2016 (10) TMI 840 - AT - Income Tax

Addition u/s 14A - Held that - Assessee had not earned any exempt income during the year and therefore, following the above order of Hon ble Delhi High Court in the case of CIT vs. Holcim India Pvt. Ltd. (2014 (9) TMI 434 - DELHI HIGH COURT) disallowance u/s 14A was not warranted. - Decided in favour of assessee

Summary

Issues:
1. Disallowance of expenditure under section 14A of the Income Tax Act despite no exempt income earned by the assessee.
2. Invocation of section 14A based on strategic commercial decisions and lack of nexus between claimed expenditure and investments made.

Analysis:

Issue 1: Disallowance of expenditure under section 14A
The appeal was filed against the order of the Ld. CIT(A) upholding the assessment of the appellant's income at a higher amount than the returned income, due to the disallowance of expenditure under section 14A of the Act. The appellant argued that no income exempt from tax was earned, which is a prerequisite for invoking section 14A. The A.O. and Ld. CIT(A) calculated the disallowance under Rule 8D without identifying any specific exempt income. The tribunal held that section 14A cannot be invoked in the absence of exempt income, citing the decision of the Hon'ble Delhi High Court in a similar case.

Issue 2: Invocation of section 14A based on strategic commercial decisions
The appellant contended that the investments made were strategic commercial decisions and not for earning exempt income. The tribunal noted that no exempt income was earned by the assessee, and the revenue authorities failed to demonstrate any exempt income. Referring to the decision of the Hon'ble Delhi High Court, the tribunal emphasized that section 14A cannot be applied when no exempt income is earned. The tribunal dismissed the appeal, following the precedent and holding that disallowance under section 14A was not justified. The tribunal highlighted that the expenditure incurred by the assessee for business activities was genuine and necessary, as confirmed by the CIT(A) and the Assessing Officer.

In conclusion, the tribunal allowed the appeal of the assessee, emphasizing that disallowance under section 14A was unwarranted due to the absence of exempt income. The decision was based on the interpretation of relevant legal provisions and judicial precedents, particularly the ruling of the Hon'ble Delhi High Court.