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TMI Blog2024 (9) TMI 277X X X X Extracts X X X X X X X X Extracts X X X X ..... hold that the payments made by the assessee are to be treated as revenue expenditure. Disallowance u/s. 14A - We found substance on the submission of the ld. AR that no disallowance u/s 14A of the Income Tax Act can be made if the assessee has not received any exempt income. Appeal by the assessee is allowed. - SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER AND SHRI PRAKASH CHAND YADAV, JUDICIAL MEMBER For the Appellant :Shri Ravishankar S., Advocate For the Respondent :Shri V. Parithivel, Jt.CIT(DR)(ITAT), Bengaluru. ORDER Per Laxmi Prasad Sahu, Accountant Member This appeal is filed by the assessee against the order dated 12.03.2024 of the CIT(Appeals), National Faceless Appeal Centre, Delhi [NFAC], for the AY 2017-18 on the following grounds:- 1. That on the facts and circumstances of the case and in law, the National Faceless Appeals Centre [the CIT(A)] erred in dismissing the appeal of the appellant against the order dated 22.11.2019, passed under section 143(3) of the Income Tax Act,1961 (the Act), without affording adequate opportunity of being heard, in gross violation of principles of natural justice. 2. That on the facts and circumstances of the case and in law, the CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the CIT(A) erred in confirming the levy of interest under section 234A, section 234B and section 234C of the Act. The appellant craves leave to add, alter, amend or vary from the aforesaid grounds of appeal at or before the time of hearing. 2. The assessee has also filed additional grounds vide letter dated 08.07.2024 which is as under:- 1. The learned CIT(A) failed to appreciate that the order of assessment was passed on an entity, which was non-existent and the order ought to have been set aside as bad in law, on the facts and circumstances of the case. 2. The learned CIT(A) was not justified in passing the order on an entity, which was non existent and the order suffers from an incurable defect and is required to be set aside as bad in law and on facts, on the facts and circumstances of the case. 3. The learned Assessing Officer is not justified in law in charging the interest under section 234A, 234B and 234C of the Act and further the calculation of interest under section 234A, 234B and 234C of the Act is not in accordance with law since the rate, method of calculation, quantum is not discernable from the order of assessment on the facts and circumstance of the case. 4. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. CIT, 20 ITR 1, Radhasoami Satsang v. CIT [1992] 193 ITR 321 submitted that same accounting principles were followed in the previous year and were allowed in 143(3) assessment order. The AO has incorporated the same in para 4.5 of his order and relying on submission of the assessee was examined by the AO and not accepted and he observed that the case laws relied by the assessee were distinguishable and not applicable to the facts of assessee s case. The AO noted that assessee has not earned or reported business income and the business of the assessee is only at the stage of acquisition of investments viz., medical healthcare companies from which income would arise in future and further noted that acquisition of medical healthcare companies can be categorised as investments in capital asset, a revenue yielding apparatus, from which income will be derived. Therefore the expenses incurred towards acquisition of such capital asset is in the capital field and it cannot be treated as revenue expenditure. Accordingy expenditure incurred by way of foreign remittances towards professional charges to Graymatter Solutions LLC, USA for the purpose of acquisition of medical healthcare co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts placed at PB page 23, under direct expenses professional charges of Rs.1,34,16,232 were paid to Graymatter Solutions LLC, USA. He also pointed out that the nature of expenses were verified and it was allowed and in the impugned AY the assessee has also paid the sum net of expenditure as was paid in the previous AY. Accordingly he submitted that the principle of consistency should be applied. He also relied on the jurisdictional High Court judgment in the case of CIT v. On mobile Global Ltd. (2021) 129 taxmann.com 254 (Kar) and submitted that expenditure incurred by the assessee for acquiring/extending new business should be treated as revenue expenditure. 9. The ld. AR also argued on the legal issue in the additional grounds of appeal challenging the validity of the order passed in the name of non-existing entity and referred to paper book in this regard. 