Case Law Details
ACIT Vs ETA Star Property Developers Limited (ITAT Chennai)
Introduction: In the appeal case of ACIT Vs ETA Star Property Developers Limited, the ITAT Chennai dismissed the Revenue’s appeal against deletion of disallowance under section 14A of the Income Tax Act, 1961. The order came in favour of the assessee who had not earned any exempt income during the relevant assessment year.
Analysis: The dispute arose when the Assessing Officer (AO) made a disallowance under Section 14A of the Act, despite the assessee having no exempt income. The AO presumed that the significant investments made by the assessee in equities required significant manpower and managerial decisions, thereby warranting the disallowance. However, the Commissioner of Income Tax (Appeals) directed the AO to delete the addition, noting that the assessee had not earned any exempt income. The Tribunal, upholding the CIT(A)’s order, referred to the ruling of CIT v. Chettinad Logistics Pvt. Ltd, which stated that disallowance under Section 14A was not applicable when no exempt income was earned. The decision was also supported by a dismissed Special Leave Petition by the Department in the Supreme Court, further consolidating the verdict.
Conclusion: The ruling in the ACIT Vs ETA Star Property Developers Limited case has significant implications for assesses with investments but no exempt income. As per ITAT Chennai, in the absence of any exempt income, there can be no disallowance under Section 14A of the Income Tax Act, 1961. The ruling reiterates the legal principle that tax regulations should be applied concerning factual realities, not presumptions.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals) 18, Chennai, dated 03.01.2023 relevant to the assessment year 2018-19. The only issue involved in this appeal is relating to deletion of disallowance made under section 14A of the Income Tax Act, 1961 [“Act” in short] amounting to ₹.2,36,66,025/-.
2. Brief facts of the case are that the assessee filed its return of income for the assessment year 2018-19 on 30.10.2018 admitting loss of ₹.3,55,08,850/-. The return was processed under section 143(1) of the Act on 19.11.2019 determining loss of ₹.3,54,51,158/-. In the meantime, the case was selected for scrutiny under CASS and notice under section 143(2) of the Act was issued on 22.09.2019. After following due procedure, the assessment was completed under section 143(3) of the Act assessing loss at ₹. 1,17,85,133/- after making disallowance of 2,36,66,025/- under section 14A of the Act. On appeal, by referring to various case law including the decision in the case of CIT v. Chettinad Logistics Pvt. Ltd. [2017] 80 taxmann.com 221 (Madras), the ld. CIT(A) directed the Assessing Officer to delete the addition of ₹.2,36,66,025/- made under section 14A of the Act.
3. Aggrieved, the Revenue is in appeal before the Tribunal. The ld. DR has submitted that when there is no express provisions in section 14A and Rule 8D, the ld. CIT(A) has erroneously restricted the disallowance.
4. On the other hand, the ld. Counsel for the assessee has relied on the decision in the case of CIT v. Chettinad Logistics Pvt. Ltd. (supra) and strongly supported the order passed by the ld. CIT(A).
5. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. During the course of assessment proceedings, the Assessing Officer has noted that the assessee had opening and closing investment in unlisted equities (which would yield exempt dividend income) of an amount of ₹.236,66,02,500/- during the relevant previous year. The Assessing Officer was of the opinion that it would not be possible to make a huge investment of this scale without utilizing the manpower of the assessee company and managerial decisions of the company is indispensable for making of such massive investment. Accordingly, by applying the provisions of section 14A r.w. Rule 8D, the Assessing Officer determined the disallowance at ₹.2,36,66,025/- and brought to tax. On appeal, the ld. CIT(A) directed the Assessing Officer to delete the addition towards disallowance made under section 1 4A of the Act.
6. In this case, the ld. CIT(A) has observed that in his assessment order itself, the Assessing Officer has clearly stated that the assessee has not earned from equity investments which would yield exempt dividend income and the dividend income earned by the assessee is NIL. Thus, it is clear that the assessee has not earned any exempt income in the relevant assessment year under appeal against the investments. In this circumstances, in the case of CIT v. Chettinad Logistics (P) Ltd. (supra), the Hon’ble Jurisdictional High Court has observed and held that when there was no dividend income earned in the relevant assessment year, the disallowance made by the Assessing Officer in view of the provisions of section 14A of the Act read with Rule 8D was completely contrary to the provisions of that section as Rule 8D only provides for a method to determine the amount of expenditure incurred in relation to income, which does not form part of total income of the assessee. Against the decision of the Hon’ble High Court, the Department preferred Special leave Petition, which was dismissed by the Hon’ble Supreme Court [2018] 95 taxmann.com 250 (SC). In view of the above decision in the case of CIT v. Chettinad Logistics (P) Ltd. (supra), we find no infirmity in the order passed by the ld. CIT(A) in directing the Assessing Officer to delete the addition made towards disallowance of ₹.2,36,66,025/- under section 14A of the Act. Thus, the ground raised by the Revenue is dismissed.
7. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced on the 31st May, 2023 at Chennai.
