Dy. Commissioner of Income Tax , Circle-3(2), Hyderabad V. Soma Highways Private Limited, Hyderabad

ITA 1080/Hyd/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 8275 (ITAT-HYDERABAD)
• Duration Of Justice: 10 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB-A
• Next Hearing Date: 04-04-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 25-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1 080 /HYD/201 8 ASSESSMENT YEAR: 20 1 4 - 15 DY. COMMISS IONER OF INCOME - TAX , CIRCLE 3(2), HYDERABAD. VS. SOMA HIGHWAYS PVT. LTD., HYDERABAD. PAN AANCS 2909 Q ( APPELLANT ) (RESPONDENT) REVENUE BY : S HRI Y.V.S.T. SAI ASSESSEE BY : S HRI M OHD. AFZAL DATE OF HEARING : 0 4 / 0 4 /201 9 DATE OF PRONOUNCEMENT : 12 / 0 4 / 201 9 O R D E R PER S . RIFAUR RAHMAN , A .M. : T H IS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF CIT(A) 8 , HYDERABAD , DATED 14 / 0 3 /201 8 FOR AY 20 1 4 - 15 . 2 . BRIEF FACTS OF THE CASE ARE, THE ASSESSEE COMPANY ENGAGED IN INFRASTRUCTURE BUSINESS FILED ITS RETURN OF INCOME FOR THE AY 2014 - 15 DECLARING TOTAL LOSS OF RS. 10,20,43,017/ - . THE AO NOTED THAT THE ASSESSEE MADE AN IN VESTMENT OF RS. 45.40 CRORES IN THE EQUITY SHARES OF SISTER CONCERN M/S SOMA ISOLUX SURAT HAZARIA TOLLWAY PVT. LTD. AND SOMA ISOLUX KISHANGARH BE AWAR TOLLOWAY PVT. LTD. AND FURTHER IT INVESTED SHARE APPLICATION MONEY OF RS. 123 CRORES IN M/S SOMA DEVELOPERS PVT. LTD. THE AO FURTHER NOTED THAT NO DISALLOWANCE WAS MADE U/S 14A OF THE ACT IN RESPECT OF THE EXEMPT INCOME, WHEREAS FINANCE COST OF RS. 10 ,19,91,070/ - WAS CLAIMED IN THE P&L A/C. THE ASSESSEE SUBMITTED BEFORE THE AO THAT THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE SINCE NO EXEMPT INCOME WAS EARNED 2 ITA NO. 1080 /HYD/1 8 SOMA HIGHWAYS PVT. LTD., HYD . DURING THE YEAR. THE AO DID NOT ACCEPT THE CONTENTIONS OF THE APPELLANT ON VARIOUS GROUNDS INCLUDING THAT OF RELIANCE ON CBDT CIRCULAR NO. O5 / 2014 DT. 11.02.2014 AND ACCORDINGLY MADE DISALLOWANCE OF RS. 19,19,33,782/ - U/S. 14A OF THE ACT R.W.RULE 8D(2)(II) & (III). 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND THE AR OF THE ASSESSEE SUBMITTED BEFORE THE CIT(A) THAT THE ASSESSEE DID NOT RECEIVE ANY DIVIDEND INCOME FROM THE INVESTMENTS MADE AND THEREFORE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE. IN SUPPORT OF THE CONTENTION, THE AR RELIED UPON THE O RDER OF HON'BLE ITAT, HYDERBAD IN ITA NO. 1670/HYD/2016 DATED 12.10.2017 IN ITS OWN CASE FOR THE A.Y. 2012 - 13. IN VIEW OF THE ABOVE, THE AR CONTENDED THAT THE SAID DISALLOWANCE IS UNCALLED FOR. 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE C IT(A) OBSERVED THAT IT IS NOW MORE OR LESS SETTLED POSITION THAT THE DISALLOWANCE U/S. 14A CANNOT BE MADE WHEN THERE IS NO EXEMPT INCOME AS HELD BY THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT (378 ITR 33) AND A NUMBER OF OTHER CASE LAWS. THE HON'BLE ITAT IN THE APPELLANT'S CASE RELIED UPON THE ABOVE MENTIONED CASE LAW AND THE DECISIONS OF COORDINATE BENCHS OF ITAT AND HELD THAT NO DISALLOWANCE IS PERMISSIBLE U/S. 14A WHEN NO EXEMPT INCOME WAS RECEIVED. RESPECTFULLY FOLLOWING THE DECI SION OF THE HON'BLE ITAT IN ASSESSEESS CASE, THE CIT(A) DELETED THE DISALLOWANCE MADE BY THE AO U/S. 14A. 5. AGGRIEVED BY THE ORDER OF CIT(A), THE REVENUE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 1. LD. CIT(A) ERRED BOTH IN LAW AND ON FACTS OF THE CASE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION MADE U/S. 14A AMOUNTING TO RS. 10,20,43,017/ - 3 ITA NO. 1080 /HYD/1 8 SOMA HIGHWAYS PVT. LTD., HYD . 