AYURVARDHAN PROJECT CONSULTANTS P.LTD, MUMBAI V. ITO 12(1)(2), MUMBAI

ITA 757/MUM/2016

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 9349 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 12-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAM TIWARI
• Assessee Lawyers: R C JAIN
• Keywords: Earning of tax free income; Question of law; Difference of opinion
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM ITA NO. 757/ MUM/20 16 ( ASSESSMENT YEAR : 2012 - 13 ) M/S. AYU VARDHAN PROJECT CONSULTANTS PVT. LTD., C - 202, ACME ENCLAVE NEAR NIRANKARI GARDEN VASARI HILL, MALAD (W) MUMBA I 400 064 VS. ITO 12(1)(2), MUMBAI 400 020 PAN/GIR NO. AAFCA5449P APPELLANT ) .. RESPONDENT ) ASSESSEE BY SHRI R.C.JAIN REVENUE BY SHRI RAM TIWARI DATE OF HEARING 25 / 09 /201 7 DATE OF PRONOUNCEME NT 27 / 09 /201 7 / O R D E R PER R.C.SHARMA (A.M) : THIS IS AN APPEAL FILED BY ASSESSEE AGAINST THE ORDER OF CIT(A) - 20, MUMBAI DATED 19/11/2016 FOR A.Y.2012 - 13 IN THE MATTER OF ORDER PASSED U/S.143(3) OF THE IT ACT. 2. IN THIS APPEAL, ASSESSEE IS AGGRIEVED FOR D ISALLOWANCE MADE U/S.14A R.W.R. 8D. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PERUSED. 4. DURING THE COURSE OF SCRUTINY ASSESSMENT, AO DISALLOWED A SUM OF RS. 1,57,500/ - U/S.14A. THE CONTENTION OF LEARNED AR WAS THAT NO EXEMPT INCOME WAS EARNED BY TH E ASSESSEE DURING THE YEAR UNDER CONSIDERATION, THEREFORE, NO DISALLOWANCE WAS WARRANTED. THE FACT THAT ASSESSEE WAS NOT IN RECEIPT OF ANY DIVIDEND INCOME OR EXEMPT INCOME HAS NOT BEEN ITA NO. 757/MUM/2016 M/S. AYUVARDHAN PROJECT CONSULTANTS (P) LTD., 2 CONTROVERTED BY ANY OF THE LOWER AUTHORITIES OR BY THE LEARNED DR DURI NG THE COURSE OF HEARING BEFORE US. 5. I HAVE CONSIDERED RIVAL CONTENTIONS, CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AND FOUND THAT ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME IN THE FORM OF DIVIDEND DURING THE YEAR UNDER CONSIDERATION, HO WEVER, THE AO HAS DISALLOWED ASSESSEES CLAIM BY RELYING ON THE ITAT SPECIAL B ENCH DECISION IN THE CASE OF CHEMINVEST LTD.121 ITD 318 AND STATED THAT EVEN IF THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME, STILL DISALLOWANCE U/S.14A R.W.R.8D IS TO BE MADE A ND IT IS MANDATORY. I FOUND THAT ITAT COORDINATE (CHENNAI) BENCH IN THE CASE OF MR. M. BASKARAN (SUPRA), VIDE ORDER DATED 31 - 7 - 2014 HAS CONSIDERED THE DECISION OF ITAT SPECIAL BENCH IN THE CASE OF CHEMINVEST LTD.(SUPRA) AND AFTER RELYING ON THE DECISIONS O F HONBLE ALLAHABAD HIGH COURT, GUJARAT HIGH COURT AND BOMBAY HIGH COURT, DELETED THE DISALLOWANCE OF EXPENSES MADE U/S.14A R.W.R.8D, WHERE THE ASSESSEE HAS NO EXEMPT INCOME. THE PRECISE OBSERVATION OF THE BENCH WAS AS UNDER : - 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHORITIES AND SUBMISSIONS MADE BY THE ASSESSEE AND THE DECISIONS IN RELIED ON. NO DOUBT IN THE DECISION OF THE SPECIAL BENCH OF DELHI TRIBUNAL IN THE CASE OF CHEMINVEST LTD. VS. ITO (SUPRA), THE SPECIAL BENCH HELD THAT DISALLOWANCE UNDER SECTION 14A CAN BE MADE EVEN IN THE YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE. THIS DECISION OF SPECIAL BENCH OF THE TRIBUNAL HAS BEEN IMPLIEDLY OVERRULED BY THE DECISIONS OF HIGH COURTS IN THE FOLLOWING CASES: 6. IN THE CASE OF M/S. SHIVAM MOTORS P.LTD. (SUPRA), BEFORE THE HONBLE ALLAHABAD HIGH COURT, THE REVENUE RAISED THE FOLLOWING QUESTION OF LAW: - WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE INCOME TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN UPHOLDING ITA NO. 757/MUM/2016 M/S. AYUVARDHAN PROJECT CONSULTANTS (P) LTD., 3 THE DECISION OF CIT(A) IN DELETING THE DISALLOWANCE OF ` 2,03,752/ - U/S.14A IGNORING THE FACT THAT THERE IS DIFFERENCE OF OPINION OF VARIOUS COURTS ON THE VIEW TAKEN BY THE ITAT THAT IN THE ABSENCE OF TAX FREE INCOME, NO DISALLOWANCE U/S.14A IS PERMISSIBLE. 