|The Assistant Commissioner of Income Tax Circle-3(1)(2), Bangalore V. M/s Global Tech Park Private Limited , Bangalore

MA 112/BANG/2020

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 4922 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 8 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 16-10-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 08-09-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R PREMI J BANGALORE
• Assessee Lawyers: HARIPRASAD NAYAK
• Keywords: Capital asset; Earning of tax free income; Rule 8D
• Section: 14A; 254(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B R BASKA R AN , ACCOUNTANT MEMBER MP NOS.111 & 112/BANG/2020 [ IT A NO S . 2286 & 2287/BANG/2018 ] ASSESSMENT YEAR S : 2015 - 16 & 2014 - 15 THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 1(1), BANGALORE. VS. M/S GLOBAL TECH PARK PVT. LTD., NO.11, GROUND FLOOR, DIVYASHREE CHAMBERS, B WING, O SHAUGHNESSY ROAD, NEAR HOCKEY STADIUM, LANGFORD TOWN, LANGFORD GARDENS, BENGALURU 560 025. PAN: AABCG 5707C APP LICANT RESPONDENT APP LIC ANT BY : SMT . R. PREMI, JCIT(DR)(ITAT), BANGALORE. RESPONDENT BY : SHRI HARI PRASAD NAYAK, CA DATE OF HEARING : 09.10 .2020 DATE OF PRONOUNCEMENT : 16 .1 0.2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THESE ARE MISCELLANEOUS PETITIONS FILED BY THE A SSESSEE U/S. 254(2) OF THE INCOME-TAX ACT, 1961 [THE ACT] PRAYING FOR R ECTIFICATION OF CERTAIN ERRORS IN THE ORDER OF TRIBUNAL DATED 06.03.2020. 2. ONE OF THE ISSUE INVOLVED IN THE AFORESAID APPEA LS BY THE ASSESSEE WAS WITH REGARD TO DISALLOWANCE U/S. 14A OF THE ACT AND AS TO, WHETHER THE DISALLOWANCE U/S. 14A CAN BE MADE IN THE ABSENCE OF ASSESSEE NOT HAVING MP NOS.111 & 112/BANG/2020 PAGE 2 OF 7 EARNED ANY EXEMPT INCOME. THE TRIBUNAL DECIDED T HIS ISSUE IN PARA 4 OF ITS ORDER FOR THE AY 2015-16 IN PARA 4 OF ITS ORDER AS FOLLOWS:- 14. IN THE GIVEN CIRCUMSTANCES, THE FIRST QUESTIO N FOR OUR CONSIDERATION IS AS TO WHETHER DISALLOWANCE CAN BE MADE U/S. 14A OF THE ACT IN THE ABSENCE OF EXEMPT INCOME. THE LAW IN THIS REGARD IS NOW FAIRLY WELL SETTLED. THE BANGALORE BE NCH OF ITAT IN THE CASE OF M/S UB INFRASTRUCTURE PROJECTS LTD., VS. DCIT, ITA NO. 2098/BANG/2016 (AY.2012-13) ORDER DATED 22-12-2 017, THIS TRIBUNAL TOOK THE VIEW THAT THERE CAN BE NO DISALLO WANCE OF EXPENSES U/S 14A OF THE ACT, IF THERE IS NO EXEMPT INCOME EARNED DURING THE RELEVANT PREVIOUS YEAR. THE TRIBUNAL FO LLOWED THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CHEMINVEST LTD. (SUPRA) . THE FOLLOWING ARE THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THIS REGARD:- 3. HAVING CAREFULLY EXAMINED THE ORDERS OF AUTHOR ITIES BELOW, WE FIND THAT UNDISPUTEDLY THE ASSESSEE HAS N OT EARNED ANY EXEMPTED INCOME. NOW IT IS SETTLED POSIT ION OF LAW THAT WHENEVER ASSESSEE DID NOT EARN ANY EXEMPT INCOME, NO DISALLOWANCE COULD BE MADE U/S. 14A OF T HE ACT. THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. V. CIT, 378 ITR 33 (DEL) HAS CATEGO RICALLY HELD THAT SECTION 14A ENVISAGES THAT THERE SHOULD B E ACTUAL RECEIPT OF INCOME WHICH WAS NOT INCLUDIBLE IN THE T OTAL INCOME DURING THE RELEVANT