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2015 (3) TMI 192 - AT - Income TaxDisallowance u/s 14A read with Rule 8D - CIT(A) deleted the disallowance holding that assessee has not received any exempt income - Held that - We are of the view, Section 14A of the Act cannot be invoked. In this appeal, the revenue has not dispelled the findings of the CIT(A), nor the statement of the assessee before AO that assessee is not in receipt of any dividend income and hence according to us, the Assessing Officer has erred in invoking Section 14A of the Act, to disallow various interest payments on capital account, security deposits and unsecured loans. See JCIT v. Holland Equipment Co. B.V. 2005 (4) TMI 514 - ITAT MUMBAI . Also in the case of CIT Vs. Winsome Textiles Industries Ltd. (2009 (8) TMI 220 - PUNJAB AND HARYANA HIGH COURT) the Hon ble Punjab & Haryana High Court held that when there is no claim for exemption of income in such situation section 14A has no application. - Decided in favour of assessee.
Issues Involved:
1. Disallowance under section 14A read with Rule 8D for expenditure incurred on earning exempt income. Detailed Analysis: Issue 1: Disallowance under section 14A read with Rule 8D for expenditure incurred on earning exempt income Background: The Revenue appealed against the order of the Commissioner of Income Tax (Appeals)-VI, Chennai, which deleted the disallowance made under section 14A read with Rule 8D. The Assessing Officer had disallowed Rs. 19,28,666/- as expenditure incurred for earning exempt income, considering the assessee's investments and interest expenses. The Commissioner of Income Tax (Appeals) held that the assessee had not derived any income from the investments, which were made from personal sources not incurring interest, and thus, disallowance was unwarranted. Revenue's Argument: The Departmental Representative argued that disallowance under section 14A read with Rule 8D is mandatory even if no exempt income is earned by the assessee, citing the Special Bench decision in Cheminvest Ltd. Vs. ITO (121 ITD 318) and CBDT Circular No.5/2014. Assessee's Argument: The assessee's counsel contended that in the absence of receiving any exempt income, there is no justification for disallowance. He relied on several High Court decisions, including CIT Vs. M/s. Sivam Motors Pvt. Ltd., CIT Vs. Corrtech Energy Pvt. Ltd., and CIT Vs. Delite Enterprises, which support the view that no disallowance is warranted if no exempt income is earned. Additionally, the counsel argued that share application money should be excluded from the disallowance calculation, reducing the disallowance significantly. Tribunal's Findings: The Tribunal reviewed the orders of the lower authorities, submissions, and relevant case laws. It acknowledged the Special Bench decision in Cheminvest Ltd. but noted that subsequent High Court decisions impliedly overruled this view. Key High Court Decisions: 1. CIT Vs. M/s. Sivam Motors Pvt. Ltd. (Allahabad High Court): The court held that in the absence of tax-free income, the corresponding expenditure could not be worked out for disallowance. 2. CIT Vs. Corrtech Energy Pvt. Ltd. (Gujarat High Court): The court ruled that section 14A could not apply if no exempt income is claimed. 3. CIT Vs. Delite Enterprises (Bombay High Court): The court found that without profit for the relevant assessment year, the question of disallowance does not arise. Other Relevant Cases: - CIT Vs. M/s. Lakhani Marketing Incl. (Punjab & Haryana High Court): The court emphasized the need for a nexus between the expenditure and the exempt income for section 14A to apply. - CIT Vs. Winsome Textiles Industries Ltd. (Punjab & Haryana High Court): The court held that section 14A has no application when there is no claim for exemption of income. Conclusion: The Tribunal, following the rationale of the High Court decisions, concluded that disallowance under section 14A is not warranted in the absence of exempt income. Therefore, the Tribunal upheld the order of the Commissioner of Income Tax (Appeals) and dismissed the Revenue's appeal. Order Pronouncement: The appeal of the Revenue was dismissed, and the order was pronounced in the open court on July 31, 2014, at Chennai.
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