26. os itxa 1701-17.doc R.M. AMBERKAR (Private Secretary) IN HIGH COURT OF JUDICATURE AT BOMBAY O.O.C.J. INCOME TAX APPEAL NO. 1701 OF 2017 Pr. Commissioner of Income Tax-7 .. Appellant Versus Morgan Stanley India Securities P Ltd .. Respondent Mr. Suresh Kumar a/w Priyanka Tiwari & Sumandevi Yadav for Appellant Mr. Anupam Dighe a/w Ms. Chandani Tanna i/by India Law Alliance for Respondent CORAM : UJJAL BHUYAN & MILIND N. JADHAV, JJ. DATE : JANUARY 21, 2020. P.C.: 1. Heard Mr. Suresh Kumar, learned standing counsel, revenue for appellant and Mr. Dighe, learned counsel for respondent - assessee. 2. This appeal under Section 260A of Income Tax Act, 1961 ("the Act" for short) has been preferred by revenue against order dated 5.1.2017 passed by Income Tax Appellate Tribunal, Mumbai Bench 'B', Mumbai ("the Tribunal" for short) in Income Tax Appeal No. 1 of 5 26. os itxa 1701-17.doc 114/Mum/2013 and Cross-objection No. 215/Mum/2015 for assessment year 2008-09. 3. appeal has been preferred projecting following questions as substantial questions of law:- (a) Whether on facts and in circumstances of case and in law, Tribunal is justified in deleting disallowance u/S. 14A of Act on account that no dividend income has been earned during A.Y. under consideration, ignoring that provisions of Section 14A are applicable even if no exempt income is actually earned or received during year in any form whatsoever? (b) Whether on facts and in circumstances of case and in law, Tribunal is justified in deleting disallowance u/S. 14A of Act for reason that no dividend income has been earned by ignoring provisions of CBDT Circular No. 5/2014 dated 11.2.2014 wherein, it has been clarified that Rule 8D r/w Section 14A provides for disallowance of expenditure even where assessee in particular has not earned exempt income? (c) Whether on facts and in circumstances of case and in law, Tribunal is justified in deleting disallowance u/S. 14A of Act after holding that investments made by assessee are strategic in nature without appreciating recent pronouncement of Karnataka High Court in case of United Breweries Ltd Vs. DCIT (2016) 72 Taxmann.Com 102 (Karnataka) wherein, it is clearly stated 2 of 5 26. os itxa 1701-17.doc that strategic investment also fall in purview of Section 14A? 4. From above, it is evident that issue involved is disallowance under Section 14A of Act which was deleted by Tribunal. 5. Section 14A deals with expenditure incurred in relation to income not includible in total income. Section 14A forms part of Chapter IV of Act dealing with computation of total income. As per sub-section (1), for purpose of computing total income under said Chapter, no deduction shall be allowed in respect of expenditure incurred by assessee in relation to income which does not form part of total income under Act. 5.1. Admittedly, in present case, stand of department is that expression 'includible' appearing in heading of Section 14A would mean that it is not necessary that exempt income should be included in particular year's income for deduction to be allowed. Also Section 14A does not use expression "income of year" but "income under Act". Therefore, for making disallowance 3 of 5 26. os itxa 1701-17.doc under Section 14A, it is not material that assessee should have earned such exempt income during previous year under consideration. This is based on CBDT Circular No. 5/2014 dated 11.2.2014. 6. This Court in case of Commissioner of Income Tax Vs. M/s. Delite Enterprises (Income Tax Appeal No. 110 of 2009), decided on 26.2.2009 answering similar question held that since there was no profit in relevant assessment year, question of disallowance under Section 14A would not arise. This view has been reiterated by this Court in Income Tax Appeal No. 266 of 2017 (Pr. Commissioner of Income Tax -3 Vs. M/s. India Debt Management Pvt Ltd), decided on 15.4.2019, in following terms:- "The issue is no longer res-intigra. facts are that assessee had not earned any exempt income during year under consideration. As held earlier by Delhi High Court which judgment is also followed repeatedly by our Court, in case of Chemvinvest Ltd Vs. Commissioner of Income Tax, reported in 378 ITR 33, in such case disallowance of expenditure under Section 14A of Act would not be permissible. decision of Delhi High Court was carried in appeal by revenue. SLP has been dismissed by Supreme Court." 4 of 5 26. os itxa 1701-17.doc 7. Again Delhi High Court in case of Pr. Commissioner of Income Tax -4 Vs. IL & FS Energy Development Company Ltd (Income Tax Appeal No. 520 of 2017), decided on 16.8.2017, held that CBDT circular referred to herein above cannot override statutory provisions and declined to admit related appeal raising similar question. 8. Adverting to facts of present case, admittedly, there is no exempt income of assessee in year under consideration. Consequently, questions proposed do not arise. 9. In view of above, we find no merit in appeal. appeal is accordingly dismissed. No cost. [ MILIND N. JADHAV, J. ] [ UJJAL BHUYAN, J. ] Digitally signed by Ravindra M. Ravindra Amberkar M. Date: 2020.01.27 Amberkar 11:49:55 +0530 5 of 5 Pr. Commissioner of Income-tax-7 v. Morgan Stanley India Securities P. Ltd