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2017 (9) TMI 830 - AT - Income TaxDisallowance u/s 14A - no exempt income earned or receivable by the assessee in the instant year - Held that - The controversy before us is directly covered by the judgments of the Hon ble Madras High Court in the case of Redington (India) Ltd.(2017 (1) TMI 318 - MADRAS HIGH COURT) as well as Chettinad Logistics (P) Ltd., (2017 (4) TMI 298 - MADRAS HIGH COURT). The provisions of Rule 8D of the Rules does not come to the rescue of the Revenue in order to make disallowance under section 14A in the absence of any exempt income earned by the assessee in the relevant year. In our considered opinion, the aforesaid judgment of the Hon ble Madras High Court clearly militates against the Grounds sought to be raised by the Revenue before us. Apart therefrom, the Hon ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT (2015 (9) TMI 238 - DELHI HIGH COURT) also supports the proposition laid down in the two judgments of the Hon ble Madras High Court. - Decided in favour of assessee.
Issues:
Challenge to deletion of disallowance under section 14A of the Income Tax Act for the assessment year 2012-13 due to absence of exempt income. Analysis: 1. The appeal filed by the Revenue challenges the decision of the CIT(A) to delete the disallowance of ?3,39,44,749 made under section 14A of the Income Tax Act for the assessment year 2012-13. The Revenue contended that the circular issued by the Central Board of Direct Taxes clearly provides for disallowance of expenditure even if no exempt income was earned by the taxpayer in a particular year. 2. The respondent assessee, engaged in real estate business, declared 'Nil' income for the assessment year and held investments worth ?37,24,38,266. The Assessing Officer believed that the assessee should have made a disallowance of expenditure related to exempt income under section 14A. The assessee argued that no exempt income was earned through dividends or long-term capital gains exempt under section 10(38) and that the investments were part of business activities. The CIT(A) accepted the assessee's explanation and deleted the disallowance. 3. The Revenue argued that disallowance should be made under section 14A even if no exempt income was earned, citing a circular by the CBDT. However, the CIT(A) relied on judgments of the Hon'ble Madras High Court, including Redington (India) Ltd. vs. Addl. CIT and CIT vs. Chettinad Logistics (P) Ltd., which supported the view that disallowance is not warranted in the absence of exempt income. 4. The Hon'ble Madras High Court reasoned that disallowance under section 14A is not applicable when no exempt income is earned in the relevant financial year. The court emphasized that the provision aims to prevent claiming deductions for expenses related to exempt income against taxable income without apportionment. The court rejected the notion of assessing notional or anticipated income and ruled against the Revenue's argument. 5. Considering the judgments of the Hon'ble Madras High Court and the Hon'ble Delhi High Court, the ITAT affirmed the CIT(A)'s decision to delete the disallowance made by the Assessing Officer under section 14A. The ITAT dismissed the Revenue's appeal, stating that the provisions of Rule 8D do not support disallowance in the absence of exempt income earned by the assessee in the relevant year. In conclusion, the ITAT upheld the CIT(A)'s decision to delete the disallowance under section 14A of the Income Tax Act for the assessment year 2012-13 due to the absence of exempt income earned by the assessee. The judgments of the Hon'ble Madras High Court and the Hon'ble Delhi High Court supported the position that disallowance is not warranted when no exempt income is earned, thereby dismissing the Revenue's appeal.
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