ACIT, CIRCLE-16(1), , MUMBAI V. M/S. PERCEPT LTD. , MUMBAI

ITA 5205/MUM/2019

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 5288 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2016-2017
• Appeal Filed On: 08-08-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Question of law; Rule 8D
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH C MUMBAI BEFORE SHRI C.N. PRASAD (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 5205/MUM/2019 ASSESSMENT YEAR: 2016-17 ASST. COMMISSIONER OF INCOME TAX, CIRCLE-16(1), ROOM NO. 439, 4 TH FLLOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400020. VS. M/S PERCEPT LTD., 22, RAGHUVANSHI ESTATE 11/12, SENAPATI BAPAT MARG, PERCEPT HOUSE, LOWER PAREL, MUMBAI-400013. PAN NO. AACCP 5602 Q APPELLANT RESPONDENT REVENUE BY : MS. SHREEKALA PARDESHI, DR ASSESSEE BY : NONE DATE OF HEARING : 09/02/2021 DATE OF PRONOUNCEMENT : 09/02/2021 ORDER PER N.K. PRADHAN, A.M. THIS IS AN APPEAL FILED BY THE REVENUE. THE RELEVAN T ASSESSMENT YEAR IS 2016-17. THE APPEAL IS DIRECTED AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-4, MUMBAI [IN SHORT CIT(A)] AND ARISES OUT OF THE ASSESSMENT COMPLETED U/S 143(3) THE INCOME TAX ACT 1961, (THE ACT). THOUGH THE CASE WAS FIXED FOR HEARING TODAY, NEITHE R THE ASSESSEE NOR ITS AUTHORIZED REPRESENTATIVE APPEARED BEFORE THE B ENCH THROUGH VIDEO CONFERENCING. AS THERE IS NON-COMPLIANCE BY THE ASS ESSEE, WE ARE PROCEEDING TO DISPOSE OFF THIS APPEAL, AFTER HEARING THE LD. D EPARTMENTAL REPRESENTATIVE (DR) AND ALSO EXAMINING THE MATERIALS AVAILABLE ON RECORD. ITA NO. 5205/MUM/2019 M/S PERCEPT LTD. 2 2. THE GROUNDS OF APPEAL FILED BY THE REVENUE READ AS UNDER: I. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE U/S. 14A OF THE ACT WITHOUT CONSIDERING THE CBDT CIRCULAR NO. 5 OF 2014 DATED 11.02.2014 WH EREIN IT WAS CLEARLY STATED THAT THE LEGISLATIVE INTENTION IS TO ALLOW O NLY THAT EXPENDITURE WHICH IS RELATABLE TO EARNING OF INCOME AND IT THEREFORE FOL LOWS THAT THE EXPENSES WHICH ARE RELATABLE TO EARNING OF EXEMPT INCOME HAV E TO BE CONSIDERED FOR DISALLOWANCE IRRESPECTIVE OF THE FACT WHETHER SUCH INCOME HAS BEEN EARNED DURING THE FINANCIAL-YEAR OR NOT? II. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE U/S. 14A OF THE ACT BY IGNORING THE FACT THAT ONCE A PARTICULAR INCOME ITSELF IS NOT TO BE I NCLUDED IN THE TOTAL INCOME IS EXEMPTED FROM TAX, THERE IS NO REASONABLE BASIS FOR GIVING BENEFIT OF DEDUCTION OF EXPENDITURE INCURRED TOWARDS EARNING S UCH INCOME? III. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE U/S. 14A OF THE ACT AND THEREBY NOT APPRECIATING THAT SECTION 14A DOES NOT USE THE WORK 'INCOME OF THE YEAR' BUT 'INCOME UNDER THE ACT' WHICH CLEARLY INDICATES THAT FOR INVOKING PROVISIONS OF SECTION 14A, IT IS NOT NECESSARY THAT THE ASSESSEE SHOULD HAVE EARNED EXEMPT INCOME DURING THE FINANCIAL YEAR UNDER CONSIDERATIO N? IV. