2016 (10) TMI 1294 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - HELD THAT - There is consistent view that in case there is no exempt income claimed by the assessee in the return of income, no disallowance can be made by the Revenue. Accordingly, in the present case, we confirm the order of the CIT (A) deleting the disallowance of expenses. Resultantly, this appeal of the Revenue stands dismissed.

Summary

Issues:
- Disallowance of expenses related to exempted income under Section 14A of the Income Tax Act, 1961.

Analysis:
1. The appeal pertains to the Revenue challenging the CIT (A)'s order directing the AO to restrict the disallowance of expenses related to exempted income under Section 14A of the Act. The AO had disallowed expenses amounting to ?6,95,98,750, which the CIT (A) reduced to ?1,16,03,269 after considering the interest-free funds and investments of the assessee.

2. The primary contention was whether the provisions of Section 14A and Rule 8D could be invoked in the absence of exempt income. The assessee argued that since there was no exempt income, no disallowance should be made. The assessee relied on the decision of the Delhi High Court in Cheminvest Ltd. vs. CIT, emphasizing the need for actual receipt of exempt income for disallowance under Section 14A.

3. The Tribunal referred to the judgment of the Punjab & Haryana High Court in CIT vs. Lakhani Marketing Inc., which outlined the conditions for invoking Section 14A. It highlighted that unless there is receipt of exempted income, Section 14A cannot be applied. The Tribunal also cited the decision of the Bombay Bench regarding the applicability of Section 14A only when a part of income is not taxable.

4. Further, the Allahabad High Court's decision in CIT vs. Shivam Motors emphasized that without tax-free income, corresponding expenditure cannot be disallowed under Section 14A. The Tribunal concluded that if no exempt income is claimed, no disallowance can be made by the Revenue. Consequently, the Tribunal upheld the CIT (A)'s decision to delete the disallowance of expenses, dismissing the Revenue's appeal.

5. The Tribunal confirmed the order of the CIT (A) and dismissed the Revenue's appeal, emphasizing the consistent view of various High Courts that the absence of exempt income precludes disallowance under Section 14A. The judgment was pronounced on 18-10-2016 by the Tribunal.