7. THE HIGH COURT WHILE ANSWERING THE SAID QUESTION HELD AS UNDER: - AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THE CHAPTER, NO DEDUCTION SHALL BE ALLOWED I N RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, WHAT SECTION 14A PROVIDES IS THAT IF THERE IS ANY INCOME WHICH DOES NOT FORM PART OF THE INCOME UNDER THE ACT, THE EX PENDITURE WHICH IS INCURRED FOR EARNING THE INCOME IS NOT AN ALLOWABLE DEDUCTION. FOR THE YEAR IN QUESTION, THE FINDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY TAX FREE INCOME. HENCE, IN THE ABSENCE OF ANY TAX FREE INCOME, THE CORRESPONDING EXPENDI TURE COULD NOT BE WORKED OUT FOR DISALLOWANCE. THE VIEW OF THE CIT(A), WHICH HAS BEEN AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW. HENCE, THE DELETION OF THE DISALLOWANCE OF RS.2,03,752/ - MADE BY THE ASSESSING OFFI CER WAS IN ORDER. 8. THE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CORRTECH ENERGY PVT.LTD.(SUPRA) HELD AS UNDER: - WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO THE FACTS AND THE DECISION RELIED UPON BY THE ID AR. THE HON'BLE PUNJAB & HARYANA HIGH CO URT IN THE CASE OF CIT VS. WINSOME TEXTILE INDUSTRIES LTD. REPORTED AT (2009) 3191TR 204(P&H) HAS HELD THAT IN THE PRESENT CASE, ADMITTEDLY, THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION. IN SUCH A SITUATION, SECTION 14A COULD HAVE NO APPLICATION. IN T HIS CASE ALSO, THE ASSESSEE HAS NOT CLAIMED ANY EXEMPT INCOME IN THIS YEAR. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGEMENT OF HON'BLE HIGH COURT OF PUNJAB & HARYANA IN THE CASE OF CIT VS. WINSOME TEXTILE INDUSTRIES LTD. (SUPRA), WE HEREBY ALLOW THIS GROUN D AND DIRECT THE AO TO DELETE THE ADDITION. THEREFORE, GROUND NOS 1 TO 1.2 RAISED BY THE ASSESSEE IN ITS CROSS OBJECTION ARE ALLOWED.' THE REVENUE IS IN APPEAL ON THE FOLLOWING QUESTIONS: - 11. IN THE CASE OF CIT VS. WINSOME TEXTILES INDUSTRIES LTD. ( 319 ITR 204) THE HONBLE PUNJAB & HARYANA HIGH COURT HELD THAT WHEN THERE IS NO CLAIM FOR EXEMPTION OF INCOME IN SUCH SITUATION SECTION 14A HAS NO APPLICATION. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, WE DELETE THE DISALLOWANCE MADE UNDER SECTION 14A AS THE ASSESSEE HAS NOT EARNED / RECEIVED FOR EXEMPT INCOME DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THUS, WE SUSTAIN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE. ITA NO. 757/MUM/2016 M/S. AYUVARDHAN PROJECT CONSULTANTS (P) LTD., 4 6 . IN VIEW OF THE ABOVE DISCUSSION, RESP ECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH, WHO HAS REACHED TO THE CONCLUSION THAT NO DISALLOWANCE IS TO BE MADE WHEN THERE IS NO EXEMPT INCOME AFTER RELYING ON THE VARIOUS DECISIONS OF THE HONBLE HIGH COURTS INCLUDING THE HONBLE BOMBAY HIGH COURT, I DO NOT FIND ANY MERIT FOR THE DISALLOWANCE SO MADE BY THE AO. ACCORDINGLY, AO IS DIRECTED TO DELETE THE DISALLOWANCE MADE U/S.14A. 5. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 27 / 09 /2017 S D/ - ( R.C.SHARMA ) ACCOUNTANT MEMBER MUMBAI ; DATED 27 / 09 /201 7 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//