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD, CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE U/S. 14A OF THE ACT WITHOUT CONSIDERING THAT IN CASES INVOLVING DEDUCTION U/S. 57(III) O TH E I.T. ACT, IT WAS HELD BY THE COURTS THAT ACTUAL EARNING OF THE INCOME IS NOT SIN E QUA NON FOR DECIDING THE DEDUCTION OF EXPENDITURE LAID OUT OR EXPENDED WHOLL Y OR EXCLUSIVELY FOR THE PURPOSE OF EARNING THE INCOME. THUS, TAKING THE SAM E LOGIC FORWARD WHERE INVESTMENT HAS BEEN MADE SHARES, WHICH DID NOT YIEL D ANY DIVIDEND IN THE YEAR UNDER CONSIDERATION, THE EXPENDITURE INCURRED FOR E ARNING THE INCOME IS DEDUCTIBLE NOTWITHSTANDING THE FACT THAT NO SUCH IN COME HAS BEEN EARNED? V. THE APPELLANT PRAYS THAT THE ORDER OF LD. CIT(A) ON THE ABOVE GROUNDS BE SET- ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED . ITA NO. 5205/MUM/2019 M/S PERCEPT LTD. 3 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR (AY) 2016-17 ON 0 8.10.2016 DECLARING TOTAL INCOME AT RS. NIL. DURING THE COURSE OF ASSES SMENT PROCEEDINGS, THE ASSESSING OFFICER (AO) ASKED TO ASSESSEE TO FURNISH DETAILS OF EXPENDITURE INCURRED OR ATTRIBUTABLE FOR EARNING EXEMPT INCOME, IN VIEW OF THE PROVISIONS OF SECTION 14A R.W. RULE 8D OF THE INCOM E TAX RULES, 1962 (THE RULES). THE MAIN SUBMISSION OF THE ASSESSEE BEFORE THE AO WAS THAT NO EXEMPT INCOME WAS EARNED DURING THE YEAR UNDER CONS IDERATION. HOWEVER, THE AO WAS NOT CONVINCED WITH SUCH EXPLANATION OF T HE ASSESSEE IN VIEW OF CBDT CIRCULAR NO. 5 OF 2014 DATED 11.02.2014. ACCOR DINGLY, THE AO MADE A DISALLOWANCE OF RS.2,68,65,924/- U/S 14A R.W. RULE 8D. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE F ILED AN APPEAL BEFORE THE LD. CIT(A). IT WAS SUBMITTED DURING THE COURSE OF APPELLATE PROCEEDINGS THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME DU RING THE PREVIOUS YEAR RELEVANT TO THE IMPUGNED ASSESSMENT YEAR. RELYING O N THE ORDER OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. V. CIT (ITA NO. 749 OF 2014) AND THE TRIBUNAL IN M/S NITISHREE INTERNATIONAL PVT. LTD. V. ITO (ITA NO. 4603/DEL/2014), THE ASSESSEE SUBMITTED BEFORE THE L D. CIT(A) THAT SINCE NO EXEMPT INCOME HAS BEEN EARNED BY THE ASSESSEE, NO D ISALLOWANCE U/S 14A R.W. RULE 8D SHOULD BE MADE. THE LD. CIT(A) BY FOLL OWING THE ABOVE TWO DECISIONS DELETED THE DISALLOWANCE OF RS.2,68,65,92 4/- MADE BY THE AO. 5. BEFORE US, THE LD. DR RELIES ON THE ORDER PASSED BY THE AO. 6. WE HAVE HEARD THE LD. DR AND PERUSED THE RELEVAN T MATERIALS ON RECORD. THE FACT REMAINS THAT NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE DURING THE FINANCIAL YEAR 2015-16 RELEVANT TO THE A Y 2016-17. ITA NO. 5205/MUM/2019 M/S PERCEPT LTD. 4 THAT WHEN THERE IS NO EXEMPT INCOME EARNED BY THE A SSESSEE, NO DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MA DE IS NO LONGER RES INTEGRA . IN PR. CIT V. HUNTSMAN INTERNATIONAL (INDIA) PVT. LTD . (ITA NO. 1619 OF 2016), THE HONBLE BOMBAY HIGH COURT VIDE ORDER DATED 30.01.2019 HAS HELD:- 5. THIS QUESTION RELATES TO DISALLOWANCE MADE BY T HE ASSESSING OFFICER UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 R/W R ULE 8D OF THE RULES OF THE EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING EX EMPT INCOME. THE TRIBUNAL BY THE JUDGMENT WHICH IS IMPUGNED IN THIS APPEAL HE LD THAT THE ASSESSEE HAD NOT EARNED ANY EXEMPT INCOME DURING THE YEAR UNDER CONS IDERATION. THE TRIBUNAL, THEREFORE, FOLLOWED THE DECISION OF DELHI HIGH COUR T IN CASE OF CIT VS. HOLCIM INDIA (PVT.) LTD. (2014) 272 CTR 282. IN SUCH DECIS ION, THE DELHI HIGH COURT RULED THAT WHEN THERE IS NO EXEMPT