2017 (3) TMI 1563 - AT - Income Tax

Disallowance made u/s 14A - disallowed expenditure incurred in relation to exempt income which does not form part of total income - Held that - There is no disallowance u/s 14A r.w.s 8D if the assesse has not received any exempt income which does not form part of the total income under this Act. The CIT (A) after considering the relevant facts has rightly deleted additions made by the A.O. See Prathista Industries Ltd. Vs. DCIT 2016 (4) TMI 1207 - ITAT HYDERABAD . Appeal filed by the Revenue is dismissed.

Summary

Issues:
Disallowance under section 14A of the IT Act for investment in shares without exempt income.

Analysis:
The Revenue appealed against the CIT(A) order deleting the disallowance made under section 14A of the IT Act, pertaining to the assessment year 2012-13. The case involved the assesse, a limited company engaged in the business of manufacturing Frozen Marine products. The Revenue contended that the assesse made investments in shares amounting to Rs. 15,52,78,809 and claimed interest of Rs. 2,23,80,452. The Revenue invoked section 14A r.w.r 8D, arguing that since the assesse earned dividend income exempt from tax under section 10(38) of the IT Act, a disallowance should be made. The CIT(A) deleted the addition, citing the assesse had not earned any exempt income in the form of dividend from shares, thus section 14A did not apply. The assesse relied on the decision of the Hon'ble Delhi High Court in Cheminvest Ltd. case, asserting that if no exempt income forms part of the total income, disallowance under section 14A cannot be imposed.

The assesse further argued that a similar decision by the ITAT Hyderabad in the case of Prathista Industries Ltd. supported their position. The ITAT, after considering the arguments, held that section 14A will not be applicable if no exempt income is received or receivable during the relevant assessment year. The ITAT emphasized that disallowance under section 14A is only warranted when there is exempt income not forming part of the total income. Therefore, if no exempt income is received or receivable, no disallowance should be made under section 14A. The ITAT upheld the CIT(A) order, concluding that there was no error in deleting the addition made under section 14A of the IT Act.

In summary, the ITAT dismissed the Revenue's appeal, affirming the CIT(A) order and emphasizing that disallowance under section 14A is not applicable when no exempt income is received, as per the provisions of the IT Act. The decision was based on the principles established in previous judgments and the interpretation of relevant legal provisions.