2018 (6) TMI 1461 - AT - Income Tax

Appeal dismissed on disallowance under sec. 14A without exempt income.

The Tribunal dismissed the appeal by the Revenue and the Cross Objections by the assessee, affirming the CIT(A)'s order regarding the disallowance under ... Disallowance u/s 14A - Held that:- Addition should not be made unless and until there is a receipt of exempt income for the assessment year under consideration, and for that, we rely on the case of Cheminvest Ltd. vs. CIT (2015 (9) TMI 238 - DELHI HIGH COURT), wherein it was held that no disallowance under section 14A can be made in a year in which no exempt income had been earned or received by the assessee. The expression ‘does not from part of total income’ in section 14A envisages that there should be an actual receipt of income, which was not includible in the total income, during the relevant previous year for the purpose disallowing any expenditure incurred in relation to the said income, therefore, section 14A would not apply if no exempt income was received during the relevant previous year. That being so, we decline to interfere in the order passed by the CIT(A), his order on this issue is hereby upheld and the ground of appeal raised by the Revenue is dismissed. Issues:- Disallowance under sec. 14A r.w.rule 8D- Computation of disallowance u/s 14A r.w.r. 8D- Applicability of section 14A in absence of exempt incomeAnalysis:Issue 1: Disallowance under sec. 14A r.w.rule 8DThe appeal filed by the Revenue and the Cross Objections by the assessee pertain to the Assessment Year 2012-13 and challenge the order passed by the ld. CIT(A)-12, Mumbai. The Revenue contends that the disallowance under sec. 14A should not have been deleted by the CIT(A) despite the absence of exempt income, citing a CBDT circular. The assessee, on the other hand, argues that the disallowance was incorrectly computed by the Assessing Officer under Rule 8D. The Tribunal notes that both parties have been heard together due to identical issues.Issue 2: Computation of disallowance u/s 14A r.w.r. 8DThe Assessing Officer computed the disallowance under Rule 8D to be Rs. 1,85,38,029, based on interest expenses and administrative expenses. The CIT(A) reversed this decision, emphasizing the absence of exempt income during the assessment year, thereby negating the application of sec. 14A r.w.r 8D. The Tribunal concurs with the CIT(A) and holds that unless there is actual receipt of exempt income, section 14A should not be invoked. It relies on case law to support this position, emphasizing that no disallowance can be made in a year without exempt income.Issue 3: Applicability of section 14A in absence of exempt incomeThe Tribunal further clarifies that section 14A is triggered only when there is exempt income, and the disallowance should not be made without such income. It highlights the principle that the expression 'does not form part of total income' in section 14A necessitates actual receipt of income not included in the total income for disallowing related expenditure. Relying on precedent, the Tribunal upholds the CIT(A)'s decision, dismissing the Revenue's appeal.In conclusion, the Tribunal dismisses the appeal by the Revenue and the Cross Objections by the assessee, affirming the CIT(A)'s order regarding the disallowance under sec. 14A r.w.rule 8D due to the absence of exempt income during the assessment year.