MUKTA ARTS LIMITED, MUMBAI V. ACIT 16(1), MUMBAI

ITA 670/MUM/2023

AI Insights

The case involves M/s. Mukta Arts Ltd appealing against the order of the National Faceless Appeal Centre (NFAC), which confirmed the disallowance made by the Assessing Officer (AO) under Section 14A read with Rule 8D of the Income Tax Act, 1961. The disallowance pertained to expenses claimed by the assessee for earning exempt income, which the AO added to the book profit under Section 115JB. The Tribunal examined whether such disallowances and adjustments were permissible when no exempt income was actually earned during the assessment year 2017-18. The Tribunal's decision was influenced by various High Court judgments that supported the assessee's position.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302322 (ITAT-MUMBAI)
• Duration Of Justice: 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 15-05-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 05-03-2023
• Other Referred Cases: PCIT v. Kohinoor Project Pvt Ltd, PCIT v. Wockhardt Hospitals Ltd., Asstt. CIT v. Vireet Investment (P) Ltd., Pr. CIT v. Atria Power Corpn. Ltd.
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 115JB; 192

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, ‘D‘ BENCH MUMBAI BEFORE: SHRI AMIT SHUKLA, JUDICIAL MEMBER & MS PADMAVATHY S, ACCOUNTANT MEMBER ITA No.670/Mum/2023 (Assessment Year :2017-18) M/s. Mukta Arts Ltd Mukta House 3 rd Floor, Film city Complex, Mumbai-400 065 Vs. ACIT 16(1) 4 th Floor, Aayakar Bhavan, Mumbai – 400 020 PAN/GIR No.AAACM9513F (Appellant) .. (Respondent) Assessee by Dr.K.Shivaram Revenue by Shri Manoj Kumar Singh Date of Hearing 16/05/2023 Date of Pronouncement 19/05/2023 आदेश / O R D E R PER AMIT SHUKLA (J.M): The aforesaid appeal has been filed by the assessee against the order dated 20/02/2023, passed by NFAC, Delhi for the quantum of assessment passed u/s. 143(3) for the A.Y.2017-18. ITA No.670/Mum/2023 M/s. Mukta Arts Ltd. 2 2. In the grounds of appeal, assessee has raised the following grounds:- “1. The Ld. CIT (A) has erred in law and facts in confirming, the action of the Ld. AO passing the assessment order w/s. 143(3) of the Act dated 24/12/2019 which is bad arid invalid in the eyes of law. 2. The Ld. CIT(A) has erred in law and in facts in confirming the addition made by the Ld.AO in disallowing a sum of Rs 44,07,791/- u/s 14A rws 8D of the Act, even though there is no exempted income during the year. 3. The Ld. CIT(A) has erred in law and in facts in confirming the addition made by the Ld AO to the Book Profit u/s 115JB of the Act at Rs 44,07,791% on account of disallowance w/s 14A rw. Rule 8D of the Act. 4. The appellant craves leave to add to, alter, amend and/or delete in all foregoing grounds of appeal. 3. Thus, in short the issue involved is whether addition u/s.14A r.w.r. 8D can be made when there is no exempt income; and can adjustment be made while computing the book profit u/s.115JB. The facts in brief are that ld. AO noted from the perusal of the balance sheet that assessee has made substantial investments in the form of equity, preference shares in mutual funds which can give raise to exempt income in the form of dividend and other tax exempt income. However, there is no exempt income during the year. The ld. AO asked the assessee to provide calculation of 14A disallowance in accordance with Rule 8D. The assessee first of all submitted that it has not incurred any expenditure for earning exempt income because the investments have been made in the associate / group companies; secondly, assessee has not ITA No.670/Mum/2023 M/s. Mukta Arts Ltd. 3 received any exempt income during the year, therefore, no disallowance can be made and in support of which assessee has also relied upon various decisions. However, without prejudice and as required by the ld. AO, assessee worked out the disallowance of Rs.44,06,791/-. The ld. AO computed the disallowance under 14A of Rs.44,06,791/- in the normal computation. However, due to set off of brought forward losses, the normal computation was made at ‘Nil. However, while computing the book profit, he has added the disallowance u/s.14A of Rs.44,06,791/-. 4. The ld. CIT(A) has confirmed the said disallowance after hearing both the parties and on perusal of the impugned order, we find that there is no dispute that assessee has not earned any exempt income during the year and therefore, as held by the Jurisdictional High Court in the following cases, no disallowance u/s.14A can be made  PCIT v. Kohinoor Project Pvt Ltd (2020) 425 ITR 700 / (2021) 276 Taxman 180 (Bom.)(HC)  PCIT v. Wockhardt Hospitals Ltd. (2020) 192 DTR 289 / 316 CTR 157(Bom.)(HC) 5. Similarly, once no addition u/s.14A is made, no adjustment can be made in the book profit computed u/s.115JB. Otherwise also adjustment of computation u/s.14A cannot be made u/s.115JB in view of the following judgments:-  Asstt. CIT v. Vireet Investment (P) Ltd. [2017] 82 taxmann.com 415/ 165 ITD 27 (SB).(Delhi)(Trib) ITA No.670/Mum/2023 M/s. Mukta Arts Ltd. 4  Pr. CIT v. Atria Power Corpn. Ltd. [2022] 142 taxmann.com 412 (Karn.)( HC) [SLP dismissed Pr. CIT v. Atria Power Corpn. Ltd. [2022] 142 taxmann.com 413 (SC)/[2022] 289 Taxman 111 (SC)[26-08-2022] 7. Accordingly, both the grounds raised by the assessee are allowed. 8. In the result, appeal of the assessee is allowed. Order pronounced on 19 th May, 2023 Sd/- (PADMAVATHY S) Sd/- (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated 19/05/2023 KARUNA, sr.ps Copy of the Order forwarded to : BY ORDER, (Asstt. Registrar) ITAT, Mumbai 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy//