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2018 (2) TMI 252 - AT - Income TaxDisallowance under section 14A - Held that - The legal position is fairly well settled that in the absence of any tax exempt income, disallowance under Section 14A cannot be made. Hon ble jurisdictional High Court in the case of Corrtech Energy (P.) Ltd. (2014 (3) TMI 856 - GUJARAT HIGH COURT) has upheld this approach. In the case of Ambalal Sarabhai Enterprises Ltd. (2017 (3) TMI 1526 - GUJARAT HIGH COURT), the Hon ble jurisdictional High Court has once again upheld this proposition and observed that it cannot be said that the learned Tribunal has committed any error in deleting the addition made by the Assessing Officer on disallowance under Section 14A of the Act , in a situation in which the assessee did not have any tax exempt income. In view of these discussions, as also bearing in mind entirety of the case, we uphold the grievance of the assessee and direct the Assessing Officer to delete the impugned disallowance - Decided in favour of assessee.
Issues:
Challenge to correctness of order under section 143(3) for assessment year 2009-10. Disallowance under section 14A exceeding exempt income. Disallowance of expenses for dividend income. Levy of interest under sections 234A, 234B, 234C & 234D. Analysis: The appeal contested the order dated 18th September 2013 by the CIT(A)-VIII, Ahmedabad, concerning the assessment under section 143(3) for the assessment year 2009-10. The appellant raised several grievances, including the disallowance under section 14A of the Income Tax Act, 1961, amounting to ?16,37,628, which exceeded the exempt income claimed. The appellant argued that the investments were made from own funds not bearing interest, and the disallowance under section 14A should not apply to investments from which no exempt income is earned. Additionally, the appellant challenged the levy of interest under sections 234A, 234B, 234C & 234D of the Act. During the hearing, the appellant's counsel contended that there was no tax-exempt income as the dividends earned on shares were offered to tax as business income due to holding the related shares as stock in trade. The Assessing Officer disallowed expenses under Section 14A related to earning dividend income. The appellant relied on previous tribunal and High Court judgments, such as CIT vs. Corrtech Energy (P.) Ltd and Pr. CIT vs. Ambalal Sarabhai Enterprises Ltd, to support the argument that disallowance under section 14A cannot be made in the absence of tax-exempt income. The Departmental Representative did not dispute these contentions but relied on lower authorities' orders. The Tribunal acknowledged the settled legal position that disallowance under Section 14A cannot be made in the absence of tax-exempt income. Citing judgments like Corrtech Energy (P.) Ltd. and Ambalal Sarabhai Enterprises Ltd., the Tribunal upheld the appellant's grievance and directed the Assessing Officer to delete the disallowance of ?16,37,628 under Section 14A. Consequently, the appeal was allowed, and the impugned disallowance was set aside. In conclusion, the Tribunal's decision favored the appellant by ruling that in the absence of tax-exempt income, disallowance under Section 14A of the Income Tax Act cannot be imposed. The judgment highlighted the importance of legal precedents and upheld the appellant's arguments based on previous tribunal and High Court decisions, ultimately leading to the deletion of the disallowance amount.
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