2015 (9) TMI 1699 - AT - Income Tax

Disallowance u/s 14A - As per assessee no exempt income was earned - HELD THAT - A.O. as well as Ld. CIT(A) has not pointed out any income earned by assessee which was exempt income.There was no exempt income pointed out by the Revenue Authorities and A.O. had made addition holding that assessee had source of exempt income. Section 14A of the Income Tax Act cannot be invoked when no exempt income was earned. The case of assessee is fully covered in its favour by the order of M/s Mayank Auto Engineers P Ltd. vs. DCIT 2015 (3) TMI 1172 - ITAT DELHI as well as the decision of CIT Vs Holcim India Pvt. Ltd. 2014 (9) TMI 434 - DELHI HIGH COURT As assessee had not earned any exempt income during the year disallowance u/s 14A was not warranted. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act.
2. Charging of interest under section 234B of the I.T. Act, 1961.

Analysis:
1. The appeal was filed against the order of Ld. CIT(A) confirming the disallowance made by Ld. A.O. under section 14A of the Act. The assessee argued that no exempt income was earned, citing relevant case law. The A.O. and Ld. CIT(A) did not identify any exempt income earned by the assessee. The Tribunal found that Section 14A cannot be invoked when no exempt income is earned. The decision was supported by the Hon'ble Delhi High Court's judgment in a similar case. The Tribunal referred to various High Court decisions where it was held that Section 14A cannot be invoked in the absence of exempt income. Consequently, the Tribunal allowed the appeal, stating that disallowance under section 14A was not warranted as no exempt income was earned by the assessee during the year.

2. The second issue raised was regarding the charging of interest under section 234B of the I.T. Act, 1961. However, since the Tribunal allowed the appeal on the disallowance under section 14A, the issue of interest under section 234B was considered consequential and did not require separate adjudication. Therefore, the appeal of the assessee was allowed based on the disallowance issue, and the matter of interest under section 234B was not addressed separately in the judgment.

In conclusion, the Tribunal ruled in favor of the assessee, allowing the appeal based on the disallowance under section 14A of the Income Tax Act. The judgment highlighted the importance of exempt income in invoking Section 14A and referred to relevant case law to support its decision. The issue of interest under section 234B was deemed consequential and was not separately addressed in the judgment.