Ita/685/2015 Of Pr Commissioner Of Income Tax - Vi v. M/S Sterling Developers P Ltd

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 4TH DAY OF FEBRUARY 2707 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND| THE HON’‘’BLE MR. JUSTICE NATARAJ RANGASW AILT.A. NO.685 OF 2015 BETWEEN: 1.|PR, COMMISSIONER OF INCOME TAX-VI CENTRAL REVENUE BUILDINGS QUEENS ROAD, BANGALORE-S60001.. 2.|JOINT COMMISSIONER OF INCOME TAX (OSD), CIRCLE-12(3), BANGALORE. (BY MR. JEEVAN J. NEERALGI, ADV., FOR. MR. E.1. SANMATHI, ADV.,) .... APPELLANTS AND* M/S. STERLING DEVELOPERS P. LITID.NO.8, PRESTIGE NUBULA LEVEL-5|CUBBON ROAD, OPP. INCOME TAX OFFICEBANGALORE-560001 PAN: . (BY MR. A. SHANKAR, SR. COUNSEL A/W_MR. NARENDRA SHARMA, ADV., FOR)MR. M. LAVA, ADV.,) ~. RESPONDENT THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX|ACT 1961, ARISING OUT OF ORDER DATED 23.06.2015 PASSEDIN ITA NO.1417/BANG/2012 FOR THE ASSESSMENT YEAR 2009-10, PRAYING TO: (1) DECIDE THE FOREGOING QUESTION OF LAW AND/OR-SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BYTHE HON BLE COURT AS DEEMED FIT. (ii) SET ASIDE THE APPELLATE ORDER DATED 23.06.2015)PASSED BY THE ITAT, B BENCH, BENGALURU, IN APPEALPROCEEDINGS NO.ITA NO.1417/BANG/2012 FOR ASSESSMENTYEAR 2009-10, AS SOUGHT FOR IN THIS APPEAL. THIS I.T.A. COMING ON FOR’ HEARING, THIS’ DAY, | ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260-A of the Income TaxAct, 1961 (hereinafter referred to as ‘the Act’, for short) has|been filed by the revenue. The subject matter of the appealpertains to the Assessment Year 2009-10. The appeal wasadmitted by a Bench of this Court vide order dated|05.04.2016 on the following substantial question of law: “Whether,OP)thefactsand|inthecircumstances of the case, the Tribunal Isjustified in law in deleting the disallowances|made under Section 14A read with Rule|8D(2)(11) and 8(D)(2)(1i1) of the Act without|appreciatingthecontentsOf|Circular.No. 5/2014dated11.02.7014,which emphasized that only expenditure allowableIS|relatabletoearningof.Income.andtherefore, the expenses which are relatable toearning of exempt income have to _ b considered for disallowance, irrespective of|the fact whether such |[ncome has )peeearned during the financial year or not?” 2. Facts leading to filing of this appeal briefly stated are.that the assessee filed its return of income for the'Assessment Year 2009-10 declaring a total income ofRs.4,10,17,850/- on 14.10.2010. The aforesaid return wasprocessed under Section 143(1) of the Act. The case of theassessee was selected for scrutiny and during the course ofassessment proceedings, the assessee filed a letter dated15.11.2011 in which the assessee recomputed its taxableincome at Rs.4,79,57,900/- Dy making certain disallowancein respect of interest claimed by the assessee. The AssessingOfficer, after verifying the details filed by the assessee,concluded the assessment by an order dated 29.12.2011 andceterminedtnetota] ,18,36,660/- as against the revised income whicn wasmentioned by the assessee to the extent of Rs.4,79,57,900/-Dy making certain additions and disallowances. TheAssessing Officer also made a disallowance under Section|14A of the Act of Rs.4,92,78,160/- and under Rule 8D(2)(iil) Of the.Income.TaxRules,1962,|being0.5%|of|Rs.27,91,520/- totaling to an amount of Rs.5,20,69,680/-. |The assessee filed an appeal before the Commissioner ofIncome Tax (Appeals), wno by an order dated 27.09.2012,|partly allowed tne appeal and deleted such additions andcGisallowances made and sustained the disallowance underRule 8D(2)(ii) of Rs.3,18,30,602/- as against the originalcalculationmadeDYthe.ASS@SSINQOfficerof|Rs.4,92,78,160/- and sustained the disallowance made bythe Assessing Officer under Rule 8D(2)(ili) to the extent ofRs.18,71,2/70/- as against the original disallowance underRule 8D(2)(ili) of Rs.27,91,520/-. However, disallowance ofRs.3,81,18,472/- was sustained. Of the.Income.TaxRules,1962,|being0.5%|of|Rs.27,91,520/- totaling to an amount of Rs.5,20,69,680/-. |The assessee filed an appeal before the Commissioner ofIncome Tax (Appeals), wno by an order dated 27.09.2012,|partly allowed tne appeal and deleted such additions andcGisallowances made and sustained the disallowance underRule 8D(2)(ii) of Rs.3,18,30,602/- as against the originalcalculationmadeDYthe.ASS@SSINQOfficerof|Rs.4,92,78,160/- and sustained the disallowance made bythe Assessing Officer under Rule 8D(2)(ili) to the extent ofRs.18,71,2/70/- as against the original disallowance underRule 8D(2)(ili) of Rs.27,91,520/-. However, disallowance ofRs.3,81,18,472/- was sustained. 