entirety without apportionment. It was thus that s.14A was inserted providing that no deduction shall be allowable in respect of expenditure incurred in relation to the earning of income exempt from taxation. As observed by the Supreme Court in the judgment in the case of Commissioner of Income-tax v. Walfort Share and Stock Brokers (P) Ltd. [2010] 326 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tribunal, via, the impugned judgment has remitted the matter to the Assessing Officer. 15.3 Therefore, for the foregoing reasons, we are of the view, that no interference is called for qua the impugned judgment. 16. To our minds, questions of law, which could have arisen are already covered by the judgment of a Co-ordinate Bench of this Court rendered in Redington (India) Ltd. case (supra). 17. The appeal is accordingly, dismissed. However, there shall be no order as to costs. The Hon ble Madars High Court followed the decision of the same Court in the case of Redington (India) Ltd. v. Addl. CIT [2017] 77 taxmann.com 257 (Mad.) while adjudicating Chettinad Logistics Private Limited(Supra) , wherein CBDT circular no. 5/2014 dated 11.02.2014 came up for discussion before Hon ble Madras High Court in the case of Redington (India) Limited and after considering the said circular, Hon ble Madras High Court affirmed the proposition in Redington (India ) Limited (supra) that if no exempt income is received during the previous year relevant to the impugned assessment year, no disallowance of expenditure u/s 14A of the Act of 1961 is warranted. Respectfully followin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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