2018 (5) TMI 509 - AT - Income Tax

Tribunal rules no disallowance under Section 14A without exempt income.

The Tribunal ruled in favor of the assessee, directing the Assessing Officer to delete the disallowance made under Section 14A of the Income Tax Act. The ... Disallowance u/s 14A - Held that:- No disallowance is called for u/s 14A in the absence of exempt income. Accordingly, we confirm the order of the Ld.CIT(A) and dismiss the appeal of the revenue. See case of M/s Rashtriya Ispat Nigam Ltd., Visakhapatnam [2017 (12) TMI 182 - ITAT VISAKHAPATNAM] Issues:Appeal against addition made under Section 14A r.w.r.8D of income tax act for assessment year 2013-14.Analysis:The appeal was filed by the revenue against the order of the Commissioner of Income-Tax (Appeals) regarding the addition made by the Assessing Officer under Section 14A of the Income Tax Act. The assessee had made investments in M/s Vasantha Industries Ltd. and had taken a secured loan from Kotak Mahindra Bank. The Assessing Officer disallowed the interest relatable to the investments made by the assessee, amounting to Rs. 36,40,228 under Section 14A. The CIT(A) deleted this addition as the assessee had not earned any income that was exempt from total income. The revenue appealed this decision, arguing that even though no exempt income was earned, the investments made by the assessee yielded exempt income in the form of dividends and long-term capital gains. The assessee relied on a decision by ITAT Hyderabad Bench in a similar case for the assessment year 2012-13 to support their argument that no disallowance was required under Section 14A.The Tribunal considered the arguments from both parties and examined the facts. It was noted that the assessee had not earned any income that did not form part of the total income during the relevant year, including dividend income. Referring to a decision by the Hon'ble Madras High Court, the Tribunal held that no disallowance under Section 14A is warranted in the absence of exempt income. The Tribunal further emphasized that the provisions of Section 14A are applicable to expenditure incurred for earning exempt income, and since no exempt income was earned, no disallowance should be made. The Tribunal also cited a previous case involving M/s Rashtriya Ispat Nigam Ltd., where a similar view was taken, confirming that no disallowance was necessary in the absence of exempt income. Consequently, the Tribunal upheld the order of the CIT(A) and dismissed the appeal of the revenue.In conclusion, the Tribunal ruled in favor of the assessee, directing the Assessing Officer to delete the disallowance made under Section 14A. The decision was based on the absence of exempt income and aligned with previous judgments and legal interpretations.