M/S SOLITAIRE APPLIANCES PVT LTD., MUMBAI V. ACIT CIRCLE-3 (3)(2), MUMBAI

CO 27/MUM/2020

AI Insights

The case involves multiple appeals and cross objections by Solitaire Appliances Pvt. Ltd. and the Deputy Commissioner of Income-tax concerning the disallowance of interest expenditure and the application of section 14A of the Income Tax Act, 1961. The primary issues revolved around the disallowance of interest claimed under section 36(1)(iii) and the applicability of section 14A in the context of investments made in group companies. The Tribunal examined the arguments related to commercial expediency and the purpose of the investments, alongside the legal interpretations of the relevant sections of the Income Tax Act.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 123422 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 29 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 30-05-2023
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: E
• Next Hearing Date: 25-05-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 01-03-2020
• Other Referred Cases: Maxopp Investment Ltd. vs. CIT, Godrej & Boyce vs. CIT, State Bank of Patiala vs. CIT, Chettinad Logistics Pvt Ltd vs. CIT, Viraj Profiles Ltd. vs. CIT, RBK Share Broking Pvt. Ltd. vs. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: JAY DHAROD
• Keywords: Earning of tax free income; Commercial expediency; Rule 8D; Set aside
• Section: 143(3); 14A; 115JB; 64; 72

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “E” MUMBAI BEFORE SHRI KULDIP SINGH (JUDICIAL MEMBER) AND SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) ITA Nos. 5855& 5856/MUM/2019 Assessment Years: 2013-14& 2015-16 Solitaire Appliances Pvt. Ltd., 171-C, 17 th floor, Miittal Court, C Wing Nariman Point, Mumbai-400021. Vs. Deputy Commissioner of Income-tax -3(3)(2), Room No. 609, 6 th floor, Aayakar Bhavan, M.K. Road, Mumbai-400020. PAN No. AABCV 0807 C Appellant Respondent ITA No. 5587/MUM/2019 Assessment Year: 2015-16 Deputy Commissioner of Income-tax -3(3)(2), Room No. 628, 6 th floor, Aayakar Bhavan, M.K. Road, Mumbai-400020. Vs. Solitaire Appliances Pvt. Ltd., 171-C, 17 th floor, Miittal Court, C Wing Nariman Point, Mumbai-400021. PAN No. AABCV 0807 C Appellant Respondent ITA No. 7559/MUM/2019 Assessment Year: 2016-17 ACIT, Circle -3(3)(2), Room No. 628, 6 th floor, Aayakar Bhavan, M.K. Road, Mumbai-400020. Vs. Solitaire Appliances Pvt. Ltd., 171-C, 17 th floor, Miittal Court, C Wing NarimanPoint, Mumbai-400021. PAN No. AABCV 0807 C Appellant Respondent (Arising out of ITA No. 7559/MUM/2019) Assessment Year: Solitaire Appliances Pvt. Ltd., 171-C, 17 th floor, Miittal Court, C Wing Nariman Point, Mumbai-400021. PAN No. AABCV 0807 C Appellant Assessee by Revenue by Date of Hearing Date of pronouncement PER BENCH These cross appeals by the assessee and Revenue and the cross objection by the assessee passed by the Ld. First Appellate Authority for assessment year 2013-14 ,2015-16 and 2016 in dispute involved in these appeals, same were heard together and disposed off by way of th avoid repetition of facts. 2. First of all, we take up the appeal of the assessee for assessment year 2013 reproduced as under: ITA Nos. 5855 & 5856/Mum/2016 & Ors. CO No. 27/MUM/2020 (Arising out of ITA No. 7559/MUM/2019) Assessment Year: 2016-17 Solitaire Appliances Pvt. Ltd., floor, Miittal Nariman Point, Vs. ACIT, Circle -3(3)(2), Room No. 628, 6 th Aayakar Bhavan, M.K. Road, Mumbai-400020. PAN No. AABCV 0807 C Respondent Assessee by : Mr. Jay Dharod by : Mr. Suresh Periasamy Hearing : 26/05/2023 Date of pronouncement : 31/05/2023 ORDER These cross appeals by the assessee and Revenue and the by the assessee are directed against separate orders passed by the Ld. First Appellate Authority for assessment year 16 and 2016-17 respectively. Being common issue in dispute involved in these appeals, same were heard together and disposed off by way of this consolidate order for convenience and avoid repetition of facts. First of all, we take up the appeal of the assessee for assessment year 2013-14. The relevant grounds of the appeal are reproduced as under: Solitaire Appliances Pvt. Ltd. 2 ITA Nos. 5855 & 5856/Mum/2016 & Ors. (Arising out of ITA No. 7559/MUM/2019) 3(3)(2), th floor, Aayakar Bhavan, M.K. Road, 400020. Suresh Periasamy These cross appeals by the assessee and Revenue and the are directed against separate orders passed by the Ld. First Appellate Authority for assessment year 17 respectively. Being common issue in dispute involved in these appeals, same were heard together and is consolidate order for convenience and First of all, we take up the appeal of the assessee for 14. The relevant grounds of the appeal are 1. On the facts and in the circumstances of th law, the Ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as ‘the Ld. CIT(A)’] erred in confirming action of the Ld. Assessing Officer of disallowing a sum of Rs.17,46,66,300/ expenditure claimed u/s 36(1)(iii assigned for doing so are wrong and contrary to the facts and circumstances of the case, the provisions of the Income Tax Act, 1961 and the Rules made there under. