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2017 (10) TMI 1637 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - assessee has been pleading before the authorities that in the year under consideration they did not have any exempt income - AO hold that the expenditure shall be disallowed whether or not any income was generated - HELD THAT - As in view of the decision of Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT and on the face of the factual position that there is no dispute as to the assessee not deriving any exempt income, we are of the considered opinion that the disallowance is not permissible where no exempt income is received or receivable during the relevant previous year - direct the AO to delete the same. Decided in favour of assessee.
Issues Involved:
1. Disallowance under section 14A of the Income Tax Act read with rule 8D of Income Tax Rules, 1962. 2. Disallowance of specific amounts made by the Assessing Officer during the assessment proceedings for the Assessment Year 2010-11. 3. Challenge to the order of the Commissioner of Income Tax (Appeal) [CIT(A)] sustaining the disallowance under section 14A of the Act. Analysis: 1. The appellant challenged the disallowance under section 14A of the Income Tax Act, contending that the Assessing Officer and CIT(A) erred in invoking the provisions without any exempt income being derived in the relevant year. The appellant argued that as per the decision in Cheminvest Ltd. vs CIT-IV, section 14A requires actual receipt of income not included in the total income, and in the absence of exempt income, the provision should not apply. The Tribunal agreed with the appellant, emphasizing that if no exempt income was received or receivable during the relevant year, the disallowance under section 14A is not permissible. The Tribunal directed the Assessing Officer to delete the disallowance amount, thereby allowing the ground of appeal raised by the appellant. 2. The Assessing Officer had made various specific disallowances during the assessment proceedings for the Assessment Year 2010-11, including interest paid, rent, maintenance income, compensation expenses, and disallowance under section 14A. The Commissioner of Income Tax (Appeal) sustained the disallowance amounting to Rs. 2,56,169 under section 14A but deleted all other additions. Consequently, the appellant challenged the order of the CIT(A) specifically on the disallowance under section 14A, leading to the Tribunal's decision to allow the appeal and direct the deletion of the disallowance. 3. The Tribunal's decision was based on the principle that the provisions of section 14A of the Income Tax Act should not be invoked when no exempt income is received or receivable during the relevant previous year. By relying on the decision of the Delhi High Court in Cheminvest Ltd. vs CIT-IV, the Tribunal emphasized the requirement of actual receipt of exempt income for the application of section 14A. The Tribunal found it unsustainable to uphold the disallowance under section 14A when there was no dispute regarding the appellant not deriving any exempt income in the relevant year. As a result, the Tribunal allowed the appellant's appeal and directed the Assessing Officer to delete the disallowance under section 14A. In conclusion, the Tribunal's judgment in the appeal addressed the issues of disallowance under section 14A of the Income Tax Act, specific disallowances made by the Assessing Officer, and the challenge to the CIT(A)'s order sustaining the disallowance. The Tribunal ruled in favor of the appellant, emphasizing the requirement of actual receipt of exempt income for the application of section 14A and directing the deletion of the disallowance amount under section 14A for the Assessment Year 2010-11.
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