2019 (2) TMI 1677 - AT - Income Tax

Disallowance u/s 14A r.w. 8D - no tax free income was earned by the assessee - HELD THAT - We find that the issue in dispute is squarely covered in favour of the assessee by the decision of the Hon ble High Court rendered in the case of Correctech Energy 2014 (3) TMI 856 - GUJARAT HIGH COURT wherein as observed that if no tax free income was earned by the assessee, then no expenses can be construed as incurred by the assessee, because plain reading of section 14A provides that if an assessee incurred expenditure in relation to earning of tax free income then such expenditure would not be allowed. CIT(A) has recorded a finding that neither interest/other expenses were incurred nor any exempt income was earned by the assessee, and therefore, there is no question of allocating expenditure. - CIT(A) is justified in deleting the disallowance. - Decided in favour of assessee.

Summary

Issues:
- Condonation of delay in filing appeal by the Revenue
- Disallowance under section 14A of the Act r.w. 8D of the Rule

Analysis:
1. Condonation of Delay: The Revenue filed an appeal before the Tribunal, which was delayed by 20 days. The Revenue attributed the delay to the heavy workload of the competent authority at the time. After hearing both parties, the Tribunal found that the delay was caused by reasonable cause and thus decided to condone the 20-day delay, allowing the appeal to proceed for adjudication.

2. Disallowance under Section 14A: The main issue in the Revenue's appeal was the deletion of disallowance of &8377; 1,54,01,047/- under section 14A of the Act r.w. 8D of the Rule. The assessee had not claimed any exempt income, leading to the contention that section 14A would not be applicable. However, the Assessing Officer (AO) made an addition by invoking Rule 8D. The CIT(A) deleted the disallowance based on precedents and authoritative judgments.

3. Judicial Analysis: The CIT(A) relied on a decision from a previous year where it was held that if no tax-free income was earned, no disallowance under section 14A r.w. rule 8D should be made. The Tribunal concurred with the CIT(A)'s decision, citing a judgment by the Hon'ble High Court that emphasized the necessity of tax-free income for disallowance under section 14A. As no exempt income was earned by the assessee, the Tribunal upheld the CIT(A)'s decision to delete the disallowance.

4. Conclusion: Based on the judicial precedents and the interpretation of section 14A, the Tribunal dismissed the Revenue's appeal, affirming the deletion of the disallowance. The judgment was pronounced on 21st February 2019 by the Tribunal comprising Shri Rajpal Yadav, Judicial Member, and Shri Amarjit Singh, Accountant Member.