2018 (9) TMI 599 - AT - Income Tax

Disallowance u/s. 14A -assessee did not earn any exempt income - Held that - As held in the case of Cheminvest Ltd. v. CIT, 2015 (9) TMI 238 - DELHI HIGH COURT has categorically held that section 14A envisages that there should be actual receipt of income which was not includible in the total income during the relevant previous year for the purpose of disallowing any expenditure in relation to the said income. Provisions of section 14A cannot be invoked as there is no exempt income in the hands of the assessee. Accordingly, we find no infirmity in the order of the CIT(Appeals) who has rightly deleted the addition. - Decided in favour of assessee

Summary

Issues:
- Appeal against order of CIT(A) on grounds of prejudicial to revenue's interest
- Disallowance made under Section 14A r.w. Rule 8D
- Invocation of Section 14A when no exempted income earned
- Interpretation of Section 14A based on judgments

Analysis:
1. The appeal was filed by the Revenue against the CIT(A)'s order, claiming it to be prejudicial to their interest. The Revenue contended that the CIT(A) erred in allowing the assessee's appeal regarding the disallowance made under Section 14A r.w. Rule 8D. They argued that the matter was pending before the High Court and the Apex Court, thus not reaching finality.

2. During the hearing, the assessee's counsel argued that since the assessee did not earn any exempted income, Section 14A should not be invoked, citing a judgment of the Apex Court. The Departmental Representative (DR) relied on the assessment order.

3. The Tribunal examined the orders of the lower authorities and found that the assessee had not earned any exempted income. Referring to the judgment of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. v. CIT, it was established that Section 14A requires actual receipt of income not included in the total income for disallowing related expenditure. The Tribunal cited various High Court decisions supporting this interpretation.

4. The Tribunal concluded that when there is no exempt income in the hands of the assessee, Section 14A cannot be invoked. Therefore, they upheld the CIT(A)'s decision to delete the addition, finding no error in it.

5. Consequently, the appeals of the Revenue were dismissed by the Tribunal. The judgment clarified the application of Section 14A in cases where no exempted income is earned by the assessee, aligning with the legal precedent established by various High Court decisions.

6. The judgment was pronounced on 7th September 2018 by the Appellate Tribunal ITAT Bangalore, with the appeals of the Revenue being dismissed based on the interpretation of Section 14A in the absence of exempt income.