2019 (5) TMI 1196 - AT - Income Tax

Disallowance of inadmissible expenses u/s.14A r.w.r.8D - assessee has substantially used interest free funds for making investment - HELD THAT - In absence of exempt income, disallowance u/s.14A of the Act of any amount was not permissible . See M/S OIL INDUSTRY DEVELOPMENT BOARD 2019 (3) TMI 1571 - SC ORDER . - Decided in favour of assessee

Summary

Issues: Disallowance of inadmissible expenses u/s.14A r.w.r.8D of the Income Tax Rules, 1962.

Analysis:
The appeal pertains to the disallowance of expenses amounting to ?39,09,246 on the grounds of inadmissible expenses under section 14A r.w.r.8D of the Income Tax Rules, 1962 for the assessment year 2012-13. The assessee argued that no exempt income was earned during the year, and investments were made using its own interest-free funds. The assessee highlighted its Balance Sheet, showing non-current investments of ?136,051,474, share capital of ?35,700,000, reserve and surplus of ?51,704,671, and long-term borrowings of ?167,971,814 to support the claim that investments were made from interest-free funds. The assessee relied on a Co-ordinate Bench decision in a similar case where it was held that when no exempt income is earned, Section 14A does not apply. The Tribunal referred to judgments by the Gujarat High Court and Delhi High Court supporting the assessee's position. Additionally, the Tribunal cited a decision by the Bombay High Court regarding the availability of free funds exceeding investments. The Tribunal noted that the Revenue did not provide any contrary binding decision or demonstrate any higher authority overruling the decisions cited by the assessee. Consequently, the Tribunal allowed the appeal, setting aside the order of the Ld. CIT(Appeals) based on the principles established in the mentioned judicial pronouncements.

The assessee further relied on a decision by the Delhi High Court in another case where the Income Tax Appellate Tribunal had deleted a disallowance under section 14A due to the absence of exempt income. The Revenue's appeal to the Delhi High Court was dismissed, and a subsequent Special Leave Petition filed by the Revenue before the Supreme Court was also dismissed. The Tribunal, after considering the case records and arguments, upheld the assessee's claim that disallowance under section 14A was not permissible due to the absence of exempt income and the substantial use of interest-free funds for investments. Consequently, the Tribunal set aside the order of the Ld. CIT(Appeals) and allowed the appeal of the assessee. The judgment was pronounced on May 17, 2019.