2020 (10) TMI 607 - AT - Income Tax

Disallowance u/s 14A r.w. Rule 8D - Addition with regard to the normal computation of income as well as the computation of book profit u/s 115JB - HELD THAT - There is no dispute in these appeals that the assessee did not earn any exempt income. Also there is no dispute that the assessee did not make any claim for exemption. That when there is no exempt income earned by the assessee, no disallowance u/s 14A of the Act can be made is no longer res integra. There is no exempt income earned by the assessee, no disallowance under Section 14A of the Act can be made. Similar is the decision in Pr. CIT v. M/s Ballarpur Industries Ltd. 2016 (10) TMI 1039 - BOMBAY HIGH COURT and Winsome Textiles Industries Ltd. 2009 (8) TMI 220 - PUNJAB AND HARYANA HIGH COURT Also in the case of ACIT v. Vireet Investment (P.) Ltd. 2017 (6) TMI 1124 - ITAT DELHI has held that computation under clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to computation as contemplated u/s 14A r.w. Rule 8D. - Decided against revenue.

Summary

Issues involved:
1. Disallowance u/s 14A of the Income Tax Act, 1961 r.w. Rule 8D in the context of normal computation of income and computation of book profit u/s 115JB for multiple assessment years.

Detailed Analysis:
1. AY 2008-09: The assessee contended no dividend was received, hence no disallowance u/s 14A r.w. Rule 8D. However, the AO disallowed &8377; 1,82,70,787. The Ld. CIT(A) confirmed the disallowance in normal income computation but deleted it in the book profit calculation u/s 115JB.
2. AY 2009-10: Assessee claimed no exempt income; still, a disallowance of &8377; 3,82,07,503 was made by the AO. The Ld. CIT(A) deleted part of the disallowance under Rule 8D(2)(ii) but confirmed another part under Rule 8D(2)(iii). The addition in book profit calculation u/s 115JB was deleted.
3. AY 2010-11: Assessee stated no exempt income; disallowance of &8377; 1,64,66,893 was made by AO. Ld. CIT(A) deleted part of the disallowance under Rule 8D(2)(ii) but confirmed another part under Rule 8D(2)(iii). The addition in book profit calculation u/s 115JB was deleted.
4. AY 2012-13: Assessee reported no dividend income; still, a disallowance of &8377; 4,85,695 was made by the AO. Ld. CIT(A) confirmed this disallowance in both normal income computation and book profit calculation u/s 115JB.

2. The Revenue argued for disallowance u/s 14A r.w. Rule 8D even when no exempt income was earned, citing a CBDT circular. They relied on a Tribunal order to support the addition in book profit calculation u/s 115JB.
3. The Tribunal referred to the decision in Pr. CIT v. Huntsman International, where it was held that when no exempt income is earned, no disallowance under Section 14A can be made. Similar views were upheld by the Bombay High Court and the Punjab & Haryana High Court. The Special Bench of the Tribunal also clarified that computation under section 115JB(2) should not resort to Rule 8D computation u/s 14A.

In conclusion, the Tribunal dismissed the Revenue's appeals for AYs 2008-09, 2009-10, and 2010-11, following the decisions stating no disallowance when no exempt income is earned. The appeal by the assessee for AY 2012-13 was allowed based on the same principle. The judgments were in line with the interpretation of Section 14A and its application in cases of no exempt income earned.