3. THE LD. CIT (A) ERRED IN HOLDING THAT SEC. 14A IS NOT APPLICABLE IN THIS CASE IGNORING THE DECISION OF APEX COURT'S RULING IN THE CASE OF CIT VS. RAJENDRA PRASAD MOODY (115 ITR 519) AND THE BOARD CIRCULAR NO. 05 OF 2014. 4. THE APPELLANT PRAYS THAT TH E ORDER OF THE LD. CIT(A) ON THE ABOVE GROUNDS BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUNDS OR ADD A NEW GROUND, WHICH MAY BE NECESSARY. 6. ANY OTHER GROUND(S) THAT MAY BE URGED AT THE TIME OF HEARING. 6. BEFORE US, LD. DR RELIED ON THE GROUNDS OF APPEAL AND CBDT CIRCULAR. 7. ON THE OTHER HAND, LD. AR RELIED ON THE ORDER OF CIT(A). 8. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS SETTLED POSITIO N OF LAW THAT THE PROVISIONS OF SECTION 14A CAN BE APPLIED TO QUANTIFY THE EXPENSES IN RELATION TO EXEMPT INCOME. SINCE THE EXEMPT INCOME IS NIL, SECTION 14A WILL NOT APPLY. THE RULE 8D CAN BE APPLIED ONLY WHEN THERE IS DIFFICULTY IN FINDING THE EXPENDITUR E RELATING TO EXEMPT INCOME. THE PROVISIONS OF SECTION 14A AND RULE 8D WILL NOT APPLY TO THE PRESENT CASE. IT IS THE CONSISTENT VIEW OF THE HYDERABAD BENCHES AND ACCORDINGLY THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. 8.1 MOREOVER, IN ASSESSEES OWN CASE FOR AY 2012 - 13, THE SMC BENCH IN ITA NO. 1670/HYD/2016 VIDE ITS ORDER DATED 12/10/2017, HELD AS UNDER: 7. I HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED RECORD. WITH REGARD TO THE ISSUE OF COMPUTATION OF DISALLOWANCE U/S 14A R.W. RULE 8D OF THE IT RULES, THE HON'BLE PRESIDENT, ITAT REFERRED THE MATTER TO SPECIAL BENCH AND IN THE CASE OF CHEMINVEST LTD, ITAT, DELHI SPECIAL BENCH UPHELD THE CONTENTION OF REVENUE (121 ITO 318). HOWEVER, SINCE THE SAID 4 ITA NO. 1080 /HYD/1 8 SOMA HIGHWAYS PVT. LTD., HYD . JUDGMENT WAS REVERSED BY HON'BLE DEL HI HIGH COURT, ALL THE BENCHES OF THE TRIBUNAL HAD BEEN CONSISTENTLY TAKING A VIEW THAT DISALLOWANCE IS NOT PERMISSIBLE IN A YEAR WHERE THERE IS NO EXEMPT INCOME. CONSISTENT WITH THE VIEW TAKEN BY COORDINATE BENCHES OF THE ITAT, IN PARTICULAR ITAT HYDERABA D BENCH, I HOLD THAT IN THE INSTANT CASE NO DISALLOWANCE IS PERMISSIBLE U/S 14A R.W. RULE 80 OF THE IT RULES, 1962. 9 . IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON 12 TH APRIL , 201 9 . SD/ - SD/ - ( P. MADHAVI DEVI ) (S . RIFAUR RAHMAN ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 12 TH APRIL , 201 9 KV C OPY TO: - 1) DCIT, CIRCLE 3(2), ROOM NO. 713, 7 TH FLOOR, SIGNATURE TOWERS, OPP. BOTANICAL GARDENS, KONDAPUR, HYD ERABAD . 2) M/S SOMA HIGHWAYS PVT. LTD., PLOT NO. 14, AVENUE 4, BANJARA HILLS, HYDERABAD 34. 3) CIT(A) 8 , HYDERABAD. 4) PR. CIT - 3 , HYD. 5 ) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDERABAD. 6 ) GUARD FILE