THE DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-6(4), MUMBAI V. INDIABULLS DISTRIBUTION SERVICES LIMITED, MUMBAI

ITA 1552/MUM/2023

AI Insights

The case involves the Deputy Commissioner of Income Tax, Central Circle-6 (4), Mumbai (Appellant) against Indiabulls Distribution Services Limited (Respondent) concerning the assessment year 2018-19. The primary issue was the disallowance of \\u20b925,290,803 made under Section 14A read with Rule 8D of the Income Tax Act, 1961, by the assessing officer, which was later deleted by the CIT(A). The CIT(A) ruled that the disallowance could not exceed the tax-exempt income, which was nil in this case. The assessing officer's appeal contended that recent amendments and a CBDT circular supported the disallowance despite the absence of tax-exempt income. The Tribunal, referencing decisions from the Delhi and Bombay High Courts, affirmed the CIT(A)'s decision, emphasizing that the amendments and circular did not apply retrospectively to the assessment year in question.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 125507 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 19-07-2023
• Assessment Year: 2018-2019
• Appeal Filed On: 03-05-2023
• Other Referred Cases: PCIT vs. Era Infrastructure P Ltd [2022] 141 taxmann.com 289 (Delhi), Nirved Traders Private Limited (ITA number 149 of 2017)
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Retrospective amendment; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, MUMBAI BEFORE SHRI PRASHANT MAHARISHI, AM AND SHRI KULDIP SINGH, JM ITA No.1552/Mum/2023 (Assessment Year: 2018-19) T he DCIT Centra l C i rcle-6 (4) Room No.1925, 19 th F loor, Air Ind ia Bu ild in g, Nar im an Point, Mu m bai-400 021 Vs. Indiabulls Distribution Services Limited M-62 & 63, 1 st Floor,, Connaught Place, New Delhi-110 001 (Appellant) (Respondent) PAN No. AACC1090N Assessee by : None Revenue by : Mr. H.M. Bhatt, DR Date of hearing: 20.07.2023 Date of pronouncement : 24.07.2023 O R D E R PER PRASHANT MAHARISHI, AM: 01. ITA number 1552/M/2023 is filed by the Deputy Commissioner of income tax, Central Circle – 6 (4), Mumbai (the learned assessing officer) against the appellate order passed by The Commissioner Of Income Tax (Appeals) – 54, Mumbai (the learned CIT – A) for assessment year 2018 – 19 dated 16/2/2023 wherein the appeal filed by the assessee against the assessment order passed under section 143 (3) of The Income Tax Act, 1961( the act) dated 27/3/2021 By The Deputy Commissioner Of Income Tax was allowed. Page | 2 ITA No.1552/Mum/2023 Indiabulls Distribution Services Limited; A.Y. 2018-19 02. The only issue involved in this appeal is that the learned assessing officer has made the disallowance under section 14 A read with rule 8D of ₹ 25,290,803/–. The learned CIT – A deleted the above disallowance holding that the disallowance under section 14 A cannot exceed the tax- exempt income on during the year. Therefore the learned CIT – A deleted the disallowance for the reason that during the year the assessee has not earned any tax- exempt income. The learned CIT – A followed the decision of honourable Bombay High Court in case of ITA number 149 of 2017 as well as the other tribunal decisions. 03. Therefore the learned assessing officer is aggrieved with the order of the learned CIT – A stating that CBDT circular number 5/2014 and the explanation to section 14 A introduced with effect from 1/4/2022 has been ignored. 04. Fact shows that assessee is a company engaged in the business of underwriting/distribution of real estate projects. It filed its return of income on 10/10/2018 at a net loss of ₹ 240,635,477/– and book profit under section 115JB at ₹ 42,307,714/–. The return was revised on 28/3/2019 declaring loss of ₹ 198,816,077/–. The book profit remains the same. The return of income was picked up for scrutiny. 05. The learner assessing officer noted that assessee has a huge investment in equity shares and therefore the expenditure under section 14 A is disallowable. The assessee was questioned. The assessee submitted that Page | 3 ITA No.1552/Mum/2023 Indiabulls Distribution Services Limited; A.Y. 2018-19 assessee has not earned any exempt income thus not made any disallowance under section 14 A. The learned assessing officer rejected the explanation of the assessee and computed the disallowance under section 14 A of the act in accordance with rule 8D amounting to ₹ 25,290,803/–. Accordingly the assessment order was passed on 27/3/2021 wherein the total income of the assessee was computed at a loss of ₹ 173,525,274/– . An identical addition was also made on account of disallowance under section 14 A read with rule 8D in computation of the book profit under section 115JB. The revised book profit was computed at ₹ 67,598,517/-. 06. Assessee approached the learned CIT – A passed an appellate order on 27/3/2021 deleting the disallowance holding that assessee has not earned any exempt income during the year and therefore the disallowance under section 14 A read with rule 8D of the act cannot exceed the exempt income earned by the assessee. As the assessee has not earned any exempt income during the year, there cannot be any disallowance under section 14 A of the act. 07. The learned AO is aggrieved with that and has preferred this appeal holding that there is a retrospective amendment to the income tax act and further there is a circular of central board of direct taxes to this effect that even if the assessee has not on any exempt income, the Page | 4 ITA No.1552/Mum/2023 Indiabulls Distribution Services Limited; A.Y. 2018-19 disallowance is required to be made under section 14 A of the act. 08. Despite notice, none appeared on behalf of the assessee, therefore the issue is decided in absence of the assessee has per information available on record on merits of the case. 09. On careful consideration of the facts available on record as well as the argument of the learned departmental representative we find that the issue is squarely covered in favour of the assessee that there cannot be any disallowance under section 14 A of the act when assessee has not earned any exempt income. The honourable Delhi High Court in case of PCIT versus Era Infrastructure P Ltd [2022] 141 taxmann.com 289 (Delhi)/[2022] 288 Taxman 384 has held that Amendment made by Finance Act, 2022 to section 14A by inserting a non-obstante clause and Explanation will take effect from 1-4-2022 and cannot be presumed to have retrospective effects. Further the honourable Bombay High Court in Nirved traders private limited (ITA number 149 of 2017) dated 23/4/2019 that the disallowance under section 14 A was to be restricted to the tax-exempt income on during the year. Therefore, now it is an undisputed proposition for assessment year 2018 – 19 is that if the assessee has not earned any exempt income, no disallowance under section 14 A read with rule 8D can be made. In view of this we do not find any infirmity in the order of the learned CIT – A. Page | 5 ITA No.1552/Mum/2023 Indiabulls Distribution Services Limited; A.Y. 2018-19 Accordingly all the grounds of the appeal of the learned assessing officer are dismissed. 010. In the result, appeal of the learned AO is dismissed. Order pronounced in the open court on 24.07. 2023. Sd/- Sd/- (KULDIP SINGH) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 24.07.2023 Sudip Sarkar, Sr.PS Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, True Copy// Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai