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TMI Blog2017 (7) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... Sh. Manjit Singh ORDER PER ANNAPURNA GUPTA, AM This appeal filed by the assessee is directed against the order of CIT(A) 4, Ludhiana dated 26.2.2016. The only issue in the present appeal pertains to disallowance made of ₹ 1,55,333/- by invoking the provisions of section 14A read with Rule 8D. The assessee has raised the following grounds:- 2. The assessee has raised following ground of appeal:- That the worthy CIT(A)-3 Ludhiana erred in law and on facts in not deleting the disallowance of ₹ 1,55,333/- u/s 14A r.w. rule 8D in spite of the fact that the appellant company neither received nor claimed any dividend income in its return which is exempt u/s 10(34) of the I.T. Act. b) That the worthy CIT(A)-3, Ludhiana further erred, in law and on facts in not deleting said disallowance which is totally adverse to the decisions of Hon'ble Jurisdictional High Court in the case of CIT Vs. Lakhani Marketing in ITA No. 970 of 2008, and in case of CIT Vs. Mascot Foot Care in ITA No. 67 of 2009 and in the case decided by the Hon'ble Bench in the case of Arti Steels Ltd Vs. DCIT in ITA No. 268/Chd/2015 Directions may be given to delete the disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g officer therefore, computed the disallowance u/s 14A by applying Rule 8D and worked out the same at ₹ 1,55,333/-. 4. The matter was carried in appeal before the Ld. CIT(A) where the assessee relied upon the submissions made before the Assessing officer. The CIT(A) after considering the same, dismissed the assessee s appeal upholding the order of the Assessing officer. The Ld. CIT(A) held that disallowance u/s 14A are clearly attributed in the assessee s case and does not make any difference whether the exempt income has been earned by it or not. The Ld. CIT(A) concurred with the reliance placed by the Assessing officer the CBDT circular No.5 of 2014 in this regard and further stated that since he had not came across any decision delivered after the issue of said CBDT circular, the disallowance u/s 1 4A of the Act was warranted even in the absence of any exempt income. The Ld. CIT(A) also upheld the other findings of the Assessing officer and relevant findings of the CIT(A) are reproduced at para 5.2 of the said order:- 5.2 have considered the observations of the Assessing Officer as made by her in the assessment order while making impugned addition/disallowance. I h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. I am further of the opinion that there is no set language which can be used for recording dissatisfaction. I am again of the opinion that once the assessee company has investment in shares which fetch only tax-free income, the provisions of section 14A of the Act are attracted automatically and the disallowance has to be worked out as provided in rule 8D of the Income Tax Rules, 1962. On this preposition, reliance is placed on the decision of the Honourable Allahabad High in the case of M/s Dharmpur Sugars Limited Vs. CIT reported at (2015) 370 ITR 0187 (All.). I am again of the opinion that the judicial pronouncements relied upon by the Ld. AR of the assessee company have no application in its case in view of distinguishable facts of those cases from the facts of the case of the assessee company. I am again of the opinion that due to introduction of Rule 8D some compulsory sought of disallowance has to be made even in those cases where assessee company claims that no expenditure has been incurred in earning exempt income. Under such circumstances, the action of the Assessing Officer in making an addition of ₹ 1,27,788/- in this case on account of disallowance of expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income taxable under the Act, and b) That this income must not form part of the total income under the Act, and c) That there must be an expenditure incurred by the assessee, and d) That the expenditure must have a relation to the income which does not form part of the total income under the Act. 9. Therefore, unless and until, there is receipt of exempted income for the concerned assessment years (dividend from shares), we are of the view, Section 14A of the Act cannot be invoked. In this appeal, the revenue has not dispelled the findings of the CIT(A), nor the statement of the assessee before AO that assessee is not in receipt of any dividend income and hence according to us, the Assessing Officer has erred in invoking Section 14A of the Act, to disallow various interest payments on capital account, security deposits and unsecured loans. This conclusion of ours finds support in the decision of Bombay Bench of the Tribunal in the case of Joint Commissioner of Income Tax v. Holland Equipment Co. B.V.reported in (2005) 3 SOT 810 (Mumbai) and the relevant portion of the order of the Bombay Bench of the Tribunal is reproduced below:- Regarding applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n CIT Vs. Hero Cycles Limited, [2010] 323 ITR 518 and CIT Vs. Winsome Textile Industries 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o uphold the disallowance made u/s 14A in the present case. Moreover, the reliance was placed by the Assessing officer on the decision of the Hon'ble Supreme Court in the case of Rajender Prasad Moody (supra) while making the said disallowance, we find that the issue has been dealt with by the Hon'ble Delhi High Court while rendering the decision in the case of Cheminvest India (supra), wherein the Hon'ble High Court held that the decision in the case of Rajender Prasad Moody (supra) had been rendered in the context of Section 57(iii) of the Act where the expression used was for the purpose of making or earning such income , while section 14A of the Act on the other hand contained the expression in relation to income which does not form part of total income . The Hon ble High Court held that therefore the said decision would not apply in the context of section 14A of the Act. In view of the same the reliance placed by the Assessing officer in the case of Rajender Prasad Moody (supra), we find is also misplaced. In view of the above, we hold that in the facts and circumstances of the present case and the legal precedence on the issue, no disallowance u/s 14A is warrant ..... X X X X Extracts X X X X X X X X Extracts X X X X
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