2020 (8) TMI 260 - AT - Income Tax

Disallowance u/s 14A r.w.r 8D - no exempt income claimed by the assessee - HELD THAT - In the present case it is an admitted fact that the Ld. CIT(A) by following the judgment of the Hon'ble Jurisdictional High Court deleted the impugned disallowance made by the A.O. under section 14A of the Act for the reasons that there was no exempt income claimed by the assessee, therefore, no disallowance could have been made for the expenses. On a similar issue the Hon'ble Jurisdictional High Court in the case of CIT Vs. Winsome Textile Industries Ltd. 2009 (8) TMI 220 - PUNJAB AND HARYANA HIGH COURT held that in the present case, admittedly, the assessee did not make any claim for exemption, in such situation section 14A could have no application. In the present case also it is an admitted position that the assessee had not claimed any exempt income, so there was no question of making disallowance under section 14A - Decided against revenue

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962.

Analysis:

Issue 1: Disallowance under section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962

The appeal was filed by the Revenue against the order of the Ld. CIT(A)-3, Ludhiana, regarding the deletion of the addition made under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962. The Revenue contended that disallowance should have been made despite the assessee not earning any exempt income, citing legislative intent and circular no. 5/2014. The A.O. disallowed a significant amount under Section 14A, which was later deleted by the Ld. CIT(A) based on the fact that no exempt income was derived by the assessee from its investments. The Ld. CIT(A) referred to past precedents and legal positions to support the deletion of the disallowance, emphasizing that no disallowance was warranted in the absence of exempt income. The Department's appeal was dismissed as the Hon'ble Jurisdictional High Court had previously ruled that in the absence of exempt income, disallowance under Section 14A could not be made. The Tribunal upheld the decision of the Ld. CIT(A) based on the principle that since no exempt income was claimed, disallowance under Section 14A was not applicable.

In conclusion, the Tribunal dismissed the appeal of the Department, upholding the decision of the Ld. CIT(A) to delete the disallowance made under Section 14A of the Income Tax Act, 1961. The judgment emphasized the principle that in the absence of exempt income, disallowance under Section 14A could not be justified, citing relevant legal precedents and the specific circumstances of the case.