2021 (9) TMI 1037 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - whether any exempt income had been earned during the financial year or not? - HELD THAT - Neither the Assessing Office nor the Ld. CIT(A) has disputed the claim of the assessee that no exempt income was earned by the assessee during the relevant previous year corresponding to Assessment Year 2014-15, to which this present appeal pertains. On perusal of the materials on record, we find nothing contrary to claim of the assessee that the assessee had not earned any exempt income during the year. It can therefore be inferred that the assessee had not earned any exempt income during the year. No disallowance under Section 14A of I.T. Act is attracted if the assessee has not earned any exempt income during the year. Respectfully following the aforesaid orders of Hon ble Delhi High Court in the cases of CIT vs. Holcim India Pvt. Ltd. 2014 (9) TMI 434 - DELHI HIGH COURT and Cheminvest Ltd. Vs. ACIT 2014 (9) TMI 434 - DELHI HIGH COURT we set aside the order of the Ld. CIT(A) and direct the Assessing Officer to delete the aforesaid disallowance - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under Section 14A of Income Tax Act, 1961.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeal) for Assessment Year 2014-15. The only issue in this case was the disallowance of ?26,61,443 under Section 14A of the Income Tax Act. The Assessing Officer observed that the assessee had shown investments in equity shares in Techno Automobiles and asked for justification regarding the applicability of Section 14A. The assessee contended that no exempt income was earned during the assessment year. However, the Assessing Officer rejected this explanation, stating that disallowance under Section 14A is necessary regardless of earning exempt income during the financial year.

The Assessing Officer proceeded with the disallowance under Section 14A and Rule 8D of Income Tax Rules. The assessee appealed to the Ld. CIT(A) reiterating that no disallowance could be made under Section 14A as no exempt income was earned. The Ld. CIT(A) upheld the disallowance. The ITAT, after considering the submissions, noted that the assessee had not earned any exempt income during the relevant year. Citing previous court judgments, the ITAT ruled in favor of the assessee, directing the Assessing Officer to delete the disallowance amount. The ITAT clarified that if Revenue found any exempt income earned by the assessee, they could request a recall of the order.

In conclusion, the ITAT allowed the appeal by the assessee, setting aside the disallowance under Section 14A. The order was signed and pronounced in the presence of the Senior Departmental Representative for Revenue.