2019 (5) TMI 1734 - AT - Income Tax

Disallowance u/s. 14A - HELD THAT - Similar issue on identical facts have been decided in favour of the assessee. We have also perused the judicial pronouncement in the case of CIT v Corrtech Energy (p) Ltd 2014 (3) TMI 856 - GUJARAT HIGH COURT wherein it is held that in a case assessee did not make any claim for exemption of any income from payment of taxes, in that case disallowance u/s 14A could not be made. It is crystal clear that the jurisdictional High Court has decided that to attract the provision of section 14A it is required that assessee should have earned an exempt income, if the assessee has not earned an exempt income and not claimed so in the return of income then the provision of section 14A are not applicable. We find that during the year under consideration the assessee company has not earned any exempt income and has not claimed any such exempt income in the return of income therefore as per our considered opinion the provision of section 14A are not applicable - we consider that the disallowance u/s. 14A r.w.s Rule 8D cannot be made as the assessee has not earned any exempt income. Accordingly, the appeal of the Revenue is dismissed.

Summary

Issues:
Disallowance under section 14A of the Income Tax Act, 1961 for A.Y. 2014-15 & 2013-14.

Analysis:
The appeals filed by the revenue were against the decision of the CIT(A) in deleting the disallowance made under section 14A of the Income Tax Act. The assessing officer observed that the assessee had not made any disallowance under section 14A r.w. Rule 8D of the IT Rule in relation to investments made. The assessee argued that no disallowance was required as interest-free funds were used for investing in equity shares and no claim for exemption of income from tax payment was made. However, the assessing officer computed a disallowance under section 14A r.w. Rule 8D and added it to the total income of the assessee. The CIT(A) deleted this disallowance, citing a decision of the Jurisdictional High Court of Gujarat. The ITAT noted that the assessee had not earned any exempt income during the relevant year. Previous judicial pronouncements established that no disallowance should be made under section 14A if no exempt income was earned, or the disallowance should be restricted to the exempt income. The ITAT upheld the CIT(A)'s decision, following the precedent set by the Jurisdictional High Court and Co-ordinate Bench of the ITAT in similar cases where no dividend income was earned by the assessee. The ITAT emphasized that the provision of section 14A does not apply if the assessee has not earned exempt income and has not claimed it in the return of income. Consequently, the disallowance under section 14A r.w. Rule 8D was deemed inapplicable due to the absence of any exempt income earned by the assessee during the relevant year.

In conclusion, the ITAT dismissed the revenue's appeal, affirming that the disallowance under section 14A r.w. Rule 8D could not be made as the assessee did not earn any exempt income. Therefore, the appeals filed by the revenue for A.Y. 2014-15 & 2013-14 were dismissed based on the aforementioned findings and legal interpretations.