2015 (3) TMI 1172 - AT - Income Tax

Disallowance u/s 14A - Held that - Assessee had not earned any exempt income during the year and therefore disallowance u/s 14A was not warranted. - Decided in favour of assessee

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act
2. Calculation of disallowance under Rule 8D of Income Tax Rules
3. Charging of interest under section 234B of the Income Tax Act

Issue 1: Disallowance under section 14A of the Income Tax Act
The appellant filed an appeal against the order of the Ld. CIT(A) regarding the disallowance of a sum under section 14A of the Act. The appellant argued that no exempt income was earned and cited a judgment of the Hon'ble Delhi High Court in support. The appellant contended that the A.O. had calculated the disallowance under Rule 8D without identifying any expenditure related to exempt income. The Tribunal noted that there was no exempt income earned by the assessee, as confirmed by the Ld. CIT(A) as well. The Tribunal referred to the judgment of the Hon'ble Delhi High Court in a similar case, where it was held that disallowance under section 14A cannot be made if no exempt income was earned. Consequently, the Tribunal allowed grounds 1 & 2 of the appeal, as disallowance under section 14A was not justified.

Issue 2: Calculation of disallowance under Rule 8D of Income Tax Rules
The Tribunal found that the A.O. had not identified any income earned by the assessee that was exempt, and the Ld. CIT(A) did not establish any specific exempt income. The Tribunal agreed with the appellant's claim that there was no exempt income. Referring to the judgment of the Hon'ble Delhi High Court, the Tribunal held that the disallowance under section 14A could not be upheld without any exempt income being earned. The Tribunal emphasized that the appellant did not have any exempt income, and therefore, the disallowance under Rule 8D was unwarranted.

Issue 3: Charging of interest under section 234B of the Income Tax Act
The Tribunal did not delve into this issue as it was considered consequential and did not require adjudication. Consequently, this issue was not addressed in the judgment.

In conclusion, the appeal of the assessee was allowed based on the absence of any exempt income earned during the year, as per the judgment of the Hon'ble Delhi High Court. The Tribunal found that the disallowance under section 14A and Rule 8D was not justified in the absence of exempt income. The order was pronounced on 25th March 2015.