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2017 (11) TMI 799 - AT - Income TaxDisallowance u/s. 14A - Held that - We have observed that the assessee is engaged in business of direct to home (DTH) satellite television services and teleport services. We further observed that assessee has not received any dividend income or other exempt income during the impugned assessment year. The assessee has conceded and accepted to have incurred ₹ 5 lacs towards an expenditure u/s. 14A towards earning of an exempt income which is claimed to be reasonable expenditure to be disallowed u/s 14A. We have observed that the assessee has not received any exempt dividend income ratio of the decision of Hon ble Delhi High Court in the case of Cheminvest Limited v. CIT (2015 (9) TMI 238 - DELHI HIGH COURT) and in the case of Ballarpur Industries Limited 2016 (10) TMI 1039 Bombay High Court is applicable, the disallowance of expenditure u/s 14A in the instant case be restricted to an admitted expenses to have been incurred for earning of the exempt income to the tune of ₹ 5 lack We hereby order deletion of the addition u/s 14A as confirmed by the CIT-A by restricting/upholding the disallowance of expenditure u/s 14A to the tune of admitted expenditure of ₹ 5 lacs claimed to have been incurred by the assessee for earning exempt income as conceded by the assessee. - Decided partly in favour of assessee.
Issues Involved:
1. Disallowance of expenses under Section 14A of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Disallowance of Expenses under Section 14A: The primary issue in this appeal pertains to the disallowance of ?48,80,605/- under Section 14A of the Income-tax Act, 1961. The assessee contested the disallowance confirmed by the CIT(A), arguing that it was based on an assumption and lacked a nexus between the expenditure and the investments made. Background: The assessee, engaged in providing direct-to-home (DTH) satellite television services, faced an initial disallowance of ?1,97,58,364/- under Section 14A by the AO. The CIT(A) in the first round reduced this to ?5 lakhs, but the tribunal restored the issue to the AO for reconsideration. In the second round, the AO disallowed 3% of the total expenses, amounting to ?1,81,76,524/-, which the CIT(A) later restricted to 1%, resulting in the disputed ?48,80,605/-. Assessee's Arguments: The assessee argued that no borrowed funds were used for investments, which were made from internal accruals. It was also contended that no expenses were incurred for buying or maintaining investments, thus Section 14A should not apply. The assessee further cited the Bombay High Court's ruling in Godrej and Boyce Manufacturing Co. Ltd. v. DCIT, asserting that Rule 8D was not applicable for AY 2007-08. Additionally, the assessee referenced the Delhi High Court's decision in Cheminvest Ltd. v. CIT, emphasizing that no disallowance under Section 14A should be made in the absence of exempt income. Revenue's Arguments: The Revenue supported the CIT(A)'s decision, emphasizing that some expenditure is inevitable for managing investments, even if no exempt income was earned. Tribunal's Findings: The tribunal noted that the assessee did not earn any exempt income during the assessment year. Citing the Delhi High Court's ruling in Cheminvest Ltd. and the Bombay High Court's decision in Ballarpur Industries Ltd., the tribunal held that no disallowance under Section 14A is warranted if no exempt income is earned. The tribunal also referenced its own previous decisions in the assessee's case for AY 2008-09 and 2009-10, where disallowance under Section 14A was deleted due to the absence of exempt income. Conclusion: The tribunal concluded that the disallowance under Section 14A should be restricted to the ?5 lakhs voluntarily disallowed by the assessee, as this was a reasonable amount considering the circumstances. The tribunal ordered the deletion of the additional disallowance confirmed by the CIT(A). Final Judgment: The appeal of the assessee was partly allowed, with the tribunal restricting the disallowance under Section 14A to ?5 lakhs. The order was pronounced in the open court on 13.11.2017.
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