DELHI BENCH "E": NEW DELHI
BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER
AND
SHRI A. T. VARKEY, JUDICIAL MEMBER
ITA No. 3280/Del/2013
(Assessment Year: 2008-09)
Mayar India Ltd., JCIT(OSD)
Plot No.A, Basant Lok Circle-6(1)
Community Center, Vs. C.R.Building,
Vasant Vihar, New Delhi
New Delhi
PAN:AAACM8246P
(Appellant) (Respondent)
Appellant by : Mahesh Kumar Bansal, CA
Respondent by : J.P. Chandraker , Sr. DR
ORDER
PER A. T. VARKEY, JUDICIAL MEMBER
This is an appeal arising from the order of the ld CIT(A), IX, New Delhi for
Assessment Year 2008-09.
2. The solitary issue pertains to disallowance of Rs. 9,62,228/- u/s 14A of the
Income Tax Act, 1961 (herein after `the Act').
3. Brief facts of the case is that the assessee company is engaged in the
business of manufacturing of herbal products and trading in various
commodities and providing services to Mayar (HK) Ltd., Honkong. The return
of income for the Assessment Year 2008-09 was filed by declaring an income
of Rs.71,04,370/-. The same was later selected for scrutiny processed u/s
143(3) of the Act and made an addition of Rs.81,90,600/-.
4. The AO invoked Section 14A of the Act read with Rule 8D and
computed disallowance at 5% of average investments i.e. 5% of Rs.19.25
crores and computed disallowance at Rs.9,62,228/- which has been
confirmed by the ld CIT(A). Having considered the submission and evidences
placed on record we find that the undisputed facts as emerging from the
material on record is that the assessee did not earn any exempt income in
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the instant year. In such circumstances the Hon'ble jurisdictional High Court
has held in the case of ld CIT Vs. Hokim India Pvt Ltd. In ITA No.486/2014 as
under:-
"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. M/s. 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] 3 19 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 Fee income. Hence, in the
absence of any lax Fee income, the corresponding expenditure
could not be worked out for disallowance. The view of the
C1T(A) , which has been affirmed by the Tribunal, hence does
not give rise to any substantial question of law. Hence, the
deletion of the disallowance of Rs.2,03,752/- made by the
Assessing Officer was in order".
15. Income exempt under Section 1 0 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
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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."
5. Having regard to the aforesaid factual and judicial position we hold
that disallowance made u/s 14A is unwarranted and therefore we delete the
addition of Rs.9,62,228/-.
6. In the result the appeal of the assessee is allowed.
Order pronounced in the open court on 21.11.2014.
-Sd/- -Sd/-
(S.V. MEHROTRA) (A. T. VARKEY)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated:21/11/2014
A K Keot
Copy forwarded to
1. Applicant
2. Respondent
3. CIT
4. CIT (A)
5. DR:ITAT
ASSISTANT REGISTRAR
ITAT, New Delhi
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