PREVIOUS YEAR FOR THE PU RPOSE OF DISALLOWING ANY EXPENDITURE IN RELATION TO THE S AID INCOME. WHEREVER THERE IS NO EXEMPT INCOME INCLUDIB LE IN THE TOTAL INCOME OF THE ASSESSEE, THE PROVISIONS OF SECTION 14A CANNOT BE INVOKED. THE RELEVANT OBSERVATIONS OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT ARE EXTRAC TED HEREUNDER:- 15. TURNING TO THE CENTRAL QUESTION THAT ARISES FO R CONSIDERATION, THE COURT FINDS THAT THE COMPLETE ANSWER IS PROVIDED BY THE DECISION OF THIS COURT IN CIT V. HOLOLCIM INDIA (P) LTD. (DECISION DATED 5TH SEPTEMBER 2014, IN I.T. A. NO. 486 OF 2014). IN THA T CASE, A SIMILAR QUESTION AROSE, VIZ., WHETHER THE INCOME-TAX APPELLATE TRIBUNAL WAS JUSTIFIED IN DELETING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT WHEN NO DIVIDEND INCOME HAD BEEN EARNED BY MP NOS.111 & 112/BANG/2020 PAGE 3 OF 7 THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR ? THE COURT REFERRED TO THE DECISION OF THIS COURT IN MAX OPP INVESTMENT LTD. (SUPRA) AND TO THE DECISION OF THE SPECIAL BENCH OF THE INCOME-TAX APPELLATE TRIBUNAL IN THIS VERY CASE, I.E., CHEMINVEST LTD. V. CIT [2009] 317 !TR (AT) 86 (DELHI) [SB]. THE COURT ALSO REFERRED T O THREE DECISIONS OF DIFFERENT HIGH COURTS WHICH HAVE DECIDED THE ISSUE AGAINST REVENUE. THE FIRST WAS TH E DECISION IN CIT V. LAKHANI MARKETING INCL. (DECISIO N DATED APRIL 2, 2014, OF THE HIGH COURT OF PUNJAB AN D HARYANA IN I. T. A. NO. 970 OF 2008)--SINCE REPORTE D IN [2015] 4 ITR-OL 246 (P&H)-- WHICH IN TURN REFERRED TO TWO EARLIER DECISIONS OF THE SAME COURT IN CIT V. H ERO CYCLES LTD. [2010] 323 ITR 518 (P&H) AND CIT V. WINSOME TEXTILE INDUSTRIES LTD. [2009] 319 ITR 204 (P&H). THE SECOND WAS OF THE GUJARAT HIGH COURT IN CIT V. CORRTECH ENERGY (P.) LTD. [2014] 223 TAXMANN 130 (GUJ) ; [2015] 372 1TR 97 (GUJ) AND THE THIRD O F THE ALLAHABAD HIGH COURT IN CIT V. SHIVAM MOTORS (P ) LTD. (DECISION DATED 5TH MAY, 2014, IN T.A. NO. 88 OF ITA NO.1 1071BANG12016 2014). THESE THREE DECISIONS REITERATED THE POSITION THAT WHEN AN ASSESSEE HAD NOT EARNED ANY TAXABLE INCOME IN THE RELEVANT ASSESSMENT YEAR IN QUESTION 'CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE.' 4. THIS WAS ALSO EXAMINED BY THE TRIBUNAL IN THE AS SESSEE'S OWN CASE FOR ASSESSMENT YEAR 2010-11 AND HELD THAT WHEN THERE IS NO EXEMPT INCOME, PROVISION OF SECTION 14 OF THE ACT CANNOT BE APPLIED. 5. IN THE LIGHT OF THE AFORESAID JUDGMENT, THE PROV ISIONS OF SECTION 14A CANNOT BE INVOKED AS THERE IS NO EXEMPT INCOME IN THE HANDS OF THE ASSESSEE. ACCORDINGLY, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(APPEALS) WHO HAS RIGHTLY DELETED T HE ADDITION. 3. AS FAR AS AY 2014-15 IS CONCERNED, THIS ASPECT W AS DECIDED IN PARA 7 OF THE ORDER OF TRIBUNAL AS FOLLOWS:- MP NOS.111 & 112/BANG/2020 PAGE 4 OF 7 7. AS FAR AS ITA NO.2287/BANG/2018 FOR AY 2014-15 IS CONCERNED, THE FIRST ISSUE THAT ARISES FOR CONSIDER ATION IN THIS APPEAL IS DISALLOWANCE OF EXPENSES U/S.14-A OF THE ACT. IN THIS YEAR, THERE IS NO DISPUTE THAT THE ASSESSEE EARNED EXEMPT INCOME IN THE FORM OF DIVIDEND OF RS.1,51,694/-. THE DISA LLOWANCE U/S.14A OF THE ACT COMPUTED BY THE REVENUE