2019 (12) TMI 1601 - AT - Income Tax

Disallowance u/s. 14A r.w.r. 8D - whether assessee has not earned any exempt income ? - HELD THAT - It is an undisputed fact that assessee has not earned any exempt income during the year. Facts being identical respectfully following the said decision in assessee s own case 2019 (6) TMI 1674 - ITAT MUMBAI we do not find any infirmity in the order passed by the Ld.CIT(A) in deleting the disallowance on the ground that assessee has not earned any exempt income during the assessment year under consideration. - Decided against revenue.

Summary

Issues:
1. Disallowance u/s. 14A r.w. Rule 8D without exempt income
2. Justification for deleting disallowance by Ld CIT(A)
3. Upward adjustment of disallowance u/s. 14A to Book Profit

Analysis:
1. The appeal was filed by the revenue against the order of the Learned Commissioner of Income Tax (Appeals)-12, Mumbai for the Assessment Year 2014-15, challenging the disallowance u/s. 14A r.w. Rule 8D amounting to Rs. 2,35,27,793/-. The Assessing Officer disallowed the amount based on interest and expenses, but the Ld. CIT(A) deleted the disallowance as no exempt income was earned by the assessee during the assessment year.

2. The Ld. Counsel for the assessee argued that the issue is covered by a previous Tribunal decision in the assessee's own case for A.Y. 2013-14, where disallowance u/s. 14A was deleted due to the absence of exempt income. The Tribunal held that if no exempt income is earned, there should be no disallowance u/s. 14A, citing various High Court and ITAT decisions supporting this stance.

3. The Tribunal emphasized that when no exempt income is received, disallowance u/s. 14A is not warranted. It referred to the decision in ACIT v. M/s. Ballarpur Industries Ltd., where it was held that if there is no exempted profit, Section 14A provisions should not apply. The Tribunal further highlighted a judgment by the Hon'ble Delhi High Court stating that Section 14A does not apply if no exempt income is received or receivable during the relevant previous year.

4. The Tribunal's decision was supported by the Hon'ble Bombay High Court in a separate case, affirming that no disallowance u/s. 14A is required when no exempt income is earned. The High Court concurred that the expression in Section 14A requires actual receipt of income not included in the total income for disallowing related expenditures.

5. As the assessee did not earn any exempt income during the assessment year, the Tribunal upheld the Ld. CIT(A)'s decision to delete the disallowance. Citing precedent and legal interpretations, the Tribunal dismissed the revenue's appeal, affirming that in the absence of exempt income, no disallowance u/s. 14A should be made.

This comprehensive analysis of the judgment highlights the key issues, arguments presented, legal precedents cited, and the final decision rendered by the Tribunal.