DCIT-11(1)(2), MUMBAI V. M/S.SAHANA CONSTRUCTION PRIVATE LIMITED, MUMBAI

ITA 3905/MUM/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 2160 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-08-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Appeal Filed On: 01-06-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHAUDHARY ARUN KUMAR SINGH
• Keywords: Earning of tax free income; Proportionate interest; Question of law; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, HONBLE ACCOUNTANT MEMBER ITA NO. 3905 /MUM/201 8 (A.Y: 2014 - 15 ) DCIT 11(1)(2) ROOM NO. 1, GROUND FLOOR AAYAKAR BHAVAN, M.K. MARG MUMBAI - 400 020 V. M/S. SAHANA CONSTRUCTIONS PVT. LTD., 402, SAGAR AVENUE, PLOT NO. 54 - B JUNCTION OF S.V. ROAD, ANDHERI (W) MUMBAI 400 058 PAN: AAKCS2550A (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : SHRI CHAUDHARY ARUN KUMAR SINGH DATE OF HEARING : 19.08.2019 DATE OF PRONOUNCEMENT : 19 . 08.2019 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE LEARNED COMMI SSIONER OF INCOME TAX (APPEALS) - 18 , MUMBAI [HEREINAFTER IN SHORT LD.CIT(A)] DATED 15.03. 2018 FOR THE A.Y. 2014 - 1 5 . THE ONLY ISSUE IN THE APPEAL OF THE REVENUE IS IN RESPECT OF DELETION OF DISALLOWANCE MADE U/S.14A R.W. RULE 8D OF I.T. RULES. 2 ITA NO. 3905/MUM/2018 (A.Y: 2014 - 15) M/S. SAHANA CONSTRUCTIONS PVT. LTD., 2. BRIEFLY STATED THE FACTS A RE THAT, THE ASSESSING OFFICER W HILE COMPLETING THE ASSESSMENT MADE DISALLOWANCE U/S. 14A R.W. RULE 8D AT . 4,04,05,856 / - , BEING INTEREST UNDER RULE 8D(2)(II) OF . 3,90,46,883 / - AND EXPENSES UNDER RULE 8D(2)(III) OF . 13,58,973 / - . THE LD.CIT(A) DELETED THE DISALLOWANCE ON THE GROUND THAT ASSESSEE HAS NO T EARNED ANY EXEMPT INCOME AND T HEREFORE NO DISALLOWANCE IS WARRANTED. AGAINST THIS ORDER THE REVENUE IS IN APPEAL BEFORE US. 3. NONE APPEARED ON BEHALF OF ASSESSEE. S INCE THE ISSUE IS DECIDED BY VARIOUS COURTS IN FAVOUR OF THE ASSESSEE THE SAME IS BEING DISPOSED OFF ON HEARING THE LD.DR. 4. LD. DR VEHEMENTLY SUPPORTED THE ORDER OF THE ASSESSING OFFICER . 5. WE HAVE HEARD LD. DR , PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ON A PERUSAL OF THE ORDER OF THE LD.CIT(A) , IT IS OBSERVED THAT THE LD.CIT(A) DELETED THE DISALLOWANCE OBSERVING AS UNDER: - 7 DECISION : I HAVE GONE THROUGH THE ASSESSMENT ORDER AND TH E SUBMISSION OF THE APPELLANT. 7.1 ONLY ISSUE INVOLVED IN THE PRESENT APPEAL IS DISALLOWANCE OF RS.4,04,05,856/ - U/S. 14A OF THE ACT R.W. RULE 8D OF THE INCOME - TAX RULES, 1962. THE ASSESSING OFFICER HAS NOTICED THAT THE APPELLANT HAS MADE INVESTMENT OF RS.27,17,94,682/ - AS ON 31 - 03 - 2014 IN EXEMPT INCOME YIELDING ASSETS. HOWEVER, THE APPELLANT HAS NOT ATTRIBUTED ANY EXPENSES WHICH HAVE BEEN INCURRED TO CARRY O UT THE ACTIVITY OF INVESTMENTS. THEREFORE, HE HAS MADE DISALLOWANCE OF RS.4,04,05,856/ - U/S. 14A OF THE ACT BY APPLYING RULE 8D. DURIN G THE APPELLATE PROCEEDINGS, THE LD.AR HAS CONTENDED THAT NO EXEMPT INCOME WAS EARNED DURING THE YEAR AND HENCE NO DISALLOWANCE U/S 14A R.W. RULE 8D CAN BE MADE. CONTENDING SO, THE LD.AR REQUESTED THAT THE DISALLOWANCE OF RS.4,04,05,856/ - U/S.14A OF THE AC T R.W. RULE 8D MADE BY THE ASSESSING OFFICER BE DELETED. 