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TMI Blog2015 (1) TMI 964X X X X Extracts X X X X X X X X Extracts X X X X ..... ssional charges". The auditor's remuneration and legal & professional charges incurred for maintenance of statutory books and its audit etc. were required to be incurred irrespective of whether the Company had any income or not and hence, there was absolutely no basis for considering a part of such expenditure towards earning of exempt income. Decided in fvaour of assessee. - I.T.A. No. 4448/Del/2013, C.O. No. 11/Del/2014 - - - Dated:- 19-1-2015 - Shri H. S. Sidhu And Shri T. S. Kapoor,JJ. For the Petitioner : Sh. Vikram Sahay, Sr. DR For the Respondent : Sh. Sanjeev Sapra, CA ORDER Per H. S. Sidhu : JM This appeal filed by the Revenue and Cross objection filed by the Assessee emanate out of the Order passed by the Ld. CIT(A)- XVII, New Delhi pertaining to assessment year 2009-10. 2. The grounds raised in the Revenue s appeal read as under:- 1. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance of ₹ 17,27,733/- made by the Assessing Officer u/s. 14A of the I.T. Act, 1961 read with Rule 8D of the I.T. Rules, 1962. 2. The Ld. CIT(A) has erred in law and on facts of the case in not appreciating the fact that the sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axed. Ld. AR of the assessee drew our attention towards the order of the AO as well as Ld. CIT(A) and stated that if assessee has not incurred any expenditure to earn dividend income, then no disallowance u/s. 14A is permissible. In support of his contention Ld. Counsel of the assessee relied upon the following case laws and given the gist of the decisions as follows by attaching the copies thereof. a) Maxopp Investment Ltd. vs. CIT (Jurisdictional High Court) [347 ITR 272) b) Wimco Seedlings Ltd. vs. DCIT (ITAT, Delhi Third Member), [107 ITD 267] in which it has held that there can be no presumption that the assessee must have incurred expenditure to earn tax free income. c) CIT vs. Hero Cycles (P H High Court), [323 ITR 518] in which it was held that the disallowance u/s. 14A of the Act requires a clear finding of incurring of expenditure and that no disallowance can be made on the basis of presumptions. d) ACIT vs. Eicher Ltd. (ITAT Delhi) [101 TTJ 369] in which it was held that the burden is on the AO to establish nexus of expenses incurred with the earning of exempt income before making any disallowance u/s. 14A of the I.T. Act. e) Maruti Udyog vs. DCIT (ITAT, D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Allahabad High Court in its recent judgment dated 05/05/2014 in the case of CIT vs. M/s Shivam Motors (P) Ltd. Relevant findings of the High Court are reproduced below: 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 in 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 expenditure 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 expenditure 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 ₹ 2,03,752/- made by the Assessing Officer was in order . 7.3 It was further submitted that similarly in the case of CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He argued that auditor's remuneration and legal professional charges incurred for maintenance of statutory books and its audit etc. were required to be incurred irrespective of whether the Company had any income or not and hence, there was absolutely no basis for considering a part of such expenditure towards earning of exempt income. In this connection, reliance is placed on Gujarat High Court judgment in the case of CIT vs. Suzion Energy Ltd. 354 ITR 630, in which the Court confirmed the deleting of disallowance u/s 14A in respect of interest expenses incurred for investments in subsidiaries and administrative expense such as staff salary of corporate office, audit fees, building rent and communication expenses. He requested that the appeal filed by the Revenue may be dismissed and Assessee's CO deserves to be allowed. 8. On the other hand, Ld. Department Representative relied upon the order of the Assessing Officer and opposed the request of the assessee s counsel. Ld. DR reiterated the observations made by AO in his order that assessee has shown investments in shares of ₹ 35,55,46,602/- as at 31.3.2009 as well as during the previous year, in such assets inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... muneration 25000 Legal professional charges 184400 Consultancy charges 3912217 Maintenance expenses 4368 Entertainment/business promotion 226304 Newspapers, Books Periodicals 54988 Rent 24000 Traveling/Conveyance expenses 553923 ROC filing fee 7500 Total expenses 5086380 3.1. As per the appellant's AR, the above. expenses are directly attributable to the appellant's income earned from training as expenses like consultancy charges, entertain/business promotion, traveling/conveyance etc. have nothing to do with the investments made by the company. As per the balance sheet, there are no fresh investments during the relevant assessment year and as per the appellant's AR, the source of these investments is out of interest free unsecured loans. Further, no interest expenses are debited in the P L A/c. