BORAL INFOTECH PVT. LTD., MUMBAI V. I.T.O-12(1)(3), MUMBAI

ITA 2952/MUM/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 0724 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 07-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SMITA VERMA
• Assessee Lawyers: YAGNESH DESAI
• Keywords: Opportunity of being heard; Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH SMC MUMBAI BEFORE SHRI VIKAS AWASTHY (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 2952/MUM/2019 ASSESSMENT YEAR: 2013-14 BORAL INFOTECH PVT. LTD., B-1/1, MAYUR MA-KRUPA SOCIETY, OPP. GOKHALE SCHOOL, SHIMPOLI ROAD, BORIVALI (WEST), MUMBAI-400092. VS. INCOME TAX OFFICER-12(1)(3), AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. PAN NO. AABCB 5409 L APPELLANT RESPONDENT ASSESSEE BY : MR. YAGNESH DESAI, AR REVENUE BY : MS. SMITA VERMA, DR DATE OF HEARING : 21/12/2020 DATE OF PRONOUNCEMENT : 22/12/2020 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2013-14. THE APPEAL IS DIRECTED AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-20, MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) THE INCOME TAX ACT 1961, (THE ACT). 2. THE SHORT QUESTION HERE IS WHETHER DISALLOWANCE U/S 14A R.W. RULE 8D OF THE INCOME TAX RULES, 1962 (THE RULES) CAN BE MA DE WHEN THERE IS NO EXEMPT INCOME. ITA NO. 2952/MUM/2019 BORAL INFOTECH PRIVATE LTD. 2 THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE AS SESSMENT YEAR (AY) 2013-14 ON 28.03.2014 DECLARING TOTAL LOSS AT RS.1, 365/-. IT IS ENGAGED IN THE BUSINESS OF INVESTMENT IN SHARES AND SECURITIES. AS OBSERVED BY THE AO, THE ASSESSEE HAS REPORTED OPENING AND CLOSING VALUE OF INVESTMENT AT RS.5,86,78,648/-. THE AO HAS NOTED THAT IN EARLIER YEARS, THE ASSESSEE HAS EARNED DIVIDEND INCOME. HOWEVER, DURING THE YEAR, T HE ASSESSEE HAS NOT CREDITED ANY DIVIDEND INCOME IN RESPECT OF INVESTME NT REPORTED IN THE BALANCE SHEET. HOWEVER, OBSERVING THAT THE LD. CIT(A) HAS UPHELD THE ACTION OF THE AO FOR AY 2009-10 AND FURTHER STATING THAT AS PER P ROVISIONS OF SECTION 14A, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDI TURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME, THE AO MADE A DISALLOWANCE OF RS.2,93,393/- U/S 14A R.W. RULE 8D. 3. WE FIND THAT VIDE ORDER DATED 14.03.2019 THE LD. CIT(A) DISMISSED TH E APPEAL FILED BY THE ASSESSEE ON THE GROUND THAT FOR M NO. 35 HAS NOT BEEN VERIFIED AND DIGITALLY SIGNED BY THE MANAGING DIREC TOR OR ANY OTHER DIRECTOR. 4. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITS THAT THE APPEAL HAS BEEN REJECTED BY THE LD. CIT(A) WITHOUT GIVING REAS ONABLE OPPORTUNITY OF BEING HEARD TO THE APPELLANT. FURTHER IT IS EXPLAIN ED BY HIM THAT THE AO ERRED IN MAKING THE DISALLOWANCE U/S 14A WITHOUT APPRECIA TING THE FACT THAT THE ASSESSEE HAS NEITHER INCURRED ANY EXPENDITURE TO EA RN EXEMPT INCOME NOR EARNED ANY EXEMPT INCOME. IN THIS REGARD, RELIANCE IS PLACED BY HIM ON THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE O F PR. CIT V. CARAF BUILDERS AND CONSTRUCTIONS (P.) LTD. (2019) 112 TAXMANN.COM 322 (SC) AND CIT V. CHETTINAD LOGISTICS (P.) LTD. (2018) 257 TAXMAN 2 (SC). ITA NO. 2952/MUM/2019 BORAL INFOTECH PRIVATE LTD. 3 5. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESEN TATIVE (DR) REFERS TO CIRCULAR ISSUED BY CENTRAL BOARD OF DIRECT TAXES (C BDT) CLARIFYING DISALLOWANCE OF EXPENSES U/S 14A IN CASES WHERE COR RESPONDING EXEMPT INCOME HAS NOT BEEN EARNED DURING THE FINANCIAL YEA R AND EXPLAINS THAT THE DISALLOWANCE HAS BEEN RIGHTLY MADE BY THE AO. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS ON RECORD. THE REASONS FOR OUR DECISIONS ARE GIVEN BELOW. AS MENTIONED EARLIER, THE AO HAS NOTED SPECIFICALL Y THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS NOT CRED ITED ANY DIVIDEND INCOME IN RESPECT OF INVESTMENT REPORTED IN THE BAL ANCE SHEET. THE AO HAS MADE THE DISALLOWANCE ON THE BASIS THAT SIMILAR DIS ALLOWANCE WAS MADE IN EARLIER YEARS. UNTIL AND UNLESS, THERE IS A RECEIPT OF EXEMPTED I NCOME, SECTION 14A CANNOT BE INVOKED AS HELD IN CIT V. LAKHANI MARKETING INCL (2015) 4 ITR-OL 246 (PUNJ), CIT V. HOLCIM INDIA (P.) LTD. (2014) 272 CTR (DEL) 282, PR. CIT V. VARDHMAN CHEMTECH P. LTD. (2020) 423 ITR 241, 247 (PUNJ). THE DECISION OF THE HIGH COURT IN THE CASE OF CARAF BUILDERS & CONSTRUCTIONS (P.) LTD. (SUPRA) AND CHETTINAD LOGISTICS (P.) LTD. (SUPRA) THAT AS THE ASSESSEE HAD NOT EARNED ANY TAX-FREE INCOME, CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANC E HAS BEEN AFFIRMED BY THE HONBLE SUPREME COURT IN 112 TAXMANN.COM 322 AN D 257 TAXMAN 2 RESPECTIVELY. IN VIEW OF THE ABOVE FACTUAL SCENARIO AND POSITION OF LAW, WE DELETE THE DISALLOWANCE OF RS.2,93,393/- MADE BY THE AO. ITA NO. 2952/MUM/2019 BORAL INFOTECH PRIVATE LTD. 4 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22/12/2020. SD/- SD/- (VIKAS AWASTHY) ( N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED: 22/12/2020 RAHUL SHARMA, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI