2019 (2) TMI 1356 - AT - Income Tax

Disallowance made u/s 14A r/w rule 8D - investment in unquoted shares. - no exempt income/ dividend income has been earned in the relevant previous year - HELD THAT - In the absence of any exempt income earned in the relevant assessment year, no disallowance under section 14A of the Act can be made. Further, being bound by the decision of the Hon ble Jurisdictional High Court as well as other High Courts as referred to above, we are unable to accept the proposition laid down in Lally Motors India Pvt. Ltd. 2018 (5) TMI 794 - ITAT AMRITSAR and M.A. Alagappan 2017 (7) TMI 427 - ITAT CHENNAI cited by the learned Departmental Representative. We uphold the decision of the learned Commissioner (Appeals) in deleting the disallowance made under section 14A of the Act only on the proposition that in absence of any exempt income earned by the assessee in the relevant assessment year no disallowance under section 14A of the Act can be made. Ground raised is dismissed.

Summary

Issues:
Deletion of disallowance made under section 14A r/w rule 8D.

Analysis:
The appeal was filed by the Revenue challenging the deletion of disallowance made under section 14A r/w rule 8D for the assessment year 2013-14. The assessee, engaged in mall management and project management consultancy, had not earned any dividend income from unquoted shares but was asked to explain the absence of disallowance under section 14A. The Assessing Officer disallowed an amount under section 14A r/w rule 8D, which the assessee disputed before the first appellate authority.

The Commissioner (Appeals) deleted the disallowance, noting the absence of exempt income and the strategic purpose of investments. The Revenue argued that disallowance should be made regardless of exempt income earned, citing various decisions. The Authorized Representative contended that no disallowance should be made without exempt income and that interest expenditure should not be disallowed due to sufficient surplus funds. Several decisions were cited in support of this argument.

The Tribunal considered the primary issue of whether disallowance under section 14A r/w rule 8D can be made if no exempt income was earned in the relevant assessment year. Various High Courts and Tribunal decisions were referenced, emphasizing that in the absence of exempt income, no disallowance can be invoked under section 14A. The Tribunal rejected the Revenue's argument based on the Supreme Court's decision, stating that it did not address the specific issue of invoking section 14A without exempt income. The Tribunal upheld the Commissioner (Appeals) decision to delete the disallowance, following the precedent that in the absence of exempt income, no disallowance under section 14A can be made.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the decision to delete the disallowance under section 14A of the Act due to the absence of exempt income in the relevant assessment year.