2016 (6) TMI 104 - AT - Income Tax

Disallowance u/s 14A - Held that - Disallowance made by the Assessing Officer without recording any satisfaction as required by the mandate of Sub Section (2) of Sub Section 14 A of the Act cannot be held as sustainable. Disallowance u/s 14A when no exempt dividend income was received during the period under consideration - Held that - In this case in hand neither the A.O nor the CIT(A) has controverted this fact that the assessee has not earned and claimed any exempt dividend income during the year. At this juncture, it would be relevant appropriate to consider the ratio of the recent decision of Hon ble High Court of Delhi in the case of Chemnivest Ltd Vs. CIT(A) (2015 (9) TMI 238 - DELHI HIGH COURT) wherein their lordships speaking for the jurisdictional High Court held that when no exempted income was earned by the assessee in the relevant assessment year, and since the genuineness of the expenditure incurred by the assessee in not in doubt then no disallowance could be made u/s 14A of the Act. - Decided in favour of assessee

Summary

Issues:
Disallowance of expenses under section 14A of the Income Tax Act, 1961 without satisfaction recorded by the Assessing Officer and absence of exempt dividend income.

Issue 1: Disallowance of expenses under section 14A without satisfaction recorded by the Assessing Officer

The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of expenses of ?2,50,674 under section 14A of the Income Tax Act, 1961. The appellant argued that the Assessing Officer did not record satisfaction as required by Section 14A(2) before making the disallowance. The appellant also highlighted that no dividend income was received during the relevant assessment year, and thus, no disallowance was warranted. The appellant referred to a recent judgment of the High Court which emphasized that the Assessing Officer must record dissatisfaction with the claim of the assessee before invoking Section 14A Rule 8D. The Tribunal observed that the Assessing Officer had not accorded any satisfaction regarding the correctness of the expenditure claim or the suo moto disallowance made by the appellant. Citing relevant case laws, the Tribunal held that the disallowance made without recording satisfaction as required by Section 14A(2) was not sustainable.

Issue 2: Absence of exempt dividend income

The question arose whether a disallowance could be made by the Assessing Officer when the assessee claimed no exempt dividend income was received during the relevant period. Both the Assessing Officer and the Commissioner of Income Tax (Appeals) did not contest the fact that no exempt dividend income was earned by the assessee during the year. Referring to a recent decision of the High Court, the Tribunal held that when no exempted income was earned by the assessee and the genuineness of the expenditure was not in doubt, no disallowance could be made under section 14A of the Act. Following the precedent set by the High Court, the Tribunal concluded that the disallowance made by the Assessing Officer was not sustainable and directed the Assessing Officer to delete the disallowance. Consequently, the main ground of the assessee was allowed, and the appeal was allowed in favor of the assessee.

In summary, the Tribunal ruled in favor of the assessee, emphasizing the importance of the Assessing Officer recording satisfaction before making a disallowance under section 14A. Additionally, in the absence of exempt dividend income and with no doubt regarding the genuineness of the expenditure, the disallowance made by the Assessing Officer was deemed unsustainable. The Tribunal directed the Assessing Officer to delete the disallowance, aligning with the decisions of the High Court on similar matters.