2019 (6) TMI 666 - AT - Income Tax

Addition u/s 14A - HELD THAT - We find the CIT(A) deleted the disallowance made by the Assessing Officer u/s 14A r/w. Rule 8D on the ground that the assessee has not earned any dividend income during the year. DR also could not controvert the above factual findings given by the CIT(A), therefore, following the decision of Cheminvest Limited 2015 (9) TMI 238 - DELHI HIGH COURT we hold that no disallowance u/s. 14A r/w. Rule 8D is called for when the assessee has not received any dividend income during the year. The order of the CIT(A) is accordingly upheld and ground raised by the revenue is dismissed.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act.
2. Applicability of Rule 8D for disallowance.
3. Exemption of income from shares/securities investments.
4. Interpretation of section 14A in the absence of exempt income.

Analysis:
1. The appeal by the revenue contested the deletion of an addition of ?4,65,04,000 made by the Assessing Officer under section 14A of the Income Tax Act. The appellant, an autonomous institution providing financial assistance for oil industry development, had investments in shares and securities. The Assessing Officer invoked section 14A and Rule 8D due to the potential income exemption from these investments. The CIT(A) deleted the addition, citing the decision in the case of Cheminvest Ltd by the Hon'ble Delhi High Court, emphasizing the actual receipt of exempt income for disallowance under section 14A.

2. The CIT(A) based the deletion of the addition on the absence of dividend income during the relevant year, aligning with the decision in Cheminvest Ltd. The Tribunal upheld the CIT(A)'s decision, emphasizing that no disallowance under section 14A with Rule 8D is warranted when no dividend income is received. The Tribunal referred to a previous case where the Hon'ble Delhi High Court overruled the need for disallowance under section 14A in the absence of exempt income, a decision upheld by the Supreme Court.

3. The Tribunal highlighted the relationship between expenses and income not chargeable to tax, emphasizing that disallowance under section 14A is necessary when expenses are incurred in relation to such income, regardless of actual earnings. The Tribunal's decision, supported by the Hon'ble Delhi High Court's ruling in Cheminvest Ltd, emphasized the importance of actual receipt of exempt income for invoking section 14A.

4. The Tribunal's decision rested on the principle that disallowance under section 14A is contingent upon the receipt of exempt income during the relevant year. The absence of dividend income led to the deletion of the addition, aligning with the interpretation of section 14A as per the decision in Cheminvest Ltd. The Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s order based on the absence of dividend income and the principles established in relevant judicial precedents.

This detailed analysis of the judgment showcases the application of legal principles and precedents in resolving the issues raised in the appeal before the Appellate Tribunal ITAT Delhi.