Case Law Details
Lally Motors India (P.) Ltd. Vs Principal CIT (ITAT Amritsar)
The brief facts of the case are that the Assessing Officer (AO) during the course of assessment proceedings queried the assessee on the applicability of section 14A in view of investment in shares (in Gautam Iron Mills Pvt. Ltd., at Rs. 3.02 crore, as on 31.03.2012 – the year-end.) The assessee replied by stating that it had not earned any income by way of dividend on the said shares, for section 14A of the Act to apply. Reliance was placed on the decision in Cheminvest Ltd. (in ITA No. 794/2014, dated 02/9/2015) by the Hon’ble Delhi High Court. Two, it had not incurred any expenditure in relation to the said investment in shares, so that section 14A would even otherwise not apply. The AO completed the assessment accepting the assessee’s contentions.
The ld. Pr. CIT was, however, not impressed and he issued notice U/s. 263. Circular No. 5/2014 by the Board, reproduced at para 3.5 of his order, had in no uncertain terms clarified that section 14A would apply even if the no tax-exempt income (i.e., income not forming part of the total income) had in fact been earned, i.e., as long as expenditure is incurred for earning such income. The said Circular, binding on the A.O., was in fact not brought to the notice of the Hon’ble Court, so that the decision would require reconsideration, being even otherwise not binding on the A.O. Further, the firm has negative net worth during the relevant year, so that the entire investment stands financed by borrowed capital and, besides, administrative expenditure in the sum of Rs.2.36 crores had been incurred by the assessee. The contention that no expenditure had been incurred qua the investment in shares was therefore not acceptable. Explanation 2 to section 263, inserted by Finance Act, 2015 w.e.f. 01.06.2015, deems that an order by the AO, passed, in the opinion of the Principal Commissioner or Commissioner, not in accordance with any order, directions or instructions issued by the Board u/s. 119 of the Act, is erroneous in-so-far as it is prejudicial to the interest of the Revenue. The assessee’s argument that the investment under reference was strategic – raised before him for the first time, was met by the ld. Pr. CIT with reference to the decision by the Tribunal in Voltech Engineers Pvt. Ltd. v. Dy. CIT [2017] 49 CCH 0488 (Chennai). He, accordingly, set aside the assessment to the limited extent of examination of the issue of disallowance u/s. 14A qua the investment in shares in Gautam Iron Mills Pvt. Ltd. afresh, and in light of the Board Circular 5/2014 (para 4 of the impugned order).
Aggrieved, the assessee is in appeal.
Held by ITAT
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