2018 (9) TMI 1756 - AT - Income Tax

Disallowance as required u/s 14A r. w. Rule 8D - no dividend income earned by the assessee - Held that - In this case, the Ld. AR brought to our notice that there was no dividend income earned by the assessee during the year under consideration, therefore, the question of disallowance does not arise. There is no dispute with regard to the fact that the assessee did not earn the dividend income. This Tribunal considered had an occasion to consider the identical issue with regard to the disallowance required to be made u/s 14A r. w. Rule 8D in the absence of dividend income in the cited case and held that no disallowance is required to be made u/s 14A in case of not earning the dividend income. This Tribunal has followed the decision of Hon ble Madras High Court in the case of Redington India Private Limited Vs. ACIT 2017 (1) TMI 318 - MADRAS HIGH COURT . - Decided in favour of assessee.

Summary

Issues:
Disallowance of expenditure relating to the earning of dividend income.

Analysis:
The appeal was filed against the order of the Commissioner of Income-Tax (Appeals) related to the disallowance of expenditure concerning dividend income for the assessment year 2014-15. The Assessing Officer disallowed an amount under Rule 8D of Income Tax Rules as the assessee had made investments yielding exempt income but did not make the required disallowance under section 14A. The CIT(A) confirmed the AO's order based on a decision of the Bombay High Court. The assessee, disagreeing with the CIT(A)'s decision, approached the Tribunal.

During the proceedings, it was noted that the assessee did not earn any dividend income in the relevant year. The Tribunal referred to a previous decision where it was held that no disallowance is necessary under section 14A when no dividend income is earned. This position was supported by the decision of the Madras High Court. The Tribunal also considered the assessee's explanation regarding the absence of expenses related to exempt income and the lack of clarification on the quantum of dividend income earned. The Tribunal concluded that in the absence of exempt income, no disallowance under section 14A was warranted.

In light of the above, the Tribunal ruled that no disallowance was required in the absence of dividend income, overturning the orders of the lower authorities and allowing the appeal of the assessee. The decision was pronounced on 26th September 2018.