DEPUTY COMMISSIONER OF INCOME TAX, MUMBAI V. WELSPUN LIVING LIMITED, MUMBAI

ITA 3719/MUM/2024

AI Insights

The case involves the Deputy Commissioner of Income Tax, Mumbai, as the appellant, and Welspun Living Limited, Mumbai, as the respondent. The dispute centered on the assessment year 2017-18, where the revenue challenged the CIT(A)'s decision on three main grounds: the restriction of disallowance under Section 14A to the amount of tax-exempt income, the deletion of disallowance related to alleged inflated contract expenses, and the adjustment of book profit under Section 115JB. The Tribunal found that the CIT(A)'s decisions were supported by adequate evidence and legal precedent, leading to the dismissal of the revenue's appeal.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 35494 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2017-2018
• Other Referred Cases: Deputy Commissioner of Income-tax, Central Circle -18 & 19, Mumbai vs. Viraj Profiles Ltd., PCIT v. Caraf Builders and Constructions Pvt. Ltd., ACIT v/s Vireet Investments Pvt. Ltd., CIT vs. M/s. Bengal Finance & Investments Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KISHOR DHULE; DR
• Assessee Lawyers: HARSH KAPADIA; AJAY NAGPAL; ARS
• Keywords: Earning of tax free income
• Section: 14A; 115JB