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(  The appellant company made investments in its group companies in the course of furtherance of its business out of commercial expediency; and  Making investment in group companies is a business activity/object of the appellant company authorized by its Memorandum of Association and therefore, interest claimed cannot be disallowed. Which is wrong and contrary to the facts and circumstances of the Tax Act, 1961 and the Rules made thereunder. 2.1 Briefly stated, facts of the case are that the assessee company was engaged in the business of trading in electronic goods. For the year under consideration, the assessee 28.09.2013 declaring total income of Rs.17,64,882/ normal provisions of the Income The return of income filed by the assessee was selected for scrutiny and statutory notices under the In the assessment completed u/s 143(3) of the Act on 30.10.2015, the Assessing Officer made disallowance of Rs.17,46,66,300/ terms of section 36(1)(iii) of the Act out of the interest charged on borrowed funds. Furth ITA Nos. 5855 & 5856/Mum/2016 & Ors. On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as ‘the Ld. CIT(A)’] erred in confirming action of the Ld. Assessing Officer of disallowing a sum of Rs.17,46,66,300/- being interest expenditure claimed u/s 36(1)(iii) and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, the provisions of the Income Tax Act, 1961 and the Rules made there under. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that: The appellant company made investments in its group companies in the course of furtherance of its business out of commercial expediency; and Making investment in group companies is a business activity/object of the appellant company authorized by its Memorandum of Association and therefore, interest claimed cannot be disallowed. Which is wrong and contrary to the facts and circumstances of the case, the provisions of the Income Tax Act, 1961 and the Rules made thereunder. Briefly stated, facts of the case are that the assessee company was engaged in the business of trading in electronic goods. For the year under consideration, the assessee filed return of income on 28.09.2013 declaring total income of Rs.17,64,882/ normal provisions of the Income-tax Act, 1961 (in short ‘the Act’). The return of income filed by the assessee was selected for scrutiny and statutory notices under the Act were issued and complied with. In the assessment completed u/s 143(3) of the Act on 30.10.2015, the Assessing Officer made disallowance of Rs.17,46,66,300/ terms of section 36(1)(iii) of the Act out of the interest charged on borrowed funds. Further, though the Assessing Officer proposed Solitaire Appliances Pvt. Ltd. 3 ITA Nos. 5855 & 5856/Mum/2016 & Ors. e case and in law, the Ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as ‘the Ld. CIT(A)’] erred in confirming action of the Ld. Assessing Officer of being interest ) and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, the provisions of the Income Tax Act, 1961 and the Rules made there On the facts and in the circumstances of the case and in A) failed to appreciate that: The appellant company made investments in its group companies in the course of furtherance of its business Making investment in group companies is a business activity/object of the appellant company authorized by its Memorandum of Association and therefore, interest Which is wrong and contrary to the facts and case, the provisions of the Income Tax Act, 1961 and the Rules made thereunder. Briefly stated, facts of the case are that the assessee company was engaged in the business of trading in electronic goods. For the filed return of income on 28.09.2013 declaring total income of Rs.17,64,882/- under the tax Act, 1961 (in short ‘the Act’). The return of income filed by the assessee was selected for scrutiny issued and complied with. In the assessment completed u/s 143(3) of the Act on 30.10.2015, the Assessing Officer made disallowance of Rs.17,46,66,300/- in terms of section 36(1)(iii) of the Act out of the interest charged on though the Assessing Officer proposed disallowance u/s 14A of the Act the computation in view of interest already disallowed u/s 36(1)(iii) of the Act. On further appeal, the Ld. CIT(A) upheld the disallowance of sectio is in appeal before the Tribunal by way of raising grounds as reproduced above. 