2021 (1) TMI 1040 - AT - Income Tax

Disallowance u/s. 14A read with Rule 8D - HELD THAT - We find that the Hon'ble Delhi High Court in the case Cheminvest Ltd. vs. CIT 2015 (9) TMI 238 - DELHI HIGH COURT has held that if there is no exempt income, there can be no question of making any disallowance u/s 14A. Similar view has been taken by the Hon'ble Delhi High Court in CIT vs. Holcim India P. Ltd. 2014 (9) TMI 434 - DELHI HIGH COURT . The net effect of these decisions is that the disallowance u/s 14A gets restricted to the extent of exempt income, even if the provisions of the section are attracted. - Decided against revenue.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act, 1961.
2. Interpretation of CBDT Circular No. 5 of 2014 regarding disallowance under Rule 8D.
3. Scope of disallowance under section 14A in the absence of exempt income.

Analysis:
1. The appeal pertains to the disallowance under section 14A of the Income Tax Act, 1961. The Revenue contested the order of the ld. CIT(A) that restricted the disallowance to a specific amount from the total disallowance made by the Assessing Officer. The Assessing Officer had made an addition/disallowance under section 14A read with Rule 8D in the assessment order, which was challenged by the Revenue in this appeal.

2. The second issue raised was regarding the interpretation of CBDT Circular No. 5 of 2014, dated 11.02.2014, which clarified the applicability of disallowance under Rule 8D with section 14A of the Income Tax Act. The Revenue contended that the ld. CIT(A) erred in ignoring this circular, which stated that disallowance should be made even if the taxpayer has not earned any exempt income in a particular case.

3. The key point of contention was the scope of disallowance under section 14A in the absence of exempt income. The assessee had offered a sum attributable to earning tax-free dividend income, and the ld. CIT(A) held that the disallowance should not exceed the amount of exempt income earned by the assessee. The Revenue challenged this interpretation, seeking a broader application of the provisions.

The Tribunal examined the facts of the case and referred to previous judicial decisions to support its findings. It noted that the assessee had exempt income amounting to a specific sum. Citing relevant precedents, including decisions by the Hon'ble Delhi High Court, the Tribunal concluded that the disallowance under section 14A should be restricted to the extent of exempt income, even if the provisions of the section are triggered. Relying on these precedents, the Tribunal dismissed the appeal of the Revenue, affirming the decision of the ld. CIT(A) and limiting the disallowance to the amount of exempt income earned by the assessee.