2021 (6) TMI 285 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - Whether no exempt income received by the assessee ? - CIT-A deleted the addition - HELD THAT - We found that the CIT(A) has relied on the findings in the assessment order and observed that there is no exempt income received by the assessee and relied on the provisions of Sec. 14A r.w.r 8D of the IT Rules. Further CIT(A) emphasized that the provisions of Sec.14A of the Act shall not be applicable where there is no exempt income received - Accordingly, we are not inclined to interfere with the order of the CIT(A) and uphold the same and dismiss the grounds of appeal of the revenue.

Summary

Issues Involved:
Appeal against the Commissioner of Income Tax (Appeals) orders under sections 143(3) and 250 of the Act regarding disallowance under section 14A for the assessment years 2015-16 and 2016-17.

Analysis:

Issue 1: Disallowance under Section 14A of the Act for A.Y. 2015-16
- The revenue appealed against the CIT(A) order deleting the addition made under section 14A r.w.r 8D(2)(iii) of the Act, despite the assessee not earning any exempt income during the relevant year.
- The AO observed substantial investments by the assessee but no attribution of expenses related to these investments for operational activities.
- The CIT(A) relied on judicial decisions and the absence of exempt income to delete the addition, following the legal principle that disallowance under section 14A is not permissible without actual exempt income.
- The CIT(A) emphasized that section 14A does not apply in the absence of exempt income and supported the decision with references to High Court and Tribunal judgments.
- The ITAT upheld the CIT(A) order, noting the absence of exempt income and the reliance on legal precedents, dismissing the revenue's appeal.

Issue 2: Disallowance under Section 14A of the Act for A.Y. 2016-17
- The facts and circumstances in this appeal mirrored those of A.Y. 2015-16, leading to a similar decision by the ITAT to dismiss the revenue's appeal against the CIT(A) order.
- The ITAT applied the same reasoning and legal principles as in the A.Y. 2015-16 case to uphold the deletion of the addition under section 14A for the assessment year 2016-17.

Conclusion:
- The ITAT, in both appeals, affirmed the CIT(A) decisions to delete the disallowance under section 14A due to the absence of exempt income, in line with established legal interpretations and precedents. The appeals filed by the revenue for both assessment years were dismissed based on these findings.