2021 (9) TMI 1492 - AT - Income Tax

Disallowance u/s.14A. r.w.r. 8D - CIT-A held that no disallowance can be made when there is no exempt income and AO not been able to establish any nexus between the exempt income if at all earned by the appellant and any expenditure incurred to earn this income - HELD THAT - As find from the computation of income filed in the paper book that no exempt income has been claimed by the assessee either in the return of income or in the computation of income. This fact has also been noted by AO, at the first page of the order. Once there is no exempt income, then there is no question of any disallowance u/s.14A, and therefore, in the case of Cheminvest Ltd 2015 (9) TMI 238 - DELHI HIGH COURT no disallowance can be made. Decided in favour of assessee.

Summary

Issues:
Challenge of deletion of disallowance under Section 14A made by the Revenue for Assessment Year 2014-15.

Analysis:
The appeal was filed by the Revenue against the order passed by the Commissioner of Income Tax (Appeals) for the quantum of assessment under Section 143(3) for the Assessment Year 2014-15, challenging the deletion of disallowance of Rs.3,12,87,693 made under Section 14A. The Assessing Officer noted that the assessee had invested in equities but did not add back any expenses under Section 14A read with Rule 8D in the income computation. The assessee had stated that no exempt income was claimed, hence no disallowance under Section 14A should be made. However, the Assessing Officer proceeded to disallow Rs.3,12,87,693 under Section 14A without establishing any nexus between the exempt income and the expenditure.

The CIT(A) referred to various judgments, including Cheminvest Ltd. vs. CIT, and held that no disallowance can be made when there is no exempt income and no nexus is established between the exempt income and any expenditure incurred to earn it. The Tribunal found from the income computation that no exempt income was claimed by the assessee, as noted by the Assessing Officer. Since there was no exempt income, the Tribunal concluded that no disallowance under Section 14A could be made, following the principle laid down by the Delhi High Court in Cheminvest Ltd. vs. CIT.

The Tribunal dismissed the Revenue's appeal, stating that in the absence of exempt income, no disallowance under Section 14A could be justified. The decision was announced after a Virtual Hearing in the presence of both parties on 27th September 2021.