2018 (9) TMI 1991 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - CIT(Appeals) by placing reliance on the order of this Tribunal in M/s Royala Corporation 2016 (1) TMI 239 - ITAT CHENNAI directed the Assessing Officer to restrict the disallowance to the extent of exempted / dividend income earned by the assessee - HELD THAT - As rightly submitted by assessee the Madras High Court in Redington (India) Ltd. 2017 (1) TMI 318 - MADRAS HIGH COURT and Chettinad Logistics Pvt. Ltd. 2017 (4) TMI 298 - MADRAS HIGH COURT categorically found that there cannot be any disallowance when the assessee has not earned any exempted income. Therefore this Tribunal is of the considered opinion that the CIT(Appeals) has rightly placed his reliance on the order of this Tribunal in Royala Corporation Ltd. 2016 (1) TMI 239 - ITAT CHENNAI . The only contention of the Ld. D.R. before this Tribunal is that an appeal is pending before the High Court. It is nobody s case that the High Court has stayed operation of the order of this Tribunal in M/s Royala Corporation Ltd. (supra). Mere pending of appeal before the High Court cannot be a reason to take a different view by this Tribunal. Therefore this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. There cannot be any disallowance under Section 14A of the Act when there was no exempted income or dividend income earned by the assessee this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

Summary

Issues:
1. Disallowance under Rule 8D(2) of the Income-tax Rules, 1962.
2. Interpretation of Section 14A of the Income-tax Act, 1961 regarding disallowance of expenditure.
3. Applicability of judgments by the Madras High Court in similar cases.
4. Impact of pending appeal before the High Court on the Tribunal's decision.

Issue 1: Disallowance under Rule 8D(2) of the Income-tax Rules, 1962:
The Revenue appealed against the Commissioner of Income Tax (Appeals) orders regarding the disallowance under Rule 8D(2) of the Income-tax Rules, 1962 for two independent assessees. The Ld. Departmental Representative argued that the disallowance should not be restricted to the extent of exempted income, as per the orders of the Tribunal in a previous case. However, the Ld. representative for the assessee contended that the disallowance should be restricted to the exempted income earned, citing judgments by the Madras High Court. The Tribunal upheld the CIT(Appeals) decision to restrict the disallowance to the extent of exempted income, based on the Madras High Court rulings.

Issue 2: Interpretation of Section 14A of the Income-tax Act, 1961:
The Ld. Departmental Representative argued that disallowance under Section 14A of the Act should not be dependent on the earning of dividend income. Conversely, the Ld. representative for the assessee relied on the Madras High Court judgments to support the contention that disallowance is not applicable when no exempted income is earned. The Tribunal agreed with the assessee's representative, emphasizing that there cannot be any disallowance if the assessee has not earned any exempted income.

Issue 3: Applicability of judgments by the Madras High Court:
The Tribunal considered the judgments by the Madras High Court in cases involving similar issues, such as Redington (India) Ltd. and Chettinad Logistics Pvt. Ltd. The Tribunal found that these judgments supported the position that disallowance under Section 14A is not applicable when no exempted income is earned. Relying on these precedents, the Tribunal confirmed the decisions of the lower authorities in restricting the disallowance to the extent of exempted income.

Issue 4: Impact of pending appeal before the High Court:
The Ld. Departmental Representative raised the issue of a pending appeal before the High Court, arguing for a different view based on this fact. However, the Tribunal noted that the High Court had not stayed the operation of the Tribunal's previous order, and the mere pendency of the appeal was not sufficient reason to alter the decision. Consequently, the Tribunal dismissed the appeals filed by the Revenue, affirming the decisions of the lower authorities based on the existing legal interpretations and precedents.

This comprehensive analysis of the judgment highlights the key issues, arguments presented by both sides, relevant legal interpretations, and the Tribunal's final decision based on established precedents and legal principles.