2017 (6) TMI 864 - AT - Income Tax

Disallowance u/s 14A r.w.r 8D - Held that - DR did not controvert the claim of the assessee that no exempt income was earned by the assessee, which does not form part of the total income, thus, we find force in the argument of the ld. counsel for the assessee and the conclusion of the Ld. Commissioner of Income Tax (Appeal), as in the present case, the assessee has not earned any tax free income, hence the provision of section 14A of the Act, will not be applicable. For Assessment Year 2009-10 we find that the assessee has not claimed any administrative expenses, as deduction, in its computation of income and the expenses of ₹ 69,70,878/- were met out from the group companies, which were recovered from them and showed as other income. The assessee has not claimed any expenses as deduction, thus, there is no question of any disallowance u/s 14A of the Act. It is also noted that, as claimed by the assessee, in respect of investment in group companies, the assessee has not received any dividend income and these investments were made in earlier Financial Years out of owned funds and thus the assessee has not incurred any expenditure in relation to the investment in group companies.

Summary

Issues Involved:
1. Applicability of Section 14A of the Income Tax Act, 1961, in the absence of exempt income.
2. Disallowance of expenses under Rule 8D of the Income Tax Rules, 1962.
3. Condonation of delay in filing cross objections by the assessee.

Issue-wise Detailed Analysis:

1. Applicability of Section 14A of the Income Tax Act, 1961, in the absence of exempt income:
The primary issue in the Revenue's appeal for the Assessment Year 2008-09 was whether Section 14A of the Income Tax Act, 1961, could be applied to disallow expenses incurred in relation to tax-free dividend income when no such income was earned or received by the assessee during the relevant year. The Revenue argued that the disallowance should be upheld based on the decision in Cheminvest Ltd. (2009) 121 ITD 318 (Del.)(SB). However, the assessee contended that Section 14A would not apply where no exempt income is received, citing various judicial precedents, including Cheminvest Ltd. vs CIT (2015) 61 taxman.com 118 (Del.), which reversed the earlier decision. The Tribunal analyzed the rival submissions and upheld the view that Section 14A would not be applicable in the absence of exempt income, affirming the decision of the Commissioner of Income Tax (Appeal).

2. Disallowance of expenses under Rule 8D of the Income Tax Rules, 1962:
In the appeal for Assessment Year 2009-10, the Revenue challenged the deletion of disallowance made under Section 14A read with Rule 8D of the Rules. The Tribunal noted that the assessee had not claimed any administrative expenses as deductions in its income computation. The expenses were met from group companies and recovered as other income. The Tribunal found that no disallowance under Section 14A was warranted since the assessee did not receive any dividend income from investments in group companies, which were made in earlier years out of owned funds. The Tribunal affirmed the decision of the Commissioner of Income Tax (Appeal), dismissing the Revenue's appeal.

3. Condonation of delay in filing cross objections by the assessee:
The assessee filed cross objections for the Assessment Years 2008-09 and 2009-10, explaining the delay due to not receiving the grounds of appeal filed by the Revenue. The Tribunal considered the rival submissions and emphasized a liberal approach in condoning delays to advance substantial justice. Citing various judicial precedents, including the Supreme Court's decision in Collector, Land Acquisition vs Mst. Katiji & Ors. 167 ITR 471, the Tribunal condoned the delay, finding the reasons bona fide and not due to negligence. However, since the Revenue's appeals were dismissed, the cross objections became infructuous and were dismissed accordingly.

Conclusion:
The Tribunal dismissed the Revenue's appeals for both Assessment Years 2008-09 and 2009-10, upholding the decisions of the Commissioner of Income Tax (Appeal) that Section 14A does not apply in the absence of exempt income. The Tribunal also condoned the delay in filing cross objections by the assessee but dismissed them as infructuous following the dismissal of the Revenue's appeals.