TMI Blog2022 (1) TMI 1152X X X X Extracts X X X X X X X X Extracts X X X X ..... of course which goes in favour of revenue and against the assessee. The Hon ble Court had turned down the argument that section 14A and Rule 8D are not applicable where the investment in shares is made as a part of strategic objective - Hence the Revenue is wrong in Ground No. 2 to urge that the Ld. CIT(A) has not considered the decision in Maxopp Investment (Supra). Therefore, this Ground No. 2 of the Revenue is dismissed. Disallowing additional claim of deduction u/s 32AC - HELD THAT:- We observe that the deduction u/s 32AC is a statutory deduction. Further the purpose of deduction is to incentivize the establishment of new manufacturing industry. Hence it would be better to construe the provision in a holistic manner. In view of above we accept this claim of assessee. However, since the details of qualifying assets are required to be verified, we send the matter back to the file of Ld. AO. AO shall give an opportunity to the assessee, verify the details of qualifying assets and allow deduction. Therefore, this ground of assessee is allowed for statistical purposes. New legal claim to be entertained by judicial authorities - deduction of the Cess on income-taxes paid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : (1) That the Ld. CIT(A) has erred in law and on facts in deleting the addition of ₹ 2,15,04,044/- made on account of disallowance u/s 14A of the I.T. Act 1961 read with Rule 8D. (2) That the Ld. CIT(A) has erred in not considering the decision of Hon ble Supreme Court in the case of Maxopp Investment Ltd. 402 ITR 640. (3) The appellant craves, to leave, to amend and /or to alter any ground or add a new ground which may be necessary. 7. Ground No. 1 Disallowance of ₹ 2,15,04,044/- u/s 14A r/w Rule 8D: 7.1 In this Ground, the Revenue has claimed that the CIT(A) was not justified to delete the addition of ₹ 2,15,04,044/- made by AO on account of disallowance u/s 14A of the I.T. Act 1961 read with Rule 8D. 7.2 The Assessee is a company engaged in the business of manufacturing of CPVC / PVC pipes. It filed return of income supported by audited financial statements. The assessee claimed deduction of various expenses as debited in its Profit Loss A/c for the year ended 31.03.2015 related to the Previous Year 2014- 15, Assessment Year 2015-16 under consideration. During scrutiny proceedings, the Ld. AO found that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made following submissions in support of his stand: (i) The investment is sourced from assessee s own fund i.e. from its reserve and surplus. The assessee had sufficient interest-free reserves available with it. The secured loans had been taken for specific purposes and have been utilized for those purposes only and not utilized for the purpose of making investments. Hence interest expenditure is not incurred for impugned investments. (ii) The investments appearing in above Table at S.No. 1 to 4 were made in the shares of subsidiaries, at S.No. 5 was made in a Joint Venture and at S.No. 6 was made in a partnership firm. These all investments were made principally for strategic objectives of the appellant and not for earning exempt-income. (iii) During the previous year, no dividend was earned from investment in shares. As far as investment in partnership firm is concerned, the assessee got a share in loss amounting to ₹ 15,60,947/-. Thus, there was no exempt-income actually earned during the year from the impugned investments. (iv) Administrative cost and other expenses were incurred for the business of assessee and not for those investments. No disallowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Hon'ble Gujarat High Court in the case of PCIT v/s Sintex Industries Limited 82 taxmann.com 171, Hon'ble Gujarat High Court in the case of PCIT v/s Galaxy Real Estate Developers Pvt. Ltd., Tax Appeal No. 340 of 2017, dated 13th June, 2017 and PCIT v/s GMM Fauider Limited in Tax Appeal No. 506 of 2017, dated 31st July, 2017, no proportionate interest disallowance under Rule 8D(2)(ii) can be made. Thus, on holistic consideration of entire facts, as Appellant has not earned any exempt income in current year, disallowance under Section 14A made by AO for ₹ 2,15,04,044/-is deleted. This ground of appeal is allowed. 7.6 Now before us, both parties have stressed their original submissions. The Ld. D/R has supported the action of AO and requested that the disallowance ought to be sustained. As against this, the Ld. A/R supported the action of CIT(A) and submitted that the disallowance is totally wrong and the same was perfectly deleted. 7.7 We have given a careful thought to the material available as also the rival contentions and submissions made by both sides. 