3. The brief facts qua the issue in dispute are that the assessee borrowed funds/loans in earlier years from M/s Videocon Industries Ltd. and for the year under consideration M/s Videocon Industries Ltd. charged assessee company. The appellant company borrowed into investment in its group companies that those investment and utilized for the purpose of the business therefore, the interest paid on loan taken was liable for disallowance Counsel of the assessee submitted that due to shifting of the documents in godowns traceable by the assessee for supporting the commercial expediency of the loan. The Ld. Counsel also submitted that the parent company namely M/s Videocon Industries Ltd. is under National Company Law Tribunal proceedings and therefore he requested that matter may be restored back to the file of the Assessing Officer for ITA Nos. 5855 & 5856/Mum/2016 & Ors. disallowance u/s 14A of the Act, however no addition was made in the computation in view of interest already disallowed u/s 36(1)(iii) of the Act. On further appeal, the Ld. CIT(A) upheld the disallowance of section 36(1)(iii) of the Act. Aggrieved is in appeal before the Tribunal by way of raising grounds as The brief facts qua the issue in dispute are that the assessee borrowed funds/loans in earlier years from M/s Videocon ustries Ltd. and for the year under consideration M/s Videocon Industries Ltd. charged interest on the loans extended to the assessee company. The appellant company invested the fund investment in its group companies. I e investments were made out of commercial expediency and utilized for the purpose of the business therefore, the interest was for the purpose of business for disallowance u/s 36(1)(iii) of the Act. Before us, the Ld. ounsel of the assessee submitted that due to shifting of the documents in godowns, the relevant documents were not by the assessee for supporting the commercial expediency of the loan. The Ld. Counsel also submitted that the parent ny namely M/s Videocon Industries Ltd. is under National Company Law Tribunal proceedings and therefore he requested that matter may be restored back to the file of the Assessing Officer for Solitaire Appliances Pvt. Ltd. 4 ITA Nos. 5855 & 5856/Mum/2016 & Ors. however no addition was made in the computation in view of interest already disallowed u/s 36(1)(iii) of the Act. On further appeal, the Ld. CIT(A) upheld the ggrieved, the assessee is in appeal before the Tribunal by way of raising grounds as The brief facts qua the issue in dispute are that the assessee borrowed funds/loans in earlier years from M/s Videocon ustries Ltd. and for the year under consideration M/s Videocon on the loans extended to the invested the fund . It was claimed were made out of commercial expediency and utilized for the purpose of the business therefore, the interest business and was not u/s 36(1)(iii) of the Act. Before us, the Ld. ounsel of the assessee submitted that due to shifting of the documents were not readily by the assessee for supporting the commercial expediency of the loan. The Ld. Counsel also submitted that the parent ny namely M/s Videocon Industries Ltd. is under National Company Law Tribunal proceedings and therefore he requested that matter may be restored back to the file of the Assessing Officer for deciding afresh after verification of the evidence in support of commercial expediency. 4. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. of the Act prescribe for allowance of amount of the interest paid in respect of capital borrowed fo profession. Further, the Hon’ble Supreme Court in the case of Builders Ltd. v. CIT 288 ITR 1 (SA) loans are given to sister measure of the commercial exped on borrowed capital is also eligible for deduction. Before us, the Ld. Counsel of the assessee has expressed difficulty in collecting and submitting documentary evidence in support of commercial expediency due to the reason NCLT proceedings and documents of the assessee in godowns. In view of difficulty in producing the documents before us, in the interest of substantial justice assessee for restoring the matter deciding taking into consideration support of commercial expediency to produce before the Assessing Officer. The grounds of appeal of the assessee are accordingly allowed for statistical purposes. ITA Nos. 5855 & 5856/Mum/2016 & Ors. deciding afresh after verification of the evidence in support of commercial expediency. We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. of the Act prescribe for allowance of amount of the interest paid in respect of capital borrowed for the purpose of business or profession. Further, the Hon’ble Supreme Court in the case of Builders Ltd. v. CIT 288 ITR 1 (SA) held that when interest free sister company (i.e. subsidiary company) as a of the commercial expediency, then coresponding on borrowed capital is also eligible for deduction. Before us, the Ld. Counsel of the assessee has expressed difficulty in collecting and submitting documentary evidence in support of commercial the reason the parent company NCLT proceedings and documents of the assessee have been shifted godowns. In view of difficulty in producing the documents before us, in the interest of substantial justice, we accept the prayer of the e for restoring the matter to the Ld. Assessing Officer for deciding taking into consideration the documentary evidence in support of commercial expediency, which the assessee has agreed before the Assessing Officer. The grounds of appeal of assessee are accordingly allowed for statistical purposes. Solitaire Appliances Pvt. Ltd. 5 ITA Nos. 5855 & 5856/Mum/2016 & Ors. deciding afresh after verification of the evidence in support