2018 (10) TMI 1895 - AT - Income Tax

Disallowance u/s. 14A r.w.r 8D - assessee argued that disallowance cannot be made in the absence of exempt income earned during a year - HELD THAT - Since, the assessee has not earned any dividend income, this case clearly falls within the ratio of the Jurisdictional High Court in the case of Redington India Ltd. 2017 (1) TMI 318 - MADRAS HIGH COURT . Following the Jurisdictional High Court decision, supra, we hold that section 14A cannot be invoked and hence, dismiss the Revenue s appeal.

Summary

Issues:
1. Disallowance under section 14A r.w.r. 8D for investments in equity instruments.
2. Applicability of section 14A in the absence of exempt income.
3. Interpretation of Rule 8D in cases without exempt income.

Analysis:
The case involved an appeal by the Revenue against the order of the Commissioner of Income Tax (Appeals) concerning disallowance under section 14A r.w.r. 8D for investments made by the assessee in equity instruments. The Assessing Officer disallowed a specific amount under Rule 8D2(ii) & (iii) out of the finance cost incurred by the assessee. The assessee contended that section 14A should not apply as it had not earned any dividend income during the relevant assessment year and the investments in unlisted companies were strategic. The Ld. CIT(A) relied on a tribunal decision and deleted the disallowance, emphasizing the absence of exempt income during the previous year relevant to the assessment year under appeal.

The Revenue, aggrieved by the CIT(A)'s decision, raised several grounds in their appeal. They argued that the disallowance under section 14A r.w.r 8D should not have been deleted as the assessee had substantial investments in equity shares capable of earning exempt income. The Revenue contended that Rule 8D should apply even if no exempt income was earned during the year, citing a decision of the Hon'ble Mumbai Bench of the Tribunal and a circular by the Board. However, the assessee did not appear during the hearing, and the tribunal, considering the absence of dividend income earned by the assessee, followed a Jurisdictional High Court decision and dismissed the Revenue's appeal, holding that section 14A could not be invoked in this case.

In conclusion, the tribunal dismissed the Revenue's appeal, emphasizing the absence of dividend income earned by the assessee, which aligned with the Jurisdictional High Court decision. The tribunal held that in such circumstances, section 14A could not be applied, thereby upholding the CIT(A)'s decision to delete the disallowance under section 14A r.w.r. 8D.