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2018 (8) TMI 671

dend income can be earned by incurring no or nominal expenditure - Assessee contended that it has not received any dividend or exempted income during the relevant year - Held that:- The learned CIT(A) has given relief to the assessee based upon the proposition that if no exempt income has been received during the relevant year, no disallowance can be made u/s. 14A of the Act. - 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. - Decided against the revenue. - I.T.A. No.874/Mum/2017 - 9-8-2018 - SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER For The Revenue : Shri. Nishant Samaiya, DR For The Assessee : Shri Govind Jhaveri ORDER PER RAMIT KOCHAR, Accountant Member This appeal, filed by the 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 Of .....

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of the assessee and allowed relief to the assessee by deleting the entire addition made by the AO by relying on decision of Hon ble Delhi High Court in the case of Holcim India Private Limited 57 taxmann.com 28(Del) , vide appellate orders dated 09.11.2016 , by holding as under:- 3.3. I had considered the submissions of the appellant. In this case the appellant had not received any exempt income during the year. The Delhi High Court in its decision in the case of CIT M/s Holcim India P Ltd in ITA Nos 486/2014 and 299/2014 has held as under: On the issue whether the respondent - assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A 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 & 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 I .....

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re made by the AO by invoking provisions of Section 14A of the 1961 Act read with Rule 8D(2)(iii) of the 1962 Rules. It was submitted that AO merely relied upon circular no. 5/2014 dated 11.02.2014 to fasten liability against the assessee by making additions u/s. 14A of the 1961 Act r.w.r. 8D(2)(iii) of the 1962 Rule despite the fact that the assessee did not earn any exempt income . The Ld. Counsel for the assessee relied upon the decision of Mumbai-tribunal in assessee s own case for earlier years viz. AY 2010-11 vide ITA no. 3829/Mum/2015 orders dated 25.05.2017 and for AY 2011-12 vide ITA no.5333/Mum/2015 orders dated 21.03.2018, wherein under similar factual matrix of the case , the Mumbai-tribunal decided the issue in favour of the assessee and held that no disallowance 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 d .....

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ng relevant previous year , then no disallowance u/s 14A of the 1961 Act is warranted and keeping in view that factual matrix in the year under consideration before the Bench remaining same keeping in view principle of consistency, the aforesaid order of tribunal for AY 2011-12 should be followed by the Bench. Further reliance was placed by Ld. Counsel for the assessee in the case of Mumbai Tribunal orders in ITA no. 6267/Mum/2016 for AY 2012-13 vide orders dated 19.12.2017 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 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) ( .....

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rival contentions and perused the material on record including case laws relied upon. We have observed that the assessee is engaged in the business of developing, investing, operating and maintaining power generation projects. The assessee has made investments in shares of companies and average investment of ₹ 13,74,72,86,430/- was held by the assessee during the year . It is undisputed fact between rival parties that the assessee did not receive any 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 .....

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ccount, wherein also no such income has been reported. In fact, in the course of hearing, the learned representative relied upon the decision of the Tribunal in the assessee s own case for the immediately preceding Assessment Year of 2010-11 in ITA No. 3829/Mum/2015 dated 25.05.2017, which has also been rendered on similar lines. 6. At the time of hearing, the ld. DR relied upon the CBDT Circular no. 5/2014 dated 11.02.2014 to put forth 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 .....

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e pernicious practice adopted by the Assessees', to claim expenditure, against income exempt from tax, introduced the said provision. 10. In the instant case, there is no dispute that no income i.e., dividend, which did not form part of total income of the Assessee was earned in the relevant assessment year. 10.1 Therefore, to our minds, the addition made by the Assessing Officer by 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 B .....

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ect that s.14A was intended to cover even those situations whether there is a possibility of exempt income being earned in future. The Circular, at paragraph 4, states that it is not necessary for exempt income to have been included in the income of a particular year for the disallowance to be triggered. 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 .....

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D cannot be read in a manner, which takes it beyond the scope and content of the main provision, which is, Section 14 A of the Act. 15.1 Therefore, as adverted to above, Rule 8D, cannot come to the rescue of the Revenue. 15.2 In any event, the 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 (Ind .....

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