of We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. The Section 36 of the Act prescribe for allowance of amount of the interest paid in r the purpose of business or profession. Further, the Hon’ble Supreme Court in the case of SA that when interest free subsidiary company) as a coresponding interest on borrowed capital is also eligible for deduction. Before us, the Ld. Counsel of the assessee has expressed difficulty in collecting and submitting documentary evidence in support of commercial the parent company is before the have been shifted godowns. In view of difficulty in producing the documents before we accept the prayer of the the Ld. Assessing Officer for he documentary evidence in which the assessee has agreed before the Assessing Officer. The grounds of appeal of assessee are accordingly allowed for statistical purposes. 5. Now we take up for assessment year 2015 reproduced as under: Assessee’s ground 1. On the facts and in the circumstances law, the Ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as ‘the CIT(A)’] erred in confirming action of the Ld. Assessing Officer of disallowing a sum of Rs.2,66,86,454/ interest claimed u/s 36(1)(iii) an disallowing the same are wrong and contrary to the facts of the case, the provisions of the Income Tax Act, 1961 and the Rules made there under. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to a appellant has given the advances to its group concern for their business purposes out of commercial expediency which is wrong and contrary to the provisions of the Income Tax Act, 1961 and the rules made there under. Revenue’s Grounds of 1. Whether on the facts and circumstances of tlie case and in law, the Ld. CIT(A) was justified in deleting the disallowance u/s 14A by holding that no disallowance u/s 14A is called for in respect of investments which do not earn exempt income No.5/2014 which clarified that the Rule 8D r.w.s. 14A of the Act provides for disallowance of tlie expenditure even where taxpayer in a particular year lias not earned any exempt income? 2. Whether on the facts and and in law, th disallowance u/s 14A by holding that no disallowance u/s 14A is called for in respect of investments which do not ITA Nos. 5855 & 5856/Mum/2016 & Ors. Now we take up cross appeal of the assessee and the Revenue for assessment year 2015-16. The respective grounds are reproduced as under: Assessee’s ground On the facts and in the circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as ‘the CIT(A)’] erred in confirming action of the Ld. Assessing Officer of disallowing a sum of Rs.2,66,86,454/- interest claimed u/s 36(1)(iii) and the reason given for disallowing the same are wrong and contrary to the facts of the case, the provisions of the Income Tax Act, 1961 and the Rules made there under. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the appellant has given the advances to its group concern for their business purposes out of commercial expediency which is wrong and contrary to the provisions of the Income Tax Act, 1961 and the rules made there under. Revenue’s Grounds of Appeal 1. Whether on the facts and circumstances of tlie case and in law, the Ld. CIT(A) was justified in deleting the disallowance u/s 14A by holding that no disallowance u/s 14A is called for in respect of investments which do not earn exempt income which is contrary to CBDT Circular No.5/2014 which clarified that the Rule 8D r.w.s. 14A of the Act provides for disallowance of tlie expenditure even where taxpayer in a particular year lias not earned any exempt income? ether on the facts and circumstances of the case and in law, the Ld. CIT(A) was justified in deleting tlie disallowance u/s 14A by holding that no disallowance u/s 14A is called for in respect of investments which do not Solitaire Appliances Pvt. Ltd. 6 ITA Nos. 5855 & 5856/Mum/2016 & Ors. appeal of the assessee and the Revenue 16. The respective grounds are of the case and in law, the Ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as ‘the CIT(A)’] erred in confirming action of the Ld. Assessing Officer of out of total d the reason given for disallowing the same are wrong and contrary to the facts of the case, the provisions of the Income Tax Act, On the facts and in the circumstances of the case and in ppreciate that the appellant has given the advances to its group concern for their business purposes out of commercial expediency which is wrong and contrary to the provisions of the Income Tax Act, 1961 and the rules 1. Whether on the facts and circumstances of tlie case and in law, the Ld. CIT(A) was justified in deleting the disallowance u/s 14A by holding that no disallowance u/s 14A is called for in respect of investments which do not which is contrary to CBDT Circular No.5/2014 which clarified that the Rule 8D r.w.s. 14A of the Act provides for disallowance of tlie expenditure even where taxpayer in a particular year lias not earned any nces of the case e Ld. CIT(A) was justified in deleting tlie disallowance u/s 14A by holding that no disallowance u/s 14A is called for in respect of investments which do not earn exempt income in view of the decision of tlie Hon'ble Supreme Court in the case of M/s, Maxopp Investment Ltd. vs. CIT in Civil Appeal No. 104 12.02.2018, wherein the Hon'bk Supreme Court has held that Section 14A applies irrespective* of whether the shares are held to gain control or as st 3. Wheth and in law, the Ld. C1T(A) was justified in deleting tire disallowance u/s 14A in view of tlie finding of the Hon'ble Supreme Court in para 42 of their decision in tlie case of M/s. Max 104-109 of 2015 dated 12/02/2018, wherein the Hon'ble Supreme Court have upMd the principle of apportionment in cases where tlie assessee has mixed funds? 