INCOME EARNED BY THE A SSESSEE, NO DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MADE. IT IS POI NTED OUT TO US THAT THIS COURT IN INCOME TAX APPEAL NO.693 OF 2015, FOLLOWING THE JUD GMENT OF DELHI HIGH COURT IN CASE OF HOLCIM INDIA (P) LTD. (SUPRA), HAS ADOPT ED THE SAME PRINCIPLE MAKING FOLLOWING OBSERVATIONS :- '3. WE HAVE GIVEN CAREFUL CONSIDERATION TO THE SUBM ISSIONS. ON FACTS, IT APPEARS FROM THE IMPUGNED JUDGMENT THAT THE ASSESSE E HAD MADE INVESTMENT IN SHARES OF CLOSELY HELD COMPANIES WHIC H DID NOT DECLARE ANY DIVIDEND. ON FACT, THERE IS NO DISPUTE THAT THE ASS ESSEE HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. AFTER CONSIDERATION OF SECTION 14A, THE DELHI HIGH COURT FOLLOWED DECIS IONS OF CERTAIN OTHER HIGH COURTS. SECTION 14A OF THE SAID ACT PROVIDES T HAT FOR THE PURPOSE OF COMPUTING THE TOTAL INCOME, NO DEDUCTION SHALL BE A LLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID AC T. IN OTHER WORDS, SECTION 14A PROVIDES THAT IF THERE IS AN INCOME WHI CH DOES NOT FORM A PART ITA NO. 5205/MUM/2019 M/S PERCEPT LTD. 5 OF THE TOTAL INCOME UNDER THE SAID ACT, THE EXPENDI TURE WHICH IS INCURRED FOR EARNING THE INCOME IS NOT AN ALLOWABLE DEDUCTIO N. THEREFORE, DURING THE RELEVANT YEAR, IF THE ASSESSEE HAS NOT EARNED A NY TAX FREE INCOME, THE CORRESPONDING EXPENDITURE INCURRED CANNOT BE TAKEN INTO CONSIDERATION FOR DIS-ALLOWANCE. 4. WE RESPECTFULLY CONCUR WITH THE VIEW TAKEN BY TH E DELHI HIGH COURT AS THE SAID VIEW CAN ALWAYS BE TAKEN ON FAIR READING O F SECTION 14A OF THE SAID ACT. A DIVISION BENCH OF ALLAHABAD HIGH COURT HAS ALSO TAKEN A SIMILAR VIEW IN THE CASE OF COMMISSIONER OF INCOME TAX V. SHIVAM MOTORS (P) LTD. (SUPRA). HENCE, IN OUR VIEW, NO FAULT CAN BE FOUND WITH THE IMPUGNED JUDGMENT OF THE APPELLATE TRIBUNAL WHEREBY DISALLOWANCE UNDER SECTION 14A WAS ORDERED TO BE DELETED. NO SUB STANTIAL QUESTION OF LAW ARISES. APPEAL IS, ACCORDINGLY, DISMISSED.' 6. COUNSEL FOR THE ASSESSEE ALSO BROUGHT TO OUR NOT ICE THE FACT THAT THE SUPREME COURT IN CASE OF CIT VS. CHETTINAD LOGISTICS (P) LT D. HAS DISMISSED THE REVENUE'S SLP AGAINST THE JUDGMENT OF THE DELHI HIGH COURT IN HOLCIM INDIA (P) LTD. (SUPRA), TAKING A SIMILAR VIEW. 6.1 THUS WHEN THERE IS NO EXEMPT INCOME EARNED BY T HE ASSESSEE, NO DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MA DE. SIMILAR IS THE DECISION BY THE HONBLE BOMBAY HIGH COURT IN PR. CIT V. M/S BALLARPUR INDUSTRIES LTD . (ITA NO. 51 OF 2016) AND THE DECISION BY THE HON BLE PUNJAB & HARYANA HIGH COURT HAS HELD IN CIT V. WINSOME TEXTILES INDUSTRIES LTD. (2009) 319 ITR 204 (P&H). THE HONBLE MADRAS HIGH C OURT IN THE CASE OF CIT V. CELEBRITY FASHION LTD . (TAX CASE APPEAL NO. 26 OF 2018) HAS SIMILARLY HELD THAT NO DISALLOWANCE CAN BE MADE U/S 14A IN AB SENCE OF EXEMPT INCOME. ITA NO. 5205/MUM/2019 M/S PERCEPT LTD. 6 7. FOLLOWING THE ABOVE DECISIONS, WE UPHOLD THE ORD ER OF THE LD. CIT(A) AND DELETE THE DISALLOWANCE OF RS.2,68,65,924/- MAD E BY THE AO U/S 14A R.W. RULE 8D. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09/02/2021. SD/- SD/- (C.N. PRASAD) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; DATED: 09/02/2021 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./ASSISTANT REGISTRAR) ITAT, MUMBAI