AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (8) TMI 671
X X X X Extracts X X X X
X X X X Extracts X X X X
....he disallowance of Rs. 6,87,36,342/- made u/s. 14A r. w. Rule 8D(iii) of the I. T. Rule without appreciating the fact that assessee cannot earn dividend income without systematic management and that dividend income can be earned by incurring no or nominal expenditure. 2. Whether on the facts and in the circumstances of the case and in law Ld. CIT (A) was right in deleting the disallowance of Rs. 6,87,36,342/- made u/s. 14A r.w.rule 8D(iii) of the I T Rule without appreciating the fact that after analyzing various judicial pronouncement CBDT has clarified and crystallized this matter through the Circular No.5/2014 dated 11/02/2014 and this issue was put to rest. 3. For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the AO be restored." 3. The brief facts of the case are that the assessee is engaged in the business of developing, investing, operating and maintaining power generation projects. The dispute which has arisen between rival parties before us is in very narrow compass . The assessee had made substantial investment in shares of companies and average investment of the assessee during the year s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....8.2014]. 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 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 taw. Hence, the decision of the disallowance of Rs. 2,03,752/- made by the AO was in order." In view of the above decision of Delhi High Court, here appellant has not received any exempt income hence, no disallowance u/s 14A can be made. The addition made by the AO is deleted. This ground of appeal is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct that there was no exempt income earned during the year under consideration. As a consequence, we find that the CIT(A) made no mistake in deleting the addition inasmuch as the same is in conformity with the judgment of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. v. CIT [2015] 61 taxmann.com 118 (Delhi). 5. Before parting, we may also make an observation that right from the stage of assessment, assessee has, inter-alia, canvassed against invoking of Sec. 14A of the Act by pointing out that in this year it has not earned any income which is exempt from tax. At the time of hearing, the learned representative supported the said assertion by referring to the Profit & Loss Account, wherein also no such income has been reported. In fact, in the course of hearing, the learned representative relied upon the decision of the Tribunal in the assessee's own case for the immediately preceding Assessment Year of 2010-11 in ITA No. 3829/Mum/2015 dated 25.05.2017, which has also been rendered on similar lines. 6. At the time of hearing, the ld. DR relied upon the CBDT Circular no. 5/2014 dated 11.02.2014 to put forth that invocation of Sec. 14A of the Act is permissible ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts in equity shares which are capable of yielding exempt income , however during the year no exempt income has been received by the assessee by way of dividend etc. . The A.O has disallowed Rs. 97,90,947/- by invoking Section 14A read with Rule 8D as under:- Disallowance u/s. 14A of the IT. Act, 1961 Aggregate of the following i) Expense's directly attributable to exempt income Rs. Nil ii) Amount of Expenditure by way of interest Rs. 15,963/- iii) 0.5% of Average value of Investment Rs.96,93,984/ - Total Rs.97,09,947/- We have observed that Hon'ble Delhi High Court in the case of Cheminvest Limited(supra) had held that no disallowance can be made u/s. 14A . if no exempt income is received or receivable during the year. The decision of the Hon'ble Delhi High Court is approved by Hon'ble Bombay High Court in the case of Principal CIT v. Ballarpur Industries Ltd. in ITA no. 51 of 2016 reported in {2016 (10) TMI 1039 Bombay High Court}. Thus keeping in view ratio of decision of Hon'ble Delhi High Court in the case of Cheminvest Limited (supra) and Hon'ble Bombay High Court in the case of Ballarpur Industries Ltd.(supra) , we order deletion of the addi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessee based upon the proposition that if no exempt income has been received during the relevant year, no disallowance can be made u/s. 14A of the Act. The finding of learned CIT(A) is extracted by us in preceding para's of this order. We have also observed that the same issue came up for adjudication before Mumbai-tribunal for AY 2010-11 and 2011-12 in assessee's own case. The Mumbai-tribunal decided the issue under similar factual matrix in favour of assessee wherein it was held by tribunal that no disallowance can be made u/s 14A of the 1961 Act when no exempt income is earned by the assessee. The aforesaid decision of Mumbai-tribunal in Revenue's appeal in ITA no. 5333/Mum/2015 for AY 2011-12 dated 21.03.2018 , is reproduced hereunder wherein tribunal decided the issue in favour of the assessee by holding as under:- "3. In this appeal, the solitary dispute raised by the assessee arises from the action of CIT(A) in deleting the addition made by the Assessing Officer u/s 14A of the Act amounting to Rs. 3,16,59,443/-. Notably, the CIT(A) has deleted the addition finding that during the year under consideration there was no exempt income claimed by the assessee and thus, there....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t. While passing the aforesaid order dated 19.12.2017 in ITA no. 6267/Mum/2016 for AY 2012-13 , the Mumbai-tribunal mainly relied upon decision of Hon'ble Delhi High Court in the case of Cheminvest Limited v. CIT in ITA No. 749/2014 and also decision of Jurisdictional High Court in the case of Ballarpur Industries Ltd. in ITA no. 51 of 2016 reported in (2016) (10) TMI 1039( Bombay High Court). The relevant extract of decision of Mumbai-tribunal in the case DCIT v. RKW Developers P. Ltd. is reproduced in preceding para's of this order . We have also observed that Hon'ble Supreme Court in the case of CIT v. Chettinad Logistics P. Ltd. vide decision in SLP (Civil) Diary no. 15631 of 2018 reported in (2018) 95 taxmann.com 250(SC), vide orders dated 02.07.2018 has dismissed SLP filed by Revenue on the ground of delay as well on merits . The said SLP filed by Revenue arose from the decision of Hon'ble Madras High Court in the case of CIT v. Chettinad Logistics P Ltd. reported in (2017) 80 taxmann.com 221(Mad). The relevant extract of the decision of Hon'ble Madras High Court in the case of CIT v. Chettinad Logistics Private Limited reported in (2017) 80 taxmann.com 221(Mad. HC) from whic....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sions of Section 14A of the Act, to disallow expenditure. In other words the stand taken by the Revenue was irrespective of the fact whether or not income was earned in the concerned assessment year expenditure under Section 14A could be disallowed against anticipated income. 11.3 Pertinently, the Division Bench in Redington (India)Ltd. (supra) case has repelled this precise argument. 12. The Division Bench, in our view, quiet correctly held that, the computation of total income, in terms of Section 5 of the Act, is made qua real income and not, vis-a-vis, notional income. 12.1 The Division Bench went on to hold that Section 4 of the Act brings to tax, that income, which is relatable to the assessment year in issue. The Division Bench, thus, held that where no exempt income is earned in the previous year, relevant to the assessment year in issue, provisions of Section 14 A of the Act, read with Rule 8 D could not be invoked. 12.2 While coming to this conclusion, the Division Bench also took note of the aforementioned Circular, issued by the Board. 12.3 The reasoning of the Division Bench is contained in the following part of the judgment: "4. The admitted position....
X X X X Extracts X X X X
X X X X Extracts X X X X
....10] 326 ITR 1 '.... The mandate of s.14A is clear. It desires 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 an exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income.' 10. The provision this is clearly relatable to the earning of actual income and not notional or anticipated income. The submission of the Department to the effect that s.14A would be attracted even to exempt income 'includable' in total income would entail the assessment of notional income, assumed to be exempt in the future, in the present assessment year. The computation of total income in terms of s.5 of the Act is on real income and there is no sanction in law for the assessment of admittedly notional income, particularly in the context of effecting a disallowance in connection therewith. 11. The computation of disallowance in terms of Rule 8D is by way of a determination involving direct as well as indirect attribution. Thus, accepting the submission of the Revenue would result in the imposition of an artificia....