2019 (11) TMI 1636 - AT - Income Tax

Disallowance u/s 14A - as argued no dividend has been earned by the assessee during the years under assessment - HELD THAT - Undisputedly, no dividend has been earned by the assessee during the years under assessment i.e. AYs 2009-10 2010-11. Ld. CIT(A) made disallowance in both the assessment years merely on the basis of presumption and assumptions that, since the assessee s main activity is investment, therefore, it cannot be denied that the funds has been utilized for investment activities. When undisputedly no dividend income has been earned by the assessee during the year under assessment, no disallowance can be made. As in the case of Cheminvest Limited vs. CIT 2015 (9) TMI 238 - DELHI HIGH COURT has held that, In the absence of exempt income, disallowance u/s 14A of any amount was not permissible. So, we are of the considered view that since assessee has not earned any dividend income nor proved to have incurred any expenditure on the investment during the year under assessment, no disallowance can be made, hence disallowance - Decided in favour of assessee.

Summary

Issues:
- Disallowance under section 14A of the Income-tax Act for assessment years 2009-10 & 2010-11.
- Disallowance of expenses without dividend income earned by the assessee.

Analysis:
1. The appellant, M/s. Firepro Wireless & Technologies Pvt. Ltd., challenged the orders passed by the Commissioner of Income-tax (Appeals) for the assessment years 2009-10 & 2010-11. The appellant raised various grounds, including the reduction of added amounts, disallowance under section 14A, and not following High Court orders.

2. During the proceedings, it was noted that the appellant had significant sales but no income before tax from trading activities. The appellant had also made substantial investments in Tulip group companies, leading to a 0.5% disallowance under section 14A for both assessment years.

3. The appellant contended that since no dividend was earned, no disallowance should be made. The Revenue relied on the CIT (A)'s order. The Tribunal observed that in the absence of dividend income, disallowance under section 14A was impermissible, citing a relevant High Court judgment.

4. Consequently, the Tribunal ruled in favor of the assessee, ordering the deletion of the disallowance of ?1 lakh each for the assessment years 2009-10 & 2010-11. The appeals filed by the assessee were allowed, and the orders were pronounced on November 29, 2019.