4. Whether case and in law, the Ld. CIT (A) was justified in deleting the disallowance u/s 14A to tlie book profit which is contrary to tlie decision of the Hon'ble ITAT 'D' Bench in tlie case oflTO vs. RBK Share Broking 128(2013) and tlie decision of the Hon'ble ITAT T Bench in the case of D.C.I. T. Cen. Cir. 18 & 19, Mumbai vs. Viraj Profiles Ltd. (2015) 64 taxmann.com 52 (Mumbai Trib.)/2016, 156 ITD 72 (Mumbai that the provisions of section computation of book profit u/s 115JB of 5. Tlie appellant prays that tlie order of CIT (A) on tlie above grounds be set aside and that ofAssessing Officer be restored 6. We find that in the c 2 raised are identical assessment year 2013 decision, the ground No. 1 and 2 of the appeal of the assessee are restored back to the fi keeping in view the documentary to support the contention of ITA Nos. 5855 & 5856/Mum/2016 & Ors. earn exempt income in view of the decision of tlie Hon'ble Supreme Court in the case of M/s, Maxopp Investment Ltd. vs. CIT in Civil Appeal No. 104-109 of 2015 dated 12.02.2018, wherein the Hon'bk Supreme Court has held that Section 14A applies irrespective* of whether the shares are held to gain control or as stock-in-trade? Whether on the facts and circumstances of tlie case and in law, the Ld. C1T(A) was justified in deleting tire disallowance u/s 14A in view of tlie finding of the Hon'ble Supreme Court in para 42 of their decision in tlie case of M/s. Maxopp Investment Ltd. vs. CIT in Civil Appeal No. 109 of 2015 dated 12/02/2018, wherein the Hon'ble Supreme Court have upMd the principle of apportionment in cases where tlie assessee has mixed funds? Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the disallowance u/s 14A to tlie book profit which is contrary to tlie decision of the Hon'ble ITAT 'D' Bench in tlie case oflTO vs. RBK Share Broking Pvt. Ltd. 128(2013) and tlie decision of the Hon'ble ITAT T Bench in the case of D.C.I. T. Cen. Cir. 18 & 19, Mumbai vs. Viraj Profiles Ltd. (2015) 64 taxmann.com 52 (Mumbai Trib.)/2016, 156 ITD 72 (Mumbai - Trib.) wherein it is clear provisions of section-14A r.w.r. 8D is applicable for computation of book profit u/s 115JB of the Act. 5. Tlie appellant prays that tlie order of CIT (A) on tlie above grounds be set aside and that ofAssessing Officer be We find that in the case of the assessee, the ground No. 1 and 2 raised are identical to corresponding grounds assessment year 2013-14 and therefore, to have consistency in our decision, the ground No. 1 and 2 of the appeal of the assessee are restored back to the file of the Assessing Officer for deciding afresh keeping in view the documentary to support the contention of Solitaire Appliances Pvt. Ltd. 7 ITA Nos. 5855 & 5856/Mum/2016 & Ors. earn exempt income in view of the decision of tlie Hon'ble Supreme Court in the case of M/s, Maxopp Investment Ltd. 109 of 2015 dated 12.02.2018, wherein the Hon'bk Supreme Court has held that Section 14A applies irrespective* of whether the trade? er on the facts and circumstances of tlie case and in law, the Ld. C1T(A) was justified in deleting tire disallowance u/s 14A in view of tlie finding of the Hon'ble Supreme Court in para 42 of their decision in tlie case of opp Investment Ltd. vs. CIT in Civil Appeal No. 109 of 2015 dated 12/02/2018, wherein the Hon'ble Supreme Court have upMd the principle of apportionment in cases where tlie assessee has mixed funds? on the facts and in the circumstances of the case and in law, the Ld. CIT (A) was justified in deleting the disallowance u/s 14A to tlie book profit which is contrary to tlie decision of the Hon'ble ITAT 'D' Bench in tlie Pvt. Ltd. -37 taxman 128(2013) and tlie decision of the Hon'ble ITAT T Bench in the case of D.C.I. T. Cen. Cir. 18 & 19, Mumbai vs. Viraj Profiles Ltd. (2015) 64 taxmann.com 52 (Mumbai - Trib.) wherein it is clear 14A r.w.r. 8D is applicable for Act. 5. Tlie appellant prays that tlie order of CIT (A) on tlie above grounds be set aside and that ofAssessing Officer be ase of the assessee, the ground No. 1 and to corresponding grounds raised in 14 and therefore, to have consistency in our decision, the ground No. 1 and 2 of the appeal of the assessee are for deciding afresh keeping in view the documentary to support the contention of commercial expediency of loans allowed for statistical purposes. 