2019 (6) TMI 94 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - expenditure incurred for earning of tax exempt income - HELD THAT - No disallowance is attracted u/s 14A in case the assessee has not earned any income not forming part of the total income. Since the assessee did not earn any tax exempt income, hence, no disallowance u/s 14A is attracted. See WINSOME TEXTILE INDUSTRIES LTD. 2009 (8) TMI 220 - PUNJAB AND HARYANA HIGH COURT ,CHEMINVEST LIMITED 2015 (9) TMI 238 - DELHI HIGH COURT , CORRTECH ENERGY PVT. LTD. 2014 (3) TMI 856 - GUJARAT HIGH COURT So far as the contention of DR that the assessee himself had agreed during the assessment proceedings when called for by the Assessing officer for making the aforesaid disallowance u/s 14A of the Act is concerned, we are not convinced with the above submissions of the Ld. DR. If the assessee under the mistaken belief had agreed to the aforesaid disallowance, that itself, does not debar the assessee to agitate the said disallowance in an appeal if the assessee otherwise legally is not liable to pay any tax on such disallowance / addition made by the Assessing officer. In view of this, the Assessing officer is ordered to delete the disallowance so made u/s 14A - Decided in favour of assessee.

Summary

Issues: Disallowance under section 14A of the Income Tax Act read with Rule 8D for expenditure incurred for earning tax exempt income.

Analysis:
1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of &8377; 67,955 under section 14A of the Income Tax Act. The Assessing Officer disallowed the expenditure as the assessee had investments generating tax-exempt income. The CIT(A) upheld this disallowance.

2. The assessee contended that no tax-exempt income was earned during the year, citing various High Court decisions supporting this argument. The High Courts unanimously held that disallowance under section 14A is not applicable if no income forming part of the total income is earned. Since the assessee did not earn any tax-exempt income, the disallowance under section 14A was deemed inapplicable.

3. The Departmental Representative argued that the assessee had agreed to the disallowance during assessment proceedings, but the Tribunal was not convinced. The Tribunal held that the assessee's agreement under a mistaken belief does not prevent them from challenging the disallowance in an appeal if legally not liable to pay tax on the addition made by the Assessing Officer.

4. Consequently, the Tribunal ordered the Assessing Officer to delete the disallowance made under section 14A of the Income Tax Act. The appeal of the assessee was allowed, and the order was pronounced in the Open Court on 30.5.2019.