2018 (8) TMI 1314 - AT - Income Tax

Disallowance made u/s 14A Rule 8D - Held that - the provisions of section 14A cannot be invoked as there is no exempt income in the hands of the assessee. - Decided against the revenue.

Summary

Issues:
- Disallowance made under Section 14A Rule 8D
- Interpretation of Section 14A in absence of exempt income

Analysis:

Issue 1: Disallowance made under Section 14A Rule 8D
The Revenue appealed against the order of the CIT(A) on the grounds that it was prejudicial to the interest of revenue and opposed to law. The appeal specifically challenged the decision of the CIT(A) in allowing the assessee's appeal regarding the disallowance made under Section 14A Rule 8D. The Revenue argued that the matter had not reached finality due to pending appeals before the High Court and the Supreme Court in related cases. The Revenue sought the reversal of the CIT(A)'s order and restoration of the Assessing Officer's decision.

Issue 2: Interpretation of Section 14A in absence of exempt income
During the hearing, the assessee contended that no exempted income was earned, therefore Section 14A should not be applicable. The authorities examined the case and confirmed that the assessee had indeed not earned any exempted income. The legal position established that if no exempt income was earned, no disallowance could be made under Section 14A. Citing the decision of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. v. CIT, it was clarified that Section 14A required actual receipt of income not included in the total income for disallowing any expenditure related to that income. The judgment emphasized that when there is no exempt income included in the total income, Section 14A cannot be invoked. Several other High Court decisions supported this interpretation, reinforcing that corresponding expenditure could not be calculated for disallowance when no taxable income was earned in the relevant assessment year.

In conclusion, the Appellate Tribunal upheld the CIT(A)'s decision to delete the addition, as there was no exempt income in the hands of the assessee. The Tribunal found no fault in the CIT(A)'s order and dismissed the Revenue's appeal, emphasizing the legal principle that Section 14A cannot be invoked in the absence of exempt income.