Appeal Details
Counselvise Citation
[NaN] 107 COUNSELVISE.COM (IT) 1938 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
CRN Number
Duration Of Justice
9 month(s) 5 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
03-11-2021
Appeal Filed By
Department
Order Result
Dismissed
Bench Allotted
D
Assessment Year
2013-2014
Appeal Filed On
28-01-2021
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, MUMBAI BEFORE SHRI M BALAGANESH, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA No.70/Mum/2021 (A.Y: 2013-14) & ITA No.71/Mum/2021 (A.Y: 2016-17) DCIT, CC – 1(4), 9 th Floor, 902, Pratishta Bhavan, Old CGO Bldg (Annexe), MK Road, Mumbai – 400 020. Vs. M/s. Marine Drive Hospitality & Reality Pvt ltd., Ground Floor, DB House, Gen. AK Vaidya Marg, Goregaon (E), Mumbai – 400 063. PAN/GIR No. : AACCN1891R Appellant .. Respondent Appellant by : Shri. Suresh Parisamy. DR Respondent by : Ms. Hema Kataria. AR Date of Hearing 09.11.2021 Date of Pronouncement 12.11.2021 आदेश / O R D E R PER PAVAN KUMAR GADALE JM: These are the two appeals filed by the revenue against the separate orders of the Commissioner of Income Tax (Appeals) – 47, Mumbai passed u/s 143(3) and 250 of the Income Tax Act, 1961. The issues involved in these ITA No. 70 & 71/Mum/2021 M/s Marine Drive Hospitality & Realty Pvt Ltd, Mumbai - 2 - appeals are identical and similar, hence are clubbed, heard and consolidated order is passed. At the time of hearing, we find there is a delay of 46 days in filling both the appeals with the Honble Tribunal. The Ld.DR explained the reasons for delay due to Covid pandemic and filed the explanations duly supported with judicial decisions. We considering the Ld.DR submissions and the explanations are of the considered view that there exist a reasonable cause for delay in filling the appeals. Accordingly, we condoned the delay and admit the appeals. For the sake of convenience, we shall take up the revenue appeal in ITA No. 70/Mum/2020 for the A.Y 2013-14 as lead case and the facts narrated therein. The revenue has raised the following grounds of appeal: 1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of Rs. 4,30,00,254/- u/s 14A on the ground that the assessee did not earn any exempt income during the year without appreciating that the disallowance u/s 14A was required to be made irrespective of whether the assessee had earned exempt income during the year or not. 2. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance u/s 14A for A.Y 2012-13 without appreciating the fact that circular No. 5 of 2014 dated 11 th Feb 2014, issued by the Central Board of Direct Taxes clearly provides for disallowance of the expenditure even where taxpayer of the expenditure even ITA No. 70 & 71/Mum/2021 M/s Marine Drive Hospitality & Realty Pvt Ltd, Mumbai - 3 - where taxpayer in a particular year has not earned any exempt income. 3. The appellant craves leave to add, to amend and or to alter any of the grounds of appeal, if need be. 2. The Brief facts of the case are that the assessee company is engaged in the business of hotel, tourism related hospitality and real-estate activities.The assessee has filed the return of income electronically on 30.09.2013 for the A.Y 2013-14 declaring a Total income(loss) of Rs.4,17,736/-.The return of income was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act are issued. In compliance, the Ld. AR of the assessee appeared from time to time and filed the details and the case was discussed. The A.O on perusal of the financial statements found that there is no business income from operations and whereas other income of Rs. 1,92,15,085/- being notional gain on foreign exchange fluctuations and insurance claim was offered as business income and the assessee has claimed expenses and determined the loss as per the profit and loss account. ITA No. 70 & 71/Mum/2021 M/s Marine Drive Hospitality & Realty Pvt Ltd, Mumbai - 4 - 3. The A.O on verification of the Balance sheet found that the assessee has made huge investments in shares and which may result exempted income. The A.O dealt on the facts in respect of the investments made by the company and the submissions filed in the course of the assessment proceedings. The assessee has explained that there is no exempt income earned during the year, therefore the provisions of sec 14A r.w.r 8D(2) of I T Rules shall not apply. The A.O. has not considered the submissions on the investments and the special Bench decision of the ITAT Delhi Bench in the case of M/s Cheminvest Vs. CIT (ITA No. 749/Del/2014) and relied on the CBDT circular. The A.O. finally worked out the disallowance u/sec14A r.w Rule 8D(2)(ii)&(iii) aggregating to Rs.4,13,00,254/.The disallowance u/sec14A of the act was treated as preoperative expenditure and pending capitalization and assessed the total income(Loss)of Rs 4,17,740/- and passed the order u/s 143(3) of the Act dated 26.03.2016. 