Karnataka High Court
Pr Commissioner Of Income Tax - Vi vs M/S Sterling Developers P Ltd on 4 February, 2021
Bench: Alok Aradhe, Nataraj Rangaswamy
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 4TH DAY OF FEBRUARY 2021
PRESENT
THE HON'BLE MR. JUSTICE ALOK ARADHE
AND
THE HON'BLE MR. JUSTICE NATARAJ RANGASWAMY
I.T.A. NO.685 OF 2015
BETWEEN:
1. PR. COMMISSIONER OF INCOME TAX-VI
CENTRAL REVENUE BUILDINGS
QUEENS ROAD, BANGALORE-560001.
2. JOINT COMMISSIONER OF INCOME TAX
(OSD), CIRCLE-12(3), BANGALORE.
.... APPELLANTS
(BY MR. JEEVAN J. NEERALGI, ADV., FOR
MR. E.I. SANMATHI, ADV.,)
AND:
M/S. STERLING DEVELOPERS P. LTD.,
NO.8, PRESTIGE NUBULA LEVEL-5
CUBBON ROAD, OPP. INCOME TAX OFFICE
BANGALORE-560001
PAN: AACCS0304G.
... RESPONDENT
(BY MR. A. SHANKAR, SR. COUNSEL A/W
MR. NARENDRA SHARMA, ADV., FOR
MR. M. LAVA, ADV.,)
THIS I.T.A. IS FILED UNDER SEC. 260-A OF INCOME TAX
ACT 1961, ARISING OUT OF ORDER DATED 23.06.2015 PASSED
IN ITA NO.1417/BANG/2012 FOR THE ASSESSMENT YEAR 2009-
10, PRAYING TO:
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(i) DECIDE THE FOREGOING QUESTION OF LAW AND/OR
SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY
THE HON'BLE COURT AS DEEMED FIT.
(ii) SET ASIDE THE APPELLATE ORDER DATED 23.06.2015
PASSED BY THE ITAT, 'B' BENCH, BENGALURU, IN APPEAL
PROCEEDINGS NO.ITA NO.1417/BANG/2012 FOR ASSESSMENT
YEAR 2009-10, AS SOUGHT FOR IN THIS APPEAL.
THIS I.T.A. COMING ON FOR HEARING, THIS DAY,
ALOK ARADHE J., DELIVERED THE FOLLOWING:
JUDGMENT
This appeal under Section 260-A of the Income Tax Act, 1961 (hereinafter referred to as 'the Act', for short) has been filed by the revenue. The subject matter of the appeal pertains to the Assessment Year 2009-10. The appeal was admitted by a Bench of this Court vide order dated 05.04.2016 on the following substantial question of law:
"Whether, on the facts and in the circumstances of the case, the Tribunal is justified in law in deleting the disallowances made under Section 14A read with Rule 8D(2)(ii) and 8(D)(2)(iii) of the Act without appreciating the contents of Circular No.5/2014 dated 11.02.2014, which emphasized that only expenditure allowable is relatable to earning of income and therefore, the expenses which are relatable to earning of exempt income have to be 3 considered for disallowance, irrespective of the fact whether such income has been earned during the financial year or not?"
2. Facts leading to filing of this appeal briefly stated are that the assessee filed its return of income for the Assessment Year 2009-10 declaring a total income of Rs.4,10,17,850/- on 14.10.2010. The aforesaid return was processed under Section 143(1) of the Act. The case of the assessee was selected for scrutiny and during the course of assessment proceedings, the assessee filed a letter dated 15.11.2011 in which the assessee recomputed its taxable income at Rs.4,79,57,900/- by making certain disallowance in respect of interest claimed by the assessee. The Assessing Officer, after verifying the details filed by the assessee, concluded the assessment by an order dated 29.12.2011 and determined the total income of the assessee at Rs.18,18,36,660/- as against the revised income which was mentioned by the assessee to the extent of Rs.4,79,57,900/- by making certain additions and disallowances. The Assessing Officer also made a disallowance under Section 14A of the Act of Rs.4,92,78,160/- and under Rule 8D(2)(iii) 4 of the Income Tax Rules, 1962, being 0.5% of Rs.27,91,520/- totaling to an amount of Rs.5,20,69,680/-. The assessee filed an appeal before the Commissioner of Income Tax (Appeals), who by an order dated 27.09.2012, partly allowed the appeal and deleted such additions and disallowances made and sustained the disallowance under Rule 8D(2)(ii) of Rs.3,18,30,602/- as against the original calculation made by the Assessing Officer of Rs.4,92,78,160/- and sustained the disallowance made by the Assessing Officer under Rule 8D(2)(iii) to the extent of Rs.18,71,270/- as against the original disallowance under Rule 8D(2)(iii) of Rs.27,91,520/-. However, disallowance of Rs.3,81,18,472/- was sustained.
