2016 (12) TMI 1399 - AT - Income Tax

Disallowance u/s 14A - Held that - Following the decision of Hon ble Delhi High Court in the case of Cheminvest Ltd. Vs. CIT (2015 (9) TMI 238 - DELHI HIGH COURT ), we are of the view that no disallowance can be made u/s 14A of the Act, when there is no exempt income received or receivable during the relevant assessment year. Therefore, we direct the A.O. to delete additions made towards disallowance of interest under the provisions of section 14A of the Act. - Decided in favour of assessee

Summary

Issues:
1. Disallowance u/s 14A of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Disallowance u/s 14A of the Income Tax Act, 1961
The case involved cross-appeals by the assessee and the revenue against the order of the CIT(A) for the assessment year 2011-12. The primary contention was regarding the disallowance of interest paid on loans under section 14A of the Act. The assessing officer disallowed the interest on the basis that the assessee had made investments in shares without earning any dividend income, arguing that any expenditure related to exempt income is not deductible. However, the tribunal disagreed with this interpretation, citing a judgment by the Hon’ble Delhi High Court in Cheminvest Ltd. Vs. CIT (2015) 378 ITR 33, which clarified that disallowance under section 14A applies only when there is exempt income included in the total income. As there was no exempt income received or includible in the total income, the tribunal ruled in favor of the assessee, directing the AO to delete the disallowance of interest.

The assessing officer relied on judgments from the Hon’ble High Courts of Kerala and Delhi to support the disallowance under section 14A. However, the tribunal found that these cases were factually different from the present case and therefore not applicable. On the other hand, the assessee cited the decision of the Hon’ble High Court of Delhi in Cheminvest Ltd. Vs. CIT, where it was held that no disallowance under section 14A can be made in a year without exempt income being earned or received. The tribunal agreed with this interpretation and ruled in favor of the assessee, emphasizing the necessity of actual receipt of exempt income for disallowance under section 14A.

In conclusion, the tribunal held that no disallowance could be made under section 14A of the Act when there was no exempt income received or receivable during the relevant assessment year. Therefore, the tribunal allowed the appeal filed by the assessee, directing the AO to delete the additions made towards disallowance of interest under section 14A of the Act.

End of Analysis