4. Aggrieved by the order, the assessee has filed an appeal before the CIT(A). The CIT(A) considered the grounds of appeal, findings of the scrutiny assessment ITA No. 70 & 71/Mum/2021 M/s Marine Drive Hospitality & Realty Pvt Ltd, Mumbai - 5 - and disallowance made by the A.O. The CIT(A) considered the financial statements and found that the assessee has not received any exempt income in the said financial year and the provisions of sec14A of the Act are not applicable. The CIT(A) relied on the Hon’ble supreme court, Honble High Court and Tribunal decisions and has deleted the disallowance added as preoperative expenses and allowed the assessee appeal. Aggrieved by the CIT(A) order, the revenue has filed an appeal before the Hon’ble Tribunal. 5. At the time of hearing, the Ld. DR submitted that the CIT(A) has erred in deleting the addition u/s 14A irrespective of the fact that the assessee has not earned any exempt income on investments during the year and prayed for restoration of the Assessing officer order. 6. Contra, the Ld.AR submitted that as per the financial statements submitted before the A.O. and CIT(A), the assessee has made investments in shares but there is no dividend income/exempt income ITA No. 70 & 71/Mum/2021 M/s Marine Drive Hospitality & Realty Pvt Ltd, Mumbai - 6 - earned during the year and supported her stand by relying on the judicial decisions and CIT(A) order. 7. We heard the rival submissions and perused the material on record. Prima-facie, the sole crux of the disputed issue is with respect to disallowance u/s 14A r.w.r 8D(2)(ii)&(iii) of I T Rules by the A.O in respect of investments made by the assessee. The Ld.DR contended that the Ld. CIT(A) erred in deleting the addition though there is no dividend income earned in the financial year but the assessee may receive dividend/exempted income in future. We find that the A.O in assessment order has computed the disallowance and it was treated as a preoperative expenditure. Whereas, the CIT(A) has observed that the assessee has not received any exempt income/dividend income during the year and relied on the provisions of law and the judicial decisions and deleted the addition. At this juncture we considered it appropriate to refer to the observations of the CIT(A) on the disputed issue at page 4 Para 4.3 to Para 5 of the order, which is read as under: 4.3 I have considered the facts of the case, submissions and contentions of the appellant, order of the AO and the materials ITA No. 70 & 71/Mum/2021 M/s Marine Drive Hospitality & Realty Pvt Ltd, Mumbai - 7 - available on record. I have also considered the case laws relied upon by the appellant. The only issue involved in the present case is whether the disallowance of Rs.4,30,00,254/- made by the AO u/s.14A r.w.Rule 8D is justified and is in accordance with the provisions of law. It is a matter of record that although the appellant has made investments in equity shares of domestic companies, income from which does not form part of total income, it has actually not received any dividend income during the relevant period. In this connection, it is noted that the Hon'ble Delhi High Court vide its judgment dated 02.09.2015 in the case of M/s. Cheminvest Ltd. v. CIT (ITA 749/2014) has held that the expression 'does not form part of the total income' in section 14A of the Act 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 in relation to the said income. In other words, it has been held that Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. Since the appellant had admittedly not earned any exempt income during the relevant period, the question of disallowance of expenses U/s. 14A r.w.r 8D will not arise in view of the aforesaid judicial decision. The assessee is also correct in claiming that in any case, investment in foreign company is not be considered for disallowance u/s 14A income from such investment is not exempt under the Act. It is also a matter of record that no disallowance u/s.14A was made in case of the appellant the earlier A.Ys.2009-10 to 2011-12. Therefore, it is held that the appellant having not earned any exempt income during the relevant previous year, the AO was not justified in ITA No. 70 & 71/Mum/2021 M/s Marine Drive