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2016 (10) TMI 1216 - AT - Income TaxDisallowance u/s 14A r.w.r 8D - assessee had not earned any exempt income during the year - where no fresh investment has been made and no dividend has been earned by the assessee during the year under consideration, the question which arises is whether any disallowance could be made on account of expenses attributable to earning of exempt income. Held that - In view of judicial precedents, there is no merit in the orders of authorities below in the absence of any exempt income earned by the assessee during the year. No disallowance was warranted under section 14A of the Act read with Rule 8D of the Rules and the same is thus, deleted. - Decided in favor of assessee.
Issues:
Disallowance made under section 14A of the Act read with Rule 8D. Analysis: The appeal challenges the disallowance of ?5,12,750 under section 14A read with Rule 8D. The Assessing Officer reopened the assessment under section 147, noting the investment in shares and interest expenditure. The CIT(A) upheld the disallowance, citing the assessee's failure to challenge similar provisions in a previous year. The assessee contended that no exempt income was earned during the year, supported by the Delhi High Court's decision in Cheminvest Ltd. vs. CIT. The Revenue did not contest this claim. The Tribunal considered the provisions of section 14A and Rule 8D, applying the Bombay High Court's ruling for prospective application from 2008-09. The Assessing Officer argued that since the assessee did not segregate income sources, disallowance was justified. However, the assessee's financials showed no dividend income and minimal financial expenses unrelated to exempt income. The Tribunal referenced the Hon'ble Delhi High Court's judgments in Cheminvest Ltd. vs. ITO and CIT vs. Holcim India Pvt. Ltd., emphasizing the necessity of actual receipt of exempt income for disallowance under section 14A. Consequently, the Tribunal ruled in favor of the assessee, stating no disallowance was warranted due to the absence of exempt income during the year. The disallowance under section 14A read with Rule 8D was deemed unjustified and thus deleted. The appeal was allowed, and the order was pronounced on October 14, 2016.
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