2021 (1) TMI 18 - HC - Income Tax

Disallowance of expenditure u/s.14A r.w. Rule 8D - AO made disallowance on the ground that although the assessee has not earned any exempt income for the impugned assessment years, but incurring of expenditure in relation to dividend bearing investments cannot be ruled out, more particularly when the assessee had made huge investments in shares and securities which yield exempt income - HELD THAT - Madras High Court in the case of Chettinad Logistics Pvt. Ltd. 2017 (4) TMI 298 - MADRAS HIGH COURT examined this issue and by following the judgment in Redington India Ltd., found that there cannot be any disallowance when there was no exempt income. In fact, the Revenue filed an appeal before the Apex Court in Chettinad Logistics Pvt. Ltd. The appeal filed by the Revenue was dismissed. In those circumstance, this Tribunal is of the considered opinion, the CIT(A) is not justified in observing that the judgment of Madras High Court in Redington India Ltd., was overruled by the Apex Court 2018 (7) TMI 567 - SC ORDER There may be difference of opinion with regard to issues arises for consideration. Irrespective of the personal difference of opinion, the CIT(A) while deciding the appeal is bound to follow the judgment of the Apex Court and the jurisdictional High Court. Judicial discipline demand that all authorities in the State of TamilNadu and Pondicherry has to follow the judgment of the Madras High Court including the present CIT(A). Therefore, we are unable to uphold the order of the CIT(A). Accordingly, the orders of both the authorities below are set aside and the disallowance made by the Assessing Officer U/s.14A of the Act is deleted. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under Section 14A of the Income Tax Act when there is no exempt income.
2. Exclusion of expenditure attributable to investment in a group subsidiary company from disallowance under Section 14A.
3. Dismissal of appeal based on bogus purchase without independent verification.

Analysis:
1. The Revenue appealed against the Tribunal's order dismissing disallowance under Section 14A of the Income Tax Act due to the absence of exempt income. The Court referenced a previous decision, CIT Vs. Chettinad Logistics Pvt. Ltd., where it was established that Section 14A is applicable when expenditure is claimed against income not forming part of the total income. As no such income was earned, the addition made by the Assessing Officer was deemed contrary to the Act. The Court emphasized that Rule 8D cannot extend beyond the scope of Section 14A, ultimately ruling against the Revenue on this issue.

2. The Revenue also contested the exclusion of expenditure related to investments in a group subsidiary company from Section 14A disallowance. However, the Court found this issue to be factual rather than a question of law, thereby not warranting consideration. As a result, this aspect of the appeal was dismissed without costs.

3. Lastly, the Revenue challenged the dismissal of the appeal concerning a bogus purchase without independent verification. The Court determined this issue to be entirely factual, with no substantial question of law arising for consideration. Consequently, the tax case appeal was dismissed, and the connected CMP was also dismissed.