Pr. Commissioner Of Income Tax-7 v. Morgan Stanley India Securities P Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J. INCOME TAX APPEAL NO. 1701 OF 2017 Pr. Commissioner of Income Tax-7..Appellant Versus Morgan Stanley India Securities P Ltd..Respondent ................... Mr. Suresh Kumar a/w Priyanka Tiwari & Sumandevi Yadav for theAppellant Mr. Suresh Kumar a/w Priyanka Tiwari & Sumandevi Yadav for theAppellant Mr. Anupam Dighe a/w Ms. Chandani Tanna i/by India LawAlliance for the Respondent Mr. Anupam Dighe a/w Ms. Chandani Tanna i/by India LawAlliance for the Respondent ................... CORAM : UJJAL BHUYAN & MILIND N. JADHAV, JJ. DATE : JANUARY 21, 2020. P.C.: 1.Heard Mr. Suresh Kumar, learned standing counsel,revenue for the appellant and Mr. Dighe, learned counsel forthe respondent - assessee. 2.This appeal under Section 260A of the Income Tax Act,1961 ("the Act" for short) has been preferred by therevenue against the order dated 5.1.2017 passed by theIncome Tax Appellate Tribunal, Mumbai Bench 'B', Mumbai ("the Tribunal" for short) in Income Tax Appeal No. 114/Mum/2013 and Cross-objection No. 215/Mum/2015 forthe assessment year 2008-09. 3.The appeal has been preferred projecting the following questions as substantial questions of law:- (a) Whether on the facts and in the circumstances of the case andin law, the Tribunal is justified in deleting the disallowance u/S.14A of the Act on the account that no dividend income hasbeen earned during the A.Y. under consideration, ignoring thatthe provisions of Section 14A are applicable even if no exemptincome is actually earned or received during the year in anyform whatsoever?in law, the Tribunal is justified in deleting the disallowance u/S.14A of the Act on the account that no dividend income hasbeen earned during the A.Y. under consideration, ignoring thatthe provisions of Section 14A are applicable even if no exemptincome is actually earned or received during the year in anyform whatsoever? (b) Whether on the facts and in the circumstances of the case andin law, the Tribunal is justified in deleting the disallowance u/S.14A of the Act for the reason that no dividend income hasbeen earned by ignoring the provisions of CBDT Circular No.5/2014 dated 11.2.2014 wherein, it has been clarified that theRule 8D r/w Section 14A provides for the disallowance ofexpenditure even where the assessee in particular has notearned exempt income?in law, the Tribunal is justified in deleting the disallowance u/S.14A of the Act for the reason that no dividend income hasbeen earned by ignoring the provisions of CBDT Circular No.5/2014 dated 11.2.2014 wherein, it has been clarified that theRule 8D r/w Section 14A provides for the disallowance ofexpenditure even where the assessee in particular has notearned exempt income? (c) Whether on the facts and in the circumstances of the case andin law, the Tribunal is justified in deleting the disallowance u/S.14A of the Act after holding that investments made by theassessee are strategic in nature without appreciating therecent pronouncement of the Karnataka High Court in thecase of United Breweries Ltd Vs. DCIT (2016) 72Taxmann.Com 102 (Karnataka) wherein, it is clearly statedin law, the Tribunal is justified in deleting the disallowance u/S.14A of the Act after holding that investments made by theassessee are strategic in nature without appreciating therecent pronouncement of the Karnataka High Court in thecase of United Breweries Ltd Vs. DCIT (2016) 72Taxmann.Com 102 (Karnataka) wherein, it is clearly stated that strategic investment also fall in the purview of Section14A? 4.From the above, it is evident that the issue involved isdisallowance under Section 14A of the Act which was deletedby the Tribunal. that strategic investment also fall in the purview of Section14A? 4.From the above, it is evident that the issue involved isdisallowance under Section 14A of the Act which was deletedby the Tribunal. 5.Section 14A deals with expenditure incurred in relationto income not includible in total income. Section 14A formspart of Chapter IV of the Act dealing with computation oftotal income. As per sub-section (1), for the purpose ofcomputing the total income under the said Chapter, nodeduction shall be allowed in respect of expenditure incurredby the assessee in relation to income which does not formpart of the total income under the Act. 5.1. Admittedly, in the present case, stand of thedepartment is that the expression 'includible' appearing inheading of Section 14A would mean that it is not necessarythat exempt income should be included in the particularyear's income for deduction to be allowed. Also Section 14Adoes not use the expression "income of the year" but"income under the Act". Therefore, for making disallowance under Section 14A, it is not material that the assessee shouldhave earned such exempt income during the previous yearunder consideration. This is based on CBDT Circular No.5/2014 dated 11.2.2014. 6.This Court in the case of Commissioner of Income TaxVs. M/s. Delite Enterprises (Income Tax Appeal No. 110 of2009), decided on 26.2.2009 answering a similar questionheld that since there was no profit in the relevantassessment year, question of disallowance under Section14A would not arise. This view has been reiterated by thisCourt in Income Tax Appeal No. 266 of 2017 (Pr.Commissioner of Income Tax -3 Vs. M/s. India DebtManagement Pvt Ltd), decided on 15.4.2019, in thefollowing terms:- "The issue is no longer res-intigra. The facts are that theassessee had not earned any exempt income during the year underconsideration. As held earlier by Delhi High Court which judgment isalso followed repeatedly by our Court, in case of Chemvinvest LtdVs. Commissioner of Income Tax, reported in 378 ITR 33, in sucha case disallowance of expenditure under Section 14A of the Actwould not be permissible. The decision of Delhi High Court wascarried in appeal by the revenue. The SLP has been dismissed bythe Supreme Court." 7.Again Delhi High Court in case of Pr. Commissioner ofIncome Tax -4 Vs. IL & FS Energy Development Company Ltd (Income Tax Appeal No. 520 of 2017),decided on 16.8.2017, held that CBDT circular referred toherein above cannot override the statutory provisions anddeclined to admit the related appeal raising similar question. 8.Adverting to the facts of the present case, admittedly,there is no exempt income of the assessee in the year underconsideration. Consequently, the questions proposed do notarise. 9.In view of the above, we find no merit in the appeal.The appeal is accordingly dismissed. No cost. [ MILIND N. JADHAV, J. ] [ UJJAL BHUYAN, J. ] Digitally signedRavindraby Ravindra M.AmberkarM.Date:Amberkar2020.01.2711:49:55+0530