10. The ld. AR further submitted that the AO has wrongly disallowed a sum of Rs.83,54,360 u/s. 14A whereas there was no exempt income received by the assessee. He further contended that the action of the AO in treating the income as exempt income that too notional, which was never earned/accrued since incorporation of LLC and d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ised two issues on merits of the case. The first is disallowance made by the AO of Rs.1,26,31,525 treating the same as capital expenditure, whereas assessee has claimed it as revenue expenditure towards professional charges paid for identifying medical healthcare technology companies with feasible investments, growth potential, strategic value, etc. for the purpose of acquisition by the assessee. In this regard, the Master Service Agreement (MSA) was made with Graymatter Solutions LLC, USA dated 06.09.2015. The assessee had also obtained certificate from CA in Form 15CA for remittance of money for payment of professional charges as per MSA. The second issue is that AO made addition u/s. 14A of Rs.83,54,360. Considering the facts noted above, the amount paid to Graymatter Solutions LLC, USA towards professional charges for acquisition of new business in the area of healthcare technology companies and later on the purpose was not materialised. We also note from the order of AO that such expenses were not incurred in the previous year is not correct. In the financial statements produced before us for the AY 2016-17 the assessee has paid professional charges of Rs.1,34,16,232 and it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs.30 crores from HCL Corporation P. Ltd. And in the previous financial year it was Rs. 80.00 crore. We found substance on the submission of the ld. AR that no disallowance u/s 14A of the Income Tax Act can be made if the assessee has not received any exempt income. How ever the AO has made disallowance under Rule 8D which is 1% of monthly average investments. Before the CIT(Appeals) as well as before us the ld. AR relied on the various judgments. Recently the coordinate Bench of Tribunal has decided similar issue in ITA No.892/Bang/2024 for AY 2014-15 in the case of Subramanya Constructions Development Co. Ltd. by relying on the judgment of jurisdictional High Court in the case of PCIT v. Delhi International Airport P. ltd. [2022] 138 taxmann.com 112 (Kar) dated 25.05.2021 in which it has been held as under:- 7. Considering the rival submissions, we note that during the impugned year, the AO has calculated disallowance u/s. 14A r.w. Rule 8D(2)(ii) (iii) of Rs.2,83,83,345. Considering the entire facts of the case, we note from financial statements that the assessee has not received any exempt income during the year and therefore no disallowance could be made. This view is suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cular year has not earned any exempt income. This court relied on the decision of the Supreme Court in Maxopp Investment Ltd. (supra) which was reproduced in Paragraph 5 of the decision and reliance was also placed on Circular dated 11-2-2014 issued by Central Board of Direct Taxes (CBDT). However, the aforesaid decision was subsequently considered by this court in judgment dated 16-1-2021 passed in I.T.A.No.271/2017 (Principal Commissioner of Income Tax v. Novel Software Development) in which it was held that decision of this court in Kingfisher Finvest Ltd. was distinguishable as the basis of the aforesaid decision of this court was the decision of the Supreme Court in Maxopp Investments Ltd. supra and it was held that the aforesaid decision does not deal with applicability of section 14A of the Act. However, eventually this court agreed with the view taken by High Court of Madras in CIT v. Chettinad Logistics (P.) Ltd., (2017) 80 taxmann.com 221 (Mad.) and Kem Invest Ltd. v. CIT, (2015) 16 taxmann.com 118 (Delhi) and held that since no exempt income has accrued to the assessee therefore, the provisions of section 14A of the Act do not apply to the fact situation of the case. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tual income. The object of section 14A is to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail of the tax incentive by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. The High Court of Madras has relied on the decision of the Supreme Court in Commissioner of Income Tax v. Walfort Share and Stock Brokers (2010) 326 ITR 1 wherein it has been held that Section 14A is relatable to income of actual income or not notional or anticipated income. Therefore, the conclusion arrived at by us in Novel Software India (P.) Ltd. is affirmed but for different reasons. It is also clarified by us that while recording the conclusion in Kingfisher Finvest Ltd. that disallowance under section 14A has to be made even taxpayer has not earned any exempt income, this court has misread the ratio of the decision of the Supreme Court in Maxopp Investment Ltd. supra and therefore, the aforesaid view being contrary to the law laid down by the Supreme Court is not a binding precedent. In view of preceding analysis, the second substantial question of law is a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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