2017 (12) TMI 1061 - AT - Income Tax

Addition u/s 14A r.w.r. 8D - Held that - We have observed that Hon ble Delhi High Court in the case of Cheminvest Limited (2015 (9) TMI 238 - DELHI HIGH COURT) had held that no disallowance can be made u/s. 14A . If no exempt income is received or receivable during the year. The decision of the Hon ble Delhi High Court is approved by Hon ble Bombay High Court in the case of Principal CIT v. Ballarpur Industries Ltd. reported in 2016 (10) TMI 1039 Bombay High Court . Thus deletion of the addition as made by the A.O u/s. 14A by applying Rule 8D as the assessee has not received any exempt income during the previous year relevant to the impugned assessment yea. - Decided against revenue

Summary

Issues Involved:
1. Deletion of addition under Section 14A of the Income Tax Act, 1961.
2. Applicability of Section 14A even if no exempt income is earned or received during the year.
3. Consideration of CBDT Circular No. 5/2014 dated 11.02.2014.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 14A:
The Revenue challenged the deletion of the addition made by the Assessing Officer (AO) under Section 14A of the Income Tax Act, 1961, which was initially added to the assessee’s income. The AO had disallowed ?97,09,947/- by invoking Rule 8D, which included interest expenditure and 0.5% of the average value of investments. The assessee contended that investments were made in equity shares of subsidiary companies for controlling interest, not for earning dividends. The CIT(A) granted relief by following the decision of the Hon’ble Delhi High Court in Cheminvest Ltd. v CIT, which held that no disallowance under Section 14A is permissible if no exempt income is earned during the year.

2. Applicability of Section 14A Even if No Exempt Income is Earned:
The AO’s decision was grounded on the premise that Section 14A applies regardless of whether exempt income was actually earned or received during the year. The Revenue cited CBDT Circular No. 5/2014, which clarifies that disallowance under Section 14A is applicable even if no exempt income is earned. However, the Tribunal upheld the CIT(A)’s order, affirming that the disallowance under Section 14A is not applicable when no exempt income is received, aligning with the Delhi High Court’s ruling in Cheminvest Ltd. and the Bombay High Court’s decision in Principal CIT v. Ballarpur Industries Ltd.

3. Consideration of CBDT Circular No. 5/2014:
The Revenue argued based on CBDT Circular No. 5/2014 that disallowance under Section 14A should be made even if no exempt income is earned. However, the Tribunal noted that the judicial precedents, particularly the Delhi High Court’s decision in Cheminvest Ltd., which was approved by the Bombay High Court in Ballarpur Industries Ltd., take precedence over the CBDT Circular. The Tribunal concluded that in the absence of exempt income, no disallowance under Section 14A is warranted.

Conclusion:
The Tribunal dismissed the Revenue’s appeal, confirming the CIT(A)’s order to delete the addition of ?97,09,947/- made under Section 14A. The Tribunal emphasized that disallowance under Section 14A is not applicable in the absence of exempt income, adhering to the judicial precedents set by the Delhi and Bombay High Courts. The appeal of the Revenue was thus dismissed, and the order was pronounced in the open court on 19.12.2017.