2023 (10) TMI 1130 - AT - Income Tax

Revenue's Appeal Upheld: Tribunal Restores Assessing Officer's Order with Disallowance Under Section 14A of Income Tax Act.

Assistant Commissioner of Income Tax, Central Circle-1 (2), Hyderabad Versus M/s. Mandava Holdings Pvt. Ltd.,

The Tribunal ruled in favor of the Revenue, allowing their appeal and setting aside the CIT(A)'s order. The Tribunal directed the restoration of the ... Disallowance u/s 14A r.w.r. 8D - assessee is NBFC - whether addition could be made if the assessee had not earned any exempt income during the year under consideration? - HELD THAT:- There is no dispute that the assessee is a non-banking finance company, making investment in the group companies to meet their business requirements. In such a situation, it is beyond doubt that whenever the investee company declares dividend, such dividend would invariably be earned by the assessee and the assessee alone. It is not a case where only by chance the shares would be in the hands of the assessee when such a dividend is declared. If the assessee holds these shares as stock-in-trade, to be liquidated whenever the share price goes up in order to earn profits, then it would be possible that during such holding, the investee company may declare dividend. Purpose of assessee holding the shares is not to liquidate when the share price goes up and thereby to earn profit, but the assessee holds such shares in the group companies to meet the business requirements of such companies. Assessee is bound to receive the dividend when it is declared. Therefore, the decision of Maxopp Investment Ltd [2018 (3) TMI 805 - SUPREME COURT] as followed by Kingfisher Finvest India Ltd [2020 (10) TMI 518 - KARNATAKA HIGH COURT] is applicable to the facts of the case. Argument of the learned Counsel that the issue is held in favour of the assessee in assessee’s own case for earlier assessment years does not hold much water. A careful reading of order cited makes it clear that for the earlier assessment years, this fact of assessee investing in group companies for the business requirements was not brought to the notice of the Bench by either side. When once it has come to the notice of the Bench, it is not possible to perpetuate the mistake occurred on earlier occasion. It is the settled principle of law, as observed in the case of Distributors (Baroda) (P.) Ltd. vs. Union of India [1985 (7) TMI 1 - SUPREME COURT] that there is no heroism to perpetuate an error and to rectify such an error is a compulsion of the judicial conscious. Errors cannot be perpetuated on the name of consistency. We find it difficult to follow the view taken in the appeals for the assessment years 2016-17 & 2017-18 - Decided in favour of revenue. Issues involved:The main issue in this case is whether a disallowance under section 14A of the Income Tax Act, 1961 could be made if the assessee had not earned any exempt income during the year under consideration.Comprehensive details of the judgment:Issue 1: Disallowance under section 14A of the Income Tax Act, 1961The assessee, a Non-Banking Finance Company (NBFC), made investments primarily within group companies for business requirements. The Assessing Officer made an addition of Rs. 14,80,07,977 under section 14A of the Act read with Rule 8D of the Rules, as the assessee incurred interest expense but did not earn any exempt income during the year. The CIT(A) directed the Assessing Officer to delete the disallowance, relying on a Tribunal decision. However, the Revenue contended that the assessee, by investing in group companies, would necessarily earn dividends as per legal precedents.The Tribunal observed that the purpose of the assessee holding shares in group companies was not for profit realization but to meet their business requirements. The Tribunal cited legal precedents to support the view that when the investee company declares dividends, the assessee would earn such dividends, irrespective of the absence of exempt income during the year. The Tribunal noted that the earlier Tribunal decision in favor of the assessee did not consider the specific aspect of investing in group companies for business requirements. Citing the principle of rectifying errors, the Tribunal held in favor of the Revenue, setting aside the CIT(A)'s order and directing restoration of the Assessing Officer's order.Therefore, the appeal of the Revenue was allowed, and the impugned order was set aside, with the direction to restore the Assessing Officer's order.