2019 (3) TMI 1545 - AT - Income Tax

Addition u/s 14A r.w.r. 8D - no exempt income - AO made the addition placing reliance on the Circular No.5/2014 of the CBDT dated 11.02.2014 - HELD THAT - Circular cannot override the express provisions of section 14A r.w.Rule 8D of I.T.Rules. After considering various decisions we held that no disallowance u/s 14A of the Act was called for in case of no exempt income earned by the assessee in the relevant assessment years. On identical facts this Tribunal also held in favour of the assessee in the case of Sri P.Venkateswara Rao 2018 (12) TMI 514 - ITAT VISAKHAPATNAM - Decided in favour of assessee

Issues Involved:
1. Disallowance of expenditure under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules.
2. Disallowance of expenditure under Section 40(a)(ia).
3. Non-confirmation from creditors.
4. Disallowance of expenditure due to non-submission of verifiable vouchers.
5. Disallowance of expenditure towards penal charges for late payment of statutory payments and income tax interest.

Detailed Analysis:

1. Disallowance of Expenditure under Section 14A:
The primary issue in these appeals was the disallowance made by the Assessing Officer (AO) under Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, amounting to ?2,70,89,092 for AY 2012-13 and ?2,70,03,495 for AY 2013-14. The AO made these additions despite the assessee not earning any exempt income during these assessment years. The CIT(A) deleted the disallowance, which led to the revenue's appeal to the Tribunal.

The Tribunal referenced the Hon’ble High Court of Delhi's decision in the case of Pr. Commissioner of Income Tax Vs. IL & FS Energy Development Company Ltd., which held that the CBDT Circular No. 5/2014 cannot override the express provisions of Section 14A read with Rule 8D. The Tribunal also cited its own decision in the case of Sri P. Venkateswara Rao, where it was held that no disallowance under Section 14A is warranted in the absence of exempt income. The Tribunal upheld the CIT(A)’s order, dismissing the revenue's appeal on this ground.

2. Disallowance of Expenditure under Section 40(a)(ia):
For AY 2012-13, the AO disallowed ?1,23,500 under Section 40(a)(ia) due to non-compliance with the provisions requiring the deduction of tax at source. This specific disallowance was not contested in the Tribunal's detailed analysis, indicating that it was not a primary focus of the appeal.

3. Non-confirmation from Creditors:
The AO added ?39,155 for AY 2012-13 due to non-confirmation from creditors. Similar to the Section 40(a)(ia) disallowance, this issue was not a focal point in the Tribunal's detailed analysis, implying that it did not significantly impact the Tribunal's decision.

4. Disallowance of Expenditure Due to Non-Submission of Verifiable Vouchers:
For AY 2012-13, the AO disallowed ?6,26,136 due to the non-submission of verifiable vouchers. This issue was also not elaborated upon in the Tribunal's detailed analysis, suggesting it was not a critical factor in the appeal.

5. Disallowance of Expenditure Towards Penal Charges:
For AY 2013-14, the AO disallowed ?2,62,541 towards penal charges for late payment of statutory payments and income tax interest. This disallowance did not feature prominently in the Tribunal's detailed analysis, indicating it was not a primary concern in the appeal.

Conclusion:
The Tribunal's decision primarily focused on the disallowance under Section 14A. It upheld the CIT(A)'s deletion of the disallowance, reiterating that no disallowance under Section 14A is warranted in the absence of exempt income, in line with the Delhi High Court's ruling and its own precedents. The other disallowances under Sections 40(a)(ia), non-confirmation from creditors, non-submission of verifiable vouchers, and penal charges were not central to the Tribunal's detailed analysis and decision. The revenue's appeal was dismissed, affirming the CIT(A)'s order.

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