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2022 (7) TMI 23 - AT - Income TaxAddition u/s 14A r.w.r 8D - HELD THAT - As assessee did not have any tax exempt income during the relevant previous year and that the period before us pertains to the period prior to insertion of explanation to section 14A. In this view of the matter, and in the light of consistent stand by co-ordinate benches, following Hon ble Delhi High Court s judgment in the case of Cheminvest Ltd vs CIT 2015 (9) TMI 238 - DELHI HIGH COURT we uphold the plea of the assessee that no disallowance under section 14A was and in the circumstances of the case. The plea of the Assessing Officer is thus rejected. As regards the disallowance it is sustained on the basis of computation given in the alternative plea of the assessee, but given the fact that the basic plea of non-disallowance itself was to be upheld, there was no occasion to consider the computation given in the alternative plea. This disallowance must also be deleted. - Decided in favour of assessee.
Issues:
- Disallowance under section 14A for expenses incurred to earn tax-exempt income. - Justification for deleting the disallowance made by the Assessing Officer. - Applicability of Rule 8D in determining the disallowance amount. Issue 1: Disallowance under section 14A for expenses incurred to earn tax-exempt income: The appeals were against the order by the CIT(A) regarding assessment under section 143(3) of the Income Tax Act, 1961, for the assessment year 2016-17. The Assessing Officer made a disallowance under Rule 8D read with Section 14A for expenses incurred to earn tax-exempt income, amounting to Rs. 11,87,85,293. The CIT(A) restricted the disallowance to Rs. 9,87,978 based on various legal arguments and precedents. The assessee argued that no disallowance should be made in the absence of earning any exempt income. The Assessing Officer contended that the disallowance should not have been deleted without considering specific judgments. The Tribunal considered the legal position and upheld the assessee's plea that no disallowance under section 14A was justified due to the absence of tax-exempt income during the relevant year. The disallowance of Rs. 9,87,978 was also deleted. Issue 2: Justification for deleting the disallowance made by the Assessing Officer: The CIT(A) based the decision on the legal position established by the Delhi High Court and the Supreme Court, which held that no disallowance can be made when no exempt income is earned. The Tribunal concurred with this view and rejected the Assessing Officer's plea. The Tribunal emphasized that since there was no tax-exempt income, the disallowance under section 14A was not warranted. Therefore, the Tribunal ruled in favor of the assessee, leading to the deletion of the disallowance amount. Issue 3: Applicability of Rule 8D in determining the disallowance amount: The Tribunal noted that the period under consideration was before the insertion of an explanation to section 14A. In light of this and consistent decisions by co-ordinate benches, the Tribunal upheld the assessee's plea that no disallowance under section 14A was justified. The Tribunal also mentioned that the disallowance of Rs. 9,87,978, based on an alternative computation provided by the assessee, should be deleted since the primary plea of non-disallowance was upheld. Therefore, the Tribunal concluded that no disallowance under section 14A was warranted, and the remaining disallowance amount was to be deleted. In conclusion, the Tribunal dismissed the appeal of the Assessing Officer and allowed the appeal of the assessee. The judgment emphasized the legal position regarding disallowance under section 14A in cases where no tax-exempt income was earned, leading to the deletion of the disallowance amount imposed by the Assessing Officer.
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