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2019 (4) TMI 1018 - AT - Income TaxDisallowance u/s.14A - assessee had not earned any exempt income during the relevant assessment year - A.Y 2012- 13 - HELD THAT - Admittedly, the assessee during the year under consideration had not earned any dividend income. Insofar the contention of the ld. A.R that in the absence of any dividend income earned by the assessee during the year no disallowance under Sec.14A could have been made, we are persuaded to subscribe to the same. In our considered view as the assessee had not earned any exempt income during the year under consideration, therefore, no disallowance under Sec.14A could have been made in its hands. See CHEMINVEST LIMITED VERSUS COMMISSIONER OF INCOME TAX-VI 2015 (9) TMI 238 - DELHI HIGH COURT and COMMISSIONER OF INCOME TAX-IV VERSUS HOLCIM INDIA P. LTD. 2014 (9) TMI 434 - DELHI HIGH COURT As in the case of Tata Industries Ltd. Vs. ITO, Ward 2(3)(3), Mumbai 2016 (7) TMI 1011 - ITAT MUMBAI had observed that the disallowance under Sec.14A cannot exceed the tax exempt income earned by an assessee during the year. We thus in the backdrop of the fact that the assessee during the year under consideration had not received any dividend income, respectfully follow the view taken in the aforementioned judicial pronouncements and vacate the disallowance made by the A.O under Sec. 14A as had been sustained by the CIT(A). - Decided in favour of assessee Addition u/s 14A - AY. 2013-14 - HELD THAT - Whether the assessee had received any dividend income during the year under consideration is not discernible from the orders of the lower authorities. As such, in our considered view the matter in all fairness requires to be restored to the file of the A.O for fresh adjudication as per the extant law. Insofar the working of the disallowance under Sec. 14A in respect of the exempt dividend income is concerned, the A.O in the course of the set aside proceedings after verifying the amount of dividend income received by the assessee during the year shall restrict the disallowance to the extent of such exempt dividend income.
Issues Involved:
1. Disallowance of administrative expenses under Section 14A read with Rule 8D(2)(iii). 2. Levy of interest under Sections 234B and 234C. Detailed Analysis: 1. Disallowance of Administrative Expenses under Section 14A read with Rule 8D(2)(iii): - A.Y. 2012-13: The assessee, engaged in civil contracting and property development, filed its return declaring a total income of ?23,09,96,770/-. During scrutiny, the Assessing Officer (A.O) noted that the assessee had made investments in shares and mutual funds and maintained a common pool of funds for all activities. The A.O proposed a disallowance under Section 14A read with Rule 8D, which the assessee contested on multiple grounds, including the nature of investments being strategic and the availability of substantial own funds. The A.O, however, computed a disallowance of ?24,83,627/-. On appeal, the CIT(A) partially accepted the assessee's contentions but held that disallowance under Section 14A was necessary due to the disposal of some strategic investments during the year. The CIT(A) directed the A.O to compute the disallowance considering these disposals. The Tribunal, upon further appeal, noted that the assessee did not receive any dividend income during the year. Citing precedents from the Delhi High Court and the ITAT Mumbai, the Tribunal concluded that no disallowance under Section 14A could be made in the absence of exempt income. The disallowance was vacated, and the appeal was allowed. - A.Y. 2013-14: The assessee filed its return declaring a total income of ?23,68,77,700/-. The A.O disallowed ?26,06,171/- under Section 14A, which the assessee contested, claiming no dividend income was received during the year. The CIT(A) erroneously noted a dividend income of ?1.78 crores and directed the A.O to compute the disallowance accordingly. The Tribunal observed conflicting claims regarding the receipt of dividend income. The matter was remanded to the A.O for fresh adjudication to verify the actual dividend income and restrict the disallowance to the extent of such income. The appeal was allowed for statistical purposes. 2. Levy of Interest under Sections 234B and 234C: - A.Y. 2012-13 and A.Y. 2013-14: The assessee contested the levy of interest under Sections 234B and 234C. However, the Tribunal's decision primarily focused on the disallowance under Section 14A and did not provide a detailed analysis of the interest levy. The appeals were allowed based on the primary issue of disallowance under Section 14A. Conclusion: The appeals for A.Y. 2012-13 and A.Y. 2013-14 were allowed, with the disallowance under Section 14A vacated for A.Y. 2012-13 and remanded for fresh adjudication for A.Y. 2013-14. The levy of interest under Sections 234B and 234C was not explicitly addressed in detail.
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