2015 (7) TMI 1320 - AT - Income Tax

Addition u/s 14A r.w.r. 8D - no exempt income was earned - HELD THAT - We find that there is no quarrel that the assessee company has not received any dividend income or tax free income. On the said factual matrix, the issue before us is no longer res integra. As decided in COMMISSIONER OF INCOME TAX-IV VERSUS HOLCIM INDIA P. LTD. 2014 (9) TMI 434 - DELHI HIGH COURT section 14A cannot be invoked when no exempt income was earned. Also see WINSOME TEXTILE INDUSTRIES LTD. 2009 (8) TMI 220 - PUNJAB AND HARYANA HIGH COURT , M/S HERO CYCLES LTD. 2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT and M/S LAKHANI MARKETING INCL 2014 (7) TMI 44 - PUNJAB AND HARYANA HIGH COURT - Decided in favour of assessee.

Summary

Issues:
Confirmation of addition under section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962.

The judgment involves an appeal against the order of the Commissioner of Income-tax (Appeals)-XVI, Delhi regarding the confirmation of an addition made under section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962. The appellant, a private limited company, declared a current year loss. The Assessing Officer (AO) noted the company's investments in two other companies and invoked section 14A read with Rule 8D due to potential tax-exempt dividend income. The appellant contended that section 14A did not apply as there was no exempt income, but the AO disagreed, relying on a Special Bench decision. The AO made an addition of a specific amount. The appellant's appeal to the CIT (A) was unsuccessful. The appellant argued that it had not earned any dividend or tax-free income in the relevant assessment year, citing a High Court decision. The Departmental Representative (DR) supported the CIT (A)'s decision based on the Special Bench's ruling. The Tribunal noted that the appellant had not received any exempt income, referencing High Court judgments that supported the appellant's position. The Tribunal upheld the appellant's appeal, directing the deletion of the addition made by the AO.

The key issue in this case was the applicability of section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules, 1962 to the appellant's situation. Despite the AO's invocation of these provisions based on potential tax-exempt dividend income from the appellant's investments in other companies, the Tribunal found that the appellant had not earned any dividend or tax-free income during the relevant assessment year. The Tribunal referenced High Court judgments that supported the appellant's position, emphasizing that when no exempt income is earned, section 14A cannot be invoked to disallow expenditures. The Tribunal's decision was influenced by the High Court rulings, leading to the allowance of the appellant's appeal and the deletion of the addition made by the AO.