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med as a holding company for making downstream investments in cement manufacturing ventures in India. In he return of income filed for the Assessment Year 2007-08, therespondentassessee declared loss of ₹ 8.56 Crores approximately. The respondent-assessee had declared revenue receipts of ₹ 18,02,274/- which included interest of ₹ 726/- from Fixed Deposit Receipts and profit on sale of fixed assets of ₹ 16,52,225/-. As against this, the respondent assessee had claimed administrative and miscellaneous expenses expenditure written off amounting to ₹ 8.75 Crores. For the Assessment Year 2008-09, the assessee had filed return declaring loss of ₹ 6.60 Crores approximately. The assessee had declared revenue receipts in the form of foreign currency fluctuation difference gain of ₹ 12,46,595/-. It had claimed expenses amounting to ₹ 7.02 Crores as personal expenses, operating and other expenses, depreciation and financial expenses. 4. In the two assessment orders, the Assessing Officer held that the respondent-assessee had not commenced business activities as they had not undertaken any manufacturing activity or made downstream investments. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the CIT(A) issued notice and called upon assessee, why Section 14A should not be invoked? The Section postulates that for the purpose of computing total income under Chapter IV, no deduction shall be allowed in respect of the expenditure incurred in relation to income which does not form part of the total income. Since the business of the respondent-assessee was to act as a holding company for downstream investments and as it was an accepted fact that they had incurred expenses to protect their investments and explore new avenues of investments, the provisions of Section 14A were applicable. The exact reasoning given by the CIT(A) in this regard in respect of the Assessment Year 2007-08 is as under:- 5.8....Thus, as admitted by the appellant; since business of the appellant exclusively is to act as a holding company for downstream investment in order (sic) companies and the admitted fact that they incurred the expenses to protect their investments and to explore new avenues of investments clearly show, that in the facts of the appellant's case the provision of Section 14A of the Act are clearly applicable . [underlining is as per the original order of CIT(A)] 8. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he acceptable method of apportionment. Expounding the expression in relation to appearing in Section 14A as interpreted in Maxopp Investment Ltd. (supra), the CIT(A) held that the said expression could not be given a narrow meaning. The expression in relation to would include in connection with or pertaining to . No deduction should be allowed in respect of the expenditure incurred by the assessee with the main object of earning income which did not form part of the total income. He accordingly held that disallowance under Section 14A had no relation with the dominant and immediate connection between the expenditure and exempt income. Thereafter, in paragraphs 5.13 to 5.15, the CIT(A) held as under:- 5.13 With regards to inapplicability of Section 14A of the Act the appellant stated that they had not utilized any borrowed funds for making such investment and hence, no expenses on account of interest had been debited and claimed. It has been also contended that in absence of any clear finding or nexus between expenses incurred and exempt income or without bringing on record, specific material, no adhoc disallowance under section 14A of the Act is warranted. This content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration the same facts exists as were existing in assessment year 2007- 08 and the appellant has also made the same submissions as were given during the appellate proceedings for assessment year 2007-08, therefore relying on my order dated 01.08.2012 vide which I have adjudicated the appellant's appeal for assessment year 2007-08, I hold that in the year under consideration also that no disallowance can be made on account of noncommencement of business. However the addition of ₹ 7,02,54,564/- is to be made on account of disallowance u/s 14A because the appellant has admitted time and again that their main business activity is to act as a holding company for downstream investment in other companies which are engaged in manufacturing cement and that the expenses of ₹ 7,02,54,564/- have been incurred by them under to protect their investments and to explore new avenues of investments. Thus in view of the findings given in assessment year 2007-08, the addition of ₹ 7,02,54,564/- stands confirmed on account of disallowance under section 14A. 5. In the result, the appeal is dismissed . 12. As noticed above, the Tribunal has reversed the said finding by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndustries Limited, [2009] 319 ITR 204 to hold that Section 14A cannot be invoked when no exempt income was earned. The second decision is of the Gujarat High Court in Commissioner of Income Tax-I Vs. Corrtech Energy (P.) Ltd. [2014] 223 Taxmann 130 (Guj.). The third decision is of the Allahabad High Court in Income Tax Appeal No. 88 of 2014, Commissioner of Income Tax (Ii) Kanpur, Vs. M/s. Shivam Motors (P) Ltd. decided on 05.05.2014. In the said decision it has been held: 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 in 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 expenditure 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 expenditure could not be worked out for disallo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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