6.1 As far as appeal of the Revenue is concerned, we Ld. CIT(A) has deleted the addition of binding precedent on the issue in dispute the Ld. CIT(A) is reproduced as under: “3.2.2; This ground pertains to disallowance u/s 14A r.w.r. 8D. The appellant contended before the assessing officer that no exempt income has been earned. The Assessing officer while relying on the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce (Supra) made disallowance of Rs. 2 : 16,54 ; 158/ 3.2.3 The main thrust of the appellant is that the appellant company has not earned any exempt income during the year under consideration. Recently, Hon'ble Supreme Court of India has given a landmark judgement the case of Maxopp Investment Ltd 91 Taxmann.com 154. The judgement is particularly relevant on the issues of strategic investment and stock in trade, while applying the provisions of section 14A. It is held that If expenditure is incurred on earning dividend income, that much of expenditure which is attributable to dividend income has to be disallowed and cannot be treated as business expenditure. In those cases, where shares are held as stock in-trade, main purpose is to trade in th profits therefrom, in the process, certain dividend is also earned, though incidentally, which is also an income. This triggers applicability of section 14A which is based on of apportionment of expenditure between taxable and non taxable income, Therefore, to that extent, expenditure incurred in acquiring those shares will have to be apportioned. Hon'ble Supreme Court has held that the disallowance u/s 14A cannot exceed the exempt income: / find that the Hon'ble Supreme Court in t Investment Ltd. (supra) has noted in para 40 of said order as under: "We note from the facts in the State Bank ofPatiala cases that the AO, while passing the assessment order, had ITA Nos. 5855 & 5856/Mum/2016 & Ors. commercial expediency of loans. The grounds are accordingly allowed for statistical purposes. As far as appeal of the Revenue is concerned, we Ld. CIT(A) has deleted the addition of section 14A of the Act of binding precedent on the issue in dispute. The relevant finding of the Ld. CIT(A) is reproduced as under: 3.2.2; This ground pertains to disallowance u/s 14A r.w.r. . The appellant contended before the assessing officer that no exempt income has been earned. The Assessing officer while relying on the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce (Supra) made disallowance of 158/- u/s 14A r.w.r 8D. 3.2.3 The main thrust of the appellant is that the appellant company has not earned any exempt income during the year under consideration. Recently, Hon'ble Supreme Court of India has given a landmark judgement on the section 14A in the case of Maxopp Investment Ltd 91 Taxmann.com 154. The judgement is particularly relevant on the issues of strategic investment and stock in trade, while applying the provisions of section 14A. It is held that If expenditure is curred on earning dividend income, that much of expenditure which is attributable to dividend income has to be disallowed and cannot be treated as business expenditure. In those cases, where shares are held as stock trade, main purpose is to trade in those shares and earn profits therefrom, in the process, certain dividend is also earned, though incidentally, which is also an income. This triggers applicability of section 14A which is based on of apportionment of expenditure between taxable and non taxable income, Therefore, to that extent, expenditure incurred in acquiring those shares will have to be apportioned. Hon'ble Supreme Court has held that the disallowance u/s 14A cannot exceed the exempt income: / find that the Hon'ble Supreme Court in the case of Maxopp Investment Ltd. (supra) has noted in para 40 of said order as "We note from the facts in the State Bank ofPatiala cases that the AO, while passing the assessment order, had Solitaire Appliances Pvt. Ltd. 8 ITA Nos. 5855 & 5856/Mum/2016 & Ors. . The grounds are accordingly As far as appeal of the Revenue is concerned, we find that the of section 14A of the Act in view he relevant finding of 3.2.2; This ground pertains to disallowance u/s 14A r.w.r. . The appellant contended before the assessing officer that no exempt income has been earned. The Assessing officer while relying on the decision of Hon'ble Bombay High Court in the case of Godrej & Boyce (Supra) made disallowance of 3.2.3 The main thrust of the appellant is that the appellant company has not earned any exempt income during the year under consideration. Recently, Hon'ble Supreme Court of on the section 14A in the case of Maxopp Investment Ltd 91 Taxmann.com 154. The judgement is particularly relevant on the issues of strategic investment and stock in trade, while applying the provisions of section 14A. It is held that If expenditure is curred on earning dividend income, that much of expenditure which is attributable to dividend income has to be disallowed and cannot be treated as business expenditure. In those cases, where shares are held as stock- ose shares and earn profits therefrom, in the process, certain dividend is also earned, though