2016 (3) TMI 1374 - AT - Income Tax

Disallowance us 14A - not earning of any exempt income out of the investment - HELD THAT - We find that undisputedly the assessee has not earned any exempted income. Now it is settled position of law that whenever assessee did not earn any exempt income no disallowance could be made u/s. 14A of the Act. The Hon ble Delhi High Court in the case of Cheminvest Ltd. v. CIT 2015 (9) TMI 238 - DELHI HIGH COURT has categorically held that section 14A envisages that there should be actual receipt of income which was not includible in the total income during the relevant previous year for the purpose of disallowing any expenditure in relation to the said income. Wherever there is no exempt income includible in the total income of the assessee the provisions of section 14A cannot be invoked. Thus when there is no exempt income provision of section 14A of the Act cannot be applied. - Decided in favour of assessee.

Summary

Issues:
- Disallowance under section 14A rule 8D of the Income Tax Act in relation to the expenditure incurred for investments made for earning of exempt income.

Detailed Analysis:
1. The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) relevant to assessment year 2010-11. The Revenue contested the deletion of disallowance of &8377;1,82,31,213/- made by the Assessing Officer under section 14A rule 8D of the Income Tax Act concerning the expenditure incurred for investments made for earning exempt income.

2. The Ld. CIT(A) deleted the disallowance after considering various case laws. The assessee's representative argued that no disallowance was warranted under section 14A for passive investments in group companies. It was highlighted that the assessee did not earn any exempt income during the relevant year, and the investments were strategic in group companies for holding controlling stakes, not for earning exempt income. The representative relied on previous Tribunal decisions and a judgment of the Hon'ble Delhi High Court to support the case.

3. The Revenue failed to present any distinguishing facts or case laws to counter the assessee's arguments. The Tribunal found that the case of the assessee aligned with the decisions cited, where strategic investments in group concerns without the purpose of earning exempt income did not warrant disallowance under section 14A.

4. Consequently, the Tribunal upheld the order of the Ld. CIT(A) and dismissed the appeal of the Revenue. The decision was pronounced in open court on 18.03.2016.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved, the arguments presented by both parties, the legal precedents relied upon, and the final decision rendered by the Tribunal.