Mayank Auto Engineers (P) Ltd.,, Delhi vs Assessee

BEFORE SHRI G. C. GUPTA, HON'BLE VICE PRESIDENT AND SHRI T.S. KAPOOR, ACCOUNTANT MEMBER I.T.A. No.1567 /Del/2013 Assessment year : 2009-10 M/s. Mayank Auto Engineer (P) Ltd., Vs. DCIT, Circle 6(1), A-15, Ashok Vihar, Phase I, New Delhi Delhi - 110 052 GIR / PAN:AACCM0011C (Appellant) (Respondent)

Appellant by : Shri Ashwani Taneja, Adv. Respondent by : Shri P. Dam Kanunjha, Sr. DR

Date of hearing : 11.03.2015 Date of pronouncement : 25.03.2015

ORDER

PER T.S. KAPOOR, AM:

This is an appeal filed by assessee against ht order of Ld. CIT(A) dated 29.01.2013. The assessee has raised following grounds:

"1. That having regards to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. A.O. in disallowing a sum ofRs.5,56,067/- u/s 14A of the Act.

2. Without prejudice to the above, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. A.O. in wrongly computing the disallowance under Rule 8-D of Income Tax Rules.

3. That having regards to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in not reversing the action of Ld. AO in charging interest u/s 234B of the Income Tax Act, 1961."

2. At the outset, Ld. A.R. submitted that the assessee had not earned any exempt income and in view of the judgment of Hon'ble Delhi High Court in 2 ITA No.1567/Del/2013

the case of CIT Vs Holcim India Pvt. Ltd. in I.T.A. No. 486/2014 and 299/2014 (90CCH081 Del. High Court), the case of assessee is fully covered in its favour. It was submitted that Hon'ble High Court has held that where there was no exempt income, no disallowance u/s 14A can be made. Ld. A.R. further submitted that the A.O. without pinpointing any expenditure relatable to exempt income, has calculated disallowance u/s 14A as per Rule 8D and Ld. CIT(A) has also confirmed the same, which was also against the law.

3. Ld. D.R. on the other hand relied upon the orders of authorities below.

4. We have heard rival parties and have gone through the material placed on record. We find that A.O. has not pointed out any income earned by assessee which was exempt neither Ld. CIT(A) has held that a particular income was exempt. Ld. A.R. has submitted that there was no exempt income earned by assessee. The fact that assessee did not have exempt income also becomes clear from the notings of Ld. CIT(A) as contained in para 7 which is reproduced below:

"As stated in para 4, the satisfaction of the A.O. as per Section 14A(2) is on record. Once, it is seen that the assessee is in possession of a source of income that when it yields income shall be exempt income, the provisions of section 14A read with Rule 8D are attracted. From Assessment Year 2008-09 the A.O. does not have power to calculate the related expenditure in any fashion other than the calculation provided as per Rule 8D."

4.1 Therefore, in view of the above, we find that there was no exempt income and A.O. had made addition holding that assessee had source of exempt income. We find that the case of assessee is fully covered in its favour by the order of Hon'ble Delhi High Court in the case of CIT Vs Holcim India Pvt. Ltd. (supra) which under similar circumstances has held as under:

"13. We are confused about the stand taken by the appellant-Revenue. Thus, we had asked Sr. Standing Counsel for the Revenue, to state in 3 ITA No.1567/Del/2013

his submission raised was that the shares would have yielded dividend, which would be exempt income and therefore, the CIT(A) had invoked Section 14A to disallow the entire expenditure. The aforesaid submission does not find any specific and clear narration in the reasons or the grounds given by the CIT(A) to, make the said addition. Possibly, the CIT(A), though it is not argued before us, had taken the stand that the respondent- assessee had made investment and expenditure was incurred to protect those investments and this expenditure cannot be allowed under Section 14A.

14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad Vs. Mis. Lakhani Marketing Incl., ITA No. 970/2008, decided on 02.04.2014, made reference to two earlier decisions of the same Court in CIT Vs. Hero Cycles Limited, [2010] 323 ITR 518 and CIT Vs. Winsome Textile Industries Limited, [2009] 319 ITR 204 to hold that Section 14A cannot be' invoked when no exempt income was earned. The second decision is of the Gujarat High Court in Commissioner of Income Tax-I Vs. Corrtech Energy (P.) Ltd. [2014] 223 Taxmann 130 (Guj.). The third decision is of the Allahabad High Court in Income Tax Appeal No. 88 of 2014, Commissioner of Income Tax (Ii) Kanpur, Vs. M/s. Shivam Motors (P) Ltd. decided on 05.05.2014. 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 the 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 4 ITA No.1567/Del/2013

substantial question of law. Hence, the deletion of the disallowance of Rs.2,03Js2/- made by the Assessing Officer was in order" .

15. Income exempt under Section 10 in a particular assessment year, may not have been exempt earlier and can become taxable in future years. Further, whether income earned in a subsequent year would or would not be taxable, may depend upon the nature of transaction entered into in the subsequent assessment year. For example, long term capital gain on sale of shares is presently not taxable where security transaction tax has been paid, but a private sale of shares in an off market transaction attracts capital gains tax. It is an undisputed position that respondent assessee is an investment company and had invested by purchasing a substantial number of shares and thereby securing right to management. Possibility of sale of shares by private placement etc. cannot be ruled out and is not an improbability. Dividend mayor may not be declared. Dividend is declared by the company and strictly in legal sense, a shareholder has no control and cannot insist on payment of dividend. When declared, it is subjected to dividend distribution tax. 16. What is also noticeable is that the entire or whole expenditure has been disallowed as if there was no expenditure incurred by the respondent-assessee for conducting business. The CIT(A) has positively held that the business was set up and had commenced. The said finding is accepted. The respondent- assessee, therefore, had to incur expenditure for the business in the form of investment in shares of cement companies and to further expand and consolidate their business. Expenditure had to be also incurred to protect the investment made. The genuineness of the said expenditure and the fact that it was incurred for business activities was not doubted by the Assessing Officer and has also not been doubted by the CIT(A).

17. In these circumstances, we do not find any merit in the present appeals. The same are' dismissed in limine."

5. We have already noted that assessee had not earned any exempt income during the year and therefore, following the above order of Hon'ble Delhi High Court, disallowance u/s 14A was not warranted. In view of the above, grounds 1 & 2 are allowed. Ground No.3 is consequential and does not require adjudication.

5 ITA No.1567/Del/2013 6. In view of above, appeal of assessee stands allowed.

7. Order pronounced in the open court on 25th March, 2015.

Sd./- Sd./- ( G. C. GUPTA) (T.S. KAPOOR) VICE PRESIDENT ACCOUNTANT MEMBER th Date: 25 March, 2015 Sp Copy forwarded to:- 1. The appellant 2. The respondent 3. The CIT 4. The CIT (A)-, New Delhi.

5. The DR, ITAT, Loknayak Bhawan, Khan Market, New Delhi. True copy.

By Order (ITAT, New Delhi).

S.No. Details Date Initials Designation 1 Draft dictated on 12/3 Sr. PS/PS 2 Draft placed before author 12, Sr. PS/PS Draft proposed & placed before the 3 JM/AM Second Member Draft discussed/approved by Second 4 AM/AM Member 5 Approved Draft comes to the Sr. PS/PS 25/3 Sr. PS/PS 6 Kept for pronouncement 25/3 Sr. PS/PS 7 File sent to Bench Clerk 25/3 Sr. PS/PS Date on which the file goes to Head 8 Clerk 9 Date on which file goes to A.R. 10 Date of Dispatch of order