7.8 Before proceeding further, it would be better to reproduce section 14A and Rule 8D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7.9 It is fairly accepted by both parties that the assessee has not earned any dividend income during the previous year and there was only a share in loss from the partnership firm. Thus both parties have accepted the factum of no exempt income being earned during the year and there is no quarrel on this aspect. Being so, we would straightway proceed to interpret section 14A r/w Rule 8D in order to ascertain whether the disallowance is attracted even when the underlying investment has not yielded any exempt-income during the relevant previous year? 7.10 For this wehave the benefit of a deep analysis given by Hon ble ITAT, Delhi in DCIT Vs. New Delhi Vs. M/s Raglan Infrastructure Ltd. ITA No. 4720 / Del / 2014 order dated 01/09/2017 , wherein the Hon ble Bench has concluded thus: 14. In the Explanatory Memorandum to the Finance Act 2001, by which Section 14A was inserted with effect from 1st April 1962, it was clarified that expenses incurred can be allowed only to the extent they are relatable to the earned income of taxable income . The object behind Section 14A was to provide that no deduction shall be made in respect of any expenditure incurred by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 M/s. Redington (India) Ltd. v. The Additional Commissioner of Income Tax, Company Range -V, Chennai (order dated 23rd December, 2016 of the High Court of Madras in TCA No. 520 of 2016), a similar contention of the Revenue was negated. The Court there declined to apply the CBDT Circular by explaining that Section 14A is clearly relatable to the earning of the actual income and not notional income or anticip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. (2006) 286 ITR 1 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 diverting the same to sister concern without having nexus with the business. The observations made therein have to be read in that context. In the present case, admittedly the assessee did not make any claim for exemption. In such a situation section 14A could have no application 7.12 This Hon ble Bench of in case of Shah Alloys Ltd. [2315/Ahd/2010], dated 27/03/2015 following the decision of Corrtech Energy Pvt. Ltd. held as under: The Authorized Representative of the assessee has relied on the decision of the Hon'ble Gujarat High Court in the case of CIT vs. Corrtech Energy (P) Ltd, reported in (2014) 272 CTR 262 (Guj.)(HC), wherein It has been held that where the assessee has not made any claim for exemption of any income from payment of tax, no disallowance could be made u/s 14A of the Act. The Departmental Representative has not disputed the submission of the assessee that during the assessment years under consideration the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) has not considered the decision in Maxopp Investment (Supra). Therefore, this Ground No. 2 of the Revenue is dismissed. 8.4 As a matter of abundant caution, we may mention here that the Ld. CIT(A) has deleted the disallowance of ₹ 2,15,04,044/- and we have also agreed with this decision of Ld. CIT(A) while deciding Ground No. 1, not on the ground of dominant purpose of investment, but on the basis of the fact that there was no exempt-income earned during the previous year. 9 . Ground No.3: This Ground is general and does not require any specific adjudication. Assessee s Cross-Objection : 10 . The Assessee has raised following grounds of cross-objection: 1. In law and in the facts and circumstances of the Respondent s case, the learned Assessing Officer has grossly erred not allowing additional claim of deduction u/s 32AC of ₹ 40,30,472/-. The Ld. CIT(A) has erred in not allowing the claim of deduction u/s 32AC. 2. On the facts and in the circumstances of the Respondent s case, in view of the decision of Rajasthan High Court in the case of Chambal Fertilizers and Chemicals wherein it was held that Cess is not dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well-settled that assessment proceeding is a pious proceeding to be conducted by AO. The CBDT has also clarified in Circular No. 14 (XL-35) dated 11.04.1955 as under: Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the Department for it would inspire confidence in him that he may be sure of getting a square deal from the Department. Although, therefore, the responsibility for claiming refunds and reliefs rests with assessee on whom it is imposed by law, officers should (a) Draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other; (b) Freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming r ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
