Case Details:

JCIT vs. Reliance Life Sciences Pvt. Ltd.

Appeal No.:

ITA No. 2924/Mum./2019

Order pronounced by:

ITAT Mumbai

Date of Order:

08-09-2021

The assessee has made the investment in equity shares, which might yield exempted dividends in the future. The A.O. noticed that certain expenses related to such investments made have not been voluntarily disallowed by the assessee in its computation of income. Since the assessee might earn exempt income and has incurred expenditure that might be relatable to such exempt income, the assessee was asked to furnish clarification regarding disallowance u/s 14.

The assessee submitted a response that since during the year under consideration, they have not earned any exempt income, the provisions of section 14A are not applicable. The A.O. made disallowance of interest expenditure on the average value of investments u/s 14A of the Income Tax Act. The Learned CIT(A) deleted the disallowance on the appeal made by the assessee. Following judicial precedents formed the basis of the order of the Learned CIT (A):

• PCIT-3 vs. Ballarpur Industries Limited (Bombay High Court Income Tax Appeal No. 51 of 2016)
• Cheminvest Ltd. v. CIT (61 taxmann.com 118) Delhi High Court
• CIT vs. Chetinad Logistics (P.) Ltd. [2017] 80 taxmann.com 221 (Madras/ [2017] 248 Taxmann 55 (Madras)
• PCIT vs. IL&FS Energy Development Company Ltd. ([2017] 84 taxmann.com 186 (Delhi))
• ITAT Delhi “H” Special Bench in case of ACIT vs. Vireet Investment Pvt. Ltd.
• DCIT vs. Shree Vaishnav Ispat Private Limited (ITAT Mumbai, ITA no. 6464/Mum/2016)
• Kamat Hotels (India) Ltd. vs. DCIT [2018] 89 taxmann.com 225 (Mum.- Trib.)

The Revenue being aggrieved made a further appeal before the Tribunal.

We find that the issue of disallowance u/s 14A of the Act for our consideration has been decided by the Co-ordinate Bench of the Tribunal in the assessee’s own case for the preceding assessment years. In this case, the Co-ordinate Bench ruled in favor of the assessee as follows:

• We agree with the submission of the Ld. Counsel of the assessee that since the assessee has not earned any exempt income and therefore no disallowance is warranted u/s 14A of the Act.
• In the case of Joint Investments Pvt. Ltd. v. CIT [372 ITR 694], the Hon’ble Delhi High Court held that the disallowance u/s 14A of the Act should not exceed the exempt income. The Revenue filed SLP against this decision and the Hon’ble Supreme Court dismissed the SLP filed by the Revenue.
• A similar view has been taken by the Hon’ble Delhi High Court in the case of Cheminvest Limited v. CIT [378 ITR 33]
• In the case of ACIT v. Ballarpur Industries Limited in ITA No. 346 to 379/NAG/2014, the Nagpur Bench of Tribunal following the decision of the Hon’ble Delhi High Court in the case of Cheminvest v. CIT (supra) held as under:

“In the context of the facts enumerated hereinbefore, the Court answers the question framed by holding that the expression “does not form part of the total income” in Section 14A of the Act envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.”