ACIT CIRCLE-3 (3)(2), MUMBAI V. M/S SYNERGY APPLIANCES PVT LTD., MUMBAI

ITA 6787/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 7239 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-03-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2016-2017
• Appeal Filed On: 04-11-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR MENON
• Keywords: Business expenditure; Earning of tax free income; Rule 8D; Set aside
• Section: 2; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (VIRTUAL COURT) E BENCH, MUMBAI BEFORE SHRI C.N. PRAS AD, HON'BLE JUDICIAL MEMBER AND SHRI M. BALAGANESH , HON'BLE ACCOUNTANT MEMBER IT A. NO. 6787 /MUM/201 9 (A.Y: 2016 - 17 ) ACIT - CIRCLE - 3(3)(2) ROOM NO. 628, 6 TH FLOOR AAYAKAR BHAVAN, M.K. ROAD MUMBAI 400 020 V. M/S. SYNERGY APPLIANCES PVT. LTD. 171, C - WING, MITTAL COURT NARIMAN POINT, MUMBAI - 400021 PAN: AAACR1840 E (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : SHRI VIJAYKUMAR MENON DATE OF HEARING : 15.03.2021 DATE OF PRONOUNCEMENT : 15.03.2021 O R D E R PER C.N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST ORDER OF THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) - 8 , MUMBAI [HEREINAFTER FOR SHORT 'LD. CIT(A)] DATED 22.08.2019 FOR THE A.Y. 2016 - 17 IN DELETING THE DISALLOWANCE U/S. 14A OF THE ACT MADE BY THE ASSESSING OFFICER . 2. BRIEFLY STATED THE FACTS ARE, THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT COMPUTED THE DISALLOWANCE OF . 3,99,55,605 / - U/S. 14A 2 ITA.NO. 6787/MUM/2019 (A.Y: 2016 - 17) M/S. SYNERGY APPLIANCES PVT. LTD. R.W. RULE 8D OF I.T. RULES . SINCE ASSESSEE MADE SUO - MOTO DISALLOWANCE OF . 1,76,430 / - , ASSESSING OFFICER RESTRICTED THE DISALLOWANCE TO . 3,97,79,175 / - . ON APPEAL LD.CIT(A) DELETED THE DISALLOWANCE AS NO EXEMPT INCOME HAS BEEN EARNED BY THE ASSESSEE DURING THE YEAR. AGAINST THIS ORDER REVENUE IS IN APPEAL BEFORE US . 3. INSPITE OF ISSUE OF NOTICE, NONE APPEARED ON BEHALF OF ASSESSEE NOR ANY ADJOURNMENT WAS SOUGHT. THEREFORE, WE PROCEED TO DISPOSE OFF THIS APPEAL ON HEARING THE LD.DR. LD.DR VEHEMENTLY SUPPORTED THE ORDERS OF THE ASSESSING OFFICER. 4. HEARD LD. DR AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ON A PERUSAL OF THE ORDER OF THE LD.CIT(A), WE FIND THAT THE LD.CIT(A) CONSIDERED THIS ASPECT OF THE MATTER ELABORATELY WITH REFERENCE TO THE SUBMISSIONS OF THE ASSESSEE AND THE AVERMENTS IN THE ASSESSMENT ORDER AND FOLLOWING THE DECISION OF HON'BLE SUPREME COURT IN TH E CASE OF MAXOPP INVESTMENT LTD [ 91 TAXMANN.COM 154] DELETED THE DISALLOWANCE AS NO EXEMPT INCOME HAS BEEN EARNED BY THE ASSESSEE DURING THE YEAR . WHILE HOLDING SO, THE LD.CIT(A) OBSERVED AS UNDER: - 3 .1.4 THE MAIN THRUST OF THE APPELLANT IS THAT THE APPELLANT COMPANY HAS NOT EARNED ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. RECENTLY, HON'BLE SUPREME COURT OF INDIA HAS GIVEN A LANDMARK JUDGEMENT ON THE SECTION 14A IN THE CASE OF M AXO PP 3 ITA.NO. 6787/MUM/2019 (A.Y: 2016 - 17) M/S. SYNERGY APPLIANCES PVT. LTD. INVESTMENT LTD 91 TAXMANN.COM 154. THE JUDGEMENT IS PARTICULARLY RELEVANT ON THE ISSUES OF STRATEGIC