incidentally, which is also an income. This triggers applicability of section 14A which is based ontheory of apportionment of expenditure between taxable and non- taxable income, Therefore, to that extent, expenditure incurred in acquiring those shares will have to be apportioned. Hon'ble Supreme Court has held that the disallowance u/s 14A cannot exceed the exempt income: / he case of Maxopp Investment Ltd. (supra) has noted in para 40 of said order as "We note from the facts in the State Bank ofPatiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which wa claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the IT AT." 3.2.4 ' In view of the above detailed discussion of Hon'ble SC order in Maxopp Investments Ltd, it is held here that it is not a fit case for invok income has been earned by the appellant at all. It is worthwhile to mention over here that in a recent judgement dated 2/7/18 in the case of Chettinad Logistics Pvt Ltd, (95 Taxmann.com 250), the Hon'ble Apex Cour stand when it dismissed the SLP against Ld Madras High Court ruling that Section 14A cannot be invoked where no exempt income was earned by the assessee in the relevant assessment year. 6.1 Since, the Ld. CIT(A) has follow issue in dispute, we do not find any error in the order of the Ld. CIT(A) and accordingly the Revenue are accordingly dismissed. 7. Now we take the appeal of the Revenue and cross objection of the assessee for assessment year 2016 are reproduced as under: Revenue’s Grounds of appeal 1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in deleting the disallowance u/s 14A which was compu Rule 8D of the I.T. Rules 1962 on the basis of CBDT Circular No. 5/2014 dated 11.02.2014 which clearly states that it is not necessary to earn exempt income in a particular year in which the disallowance is made. ITA Nos. 5855 & 5856/Mum/2016 & Ors. already restricted the disallowance to the amount which wa claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the IT AT." 3.2.4 ' In view of the above detailed discussion of Hon'ble SC order in Maxopp Investments Ltd, it is held here that it is not a fit case for invoking provisions of section 14A as no exempt income has been earned by the appellant at all. It is worthwhile to mention over here that in a recent judgement dated 2/7/18 in the case of Chettinad Logistics Pvt Ltd, (95 Taxmann.com 250), the Hon'ble Apex Court re-affirmed its stand when it dismissed the SLP against Ld Madras High Court ruling that Section 14A cannot be invoked where no exempt income was earned by the assessee in the relevant assessment year.” Since, the Ld. CIT(A) has followed the binding precedent on the issue in dispute, we do not find any error in the order of the Ld. CIT(A) and accordingly, we uphold the same. The grounds raised by the Revenue are accordingly dismissed. Now we take the appeal of the Revenue and cross objection of e assessee for assessment year 2016-17. The respective grounds are reproduced as under: Revenue’s Grounds of appeal Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in deleting the disallowance u/s 14A which was compu Rule 8D of the I.T. Rules 1962 on the basis of CBDT Circular No. 5/2014 dated 11.02.2014 which clearly states that it is not necessary to earn exempt income in a particular year in which the disallowance is made. Solitaire Appliances Pvt. Ltd. 9 ITA Nos. 5855 & 5856/Mum/2016 & Ors. already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the In spite of this exercise of apportionment of expenditure deduction of expenditure. That view of the CIT(A) was clearly untenable 3.2.4 ' In view of the above detailed discussion of Hon'ble SC order in Maxopp Investments Ltd, it is held here that it is not ing provisions of section 14A as no exempt income has been earned by the appellant at all. It is worthwhile to mention over here that in a recent judgement dated 2/7/18 in the case of Chettinad Logistics Pvt Ltd, (95 affirmed its stand when it dismissed the SLP against Ld Madras High Court ruling that Section 14A cannot be invoked where no exempt income was earned by the assessee in the relevant precedent on the issue in dispute, we do not find any error in the order of the Ld. ld the same. The grounds raised by Now we take the appeal of the Revenue and cross objection of 17. The respective grounds Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in deleting the disallowance u/s 14A which was computed as per Rule 8D of the I.T. Rules 1962 on the basis of CBDT Circular No. 5/2014 dated 11.02.2014 which clearly states that it is not necessary to earn exempt income in a particular year in which the disallowance is made. 2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in restricting the disallowance u/s 14A to the exempt income earned during the year which is contrary to CBDT circular No. 5/2014 which clarifies that the Rule 8D r.w.s the Act provides for disallowance of expenditure even where taxpayer in a particular year has not earned any exempt income. 3. