2017 (4) TMI 1557 - AT - Income Tax

Disallowance u/s 14A r.w.r.8D - assessee argued appellant has no income which is claimed as exempt and therefore legally no disallowance under section 14A is warranted - HELD THAT - We find that it is an undisputed fact that the assessee has not earned any dividend or any kind of exempt income during the year. Whence there is no exempt income claimed by the assessee then the ratio laid down by the Hon ble Jurisdictional High Court in Cheminvest Ltd. vs. CIT ( 2015 (9) TMI 238 - DELHI HIGH COURT that if the assessee has not earned any exempt income or when there is no actual receipt of any income which does not form part of the total income no disallowance u/s 14A can be made is clearly applicable here. We therefore hold no disallowance u/s 14A can made in this year because admittedly there is no exempt income earned by the assessee in this year. - Decided in favour of assessee.

Summary

Issues involved:
Disallowance under section 14A read with Rule 8D for A.Y. 2012-13.

Detailed Analysis:

1. Disallowance under section 14A:
The appeal was filed against the order passed by the ld. CIT (Appeals) confirming the action of the AO in making disallowance under section 14A read with Rule 8D(2). The assessee challenged this decision on the grounds that there was no income claimed as exempt, therefore no disallowance was warranted. The application of section 14A read with Rule 8D(2) was argued to be non-automatic without the Assessing Officer recording satisfaction or establishing a nexus between borrowed funds and investments made. The assessee contended that investments were made from own funds, and no borrowed funds were used for investments. The appellant, being an NBFC, argued that the disallowance made was wrong, bad in law, and deserved to be deleted.

2. Facts and Assessing Officer's Observations:
The Assessing Officer noted that the assessee had made significant investments in shares without allocating any expenses for disallowance under section 14A. It was observed that the assessee claimed interest expenses, leading to the inference that interest-bearing funds were utilized for share investments. Consequently, a disallowance under Rule 8D was computed, including disallowance under Rule 8D(2)(ii) & 8D(2)(iii).

3. CIT (Appeals) Decision:
Before the CIT (Appeals), the assessee argued that no dividend income was earned, and no exempt income was claimed, hence no disallowance under section 14A was justified. However, the CIT (Appeals) held that the mere investment in shares warranted disallowance under section 14A, regardless of the absence of dividend income.

4. High Court Decision and Tribunal's Analysis:
The assessee cited a decision by the Jurisdictional High Court in Cheminvest Ltd. vs. CIT, stating that disallowance under section 14A cannot be made when there is no actual receipt of exempt income. The Tribunal considered this legal precedent and found that since the assessee had not earned any exempt income or dividend during the year, no disallowance under section 14A was applicable. Therefore, following the principle established by the High Court, the Tribunal ruled in favor of the assessee, deleting the disallowance confirmed by the CIT (Appeals).

5. Conclusion:
The Tribunal allowed the appeal of the assessee, emphasizing that no disallowance under section 14A could be made in the absence of any exempt income earned during the relevant year. The decision was based on the legal position established by the Jurisdictional High Court, leading to the deletion of the disallowance confirmed by the CIT (Appeals).

This detailed analysis of the judgment provides a comprehensive overview of the issues involved, the arguments presented by the parties, the Assessing Officer's observations, the CIT (Appeals) decision, the High Court precedent cited, and the final ruling by the Tribunal.