2017 (10) TMI 725 - AT - Income Tax

Addition u/s 14A read with Rule 8D - Held that - Where no exempt income has been earned by the appellant to warrant disallowance as per the provisions laid down u/s 14A rwr 8D, the addition accordingly directed to be deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Deletion of addition made under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 14A:
The sole issue in the appeal is the deletion of the addition of ?19,018 made under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962, and in view of CBDT Circular No. 05/2014. The Assessing Officer (A.O.) had made this addition, but the Commissioner of Income Tax (Appeals) [CIT(A)] deleted it.

Findings of CIT(A):
The CIT(A) observed that the assessee did not earn any exempt income from his investments nor received any dividend. The CIT(A) referenced several judicial precedents, including the High Court of Madras in Redington (India) Ltd. v. Additional Commissioner of Income-tax and the High Court of Delhi in Cheminvest Ltd. v. Commissioner of Income-tax, which clarified that Section 14A is applicable to actual income and not notional or anticipated income. The CIT(A) noted that where no exempt income is earned, no disallowance under Section 14A is warranted.

Relevant Judicial Precedents:
- Redington (India) Ltd. v. Additional Commissioner of Income-tax: The High Court of Madras held that Section 14A is related to earning actual income and not notional income. If no exempt income is earned in a year, there cannot be a disallowance of expenditure in relation to assumed income.
- Cheminvest Ltd. v. Commissioner of Income-tax: The High Court of Delhi held that Section 14A requires an actual receipt of income which is not includible in total income. Hence, if no exempt income is received or receivable during the relevant previous year, Section 14A does not apply.

ITAT's Decision:
The Income Tax Appellate Tribunal (ITAT) upheld the order of the CIT(A), agreeing that the revenue could not controvert the findings of the CIT(A) on facts or law. The ITAT found no reason to interfere with the CIT(A)'s order, thus dismissing the revenue's appeal.

Conclusion:
The appeal of the revenue was dismissed, and the order of the CIT(A) deleting the addition of ?19,018 under Section 14A was upheld. The decision was pronounced in the open court on 09/10/2017.