Judgement Text

"| आयकर अपीलीय अिधकरण \fा यपीठ, मुंबई | IN THE INCOME TAX APPELLATE TRIBUNAL “G” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, HON’BLE VICE PRESIDENT & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 3719/Mum/2024 Assessment Years: 2017-18 Deputy Commissioner of Income Tax, Mumbai Vs Welspun Living Limited, Mumbai B Wing, 9th Floor Trade Word, Lower Parel Delisle Road S.O. Maharashtra - 400013 [PAN: AAACW1259N] अपीला थ\u0016/ (Appellant) \u0017\u0018 यथ\u0016/ (Respondent) Assessee by : Shri Harsh Kapadia & Shri Ajay Nagpal, A/Rs Revenue by : Shri Dr. Kishor Dhule, CIT D/R सुनवाई की तारीख/Date of Hearing : 30/01/2025 घोषणा की तारीख /Date of Pronouncement: 30/01/2025 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: This appeal by the revenue is preferred against the order of the ld. CIT(A)-51, Mumbai [hereinafter ‘the ld. CIT(A)’] dated 24/05/2025, pertaining to AY 2017-18. 2. The grievance of the revenue reads as under:- \"i. On the facts and in the circumstances of the case, the la. CIT(A) erred in restricting disallowance made under section 14A of the Income Tax Act, 1961 to the extent of tax exempt income earned by the assessee during the year by overlooking the clarification of legislative intent provided by the CBDT vide Circular No. 5/2014 dated 11.02.2014 and to this effect even an amendment was made by Finance Act, 2022 by way of insertion of Explanation to Section 14A?\" ії. \"On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the disallowance of contract expenses of Rs. 2,07,00,000/- without appreciating the fact such expenses are inflated.\" їїї. \"On the facts and in the circumstances of the case, the Ld.CIT(A) erred, in directing to delete the disallowance made u/s 14A of the Income Tax Act, 1961 to the book profit of the assessee without appreciating the provisions of clause (f) of Explanation 1 to I.T.A. No. 3719/Mum/2024 2 section 115JB(2) of the Income Tax Act, 1961 and the decision of the Hon'ble ITAT Mumbai 'F' Bench in the case of Deputy Commissioner of Income-tax, Central Circle -18 & 19, Mumbai vs. Viraj Profiles Ltd. in ITA No. 4439/ (Mum.) of 2013.\" 3. The assessee is in the business of manufacturing of terry towels, cotton yarn, bath rugs and bedding products and trading in cotton yarns and fabrics. While scrutinising the return of income, the AO noticed that the assessee has received exempt income by way of dividend at Rs. 3,27,047/-. The assessee was asked to explain, why the disallowance of expenditure should not be made u/s 14A r.w.r 8D. It was strongly contended that the AO has to first record satisfaction about the correctness of the claim of the assessee in respect of expenditure in relation to the income which does not form part of the total income. The assessee further claimed that this shall also apply in the case where an assessee claims that no expenditure has been incurred in relation to the earning of the said exempt income. It was contended that the assessee did not incur any expenditure on earning the exempt income. The contention of the assessee did not find favour with the AO, who proceeded by computing the disallowance as per Section 14A r.w.r. 8D and computed the disallowance at Rs. 4,79,46,684/-. 3.1. Proceeding further the AO on the basis of some evidence collected during the course of such, formed a belief that the assessee had inflated the contract value from 4.95 – 5 Crores to 7 Crores, given to M/s. Jai Shakti Engg. & Construction (Jai Shakti). The assessee was asked to explain the same. The assessee strongly contended that it has not awarded any such contract to Jai Shakti and no such expenses were incurred by the assessee. The AO was of the firm belief that the assessee I.T.A. No. 3719/Mum/2024 3 had inflated expenses by Rs.2.07 Crores. Drawing support from the statement of Shri Bharat Tanvi, VP, who admitted that the contract value of the contract with Jai Shakti was actually Rs.4.95 – 5 Crores and the same was increased to Rs. 7 Crores with the understanding that the sum of Rs.2.07 Crores would be returned in cash. Based upon the statement of Shri Bharat Tanvi and Shri Partha Khamaru, VP (Civil project), The AO made the addition of Rs.2.07 Crores. Proceeding further the AO has made the addition u/s 14A r.w.r. 8D, the AO made adjustment u/s 115JB of the Act to the book profit of the assessee. 3.2. The assessee challenged the assessment before the ld. CIT(A). Insofar as the disallowance u/s 14A of the Act is concerned, the ld. CIT(A) was of the opinion that the disallowance should not exceed the exempt income and accordingly restricted the disallowance to Rs.3,27,047/-. 4. We have carefully considered the findings of the ld. CIT(A). We are of the considered view that the insertion to the explanation in Section 14A of the Act, is prospective as held by the Hon’ble Delhi High Court in the case of Era Infrastructure 141 taxmann.com 289 and we are further of the view that since the assessee has earned exempt income of only Rs.3,27,047/-, the disallowance cannot exceed the exempt income. Our view is fortified by the decision of the Hon’ble Delhi High Court in the case of PCIT v. Caraf Builders and Constructions Pvt. Ltd. (2019) 414 ITR 122. We, therefore, decline to interfere with the findings of the ld. CIT(A). Ground No. 1 is accordingly dismissed. I.T.A. No. 3719/Mum/2024 4 5. As regards Ground No. 2, which relates to the deletion of addition of Rs.2.07 Crores, the same has been considered by the ld. CIT(A) at para 8.1. at page 42 of his order. The ld. CIT(A) has given a factual finding that the AO has not been able to bring on record any such agreement entered into by the assessee with Jai Shakti with a contract value of Rs.7 Crores. The ld. CIT(A) further observed that the AO has not been able to identify any specific transactions with Jai Shakti amounting to Rs.7 Crores. In fact no independent enquiry has been made by the AO from Jai Shakti to confront the allegations and negate the contentions of the assessee. On the contrary the assessee has submitted copy of ledger account of Jai Shakti, confirmation from the party and bank statements which showed that no such transactions were ever entered with Jai Shakti. On the strength of such demonstrative evidence/lack of evidence, the ld. CIT(A) deleted the addition. 6. Before us, the ld. D/R could not point out any factual error in the findings of the ld. CIT(A). We, therefore, do not find any reason to interfere with the findings of the ld. CIT(A). Ground No. 2 is accordingly dismissed. 7. Ground No. 3 relates to the adjustment made to the book profit u/s 115JB of the Act. This issue is a well-settled by the decision in the case of ACIT v/s Vireet Investments Pvt. Ltd. (2017) 58 ITR (T.) 313 as well as in the case of PCIT Vs. Bhushan Steel Ltd. [ITA 593/2015 dated 29/09/2015], which has been affirmed by the Hon’ble Bombay High Court in the case of CIT vs. M/s. Bengal Finance & Investments Pvt. Ltd. I.T. Appeal No. 337 of 2013. Therefore, we decline to interfere with the findings of the ld. CIT(A). No I.T.A. No. 3719/Mum/2024 5 adjustment is required to the book profit u/s 115JB of the Act insofar as the disallowance u/s 14 of the Act is concerned. 8. In the result, appeal of the revenue is dismissed. Order pronounced in the Court on 30th January, 2025 at Mumbai. Sd/- Sd/- (SAKTIJIT DEY) (NARENDRA KUMAR BILLAIYA) VICE-PRESIDENT ACCOUNTANT MEMBER Mumbai, Dated 30/01/2025 *SC SrPs *SC SrPs *SC SrPs *SC SrPs आदेश की \u0015ितिलिप अ\u001aेिषत /Copy of the Order forwarded to : 1. अपीलाथ\u001c / The Appellant 2. \u0015\u001dथ\u001c / The Respondent 3. संबंिधत आयकर आयु\" / Concerned Pr. CIT 4. आयकर आयु\" ) अपील ( / The CIT(A)- 5. िवभागीय \u0015ितिनिध ,आयकर अपीलीय अिधकरण, मुंबई /DR,ITAT, Mumbai, 6. गाड& फाई/ Guard file. आदेशानुसार/ BY ORDER, TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Mumbai "