2018 (2) TMI 164 - AT - Income Tax

Tribunal Upholds CIT(A)'s Decision on Disallowance of Expenses under Section 14A

The Tribunal upheld the CIT(A)'s decision to delete the disallowance of expenses amounting to &8377;1,08,61,430 under section 14A of the Act, as there ... Disallowance u/s 14A - Held that:- As observed from the assessee’s Profit & Loss Account that there is only one item of expenditure of ₹ 6,230/- which has been booked in the accounts and there is no exempt income earned by the assessee. We find that the question of disallowance u/s 14A when there is no exempt income is no more res integra in view of the judgment in the case Cheminvest Ltd. vs. CIT (2015 (9) TMI 238 - DELHI HIGH COURT), wherein it has been held that if there is no exempt income, there can be no question of making any disallowance u/s 14A. - Decided in favour of assessee. Issues:1. Disallowance of expenses under section 14A of the Act.Analysis:The appeal and cross objection in this case revolve around the order passed by the CIT(A) concerning the assessment year 2013-14. The Revenue's appeal challenges the deletion of a disallowance of &8377; 1,08,61,430 made by the Assessing Officer under section 14A of the Act. The facts reveal that the assessee, engaged in hospitality business, obtained a loan and made investments in subsidiary companies. The Assessing Officer disallowed the amount, suspecting it was for earning exempt income, resulting in a disallowance of &8377; 1,08,67,661. However, the CIT(A) overturned this decision, noting that no exempt income was earned during the year.Upon reviewing the submissions and evidence, the Tribunal observed that the assessee's Profit & Loss Account showed only one expenditure of &8377; 6,230 with no exempt income earned. Citing precedents like Cheminvest Ltd. vs. CIT and CIT vs. Holcim India P. Ltd., the Tribunal upheld the CIT(A)'s decision, emphasizing that disallowance under section 14A is not applicable in the absence of exempt income. Consequently, the disallowance was deemed unjustified, and the view taken by the CIT(A) was affirmed.The assessee's Cross Objection challenged certain aspects of the disallowance under section 14A. However, since the disallowance was entirely deleted based on the legal aspect of the absence of exempt income, the Cross Objection was considered moot. As a result, both the appeal and the Cross Objection were dismissed, concluding the matter as per the legal findings and precedents cited in the judgment.