TMI Blog2018 (12) TMI 1203X X X X Extracts X X X X X X X X Extracts X X X X ..... exempt income earned by the assessee during the year under consideration; as has been held and directed by the ITAT, Delhi Special Bench in the case of Vireet Investments (P) Ltd., (supra). - ITA No.1337/Bang/2018 - - - Dated:- 13-12-2018 - SHRI N. V. VASUDEVAN, VICE PRESIDENT AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER For The Assessee : Shri. Seetharam, CA For The Revenue : Smt. Nandhini Das, Addl. CIT ORDER Per Shri Jason P Boaz, A.M. : This appeal by the assessee is directed against the order of CIT(A)-4, Bangalore dated 27.03.2018 for Assessment Year 2012-13. 2. Briefly stated, the facts of the case are as under: 2.1 The assessee, a company engaged in real estate business, filed its return of income for Assessment Year 2012-13 on 29.09.2012 declaring income of ₹ 4,22,93,828/-. The case was taken up for scrutiny for this Assessment Year and the assessment was completed u/s 143(3) of the Income Tax Act, 1961 (in short the Act ) vide order dated 16.12.2014, wherein the assessee s total income was determined at ₹ 4,31,34,533/-, in view of disallowance u/s 14A r.w.r. 8D(2)(iii) amounting to ₹ 8,40,05/-. Aggrieved, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m one company; M/s. Embassy Services Pvt. Ltd., during the year under consideration and did not suo moto disallow in its accounts any amount on account of expenditure incurred in earning such exempt dividend income. The AO, after considering the explanations put forth by the assessee that no disallowance was warranted u/s 14A of the Act, proceeded to disallow an amount of ₹ 8,40,705/- u/s 14A r.w.r. 8D(2)(iii). On appeal, the same was upheld by the CIT(A). 3.4.2 According to the averments in the grounds (supra), the assessee, inter alia, submits that the disallowance u/s 14A r.w.r. 8D(2)(iii), if at all called for, ought to be restricted to those investments which yielded the exempt income earned by the assessee in the year under consideration. Meaning thereby, that the said disallowance ought to be restricted to the investment in M/s. Embassy Services Pvt. Ltd., from which the assessee earned the entire exempt dividend income of ₹ 1 Crore. In the decision of the Special Bench of ITAT Delhi in the case of Vireet Investments (P) Ltd., (supra); which was also cited before the CIT(A); the issue for consideration before the special Bench was similar to the one before u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aining in these two decisions 11.4. In the case of Cheminvest Ltd. (supra), the assessee had borrowed funds of ₹ 8,51,65,000/- and during the previous year relevant to assessment year 2004- 05 paid interest of ₹ 1,21,02,367/- thereon. Out of this unsecured loan, the assessee invested a sum in purchase of shares, which was shown as investment for the purpose of long term capital gains. The AO disallowed interest proportionate to the investment in shares, though no exempt income was earned during the year. The CIT(A) affirmed this but held that the net interest debited to the P L A/c was required to be apportioned and not the gross interest expenditure. The Tribunal held that interest expenditure incurred by the assessee was for borrowing used for the purposes of investment in shares, both held for trading as well as investment purposes. Irrespective of whether or not there was any yield of dividend on the shares purchased, the interest incurred was relatable to earning of dividend on the shares purchased. The dividend income being exempted from tax by virtue of section 10(34) of the Act, the interest paid on borrowed capital utilized in purchase of shares, being th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The borrowing in both the cases has not been disputed being for acquiring shares. Hon ble Delhi High Court has specifically held in para 21 as under:- 21. There is merit in the contention of Mr. Vohra that the decision of the Supreme Court in Rajendra Prasad Moddy (supra) was rendered in the context of allowability of deduction under Section 57(iii) of the Act, where the expression used is for the purpose of making or earning such income . Section 14A of the Act on the other hand contains the expression in relation to income which does not form part of the total income. The decision in Rajendra Prasad Moody (supra) cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed under Section 14A of the Act. 11.8. In the case of Holcin India (P) Ltd. (supra) the facts were that the respondent- assessee was a subsidiary of Holder ind Investments Ltd., Mauritius, which was formed as a holding company for making downstream investments in cement manufacturing ventures in India. In the return of income filed for the Assessment Year 2007-08, the respondent-assessee declared loss of ₹ 8.56 Crores appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent assessee was to act as a holding company for downstream investment and as it was an accepted fact that they had incurred expenses to protect their business and explore new avenues of investment, the provisions of section 14A were applicable. 