2018 (6) TMI 826 - AT - Income Tax

Disallowance u/s 14A - whether disallowance can be made in a year in which no exempt income has been earned or received by the Assessee? - Held that - following the decision of the Hon ble Delhi High Court in the case of Cheminvest Limited vs. Commissioner Of Income Tax 2015 (9) TMI 238 - DELHI HIGH COURT has held that if no dividend income is earned during the year, no disallowances u/s 14A is warranted - no error in the finding of the Ld. CIT(A) on the issue in dispute and accordingly, uphold the same - Decided against the revenue. Disallowance u/s 37(1) - advertisement and publicity expenditure - Deferred revenue expenditure or revenue expenditure - Held that - Assessee entered into an agreement with the Municipal Corporation of Delhi (MCD) for maintaining and operating public urinals in lieu of OOH advertisement media display on operation maintenance and transfer basis - pursuance of the said agreement, the assessee incurred an expenditure and claimed as revenue expenditure - thus relying upon the decision in the case of City Financial Consumer Finance Ltd 2011 (3) TMI 622 - DELHI HIGH COURT where it is held that the assessee has not claimed for spread of the expenditure over the concession period - hence do not find any error in the order of the Ld. CIT(A) and therefore appeal of revenue is dismissed.

Summary

Issues Involved:
1. Deletion of disallowance under Section 14A of the Income Tax Act.
2. Deletion of addition under Section 37(1) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Disallowance under Section 14A of the Income Tax Act:

Background:
The Revenue challenged the deletion of ?1,84,960/- disallowed by the Assessing Officer (AO) under Section 14A of the Income Tax Act, 1961, which pertains to expenditure incurred in relation to exempt income.

Arguments:
- The Revenue argued that the AO's disallowance should be sustained.
- The respondent countered by stating that no dividend income was earned during the year, and cited the Delhi High Court's decision in Cheminvest Limited vs. Commissioner Of Income Tax, which held that if no dividend income is earned, no disallowance under Section 14A is warranted.

Tribunal's Findings:
- The Tribunal referenced the CIT(A)'s observations and several judicial precedents, including the Delhi High Court's decisions in Godrej A Boyce Mfg Co. Ltd v DCIT and Maxopp Investment Ltd v CIT.
- It was emphasized that Section 14A aims to prevent the deduction of expenses related to exempt income and that the AO must record dissatisfaction with the assessee's claim before making a disallowance.
- The Tribunal noted that the assessee had no dividend income and the investments were strategic, thus aligning with the ruling in CIT vs. Holcim India (P) Ltd.
- The Tribunal upheld the CIT(A)'s decision, concluding that no disallowance under Section 14A was warranted since no dividend income was earned, and the investments were strategic.

Conclusion:
The Tribunal dismissed the Revenue's appeal on this ground, affirming that no disallowance under Section 14A was justified in the absence of dividend income.

2. Deletion of Addition under Section 37(1) of the Income Tax Act:

Background:
The Revenue contested the deletion of ?96,14,068/- disallowed by the AO under Section 37(1) of the Income Tax Act. The AO treated this amount as deferred revenue expenditure based on a concession agreement with the Municipal Corporation of Delhi (MCD).

Arguments:
- The AO argued that the expenditure should be spread over the concession period (5 years), allowing only 20% of the total expenditure for the year under consideration.
- The respondent contended that the entire expenditure was revenue in nature and should be allowed in the year it was incurred, citing the Delhi High Court's decision in City Financial Consumer Finance Ltd.

Tribunal's Findings:
- The Tribunal reviewed the CIT(A)'s decision and the Delhi High Court's ruling in City Financial Consumer Finance Ltd, which clarified that revenue expenditure incurred in a particular year should be allowed in that year unless the assessee opts to spread it over subsequent years.
- The Tribunal noted that the expenditure was genuine, incurred for business purposes, and not doubted by the AO.
- It was emphasized that there is no concept of deferred revenue expenditure in the Income Tax Act, and the assessee is entitled to claim the entire expenditure in the year it was incurred.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the disallowance of ?96,14,068/-, affirming that the entire expenditure should be allowed in the year it was incurred. The Revenue's appeal on this ground was dismissed.

3. General Ground of Appeal:

Background:
The Revenue included a general ground of appeal to add, delete, or amend any grounds of appeal.

Conclusion:
The Tribunal did not adjudicate on this ground as it was general in nature and did not require specific adjudication.

Final Decision:
The Tribunal dismissed the Revenue's appeal in its entirety, upholding the CIT(A)'s order to delete the disallowances under Sections 14A and 37(1) of the Income Tax Act. The decision was pronounced in the open court on 12th June 2018.