2019 (6) TMI 1674 - AT - Income Tax

Tribunal Upholds Deletion of Disallowance Under Section 14A Due to Lack of Exempt Income

Asst. Commissioner of Income Tax– 6 (2) (1) Aayakar Bhavan, Mumbai Versus M/s. Essel Utilities Distribution Co. Ltd.

The Tribunal dismissed the Revenue's appeal, upholding the deletion of disallowance under Section 14A as the assessee did not earn any exempt income ... Disallowance u/s 14A r.w.r. 8D - as argued no exempt income earned by assessee - CIT-A deleted the addition - HELD THAT:- It is an undisputed fact that during this Assessment Year assessee did not receive any exempt income. When no exempt income is received by the assessee, whether there can be any disallowance u/s. 14A has been considered by the Coordinate Benches of this Tribunal and it has been consistently holding that if there is no exempt income there should not be any disallowance u/s. 14A of the Act - See M/s. Ballarpur Industries Limited [2016 (10) TMI 1039 - BOMBAY HIGH COURT] as held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income. It is not in dispute that the assessee has not earned any exempt income during this Assessment Year, therefore in the absence of any exempt income there shall not be any disallowance u/s. 14A - Decided in favour of assessee. Issues: Deletion of disallowance made u/s.14A r.w. Rule 8D of I.T. Rules.Analysis:The appeal filed by the Revenue was against the order of the Learned Commissioner of Income Tax (Appeals)-12, Mumbai for the A.Y. 2013-14, specifically challenging the deletion of disallowance made u/s. 14A r.w. Rule 8D of I.T. Rules. The Assessing Officer disallowed an amount under Rule 8D(2)(ii) and Rule 8D(2)(iii), which was subsequently deleted by the Ld.CIT(A) on the grounds that the assessee did not earn any exempt income during the year. The Revenue contended that the disallowance should stand, but since no one appeared on behalf of the assessee, the issue was disposed of after hearing the Ld.DR who supported the orders of the authorities below.The Ld.CIT(A) based the deletion of disallowance on the fact that the appellant did not earn any income by way of dividends during the year from the investments held, citing various High Court and ITAT decisions in favor of the assessee when no tax-exempt income was received. The Tribunal noted that it has consistently held that if no exempt income is received, there should be no disallowance u/s. 14A. Referring to a specific case, it was highlighted that the provisions of Section 14A would not apply if no exempt income was received or receivable during the relevant previous year by the assessee.Furthermore, the Tribunal referenced a case where the Hon'ble Bombay High Court affirmed a decision that no substantial question of law arose when there was no exempt income earned by the assessee. The High Court emphasized that for the provisions of Section 14A to apply, there should be an actual receipt of income not included in the total income during the relevant previous year. Since the assessee did not earn any exempt income, the disallowance u/s. 14A was deemed unwarranted. The Tribunal upheld the order of the Ld.CIT(A) based on the absence of any exempt income during the Assessment Year, in line with previous judicial decisions.In conclusion, the Tribunal dismissed the appeal of the Revenue, affirming the decision to delete the disallowance made u/s. 14A due to the absence of any exempt income earned by the assessee during the relevant year. The judgment highlighted the importance of actual receipt of exempt income for the provisions of Section 14A to apply, ultimately leading to the rejection of the Revenue's appeal.