3. The revenue filed an appeal against the order passedby the Commissioner of Income Tax (Appeals) before theIncome Tax Appellate Tribunal (hereinafter referred to as ‘thetribunal’ for short) namely ITA No.168/Bang/2013, whereasthe assessee filed cross-appeal before the Tribunal againstthe order of the Commissioner of Income Tax (Appeals) totheextent|itWaS|passed|againstitInITA No.1417/Bang/2012. The Tribunal, vide its common orderdated 23.06.2015, dismissed the appeal preferred by the|revenue and partly allowed the appeal preferred by theassessee. Being aggrieved by the aforesaid order of tneTribunal, the revenue has filed this appeal. 4. Learned counsel for the revenue, while inviting theattention of this Court to the order passed by the AssessingOfficer, pointed out tnat the reasoning / satisfaction has beenrecorded by the Assessing Officer for disallowing the claimmade by the assessee under Section 14A of the Act. It isfurther submitted that the finding recorded by the Tribunal|that there is no exempt income in respect of the relevantassessment year which was claimed by the assessee, ISperverse. In this connection, our attention nas been invitedto paragraph 19 of the order passed by the Tribunal.Learned counsel for the revenue has placed reliance on thedecision of this Court in"‘'COMMISSTONER OF INCOMTAX, BANGALORE Vs. KINGFISHER FINVEST INDIALTD. (2020) 121 TAXMANN.COM 233 (KAR). 5. On the other hand, learned Senior counsel for the)assessee, while inviting our attention to paragraph 19 of theorder passed by the Tribunal, pointed out that it is an|admitted fact before the TridDunal that no exempt income wasclaimed by tne assessee during the relevant previous year.It nas further been submitted that from the perusal of tne|letter dated 15.11.2011 which was submitted by theassessee before the Assessing Officer, the assessee had|taken a specific stand tnat the assessee has not earned anyincome which is exempt from tax and therefore, the|provisions of Section 14A of the Act are not applicable to thefact situation of the case. The aforesaid aspect of the matterwas even disputed by the revenue before the Tribunal.Therefore, on admitted facts, the Tribunal has set aside thedisallowance of the claim under Section 14A of the Act. 6. We nave considered the SUDMISSIONS made on potn sides and have perused the _ record. From perusal ofparagraph 6 of the communication dated 15.11.2011, it isevident that the assessee had taken a specific stand beforetne Assessing Officer in the assessment proceedings itself| tnat the assessee has not earned any income wnhicn isexempted from tax. The relevant extract of paragraph 19 ofthe order passed by the Tribunal is reproduced below for thefacility of reference: ‘It is not disputed tnat there was no dividend orexempt income claimed by tne assessee duringthe relevant previous year." 6. We nave considered the SUDMISSIONS made on potn sides and have perused the _ record. From perusal ofparagraph 6 of the communication dated 15.11.2011, it isevident that the assessee had taken a specific stand beforetne Assessing Officer in the assessment proceedings itself| tnat the assessee has not earned any income wnhicn isexempted from tax. The relevant extract of paragraph 19 ofthe order passed by the Tribunal is reproduced below for thefacility of reference: ‘It is not disputed tnat there was no dividend orexempt income claimed by tne assessee duringthe relevant previous year." 7. Thus, in the fact situation of the case, it was anadmitted position that no dividend or exempt income wasclaimed by tne assessee during the relevant previous year.It is well settled in law that if no exempt income has accruedto the assessee, the provisions of Section 14A do not apply|to the fact situation of the case. The aforesaid view has beentaken by this Court in|"PRL, COMMISSIONER OF INCOME-TAX AND ANOTHER Vs. M/s. NOVELL SOFTWAREDEVELOPMENT (INDIA) PVT. LTD.' in ITA No.271/2017decided on 16.01.2071as well as by Delhi and MadrasHigh Courts, reference of which has been made in paragraph6 of the aforesaid decision. | 8. For the aforementioned reasons, the substantialquestion of law framed in this appeal is answered against therevenue and in favour of the assessee. In the result, we do not find any merit in the appeal.The same fails and is hereby dismissed. Sd/-—JUDGE Sd/-—JUDGE RV|