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TMI Blog2017 (9) TMI 1973X X X X Extracts X X X X X X X X Extracts X X X X ..... e contention of the Ld. authorised representative that in absence of any exempt income earned by the assessee during the year the disallowance under section 14 A of the act can not be made. - Decided in favour of assessee. - ITA No. 4720/Del/2014 - - - Dated:- 1-9-2017 - SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER AND SMT BEENA A PILLAI, JUDICIAL MEMBER Appellant by : Shri Atiq Ahmad, Sr. DR Respondent by: Shri Kapil Goel, Adv Shri Mukul Gupta, Adv ORDER PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the Revenue against the order of the ld CIT(A)-XVIII, New Delhi dated 12.06.2014 for the Assessment Year 2009-10. 2. The Revenue has raised the following grounds of appeal:- 1. On the facts and the circumstances of the case and in law, the ld CIT(A) has erred in deleting the addition of ₹ 9711237/- u/s 14A of the Act ignoring the fact that the assessee company did not specifically pointed out any expenditure which is attributable to exempt income. 2. On the facts and circumstances of the case and in law, the ld CIT(A) has erred in deleting the above addition ignoring the fact that the common bank account/ source of funds as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is been incurred by the assessee for the purpose of earning exempt income. 7. We have carefully considered the rival contentions. The assessee has raised to pleas that no disallowance under section 14 A of the income tax act should have been made for the purpose that (1) the reason exempt income earned during the year,(2) there is no satisfaction recorded by the Ld. assessing officer. We have carefully perused the computation of total income and we found that there is no exempt income earned by the assessee during the year. Further more, the expression given by the assessee before the Ld. assessing officer that investment made by the assessee were only ₹ 1 5652 9018/ whereas the shareholder s funds available with the assessee are ₹ 2 6275 1170. Therefore, the amount of investment made by the assessee for earning tax-free income are much more than the shareholders fund available with it. The Ld. assessing officer has not recorded any satisfaction with respect to the explanation of the assessee that no expenditure has been incurred by it and which is demonstrated by showing that the amount of shareholders fund available with the the assessee are more than the amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h included direct expenses of ₹ 1,12,025/-. 7. The appeal filed by the Assessee was disposed of by the Commissioner of Income (Appeal) ['CIT (A)'] by an order dated 20th March 2015 observing as under: (i) The opening balance in the investment of the appellant company, as on 31st March 2010 was ₹ 44.98 lakh. The bulk of the investment was made during the year in the equity shares of ONGC Tripura Power Company Limited in the sum of ₹ 402,32,17,980/-, Himachal Sorang Power Limited in the sum of ₹ 35,70,40,000/- and, SE Power Private Ltd in the sum of ₹ 28,99,60,000/-. (ii) In terms of the decision of ITAT Delhi (Special Bench) in Cheminvest Ltd. (supra), Section 14A would apply even where the investments do not give rise to exempt income pertaining to the AY in question. Further, the Central Board of Direct Taxes ('CBDT') by Circular No. 5/2014 dated 11th February 2014 clarified the above position. (iii) On facts, it could not be held categorically that the Assessee used significant amount of its own funds only towards investments while the borrowed funds were used only towards fixed assets and loans and advances given by the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ular of the CBDT and, therefore, would be distinguishable. 10. Mr. Hossain further submitted that there was nothing in Section 14A of the Act which suggested that exempt income had to necessarily be earned in the AY in question for the applicability of the said provision. He submitted that if the interpretation placed on Section 14 A of the Act by the above CBDT Circular was not accepted, the very purpose of Section 14A would be defeated. He referred to the decisions of the ITAT in ACIT v. Ratan Housing Development Ltd. (order dated 23rd May 2008 of ITAT Lucknow) Relaxo Footwear Ltd. v. Addl. CIT [2012] 50 SOT 102 (Del). 11. At the outset, it requires to be noticed that we are concerned with the AY 2011- 12 and, therefore, the question of the applicability of Rule 8D, which was inserted with effect from 24th March 2008, is not in doubt. 12. Section 14A of the Act, which was inserted with retrospective effect from 1st April 1962, provides for disallowance of the expenditure incurred in relation to income exempted from tax. From 11th May 2001, a proviso was inserted in Section 14A to clarify that it could not be used to reopen or rectify a completed assessment. Sub-sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2). 17. The words in relation to income which does not form part of the total income under the Act for such previous year in the above Rule 8 D (1) indicates a correlation between the exempt income earned in the AY and the expenditure incurred to earn it. In other words, the expenditure as claimed by the Assessee has to be in relation to the income earned in 'such previous year'. This implies that if there is no exempt income earned in the AY in question, the question of disallowance of the expenditure incurred to earn exempt income in terms of Section 14A read with Rule 8D would not arise. 18. The CBDT Circular upon which extensive reliance is placed by Mr. Hossain does not refer to Rule 8D (1) of the Rules at all but only refers to the word includible occurring in the title to Rule 8D as well as the title to Section 14A. The Circular concludes that it is not necessary that exempt income should necessarily be included in a particular year's income for the disallowance to be triggered. 19. In the considered v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This aspect of the matter was dealt with by this Court in M/s Cheminvest Ltd. (supra) where it reversed the decision of the Special Bench of the ITAT by observing as under: 20. Since the Special Bench has relied upon the decision of the Supreme Court in Rajendra Prasad Moody (supra), it is considered necessary to discuss the true purport of the said decision. It is noticed to begin with that the issue before the Supreme Court in the said case was whether the expenditure under Section 57 (iii) of the Act could be allowed as a deduction against dividend income assessable under the head income from other sources . Under Section 57 (iii) of the Act deduction is allowed in respect of any expenditure laid out or expended wholly or exclusively for the purpose of making or earning such income. The Supreme Court explained that the expression incurred for making or earning such income , did not mean that any income should in fact have been earned as a condition precedent for claiming the expenditure. The Court explained: What s. 57(iii) requires is that the expenditure must be laid out or expended wholly and exclusively for the purpose of making or earning income. It is the purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X
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