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of Assessing Officer be restored. Cross-objection of the assessee 1(a) On the facts and in the circumstances of the case and in law, the lower authorities have erred in disallowing the proportionate interest of Rs.83,45,534/ interest claimed u/s 36(1)(iii) of the Income holding that the same are not for the purpose of business, which is wrong and contrary to the provisions of Income Tax Act, 1961, and the Rules made there under. 1(b) On the facts and in the circumstances of the case and in law, the lower appellant has given advances out of commercial expediency and wholly and exclusively for the purpose of business and doing so is wrong and contrary to the provisions of Income Tax Act, 1961, and the Rules made ther 8. Both the grounds raised by the Revenue in the appeal and grounds raised by the assessee in cross examination are identical to grounds raised in the cross appeals of the Revenue and assessee for assessment year 2015 finding for assessment year 2015 in appeal of the Revenue and cross objection of the assessee are decided mutatis mutandis. ITA Nos. 5855 & 5856/Mum/2016 & Ors. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in restricting the disallowance u/s 14A to the exempt income earned during the year which is contrary to CBDT circular No. 5/2014 which clarifies that the Rule 8D r.w.s the Act provides for disallowance of expenditure even where taxpayer in a particular year has not earned any exempt income. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of Assessing Officer be restored. objection of the assessee 1(a) On the facts and in the circumstances of the case and in law, the lower authorities have erred in disallowing the proportionate interest of Rs.83,45,534/- out of the total interest claimed u/s 36(1)(iii) of the Income Tax Act, 1961 by holding that the same are not for the purpose of business, which is wrong and contrary to the provisions of Income Tax Act, 1961, and the Rules made there under. 1(b) On the facts and in the circumstances of the case and in law, the lower authorities failed to appreciate that the appellant has given advances out of commercial expediency and wholly and exclusively for the purpose of business and doing so is wrong and contrary to the provisions of Income Tax Act, 1961, and the Rules made there under. Both the grounds raised by the Revenue in the appeal and grounds raised by the assessee in cross examination are identical to grounds raised in the cross appeals of the Revenue and assessee for assessment year 2015-16 therefore, finding for assessment year 2015-16, the respective grounds raised in appeal of the Revenue and cross objection of the assessee are decided mutatis mutandis. Solitaire Appliances Pvt. Ltd. 10 ITA Nos. 5855 & 5856/Mum/2016 & Ors. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in restricting the disallowance u/s 14A to the exempt income earned during the year which is contrary to CBDT circular No. 5/2014 which clarifies that the Rule 8D r.w.s. 14A of the Act provides for disallowance of expenditure even where taxpayer in a particular year has not earned The appellant prays that the order of CIT(A) on the above grounds be set aside and that of Assessing 1(a) On the facts and in the circumstances of the case and in law, the lower authorities have erred in disallowing the out of the total Tax Act, 1961 by holding that the same are not for the purpose of business, which is wrong and contrary to the provisions of Income Tax 1(b) On the facts and in the circumstances of the case and in authorities failed to appreciate that the appellant has given advances out of commercial expediency and wholly and exclusively for the purpose of business and doing so is wrong and contrary to the provisions of Income Both the grounds raised by the Revenue in the appeal and grounds raised by the assessee in cross examination on the issue are identical to grounds raised in the cross appeals of the Revenue 16 therefore, following our the respective grounds raised in appeal of the Revenue and cross objection of the assessee are 9. In the result, the appeals of the assessee for assessment year 2013-14 and 2015-16 for statistical purposes whereas appeal of the Revenue for assessment year 2015 Order pronounced in the open Court on 31 Sd/- (KULDIP SINGH JUDICIAL MEMBER Mumbai; Dated: 31/05/2023 Rahul Sharma, Sr. P.S. Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// ITA Nos. 5855 & 5856/Mum/2016 & Ors. In the result, the appeals of the assessee for assessment year 16 and cross objection for 2016 for statistical purposes whereas appeal of the Revenue for assessment year 2015-16 and 2016-17 are dismissed. nounced in the open Court on 31/05/2023. Sd/ KULDIP SINGH) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai Solitaire Appliances Pvt. Ltd. 11 ITA Nos. 5855 & 5856/Mum/2016 & Ors. In the result, the appeals of the assessee for assessment year and cross objection for 2016-17 are allowed for statistical purposes whereas appeal of the Revenue for 17 are dismissed. /05/2023. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER BY ORDER, (Assistant Registrar) ITAT, Mumbai