2021 (9) TMI 39 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - proof of earning exempt income - CIT-A deleted the addition as assessee has not earned any exempt income during the relevant year - as per revenue CBDT Circular No.5/2014 dated 11.02.2014 which specifically clarifies that Rule 8D read with section 14A of the Income Tax Act, 1961 provides for disallowance of the expenditure even where the tax payer in a particular year has not earned any exempt income? - HELD THAT - Revenue has not pointed out that during the year under appeal, the assessee has earned dividend income. Ld.CIT(A) has followed the decision rendered in the cases of CIT vs. Holcim India (P) Ltd 2014 (9) TMI 434 - DELHI HIGH COURT and Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT - Revenue has not brought any other contrary binding precedents by the Hon ble Jurisdictional High Court or Hon ble Supreme Court to our notice. Therefore, we do not see any infirmity in the finding of Ld.CIT(A), the same is hereby affirmed. - Decided against revenue.

Summary

Issues involved:
Appeal against deletion of disallowance under section 14A r.w. Rule 8D of the Income Tax Rules for assessment year 2014-15.

Detailed Analysis:
1. The Revenue challenged the deletion of disallowance of ?2,94,81,452 made by the Assessing Officer under section 14A r.w. Rule 8D. The Revenue contended that even if no exempt income was earned, disallowance could still be made as per the CBDT Circular No.5/2014. The CIT(A) partly allowed the appeal and deleted the addition.

2. The main contention was regarding the applicability of section 14A in the absence of exempt income. The Assessing Officer made the disallowance based on Rule 8D despite the assessee not earning any dividend income. The CIT(A) relied on judicial precedents, including the decisions of the Hon’ble Delhi High Court in CIT vs. Holcim India and Cheminvest Ltd. vs. CIT, which held that disallowance under section 14A cannot be made if no exempt income is received.

3. The Revenue argued that the CIT(A) erred in deleting the addition under section 14A, while the assessee supported the CIT(A)’s decision based on the judicial precedents. The Tribunal examined the submissions and upheld the CIT(A)’s decision, stating that since no exempt income was earned by the appellant, the disallowance made by the Assessing Officer was not sustainable.

4. The Tribunal found no infirmity in the CIT(A)’s decision, as the Revenue failed to establish that the assessee had earned dividend income during the relevant year. The Tribunal affirmed the CIT(A)’s finding based on the decisions of the Hon’ble Delhi High Court and dismissed the Revenue’s appeal.

5. In conclusion, the Tribunal dismissed the Revenue’s appeal, upholding the CIT(A)’s decision to delete the disallowance under section 14A r.w. Rule 8D due to the absence of exempt income earned by the assessee during the relevant year.