2015 (6) TMI 1168 - AT - Income Tax

Disallowance under Section 14A requires corresponding exempt income. Precedent set in important appeal decision.

The Tribunal allowed the appeal by the assessee, emphasizing that in the absence of any exempt income, no disallowance under Section 14A of the Income-tax ... Disallowance u/s 14A - no exempt income was earned - Held that:- It is observed from the submissions made by the assessee before the AO that no exempt income was earned during the year. This contention raised by the assessee has not been rebutted by the AO. Despite that, the AO proceeded to compute disallowance u/s 14A read with Rule 8D. In the absence of any exempt income, there can be no disallowance u/s 14A. Hon’ble jurisdictional High Court in CIT vs. Holcim India Pvt. Ltd. (2014 (9) TMI 434 - DELHI HIGH COURT) has held that no disallowance u/s 14A can be made in the absence of any exempt income - Decided in favour of assessee Issues: Disallowance under Section 14A of the Income-tax Act, 1961 without any exempt income earned during the relevant year.Analysis:1. Issue of Disallowance under Section 14A: The case involved the disallowance under Section 14A of the Income-tax Act, 1961. The Assessing Officer (AO) required the assessee to provide details regarding disallowance u/s 14A read with Rule 8D during the assessment proceedings. The assessee clarified that no investments were made to earn exempt income and no such income was earned during the year. The AO still proceeded to make a disallowance of &8377; 45,46,631. The ld. CIT(A) upheld this decision, leading to the appeal by the assessee against the addition.2. Legal Analysis: The Tribunal analyzed the facts and legal precedents in detail. Despite the assessee's assertion of not earning any exempt income during the year, the AO computed the disallowance u/s 14A. The Tribunal referred to the decision in CIT vs. Holcim India Pvt. Ltd. where it was held that no disallowance u/s 14A can be made in the absence of any exempt income. Additionally, in Joint Investments Pvt. Ltd. Vs. CIT, it was established that the disallowance u/s 14A cannot exceed the exempt income. As the assessee did not earn any exempt income in the relevant year, the Tribunal concluded that no disallowance u/s 14A could be justified.3. Judgment: After considering the submissions and legal precedents, the Tribunal allowed the appeal by the assessee. The Tribunal emphasized that in the absence of any exempt income, no disallowance u/s 14A could be made. The decision was pronounced in favor of the assessee on 19th June 2015. This judgment serves as a significant precedent for cases involving disallowance under Section 14A without any corresponding exempt income earned during the relevant assessment year.