Pr Commissioner Of Income Tax - Vi vs M/S Sterling Developers P Ltd
2021 Latest Caselaw 1529 Kant

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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

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)

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

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).

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

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.

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