Itxa/1124/2017 Of Pr. Commissioner Of Income Tax-6 v. Kohinoor Project Pvt. Ltd

Sonali Kilaje IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTIONINCOME TAX APPEAL NO. 1124 OF 2017 Pr. Commissioner of Income Tax-6 ..Appellant v/s. M/s. Kohinoor Project Pvt. Ltd. ..Respondent Mr. A.R.Malhotra for the Appellant. Mr. Mihir C. Naniwadekar a/w. Mr. Ruturaj Gurjar for Respondent. CORAM: UJJAL BHUYAN, & MILIND N. JADHAV, JJ. DATE : JANUARY 27, 2020. P. C. :- .Heard Mr.A.R.Malhotra, learned standing counsel revenuefor the appellant and Mr. Mihir C. Naniwadekar, learned counselfor the respondent - assessee. 2.This appeal has been fled by the revenue under Section260A of the Income Tax Act, 1961 (“the Act” for short) againstthe order dated 18.10.2016 passed by the Income Tax AppellateTribunal “A” Bench, Mumbai ("Tribunal" for short) in Income Tax Appeal No. 5241/Mum/2013 for the Assessment Year 2008-09. 3.The appeal has been preferred projecting the following twoquestions as substantial questions of law : (i)Whether on the facts and in circumstances of thecase and in law, Hon’ble ITAT was justifed in deleting theaddition of Rs.5,79,95,481/- on the ground that when thereis no exempt income declared during the year, there cannotbe any disallowance u/s. 14A of the Income Tax Act, 1961read with Rule 8D of the Income Tax Rules, 1962 whileconfrming the order of the Ld. CIT(A) restricting thedisallowance to Rs.1,16,03,269/- under Rule 8D(2)(ii) of theI.T. Rules, 1962 ? (ii)Whether on the facts and in the circumstances of thecase and in law, Hon’ble ITAT was justifed in confrmingthe order of the Ld. CIT(A) to restrict the disallowance toRs.1.16 crore without appreciating the fact that by doingthis, Hon’ble ITAT has allowed the application of Rule 8D(2)(ii) of the I.T. Rules, 1962 in the case of the assessee evenwhen it has not earned any exempt income ? 4.Respondent in its return of income for the assessment yearunder consideration declared total loss of Rs.(-) 10,16,33,795/-.The case was selected for scrutiny and thereafter subjected toscrutiny assessment. Assessing Ofcer noted that assessee hadmade investment of Rs.7.90 Crores in shares of Kohinor CTNLInfrastructure Co. Ltd. which was held to be strategic investmentfor which assessee would receive future benefts.Notwithstanding the fact that the assessee had earned noexempt income for the relevant previous year, Assessing Ofcermade disallowance to the extent of Rs.6,95,98,750/- underSection 14A of the Act. 5.Aggrieved by the aforesaid, assessee preferred appealbefore the Commissioner of Income Tax (Appeals)-12, Mumbai.In the appeal proceedings the frst appellate authority held thatthe Assessing Ofcer was justifed in invoking Section 14A of theAct by taking the view that the assessee had made investmentsthat would give rise to exempt income and, therefore, Section14A of the Act was applicable. Accordingly, vide order dated08.05.2013, frst appellate authority afrmed the action of the Assessing Ofcer in invoking Section 14A of the Act but reducedthe quantum of disallowance to Rs.1,16,03,269/- for thegrounds and reasons mentioned in the appellate order. 5.Aggrieved by the aforesaid, assessee preferred appealbefore the Commissioner of Income Tax (Appeals)-12, Mumbai.In the appeal proceedings the frst appellate authority held thatthe Assessing Ofcer was justifed in invoking Section 14A of theAct by taking the view that the assessee had made investmentsthat would give rise to exempt income and, therefore, Section14A of the Act was applicable. Accordingly, vide order dated08.05.2013, frst appellate authority afrmed the action of the Assessing Ofcer in invoking Section 14A of the Act but reducedthe quantum of disallowance to Rs.1,16,03,269/- for thegrounds and reasons mentioned in the appellate order. 6.Aggrieved by the reduction in the quantum of disallowancerevenue preferred appeal before the Tribunal. The Tribunalconsidered the contention of the assessee that no exemptincome was claimed by the assessee under Section 14A of theAct and, therefore, no disallowance could have been made bythe Assessing Ofcer by invoking Section 14A together with Rule8D(2)(ii) of the Income Tax Rules, 1962. Tribunal relied uponthe decision of the Delhi High Court in the case of CheminvestLimited v/s. Commissioner of Income Tax, 378 ITR33(Delhi); the decision of the Punjab and Haryana High Court inCIT v/s. Lakhani Marketing Incl., [2014], 49 taxman.com257; and decision of the Allahabad High Courtin the case of CITv/s. Shivam Motors Pvt. Ltd., [2015] 55 taxman.com262(Allahabad) and observed that there is uniformity in the viewthat in case there is no exempt income claimed by the assesseein the return of income, no disallowance can be made by therevenue. Consequently, vide order dated 18.10.2016 Tribunal 7.Submissions made by learned counsel for the parties havebeen considered. 8.Section 14A of the Act deals with expenditure incurred inrelation to income not includible in total income. As per sub-Section (1) of Section 14A, for the purpose of computing thetotal income, no deduction shall be allowed in respect ofexpenditure incurred by the assessee in relation to incomewhich does not form part of the total income. In CheminvestLtd. (supra) Delhi High Court examined the expression "doesnot form part of the total income" as appearing in sub-Section(1) of Section 14A of the Act. Delhi High Court held that the saidexpression envisages that there should be an actual receipt ofincome which is not includible in the total income during therelevant previous year for the purpose of disallowing anyexpenditure incurred in relation to the said income. It wasclarifed that Section 14A will not apply if no exempt income isreceived or receivable during the relevant previous year. 9.This view has been followed in several decisions by thisCourt. In fact in Income Tax Appeal No. 259 of 2017, PrincipalCommissioner of Income Tax, Mumbai v/s. MAN InfraprojectsLtd., decided on 09.04.2019, this Court followed the decision ofthe Delhi High Court in Cheminvest Ltd. (supra). It was furthernoted in MAN Infraprojects Ltd. that the decision of the DelhiHigh Court was challenged by the revenue before the SupremeCourt by fling SLP but the SLP was dismissed. 10.In the light of the above, we hold that no substantialquestion of law arises from the order of the Tribunal. The appealis devoid of merit and is accordingly, dismissed. (MILIND N. JADHAV, J.) (UJJAL BHUYAN,J.)