2017 (12) TMI 804 - AT - Income Tax

Addition u/s 14A - Held that - The assessee has not earned any exempt income during the impugned AY. It is well settled legal proposition that no disallowance u/s 14A is warranted for in case no exempt income is earned by the assessee. - Decided against revenue

Summary

Issues Involved:
Appeal against deletion of Section 14A disallowance by Ld. CIT(A) for AY 2012-13 based on absence of exempt income.

Analysis:
The appeal by the revenue contested the deletion of Section 14A disallowance of ?30,58,921/- for AY 2012-13, made by the Ld. AO. Despite the absence of the assessee during the proceedings, the Tribunal proceeded to address the matter based on available records and the arguments presented by the Ld. Departmental Representative. The Ld. AO had disallowed ?30.58 Lacs under Section 14A, comprising interest and expense disallowances. The assessee, a resident corporate entity operating a re-rolling mill business, challenged this disallowance successfully before the Ld. CIT(A), who noted the absence of any exempt income during the year, citing a judgment by the Hon’ble Delhi High Court in a similar case involving Holcim India Private Limited.

The revenue, while acknowledging the absence of exempt income during the impugned year, appealed before the Tribunal. After reviewing the assessment and appellate orders, the Tribunal found that no exempt income was earned by the assessee during the AY in question. Citing established legal principles, the Tribunal noted that no disallowance under Section 14A is warranted when no exempt income is earned. The Tribunal referred to case laws relied upon by the Ld. CIT(A) to support this position and emphasized the settled legal stance on the matter.

Additionally, the Tribunal referenced a recent judgment by the Hon’ble Delhi High Court in PCIT Vs. IL&FS Energy Development Co. Ltd., which further reinforced the position that disallowance under Section 14A is not applicable when no exempt income is earned during the relevant assessment year. The judgment elaborated on the legislative history and provisions related to Section 14A, emphasizing the correlation between expenditure incurred and income earned. It highlighted that the purpose of Section 14A is to prevent the deduction of expenses related to exempt income without proper apportionment. The Tribunal concluded that the CBDT Circular could not override the express provisions of Section 14A read with Rule 8D.

In light of the binding judicial precedents and the absence of exempt income during the relevant assessment year, the Tribunal dismissed the revenue’s appeal, upholding the deletion of the Section 14A disallowance. The order was pronounced on 13th December 2017.