AUTHORIT IES WAS A SUM OF RS.2,83,23,833/-. THE HONBLE DELHI HIGH COU RT IN THE CASE OF JOINT INVESTMENTS (P) LTD. V. CIT, 372 ITR 694 HAS TAKEN THE VIEW THAT DISALLOWANCE U/S. 14A OF THE ACT CANN OT EXCEED THE EXEMPT INCOME. SIMILAR VIEW WAS EXPRESSED BY THE H ONBLE DELHI HIGH COURT IN THE CASE OF CIT V. HOLCIM INDIA PVT. LTD., 272 CTR 282 (DEL) . THESE DECISIONS WERE CONSIDERED BY THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF FUTURE CORPORATE RESOURCES LTD V. ACIT, ITA NO.4658/MUM/2015 DATED 26.07.2017 RELATING TO AY 2011-12 AND IT WAS HELD BY THE TRIBUNAL MUMBAI BENCH THAT DISALLOWANCE U/S. 14A OF THE ACT CANNOT EXCEED THE EXEMPT INCOME. FOLLOWING THE AFO RESAID DECISIONS, WE HOLD THAT DISALLOWANCE U/S. 14A OF TH E ACT IN THE PRESENT CASE SHOULD BE RESTRICTED TO THE EXEMPT INC OME EARNED BY THE ASSESSEE. WE HOLD AND DIRECT ACCORDINGLY. 4. IN AY 2014-15, THE DISALLOWANCE OF EXPENSES WAS RESTRICTED TO EXEMPT INCOME EARNED BY THE ASSESSEE. 5. IN THESE MISCELLANEOUS PETITIONS, THE REVENUE H AS CONTENDED AS FOLLOWS IN AY 2015-16:- THE PROVISIONS OF SECTION 14A PROVIDES FOR EXPENDI TURE INCURRED IN RELATION TO EARNING EXEMPT INCOME TO BE DISALLOW ED. THIS FACT HAS BEEN RECOGNIZED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF WALFORT STOCK AND SHARE BROKER S AND IN THE JUDGMENT OF MAXOPP INVESTMENT LTD. IN THE EVENT THE DISALLOWANCE MADE BY THE ASSESSEE IS NIL, OR IS FOU ND TO BE INADEQUATE BY THE ASSESSING OFFICER, THEN HE IS TO RECORD HIS FINDING WARRANTING SUCH DISALLOWANCE. ONCE THIS FIN DING IS RECORDED, THE AO IS FETTERED TO LIMIT THIS DISALLOW ANCE IN ACCORDANCE WITH THE PROVISIONS OF RULE 8D. THEREFOR E, THE PROVISIONS OF RULE 8D ARE TO FETTER THE ASSESSING O FFICER AND NOT THE ASSESSEE. FURTHER, RULE 8D CONSISTED OF THREE L IMBS MAINLY I) DIRECT EXPENSES II) INTEREST ON BORROWED FUNDS W HICH IS MP NOS.111 & 112/BANG/2020 PAGE 5 OF 7 ATTRIBUTABLE TO SUCH EXEMPT INCOME AND III) INDIREC T EXPENSES. EVIDENTLY, THERE CAN BE NO LIMIT ON THE DIRECT EXPE NSES THEY WOULD HAVE A DIRECT NEXUS ONLY TO THE EXEMPT INCOME . THE HON'BLE APEX COURT IN THE CASE OF MAXOPP INVESTMENTS LTD., HAD DISTINGUISHED THE TREATMENT I N RESPECT OF INVESTMENTS AND STOCK IN TRADE. IN THE CASE OF STOC K IN TRADE, AS ANY DIVIDEND INCOME WOULD BE INCIDENTAL IN NATURE. THE HON'BLE APEX COURT HELD THAT THE PRINCIPLE OF APPORTIONMENT WOULD STILL APPLY BUT GET RESTRICTED TO THE QUANTUM OF DIVIDEND EARNED. AS AGAINST THIS, IN THE CASE OF THE HOLDING BEING AN I NVESTMENT, THE RETURN ON SUCH INVESTMENT WOULD BE ONLY DIVIDEND IN COME AND THE PROVISIONS OF SECTION 14A SHALL APPLY IMMATERIA L OF THE FACT AS TO WHETHER DIVIDEND WAS EARNED OR NOT. THIS DECISIO N IS A BINDING LAW ON BOTH THE ASSESSEE AS WELL AS THE DEPARTMENT AS ON DATE. THE SUBSEQUENT JUDGMENTS DELIVERED BY THE HON'BLE A PEX COURT IN THE CASE OF RELIANCE CAPITAL ASSET MANAGEMENT LT D AND RELIANCE POWER AND UTILITIES LIMITED BY THE BOMBAY HIGH COURT DO NOT DISTINGUISH OR DEVIATE FROM THE BINDING DECI SION OF THE HON'BLE SUPREME COURT. THE DECISION OF THE APEX COURT HAS IN ESSENCE UPH ELD THE CBDT CIRCULAR NO. 5/2014 