11.11. The Hon ble High Court observed that the reasoning given by the CIT(A) was ambiguous and unclear and on clarity being sought from the Revenue it was pointed out that the stand of the assessee contained a contradiction to the extent that on the issue of setting up of business, it was stated that the assessee had incurred expenditure on acquiring the shares, therefore, the assessee could not now take different stand than the one taken in the first issue . 11.12. The Hon ble High Court, after considering in detail the decision of ld. CIT(A) finally observed in para 13 as under: 13. We are confused about the stand taken by the appellant-Revenue. Thus, we had asked Sr. Standing Counsel for the Revenue, to state in his own words,their stand before us. During the course of hearing, the submission raised was that the shares would have yielded dividend, which would be exempt income and therefore, the CIT(A) had invoked S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A), which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of ₹ 2,03,752/- made by the Assessing Officer was in order 15. Income exempt under Section 10 in a particular assessment year, may not have been exempt earlier and can become taxable in future years. Further, whether Income earned in a subsequent year would or would not be taxable, may depend upon the nature of transaction entered into in the subsequent assessment year. For example, long term. capital gain on sale of shares is presently not taxable where security transaction tax has been paid, but a private sale of shares in an off market transaction attracts capital gains tax: It is an undisputed position that respondent assessee is an investment company and had invested by purchasing a substantial number of shares and thereby securing right to management. Possibility of sale of shares by private placement etc. cannot be ruled out and is not all improbability. Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... declared by the highest court in the State is binding on authorities or Tribunals under its superintendence, and they cannot ignore it. .. . This position has been summed up by the Supreme Court in Mahadeolal Kanodia v. Administrator General of West Bengal, AIR 1960 SC 936 (at page 941) as follows : Judicial decorum no less than legal propriety forms the basis of judicial procedure. If one thing is more necessary in law than any other thing, it is the quality of certainty. That quality would totally disappear if judges of co-ordinate jurisdiction in a High Court start overruling one another s decisions. If one Division Bench of a High Court is unable to distinguish a previous decision of another Division Bench, and holding the view that the earlier decision is wrong, itself gives effect to that view, the result would be utter confusion. The position would be equally bad where a judge sitting singly in the High Court is of opinion that the previous decision of another single judge on a question of law is wrong and gives effect to that view instead of referring the matter to a larger Bench. The above decision was followed by the Supreme Court in Baradakanta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Customs AIR 1962 SC 1993, paragraph 29). In that view of the matter, the impugned order must be set aside and the Commissioner is directed to consider the matter afresh in keeping with the decisions of this court after giving the petitioners an opportunity of being heard. At least 48 hours' clear notice must be given to the petitioners. The Commissioner will communicate the final order to the petitioner within eight weeks from the date of hearing. ( iv)CIT Vs. J.K. Jain (1998) 230 ITR 839 (P H), observing as under: We have carefully examined the records and have heard learned counsel representing the parties. We are in respectful agreement with the view expressed by the Allahabad High Court in Omega Sports and Radio Works case [1982] 134 ITR 28, as also the decision of this court in Mohan Lal Kansal s case [1978] 114 ITR 583. Following the decision in the two cases referred to above, we hold that it was not a case of divergence of opinion inasmuch as the opinion expressed by this court was binding upon the Tribunal. 11.16. Therefore, in our considered opinion, no contrary view can be taken under these circumstances. We, accordingly, hold that only those ..... X X X X Extracts X X X X X X X X Extracts X X X X
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