2016 (4) TMI 1040 - AT - Income Tax

Disallowance u/s 14A - Held that - AO has wrongly disallowed the total expenditure by applying the provisions of Section 14A read with Rule 8D of the I.T. Act and similarly, Ld. CIT(A) has also wrongly restricted the disallowance on account of administrative expenses in spite of the fact that assessee has not received any exempt income during the relevant previous year. Therefore, respectfully, following the decision of the Hon ble High Court in the case of Cheminvest Limited vs. Commissioner of Income Tax-VI (2015 (9) TMI 238 - DELHI HIGH COURT ), we allow the Appeal of the Assessee and dismiss the Appeal filed by the Revenue by holding that the provisions of Section 14A is not applicable in the case of the assesse, because the Assessee Company has not claimed any exempt income during the relevant assessment year and therefore, no disallowance u/s 14A of the Act is permissible. - Decided in favour of assessee

Summary

Issues:
Cross Appeals by Assessee and Revenue against the order dated 21.8.2012 for assessment year 2009-10 regarding disallowance under section 14A of the Income Tax Act, 1961.

Analysis:
1. Assessee's Appeal No. 5399/Del/2012:
- The Assessee contested the disallowance of ?65,58,705 out of total disallowance of ?1,80,80,533 under section 14A read with Rule 8D.
- Assessee argued that no exempt income was earned, hence no expenditure attributable to it.
- Requested exclusion of expenses not related to earning exempt income for disallowance calculation under section 14A.

2. Revenue's Appeal No. 5684/Del/2012:
- Revenue challenged the restriction of expenditure to ?65,58,705 instead of ?81,79,179 under section 14A read with Rule 8D.
- Disagreed with granting relief of ?1,29,46,714 to the assessee, alleging ignorance of section 14A.

3. Facts and Assessment:
- Assessee, a financing and investment company, declared gross receipts of ?1.79 Crores with no dividend income on investments.
- AO invoked section 14A due to interest expenses claimed, though no exempt income was earned.
- Assessee justified investments from own funds with no further borrowing during the assessment year.

4. Judgment and Conclusion:
- CIT(A) partly allowed the Assessee's appeal, restricting disallowance to ?65,58,705.
- Tribunal referred to a High Court decision stating section 14A doesn't apply if no exempt income is received.
- Tribunal held AO and CIT(A) wrongly disallowed and restricted expenses as no exempt income was earned.
- Ruling in favor of the Assessee, the Tribunal allowed their appeal and dismissed Revenue's appeal.

5. Final Decision:
- The Tribunal, following the High Court precedent, concluded that section 14A is not applicable as no exempt income was claimed by the Assessee.
- Assessee's appeal was allowed, and Revenue's appeal was dismissed.

This judgment clarifies the application of section 14A in cases where no exempt income is received, providing relief to the Assessee based on the absence of such income during the relevant assessment year.