2019 (7) TMI 182 - AT - Income Tax

Disallowance u/s 14A - no exempt income - HELD THAT - When there is no exempt income earned by the assessee during the relevant assessment year no disallowance can be made by invoking the provisions contained u/s 14A. So finding no illegality or perversity in the impugned order passed by the CIT (A) present appeal filed by the Revenue is hereby dismissed. See M/S CHETTINAD LOGISTICS PVT. LTD. 2018 (7) TMI 567 - SC ORDER - Decided against revenue.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act, 1961.
2. Applicability of Rule 8D for computing disallowance.
3. Exemption of disallowance when no exempt income is earned.

Analysis:

Issue 1: Disallowance under section 14A of the Income Tax Act, 1961
The Appellant, DCIT, sought to set aside the order passed by the Commissioner of Income-tax (Appeals) concerning the addition made by the Assessing Officer (AO) under section 14A. The AO disallowed an amount under Rule 8D due to the assessee not making any disallowance to earn exempt income, resulting in a total loss for the assessee. The Commissioner of Income-tax (Appeals) deleted this addition, leading to the Revenue filing the present appeal before the Tribunal.

Issue 2: Applicability of Rule 8D for computing disallowance
The Revenue argued that the AO correctly computed the disallowance under Rule 8D based on the accounts rendered by the assessee. The Revenue relied on the presumption under section 114 of the Evidence Act and referred to a decision by the Supreme Court. In contrast, the assessee contended that since no exempt income was earned during the assessment year, section 14A read with Rule 8D was not applicable. The assessee cited decisions by the Supreme Court to support this argument.

Issue 3: Exemption of disallowance when no exempt income is earned
The Tribunal noted that no exempt income was earned by the assessee during the assessment year. The ld. CIT (A) deleted the addition made under section 14A on the grounds that no exempt income was earned, aligning with Supreme Court decisions. The Tribunal upheld this decision, stating that when no exempt income is earned, disallowance under section 14A is not permissible, as clarified in previous Supreme Court judgments.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the decision of the ld. CIT (A) that no disallowance can be made under section 14A when no exempt income is earned. The Tribunal found no illegality or perversity in the decision and upheld the deletion of the addition.