Tribunal allows expenses claim, citing lack of exempt income & sufficient funds.

M/s Goel Zenith Agro (P) Ltd. Versus Dy. Commissioner of Income Tax, Circle- (2), Raipur

M/s Goel Zenith Agro (P) Ltd. Versus Dy. Commissioner of Income Tax, Circle- (2), Raipur - TMI Issues:
Disallowance of expenses under section 14A r.w.r. 8D for A.Y. 2012-13.

Analysis:
The appeal arose from the order of the Commissioner of Income-Tax (A)-I, Raipur for A.Y. 2012-13. The appellant, a company engaged in wholesale trading of iron and steel products, filed a return of income declaring total income of Rs. 29,47,390. Upon scrutiny, the assessment framed by the Assessing Officer determined the total income at Rs. 36,46,080. The appellant contested this before the Ld. CIT(A), who dismissed the appeal. The appellant then raised grounds challenging the disallowance of Rs. 6,98,691 on account of inadmissible expenses under section 14A r.w.r. 8D. The key issue revolved around whether the provisions of section 14A were applicable when no exempt income had been earned during the year.

During the assessment proceedings, the Assessing Officer noted the appellant's investment in shares of Nakoda Ispat Ltd. The appellant contended that no exempt income had been earned, hence section 14A should not apply. However, the Assessing Officer disallowed the interest expenditure and invoked section 14A r.w. Rule 8D. The Ld. CIT(A) upheld this decision, emphasizing that section 14A does not require the exempt income to be earned during the relevant assessment year. The appellant's argument that the investment was made out of business expediency and own funds was rejected.

In the appellate tribunal, the appellant reiterated that since no exempt income was earned, no disallowance under section 14A should be made. The appellant also argued that the interest disallowance should be deleted as they had sufficient interest-free funds. The tribunal considered precedents where courts held that section 14A does not apply when no exempt income is earned, and when interest-free funds exceed investments. Citing the decisions of various High Courts, the tribunal concluded that no disallowance under section 14A was warranted in the present case. The appeal of the assessee was allowed, and the disallowance was set aside.

In summary, the tribunal ruled in favor of the appellant, holding that no disallowance under section 14A was justified as no exempt income was earned during the year, and the appellant had adequate interest-free funds exceeding the investments. The tribunal's decision was based on established legal principles and precedents from various High Courts, ultimately leading to the allowance of the appeal.