3. The revenue filed an appeal against the order passed by the Commissioner of Income Tax (Appeals) before the Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short) namely ITA No.168/Bang/2013, whereas the assessee filed cross-appeal before the Tribunal against the order of the Commissioner of Income Tax (Appeals) to the extent it was passed against it in ITA 5 No.1417/Bang/2012. The Tribunal, vide its common order dated 23.06.2015, dismissed the appeal preferred by the revenue and partly allowed the appeal preferred by the assessee. Being aggrieved by the aforesaid order of the Tribunal, the revenue has filed this appeal.
4. Learned counsel for the revenue, while inviting the attention of this Court to the order passed by the Assessing Officer, pointed out that the reasoning / satisfaction has been recorded by the Assessing Officer for disallowing the claim made by the assessee under Section 14A of the Act. It is further submitted that the finding recorded by the Tribunal that there is no exempt income in respect of the relevant assessment year which was claimed by the assessee, is perverse. In this connection, our attention has been invited to paragraph 19 of the order passed by the Tribunal. Learned counsel for the revenue has placed reliance on the decision of this Court in 'COMMISSIONER OF INCOME- TAX, BANGALORE Vs. KINGFISHER FINVEST INDIA LTD.' (2020) 121 TAXMANN.COM 233 (KAR).6
5. On the other hand, learned Senior counsel for the assessee, while inviting our attention to paragraph 19 of the order passed by the Tribunal, pointed out that it is an admitted fact before the Tribunal that no exempt income was claimed by the assessee during the relevant previous year. It has further been submitted that from the perusal of the letter dated 15.11.2011 which was submitted by the assessee before the Assessing Officer, the assessee had taken a specific stand that the assessee has not earned any income which is exempt from tax and therefore, the provisions of Section 14A of the Act are not applicable to the fact situation of the case. The aforesaid aspect of the matter was even disputed by the revenue before the Tribunal. Therefore, on admitted facts, the Tribunal has set aside the disallowance of the claim under Section 14A of the Act.
6. We have considered the submissions made on both sides and have perused the record. From perusal of paragraph 6 of the communication dated 15.11.2011, it is evident that the assessee had taken a specific stand before the Assessing Officer in the assessment proceedings itself 7 that the assessee has not earned any income which is exempted from tax. The relevant extract of paragraph 19 of the order passed by the Tribunal is reproduced below for the facility of reference:
"It is not disputed that there was no dividend or exempt income claimed by the assessee during the relevant previous year."
7. Thus, in the fact situation of the case, it was an admitted position that no dividend or exempt income was claimed by the assessee during the relevant previous year. It is well settled in law that if no exempt income has accrued to the assessee, the provisions of Section 14A do not apply to the fact situation of the case. The aforesaid view has been taken by this Court in 'PRL. COMMISSIONER OF INCOME-
TAX AND ANOTHER Vs. M/s. NOVELL SOFTWARE DEVELOPMENT (INDIA) PVT. LTD.' in ITA No.271/2017 decided on 16.01.2021 as well as by Delhi and Madras High Courts, reference of which has been made in paragraph 6 of the aforesaid decision.
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8. For the aforementioned reasons, the substantial question of law framed in this appeal is answered against the revenue and in favour of the assessee.
In the result, we do not find any merit in the appeal. The same fails and is hereby dismissed.
Sd/-
JUDGE Sd/-
JUDGE RV