Hospitality & Realty Pvt Ltd, Mumbai - 8 - invoking the provisions of Rule 8D and computing the disallowance of Rs.4,30,00,254/- u/s.14A. 4.4 In the case of CIT v. HSBC Invest Direct (India) Ltd. (2020) 421 ITR 125 (Born) , dismissing the appeal of the revenue the Hon'ble Bombay High court held that the disallowance of expenditure incurred to earn the exempt income could not exceed the exempt income earned. It was further held that the ratio of the decisions in the cases of Cheminvest Ltd. v. CIT (2015) 378 ITR 33 (Delhi) (HC)) and CIT v. Holcim India (P) Ltd. (I. T. A. No. 486 of 2014 decided on September 5, 2014(Delhi) (HC) ) would include a facet where the assessee's exempt income was not nil, but had earned exempt income which was more than the expenditure incurred by the assessee in order to earn such income. The order of the Tribunal which restricted the disallowance of the expenditure to the extent voluntarily offered by the assessee was not erroneous. 4.5 In the case of the Pr. CIT vs. IL & FS Energy Development CO Ltd ITA No.520/ 2017 (Del- HC) the Hon'ble Court held as under : "That would not preclude the Assessee from taking a stand that no disallowance under Section 14 A of the Act was called for in the AY in question because no exempt income was earned." 4.6 In case of Maxopp Investment Ltd vs. CIT 402 ITR 640 (SC), the Hon'ble Supreme Court held as under : "Fact remains that such dividend income is non-taxable. In this scenario, if expenditure is incurred on earning the ITA No. 70 & 71/Mum/2021 M/s Marine Drive Hospitality & Realty Pvt Ltd, Mumbai - 9 - dividend income, that much of the expenditure which is attributable to the dividend income has to be . disallowed and cannot be treated as business expenditure. Keeping this objective behind section 14A in mind, the said provision has to be interpreted, particularly, the word 'in relation to the income' that does not form part of total income. Considered in this hue, the principle of apportionment of expenses comes into play as that is the principle which is emergained in section 14A. 4.7 Similarly in the case of Redington India Ltd., Vs. ACIT 97 CCH 219 (Mad-HC), the Hon’ble Madras High Court held as under: "Thus, by application of matching concept, in year where there was no exempt income, there could not be disallowance of expenditure in relation to such assumed income. The exemption extended to dividend income would relate only to the previous year when the income was earned and none other and consequently the expenditure incurred in connection therewith should also be dealt with in the same previous year. Thus, by application of the matching concept, in a year where there is no exempt income, there cannot be a disallowance of expenditure in relation to such assumed income. ('Madras Industrial Investment Corporation Ltd vs. CIT (225 ITR 802))." 4.8 Likewise in the case of CIT vs. Delite Enterprises ITA No.110 of 2009, the Hon'ble Bombay High Court held that when there is no exempted income no disallowance u/s 14A could be made by observing as under: "In so far as Question (A) is concerned, on facts we find that there is no profit for the relevant assessment year. Hence the ITA No. 70 & 71/Mum/2021 M/s Marine Drive Hospitality & Realty Pvt Ltd, Mumbai - 10 - question as framed would not arise," 4.9 Moreover in the case of PCIT v. Red Chilies Entertainment Pvt Ltd (2020)16 taxmam.com 770 (Bom-HC) the Hon'ble Court held that When there is no exempt income declared during the year, no disallowance can be made under Rule 8D (2) (ii) Dismissing the appeal of the revenue the Court held that, when there is no exempt income declared during the year, no disallowance can be made. In doing so, the court followed decisions in the cases of Cheminvest Ltd v CIT (2015) 378 ITR 33 (Delhi) (HC), CIT v Shivam Motors Pvt Ltd (2015) 230 Taxman 63 / 272 CTR 277 (All) (HC), PCIT V Man Infra projects Ltd ITA NO cIt 9-04 2019. 4.10 In case of PCIT v Dish TV India Ltd (Born) (HC), the Hon'ble Bomby High court held that when there is no exempt income declared during the year no disallowance can be made. In doing so the Hon'ble Court followed judgments in the cases of CIT v. Delite Enterprises ITA No 110 of 2009 dt 26.2.2009 (Born) (HC), CIT v. India Debt Management Pvt Ltd ITA No 266 of 201 dt 15.4.2019 (Born) (HC). 