TMI Blog2020 (8) TMI 706X X X X Extracts X X X X X X X X Extracts X X X X ..... R ORDER PER V. DURGA RAO, JUDICIAL MEMBER This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-1, Guntur, dated 09/08/2018 for the Assessment Year 2012-13. 2. This appeal was heard on 09/04/2019 and order was pronounced on 30/04/2019. Subsequently, the assessee has filed Misc. Application No. 18/VIZ/2019 and submitted that ground Nos. 5 6 are not adjudicated by the tribunal and submitted that appeal may be recalled. By hearing both the sides, the Tribunal has recalled the order on 06/03/2020 only to adjudicate ground Nos. 5 6. 3. The only issue for consideration in this appeal is whether the provisions of section 14A are applicable even when no exempt income is earned. In the assessment order, the Assessing Officer has noted that as seen from the details filed during the assessment proceedings for the year under consideration the assessee has shown an amount of ₹ 1,92,05,932/- towards investment in shares. The income from shares is dividend income which is exempt from tax under section 10(38) of the Act. The assessee company claimed interest income of ₹ 105,54,37,287/- During the course of assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t for claiming the expenditure. The Court explained: What s. 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. It is the purpose of the expenditure that is relevant in determining the applicability of s. 57(iii) and that purpose must be making or earning of income. s. 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of s. 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. The plain natural construction of the language of s. 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure. There is merit in the contention of Mr. Vohra that the decision of the Supreme Court in Rajendra Prasad Moody (supra) was rendered in the context of allowability of deduction under Section 57(ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 14A. The Circular concludes that it is not necessary that exempt income should necessarily be included in a particular year's income for the disallowance to be triggered. 19. In the considered view of the Court, this will be a truncated reading of Section 14 A and Rule 8D particularly when Rule 8D (1) uses the expression 'such previous year'. Further, it does not account for the concept of 'real income'. It does not note that under Section 5 of the Act, the question of taxation of 'notional income' does not arise. As explained in Commissioner of Income Tax v. Walfort Share and Stock Brokers Pvt. Ltd [2010] 326 ITR 1 (SC), the mandate of Section 14A of the Act is to curb the practice of claiming deduction of expenses incurred in relation to exempt income being taxable income and at the same time avail of the tax incentives by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. Consequently, the Court is not persuaded that in view of the Circular of the CBDT dated 11th May 2014, the decision of this Court in Cheminvest Ltd. (supra) requires reconsideration. 20. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondition precedent for claiming the expenditure. The Court explained: What s. 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. It is the purpose of the expenditure that is relevant in determining the applicability of s. 57(iii) and that purpose must be making or earning of income. s. 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of s. 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit by way of return in the shape of income. The plain natural construction of the language of s. 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure. 21. There is merit in the contention of Mr. Vohra that the decision of the Supreme Court in Rajendra Prasad Moody (supra) was rendered in the context of allowability of deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , but also where exempt income is 'includable' in total income. 8.He relied upon a Circular issued by the Central Board of Direct taxes in Circular No.5 of 2014 dated 11.2.2014 to the effect 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 Vs. Maharashtra Sugar Mills Limited (1971) (82 ITR 452) and Rajasthan State Ware Housing Corporation Vs. Commissioner of Income Tax ((2002) 242 ITR 450) in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pectively, and that, the Division Bench, therefore, discussed the impact of Rule 8D of the Rules. 15.However, it is, our view, as indicated above, independent of the reasoning given in M/s.Redington (India) Limited case that Rule 8D 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 M/s.Redington (India) Limited case. (supra) Recently, the Hon'ble Supreme Court (95 taxmann.com 250) dismissed the SLP filed against the decision of the High Court wherein it was held that section 14A of Act cannot be invoked where no exempt income was earned in the relevant year. The relevant head note is as under:- Section 14A, of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee for the relevant assessment year under consideration. However, the Assessing Officer is of the opinion that whether there is an exempt income or not as per section 14A, the expenditure which is relatable to earning of exempt income has to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial year or not. The ld. CIT(A) by following the decision of the Hon'ble Madras High Court in the case of M/s. Redington (India) Ltd. (Supra) has directed the Assessing Officer to delete the addition. A similar view has been taken by the coordinate bench of the tribunal in the case of D. Veerabhadra Reddy (HUF) vs. DCIT in ITA No. 263/VIZ/2014, by order dated 23/06/2017 for the Assessment Year 200910, wherein the Tribunal has held that no disallowance can be made when there is expenses incurred in relation to exempt income. The relevant portion of the order is extracted as under:- 6. We have heard the rival submissions and perused the material on record. The assessee has rental income from godowns and the business loss. The assessing officer has completed the assessment u/s 143(3) by order dated 04.11.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and the case was taken for revision to disallow the business loss claimed against the property income which was examined by the AO and dropped the assessment proceedings and the Ld. CIT also satisfied that there is no case for revision on account of incorrect set off of business loss. With regard to the issue of disallowance u/s 14A as per the judicial pronouncements no disallowance is called for when there is no exempt income. Therefore, we are of the considered opinion that there is no case for revision of order u/s 263 and accordingly we set aside the orders of the CIT and allow the appeal of the assessee. Ld. Departmental Representative has not brought any decision of the Jurisdictional High Court or any other High Court which is contrary to the decision of the Hon'ble Madras High Court. 7. We, therefore, respectfully following the order of the Hon'ble Madras High Court in the case of M/s. Redington (India) Ltd. (supra) and also the decision of the coordinate bench of the tribunal in the case of D. Veerabhadra Reddy (HUF) (supra), this appeal filed by the revenue is dismissed. 8. In the result appeal filed by the revenue is dismissed. 6. Respe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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