DATED 11.02.2014 HAS CLARI FIED THAT RULE 8D READ WITH SECTION 14A OF THE ACT PROVIDES F OR DISALLOWANCE OF THE EXPENDITURE EVEN WHERE THE TAXP AYER IN A PARTICULAR YEAR HAS NOT EARNED ANY EXEMPT INCOME IN THE CASE OF INVESTMENT OF THE ORDER OF HON'BLE ITAT THEREFORE, NEEDS TO BE RECALLED AND ADJUDICATED UPON CONSIDERING THE LEGAL POSITION. IT IS REQUESTED THAT THE HON'BLE ITAT MAY ADJUDIC ATE THE GROUNDS OF APPEAL RAISED IN THE ORIGINAL APPEAL BY APPLYING THE BINDING DECISION OF THE APEX COURT. IN THE ABOVE CIRCUMSTANCES, A MISCELLANEOUS PETITIO N IS BEING SUBMITTED SEEKING TO RECTIFY THE ORDER FOR A.Y 2014 -15 IN CASE OF M/S GLOBAL TECH PARK PVT LTD ON THE FOLLOWING GROUN D: 'THE HON'BLE ITAT MAY CONSIDER RECTIFYING THE ORDER FOR A. Y. 2015-16 BY ADJUDICATING THE GROUNDS OF APPEAL RAISED IN THE APPEAL TAKING INTO ACCOUNT THE MATERIAL FACT THAT ASSESSEE HAD INVESTMENTS AND NOT STOCK IN TRADE AND THE MP NOS.111 & 112/BANG/2020 PAGE 6 OF 7 DECISION OF THE APEX COURT IN THE CASE OF MAXOPP INVESTMENTS LTD.. 6. SIMILAR CONTENTION HAS BEEN TAKEN BY THE REVENUE IN THE MISCELLANEOUS APPLICATION FILED FOR AY 2014-15. 7. THE LD. DR REITERATED THE STAND OF REVENUE AS RE FLECTED IN THE PETITIONS. 8. AS CAN BE SEEN FROM THE ABOVE STAND TAKEN BY THE REVENUE IN THE PETITIONS FOR BOTH THE ASSESSMENT YEARS IS THAT THE DECISION OF THE HONBLE SUPREME COURT IN THE MAXOPP INVESTMENTS LTD. (SUPRA) HAS HELD THAT EVEN WHEN SHARES ARE HELD AS STOCK IN TRADE AND IF DIVID END INCOME IS INCIDENTAL TO HOLDING SHARES AS STOCK IN TRADE, IT CANNOT BE A RGUED BY THE ASSESSEE THAT EARNING OF DIVIDEND WAS ONLY INCIDENTAL AND TH EREFORE IT CANNOT BE SAID THAT EXPENSES WERE INCURRED FOR EARNING DIVIDEND IN COME SO AS TO ATTRACT THE PROVISIONS OF SEC.14A OF THE ACT. THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENTS LTD. (SUPRA) WAS ONLY WITH REGARD TO THE QUESTION, WHETHER THERE CAN BE A DISALLOWANC E U/S. 14A OF THE ACT, WHERE THE TAX-FREE INCOME EARNING INVESTMENTS WERE HELD AS STOCK-IN- TRADE? THERE IS NO CATEGORICAL FINDING THAT DISALL OWANCE U/S. 14A CAN BE MADE EVEN IF THERE IS NO EXEMPT INCOME OR DISALLOWA NCE U/S. 14A CAN BE MADE IN EXCESS OF EXEMPT INCOME EARNED BY THE ASSES SEE. IN ANY EVENT, THE SUBMISSION SOUGHT TO BE MADE BY THE REVENUE IN THESE PETITIONS WERE ADMITTEDLY NOT RAISED BY THE REVENUE AT THE TIME WH EN THE APPEALS WERE HEAD. THE SCOPE OF POWER U/S. 254(2) OF THE ACT IS VERY LIMITED AND IS RESTRICTED TO RECTIFYING MISTAKES APPARENT ON THE F ACE OF RECORD. THE REVENUE CANNOT SEEK A REVIEW OF THE ORDER OF TRIBUN AL IN THE GARB OF PETITION U/S. 254(2) OF THE ACT. WE ARE THEREFORE OF THE VI EW THAT THERE IS NO MERIT IN THESE PETITIONS BY THE REVENUE AND ACCORDINGLY THE SAME ARE DISMISSED. MP NOS.111 & 112/BANG/2020 PAGE 7 OF 7 9. IN THE RESULT, THE MISCELLANEOUS PETITIONS BY TH E REVENUE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 16 TH DAY OF OCTOBER, 2020. SD/- SD/- ( B R BASKARAN ) ( N V VASUDEV AN ) ACCOUNTANT M EMBER VICE PRESIDENT BANGALORE, DATED, THE 16 TH OCTOBER, 2020. / DESAI S MURTHY / COPY TO: 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE