2019 (4) TMI 1731 - AT - Income Tax

Disallowance u/s 14A r.w Rule 8D(2)(ii) 8D(2)(iii) - suo moto disallowance by assessee - no exempt income - HELD THAT - Once there is no exempt income the issue is squarely covered by the decision of Hon ble Bombay High Court in the case of Ballarpur Industries Limited 2016 (10) TMI 1039 - BOMBAY HIGH COURT . Respectfully following the Hon ble Jurisdictional High Court we delete the disallowance and affirm the order of CIT(A) in respect to deletion made by him of the expenses relatable to exempt income under Rule 8D(2)(ii) and 8D(2)(iii). We also delete the disallowance suo moto offered by assessee because there is no exempt income and once there is no exempt income no disallowance can be made relatable to exempt income by invoking the provisions of section 14A read with Rule 8D of the Rules. - Decided in favour of assessee.

Summary

Issues:
- Disallowance of expenses relatable to exempt income under section 14A of the Income Tax Act, 1961.

Analysis:
1. The appeals arose from the order of the Commissioner of Income Tax (Appeals) concerning the disallowance of expenses related to exempt income under section 14A of the Income Tax Act, 1961. The appellant had suo moto disallowed expenses, but the Assessing Officer further disallowed expenses under Rule 8D. The CIT(A) restricted the disallowance to the amount originally disallowed by the appellant.

2. The main contention was whether the disallowance under section 14A was justified when no exempt income was earned during the year. The appellant argued that since no exempt income was earned, no disallowance should be made. The CIT(A) relied on precedents and legal interpretations to support the deletion of the disallowance, emphasizing the requirement of actual receipt of exempt income for disallowance under section 14A.

3. The Tribunal considered the facts and legal precedents, including decisions from various High Courts and the Tribunal itself. It was established that no exempt income was earned by the appellant during the relevant year. The Tribunal referred to previous judgments and held that in the absence of exempt income, no disallowance could be made under section 14A. The Tribunal also noted that the disallowance made by the appellant was voluntary and not required in the absence of exempt income.

4. The Tribunal further referenced a decision of the Hon'ble Bombay High Court, Nagpur Bench, which supported the view that disallowance under section 14A is not applicable when no exempt income is received or receivable during the relevant year. The Tribunal, in line with legal precedents and the absence of exempt income, deleted the disallowance of expenses relatable to exempt income under Rule 8D(2)(ii) and 8D(2)(iii). The disallowance made by the appellant suo moto was also deleted.

5. Ultimately, the Tribunal dismissed the appeal of the Revenue and allowed the cross-objection of the assessee, affirming the deletion of the disallowance of expenses related to exempt income. The decision was based on the absence of exempt income during the relevant year, in accordance with legal interpretations and precedents.

This detailed analysis of the legal judgment highlights the key issues, arguments presented, legal interpretations, and the Tribunal's decision regarding the disallowance of expenses relatable to exempt income under section 14A of the Income Tax Act, 1961.