2018 (1) TMI 1323 - AT - Income Tax

Disallowance u/s 14A(2) r.w.r 8D - Held that - Where there is no exempt income earned during the relevant financial year, there cannot be any disallowance u/s 14A of the IT Act We find that the facts of the case before us are similar to the facts before in the case of Redington (India) Ltd (2017 (1) TMI 318 - MADRAS HIGH COURT) and respectfully following the said decision, we allow the assessee s appeal and direct the AO to delete the disallowance made u/s 14A

Summary

Issues:
Disallowance u/s 14A(2) of the IT Act r.w.r 8D of the IT Rules for A.Y 2012-13.

Analysis:
The case involved an appeal by the assessee against the order of the CIT(A) confirming the disallowance made u/s 14A(2) of the IT Act r.w.r 8D of the IT Rules for the assessment year 2012-13. The Assessing Officer (A.O) observed that the assessee had borrowed secured loans and invested the same amount in shares of an associate company, resulting in exempt income under section 115(O) of the IT Act. The A.O proposed to disallow the expenditure by way of interest paid to the bank, leading to a disallowance of &8377; 30,19,473. The assessee contended that the investments were made for business expediency and no exempt income was earned during the relevant financial year. However, both the A.O and CIT(A) upheld the disallowance.

The assessee argued that the issue was covered in their favor by a decision of the Coordinate Bench of the Tribunal in a specific case and a decision of the Hon’ble Punjab and Haryana High Court in another case. The Departmental Representative (DR) supported the orders of the authorities below and cited a CBDT circular. The Tribunal analyzed the contentions and referred to the decision in the case of M/s Karvy Stock Broking Limited and the CBDT circular, along with the decision of the Hon’ble High Court of Madras in the case of Redington (India) Ltd. The Tribunal held that where no exempt income was earned during the relevant financial year, no disallowance u/s 14A of the IT Act could be made.

The Tribunal further referenced the Madras High Court decision, emphasizing that the provisions of section 14A apply to expenditure incurred for earning exempt income, and in the absence of exempt income, the disallowance cannot be applied. Consequently, the Tribunal allowed the assessee's appeal and directed the A.O to delete the disallowance made u/s 14A. The Tribunal concluded that the facts of the case were similar to the Madras High Court decision, and hence, the assessee's appeal was allowed.

Therefore, the Tribunal allowed the assessee's appeal, rejecting some grounds and allowing others, directing the deletion of the disallowance made u/s 14A for the assessment year 2012-13.