4.11 Similarly in the case of PCIT Vs. State Bank of Patiala (2018) 99 taxmann.com 285/259 Taxman 315 (P&H) HC it has been held that the disallowance cannot exceed exempt income of relevant year. Further SLP filed by the revenue was dismissed 4.12 Further this issue has been decided by my Ld. Predecessor in appellant's own case for the A.Y. 2012-13, vide order dated 30.03.2017, wherein he directed to delete an identical addition u/s 14A in the case of the assessee, by observing as under: "I have considered the submissions of the appellant and ITA No. 70 & 71/Mum/2021 M/s Marine Drive Hospitality & Realty Pvt Ltd, Mumbai - 11 - perused the materials available on record and also the case laws relied upon by the appellant. The point for adjudication is whether the disallowance of Rs.7,65,68,875/- made to pre- operative expenditure pending for capitalization by the AO u/s.14A r.w.Rule 8D is in accordance with the provisions of law as well as the peculiar facts and circumstances of this case. It is a matter of record that although the appellant has made investments in equity shares of domestic companies income from which does not form part of total income, it has actually not received any dividend income during the relevant period. In this connection, it is noted that the Hon'ble Delhi High Court vide its judgment dated 02.09.2015 in the case of M/s.Cheminvest Ltd. v. CIT (ITA 749/2014) has held that the expression 'does not form part of the total income' in section 14A of the Act 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 in relation to the said income. In other words, it has been held that Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. Since the appellant had admittedly not earned any exempt income during the relevant period, the question of disallowance of expenses u/s.14A r.w.Rule 8D will not arise in view of the aforesaid judicial decision. The assessee is also correct in claiming that in any case, investment in foreign company is not to be considered for disallowance u/s.14A as income from such investment is not exempt under the Act. It is also a matter of record that no disallowance u/s.14A was made in case of the appellant the earlier A.Ys.2009-10 to 2011-12. Therefore, it is held that the appellant having not earned any exempt income during the relevant previous year, the AO was not justified in invoking the provisions of Rule 8D and computing the disallowance of Rs. 7,65,68,875/- u/s 14A which was made from the pre-operative expenditure pending for capitalization. The said disallowance of Rs. 7,65,68,875/- made by the AO is, therefore, directed to be deleted. Grounds bearing Nos.1 and 2 raised by the appellant are accordingly allowed." ITA No. 70 & 71/Mum/2021 M/s Marine Drive Hospitality & Realty Pvt Ltd, Mumbai - 12 - 5. Therefore respectfully following the decision of my id. Predecessor in the case of the assessee for A.Y. 2012-13, and the ratio of various judgments cited above, the said disallowance of Rs.4,30,00,254/- made by the AO and added as preoperative expenses is, directed to be deleted. Grounds bearing Nos.1 and 2 raised by the appellant are accordingly allowed. 8. We find the CIT(A) has considered the accounting system and provisions of law. Further the CIT(A) has relied on the Honble supreme court,Hon’ble High Court and Coordinate Bench of the Tribunal decisions and dealt extensively on the disputed issue and granted the relief. The Ld.DR could not controvert the findings of the CIT(A) with any new cogent material information or evidences. Accordingly, we find that the CIT(A) has considered the facts, circumstances, provisions of law and judicial decisions and passed a reasoned and logical order which cannot be interfered and we uphold the same and dismissed the grounds of appeal of the revenue. ITA.No. 71/Mum/2021, A.Y 2016-17 9. As the facts and circumstances in this appeal is identical to ITA No. 70/Mum/2021 for theA.Y.2013-14 ITA No. 70 & 71/Mum/2021 M/s Marine Drive Hospitality & Realty Pvt Ltd, Mumbai - 13 - except the figures. Therefore, the decision rendered in above paragraphs would apply mutatis mutandis for this appeal also. Accordingly, grounds of appeal of the revenue are dismissed 10. In the result both the appeals filed by the revenue are dismissed. Order pronounced in the open court on 12.11.2021 Sd/- Sd/- ( M BALAGANESH) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 12.11.2021 KRK, PS /Copy of the Order forwarded to : 1. / The Appellant 2. / The Respondent. 3. आ आ / The CIT(A) 4. आ आ ( ) / Concerned CIT 5. ! !" , आ $ %, हमद द / DR, ITAT, Mumbai 6. () * + / Guard file. ान ु सार/ BY ORDER, ! //True Copy// ITA No. 70 & 71/Mum/2021 M/s Marine Drive Hospitality & Realty Pvt Ltd, Mumbai - 14 - 1. ( Asst. Registrar) ITAT, Mumbai
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