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2019 (2) TMI 1977 - AT - Income TaxDisallowance u/s 14A - HELD THAT - We feel that there is no merit in this argument of ld. DR of revenue that disallowance u/s. 14A cannot be lower than the amount disallowed by the assessee while filing the return of income if as per law lower disallowance is justified. This argument of ld. DR of revenue is rejected. We examine the applicability of the Tribunal order cited by ld. AR of assessee having been rendered in the case of ACIT Vs. Vireet Investment (P.) Ltd. 2017 (6) TMI 1124 - ITAT DELHI - As per which only those investments are to be considered for computing average value of investment which yielded exempt income during the relevant year. Respectfully following this order of Special Bench of the Tribunal we direct the AO to determine the amount of disallowance to be made u/s. 14A on this basis. Whether disallowance u/s 14A is to be made in a year in which there is no exempt income? - As per the judgement of Hon ble Apex Court rendered in the case of Maxopp Investment 2018 (3) TMI 805 - SUPREME COURT it was held that dominant purpose for which investment into shares is made by assessee may not be relevant as section 14A applies irrespective of whether shares are held to gain control or as stock-in-trade. Hence in our considered opinion this judgment is not relevant to decide this aspect that whether disallowance u/s 14A is to be made in a year in which there is no exempt income. Since the judgment of Hon ble Delhi High Court and other High Courts are in favour of the assessee on this aspect that no disallowance u/s 14A is to be made in a year in which there is no exempt income any adverse order of Tribunal cannot be followed by ignoring the judgment of High Court. Respectfully following the decision of Hon ble Delhi High Court rendered in the case of Cheminvest Pvt. Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT we decide this issue in favour of the assessee and delete the disallowance made u/s. 14A. - Decided in favour of assessee.
Issues Involved:
1. Disallowance of Contract Expenses (AY 2010-11) 2. Disallowance under Section 14A (AYs 2010-11, 2011-12, and 2013-14) Detailed Analysis: 1. Disallowance of Contract Expenses (AY 2010-11): The assessee raised the issue of disallowance of contract expenses amounting to ?2.55 Crores, which was treated as a capital loss of the prior period by the AO and upheld by the CIT(A). The assessee argued that these expenses were incurred in the course of business and should be allowed. However, during the hearing, the assessee's representative did not press this ground, and thus, it was rejected as not pressed. 2. Disallowance under Section 14A (AYs 2010-11, 2011-12, and 2013-14): AY 2010-11 and 2011-12: The main contention was the disallowance under Section 14A of the IT Act. The assessee argued that the disallowance should be restricted to the amount of exempt income earned during the year, citing the Tribunal order in ACIT Vs. Vireet Investment (P.) Ltd., which states that only those investments yielding exempt income during the relevant year should be considered for computing the average value of investments. The revenue's argument was based on a CBDT Circular which suggested that the disallowance should not be lower than what was initially disallowed by the assessee in the return of income. However, the Tribunal, referencing various judicial pronouncements including the Hon’ble Gujarat High Court's decision in CIT Vs. UTI Bank Ltd. and the Tribunal order in Rupee Finance & Management (P.) Ltd. Vs. DCIT, concluded that the disallowance should be determined by considering only those investments that yielded exempt income during the relevant year. Thus, the AO was directed to re-compute the disallowance accordingly. AY 2013-14: For this year, the assessee argued that since no exempt income was earned, no disallowance under Section 14A should be made, relying on the Hon’ble Delhi High Court's judgment in Cheminvest Pvt. Ltd. Vs. CIT. The revenue cited the Tribunal order in Lally Motors India (P) Ltd. Vs. Pr. CIT and the Hon’ble Supreme Court's decision in Maxopp Investment Vs. CIT to support their stance. However, the Tribunal noted that the judgment of the Hon’ble Delhi High Court and other High Courts favor the assessee's view that no disallowance should be made if there is no exempt income. Therefore, the Tribunal ruled in favor of the assessee and deleted the disallowance under Section 14A for AY 2013-14. Conclusion: - The appeals for AYs 2010-11 and 2011-12 were partly allowed for statistical purposes, directing the AO to re-compute the disallowance under Section 14A. - The appeal for AY 2013-14 was fully allowed, deleting the disallowance under Section 14A.
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