INVESTMENT AND STOCK IN TRADE, WHILE APPLYING THE PROVISIONS OF SECTION 14A. IT IS HELD THAT IF EXPENDITURE IS INCURRED ON EARNING DIVIDEND INCOME, THAT MUCH OF EXPENDITURE WHICH IS ATTRIBUTABLE TO DIVIDEND INCOME HAS TO BE DISALLOWED AND CANNOT BE TREATED AS BUSINESS EXPENDITURE. IN THOSE CASES, WHERE SHARES ARE HELD AS STOCK - IN - TRADE, MAIN PURPOSE IS TO TRADE IN THOSE SHARES AND EARN PROFITS THEREFROM, IN THE PR OCESS, CERTAIN DIVIDEND IS ALSO EARNED, THOUGH INCIDENTALLY, WHICH IS ALSO AN INCOME. THIS TRIGGERS APPLICABILITY OF SECTION 14A WHICH IS BASED ON THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON - TAXABLE INCOME. THEREFORE, TO THAT EXTENT, EXP ENDITURE INCURRED IN ACQUIRING THOSE SHARES WILL HAVE TO BE APPORTIONED. IN THE SAME ORDER, HON'BLE SUPREME COURT HAS HELD THAT THE DISALLOWANCE U/S 14A CA NNOT EXCEED THE EXEMPT INCOME: I FIND THAT THE HON'BLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA) HAS NOTED IN PARA 40 OF SAID ORDER AS UNDER: ' WE NOTE FROM THE FACTS IN THE STATE BANK OF PATIALA CASES THAT THE AO, WHILE PASSING THE ASSESSMENT ORDER, HAD ALREADY RESTRICTED THE DISALLOWANCE TO THE AMOUNT WHICH WAS CLAIMED AS EXEMPT INCOME BY APPLYING THE FORMULA CONTAINED IN RULE 8D OF THE RULES AND HOLDING THAT SECTION 14A OF THE ACT WOULD BE APPLICABLE. IN SPITE OF THIS EXERCISE OF APPORTIONMENT OF EXPENDITURE CARRIED OUT BY THE AO, CIT(A) DISALLOWED THE ENTIRE DEDUCTION OF EXPENDITURE. T HAT VIEW OF THE CIT(A) WAS CLEARLY UNTENABLE AND RIGHTLY SET ASIDE BY THE ITAT. 3.1.4 . IN VIEW OF THE ABOVE DETAIL ED DISCUSSION OF HON'BLE SC ORDER IN MAXOPP INVESTMENTS LTD, IT IS HELD HERE THAT IT IS NOT A FIT CASE FOR INVOKING PROVISIONS OF SECTION 14A AS NO EXEMPT INCOME HAS BEEN EARNED BY THE APPELLANT AT ALL. IT IS WORTHWHILE TO MENTION OVER HERE THAT IN A RECENT JUDGEMENT DATED 2/7/18 IN THE CASE OF C HETTINAD LOGISTICS PVT LTD, (95 TAXMANN.COM 250), THE HON'BLE APEX COURT RE - AFFIRMED ITS STAND WHEN IT DISMISSED THE SLP AGAINST LD MAD RAS HIGH COURT RULING THAT SECTION 14A CANNOT BE INVOKED WHERE NO EXEMPT INCOME WAS EA RNED BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR. 3.1.5 IN VIEW OF THIS ESTABLISHED JUDICIAL POSITION, THE AO IS DIRECTED TO RESTRICT THE DISALLOWANCE TO THE AMOUNT OF SUO - MOTO DISALLOWANCE OF RS 1,76,430/ - . ANY DISALLOWANCE OVER AND ABOVE THIS DISALLOWANCE IS HEREBY DELETED. T HIS GROUND IS THEREFORE ALLOWED. 4 ITA.NO. 6787/MUM/2019 (A.Y: 2016 - 17) M/S. SYNERGY APPLIANCES PVT. LTD. 5. ON A CAREFUL PERUSAL OF THE ORDER OF THE LD.CIT(A) AND THE REASONS GI VEN THEREIN AND IN VIEW OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD (SUPRA), WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE LD.CIT(A) IN DELETING THE DISALLOWANCE U/S.14A OF THE ACT AS NO EXEMPT INCOME HAS BEEN EA RNED BY THE ASSESSEE DURING THE YEAR UNDER APPEAL. 6. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE VIRTUAL COURT ON 1 5.03 .2021. SD/ - SD/ - ( M. BALAGANESH ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 15/03 / 2021 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