3 ITA NO. 3905/MUM/2018 (A.Y: 2014 - 15) M/S. SAHANA CONSTRUCTIONS PVT. LTD., 8.2 IT IS OBSERVED THAT NO EXEMPT INCOME HAS BEEN EARNED BY THE APPELLANT DURING THE YEAR. THEREFORE, DISALLOWANCE U/S. 14A R.W. RULE 8D CANNOT BE MADE. IN THIS REGARD RELIANCE IS PLACED ON THE FOLLO WING DECISIONS: (I) ZEE NEWS LTD. (2018 - TIOL - 263) BOMBAY HC (II) CHEMINVEST LTD. V. ITO [2009] 378 ITR 33 (DELHI HC). (III) CIT VS CORRTECH ENERGY PRIVATE LIMITED (TAX APPEAL NO. 239 OF 2014) (GUJARAT HIGH COURT) (IV) CIT VS WINSOME TEXTILE INDUSTRIES LTD (319 ITR 204) (P & H) (V) CIT VS HOLCIM INDIA P LTD (ITA N O. 486/2014 & ITA NO. 299/2014) DELHI HIGH COURT (VI) CIT VS. SHIVAM MOTORS P LTD (ITA NO. 88 OF 2014), ALLAHABAD HIGH COURT. (VII) PC1T VS BALLARPUR INDUSTRIES LTD (ITA NO. 51/2016) (BOMBAY HC, NAGPUR BENCH). 8.3. RESPECTFULLY, RELYING ON THE AFORESAID JUDICIAL PRONOUNCEMENTS, IT IS HELD THAT NO DISALLOWANCE CAN BE MADE U/S. 14A R.W. RULE 8D. 8.4. ACCORDINGLY, DISALLOWANCE MADE BY THE LEARNED ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTIO N 14A OF THE ACT R.W. RULE 8D OF RS. 4,04,05,856/ - IS HEREBY DELETED 6. IT IS AN UN DISPUTED FACT THAT DURING THIS ASSESSMENT Y EAR ASSESSEE DID NOT RECEIVE ANY EXEMPT INCOME. WHEN NO EXEMPT INCOME IS RECEIVED BY THE ASSESSEE, WHETHER THERE CAN BE ANY DISALLOWANCE U/S. 14A HAS BEEN CONSIDERED BY THE COORDINATE BENCHES OF THIS TRIBUNAL AND IT HAS BEEN CONSISTENTLY HOLDING THAT IF THERE IS NO EXEMPT INCOME THERE SHOULD NOT BE ANY DIS ALLOWANCE U/S. 14A OF THE ACT. 7. IN THE CASE OF ACIT V. M/S. BALLARPUR INDUS TRIES LTD., IN ITA.NO. 346 TO 379/NAG/2014 DATED 04.12.2015 THE NAGPUR BENCH OF THE TRIBUNAL FOLLOWING THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST V. CIT (SUPRA) HELD AS UNDER: - 6. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH A ND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW IN THE LIGHT OF THE PRECEDENCE CITED. AS FAR AS THE EXEMPTION FOR THE YEARS UNDER CONSIDERATION WERE CONCERNED, IT WAS AN ADMITTED FACTUAL POSITION THAT THE AO HAS NOT MENTIONED ANY SUCH AMOUNT. MEAN ING THEREBY, THERE WAS NO EXEMPT INCOME EARNED BY THE ASSESSEE FOR THE YEARS UNDER CONSIDERATION. IN REPLY TO ONE OF OUR QUESTIONS, THE LEARNED AR, MR. K. P. DEWANI HAS 4 ITA NO. 3905/MUM/2018 (A.Y: 2014 - 15) M/S. SAHANA CONSTRUCTIONS PVT. LTD., ALSO MADE A STATEMENT AT BAR THAT NO DIVIDEND WAS DECLARED, HENCE, THERE WAS NO EARNING OF EXEMPTED DIVIDEND INCOME. HE HAS ALSO CLARIFIED THAT FOR THE PURPOSE OF INVOCATION OF THE PROVISIONS OF SECTION 14A OF THE IT ACT, THE AO HAS APPLIED THE FORMULA ONLY IN RESPECT OF DISALLOWANCE OF PROPORTIONATE INTEREST EXPENDITURE. THERE WAS NO ALLEGA TION OF THE AO THAT THE EXEMPT INCOME WAS EARNED BY THE ASSESSEE. IN THE LIGHT OF THE UNDISPUTED FINDING ON FACTS, WE HAVE PERUSED THE DECISION OF THE HONBLE COURTS. WE MAY LIKE TO MENTION THAT A VIEW HAS BEEN EXPRESSED CONSISTENTLY THAT IF THERE IS NO EX EMPTED PROFIT THEN THERE IS NO QUESTION OF INVOCATION OF THE PROVISIONS OF SECTION 14A OF THE IT ACT BUT, WE HAVE ALSO CAREFULLY PERUSED THAT VERY DECISION OF THE TRIBUNAL NAMELY CHEMINVEST LTD. (SUPRA) WAS REVERSED BY THE HONBLE DELHI HIGH COURT, COPY PL ACED IN THE COMPILATION. THE HONBLE DELHI HIGH COURT IN ITA NO.749/2014 VIDE ORDER DATED 02 - 09 - 2015 TITLED AS CHEMINVEST LTD. VS CIT HAS DECIDED THE SUBSTANTIAL QUESTION OF LAW THAT WHETHER DISALLOWANCE U/S 14A OF THE ACT CAN BE MADE IN A YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE. THE FINAL VERDICT WAS AS UNDER: - 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREINBEFORE THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EXPRESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF THE ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 7. IN SHORT, IN A SITUATION WHEN THAT VERY ORDER OF THE TRIBUNAL WHICH WAS THE BASIS FOR INVOCATION OF THE PROVISIONS OF SECTION 1 4A OF THE IT ACT GOT REVERSED BY THE HONBLE DELHI HIGH COURT, HENCE, THE VERY SAID BASIS DO NOT SURVIVE ANY MORE. AS A RESULT, WE HEREBY CONFIRM THE FINDINGS OF THE LEARNED CIT (A) ON THIS ISSUE. WE HEREBY ALSO HOLD THAT IN VIEW OF THE NUMBERS OF DECISION S ON THIS ISSUE IN FAVOUR OF THE TAX PAYERS, WE FIND NO FORCE IN THIS GROUND OF APPEAL OF THE REVENUE. THE SAME IS DISMISSED. 8. THIS DECISION OF THE TRIBUNAL HAS BEEN AFFIRMED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PR.CIT V. M/S. BALLARPUR INDUSTRI ES LIMITED IN ITA.NO. 51 OF 2016 DATED 13.10.2 0 16 BY REJECTING THE APPEAL OF THE REVENUE AND HELD THAT NO SUBSTANTIAL QUESTION OF LAW ARISES. WHILE HOLDING SO , THE HON'BLE HIGH COURT OBSERVED AS UNDER: - ON HEARING THE LEARNED COUNSEL FOR THE DEPARTMENT AND ON A PERUSAL OF THE IMPUGNED ORDERS, IT APPEARS THAT BOTH THE AUTHORITIES HAVE RECORDED A CLEAR FINDING OF FACT THAT THERE WAS NO EXEMPT INCOME EARNED BY THE ASSESSEE. WHILE HOLDING SO, THE AUTHORITIES RELIED ON THE JUDGMENT OF THE DELHI HIGH COURT IN INCOME TAX APPEAL NO. 749/2014, WHICH HOLDS THAT THE EXPRESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF THE INCOME TAX ACT, 1961 ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF THE INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME , DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. THE INCOME TAX APPELLATE TRIBUNAL HELD THAT THE PROVISIONS OF SECTION 14A OF THE INCOME TAX ACT, 1961 WOULD NOT APPLY TO THE FACTS OF THIS CASE AS NO EXEMPT INCOME WAS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. IT IS NOT THE CASE OF THE ASSESSING OFFICER THAT ANY ACTUAL INCOME WAS RECEIVED BY THE ASSESSEE AND THE SAME WAS INCLUDIBLE IN THE TOTAL INCOME. IN THE FACTS OF THE CASE, THE AUTHORITIES HELD THAT SINCE THE INVESTMENTS MADE BY THE ASSESSEE 5 ITA NO. 3905/MUM/2018 (A.Y: 2014 - 15) M/S. SAHANA CONSTRUCTIONS PVT. LTD., IN THE SISTER CONCERNS WERE NOT THE ACTUAL INCOME RECEIVED BY THE ASSESSEE, THEY COULD NOT HAVE BEEN INCLUDED IN THE TOTAL INCOME. THE FINDINGS OF FACTS RECORDED BY BOTH THE AUTHORITIES DO NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. SINCE NO SUBSTANTIAL QUESTION OF LAW ARISES IN THIS INCOME TAX APPEAL, THE INCOME TAX APPEAL IS DISMISSED WITH NO ORDER AS TO COSTS. 9. IT IS NOT IN DISPUTE THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME DURING THIS ASSESSMENT YEAR, THEREFORE IN THE ABSENCE OF ANY EXEMPT INCOME THERE SHALL NOT BE ANY DISALLOWANCE U/S. 14A OF THE ACT. THUS, RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PR.CIT V. M/S. BALLARPUR INDUSTRIES LIMITED (SUPRA) , WE UPHOLD THE ORDER OF THE LD.CIT(A) AND REJECT THE GROUNDS RAISED BY THE REVENUE. 10. IN THE RESULT, A PPEAL OF THE REVENUE IS DISMISSED . ORDER PRONOUNCED IN THE OPEN COURT ON THE 19 TH AUGUST , 2019 SD/ - SD/ - ( MANOJ KUMAR AGGARWAL) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 19 / 08 / 2019 GIRIDHAR, SR.PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM