2017 (12) TMI 1749 - AT - Income Tax

Disallowance us 14A - 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. In the assessee s own case for assessment year 2010-11 and held that when there is no exempt income provision of section 14A of the Act cannot be applied. In the light of the aforesaid judgment the provisions of section 14A cannot be invoked as there is no exempt income in the hands of the assessee. Accordingly we find no infirmity in the order of the CIT(Appeals) who has rightly deleted the addition.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act.
2. Invocation of section 14A when no exempt income is earned.

Issue 1: Disallowance under section 14A of the Income Tax Act:
The appeal was filed against the order of CIT(Appeals)-7, Bengaluru, challenging the disallowance of specific amounts under section 14A r.w.r. 8D(2)(ii) and 8D(2)(iii) of the Act. The appellant contended that the assessing officer's order was against various legal principles. The appellant also disputed the total income and tax computed. The primary argument was that when there is no tax-free income, there should be no expenditure incurred for earning exempt income. The appellant further argued that the authorities erred in not following relevant decisions of higher appellate authorities. The appellant also raised concerns regarding the liability for interest under section 234B of the Act.

Issue 2: Invocation of section 14A when no exempt income is earned:
During the hearing, it was highlighted that the assessee did not earn any exempt income in the relevant assessment year. Citing the judgment of the Hon'ble Delhi High Court in Cheminvest Ltd. v. CIT and the Tribunal's order in the assessee's own case for a previous assessment year, it was argued that section 14A should not be invoked in the absence of exempt income. The Hon'ble Delhi High Court's decision emphasized that for disallowing any expenditure under section 14A, there should be actual receipt of income not included in the total income. The Tribunal's previous ruling in the assessee's case for another assessment year also supported the contention that when there is no exempt income, section 14A provisions cannot be applied. Consequently, as there was no exempt income in the hands of the assessee, the order of the CIT(Appeals) deleting the addition was upheld, and the appeal was dismissed.

This judgment clarifies the application of section 14A of the Income Tax Act concerning disallowance when no exempt income is earned. It emphasizes the principle that disallowance under section 14A should be based on actual receipt of income not included in the total income. The decision of the Hon'ble Delhi High Court and the Tribunal's previous ruling provide a strong legal basis for the argument that in the absence of exempt income, section 14A provisions should not be invoked. The judgment reaffirms that when no exempt income is earned, corresponding expenditure cannot be disallowed, ensuring a fair and just application of the law.