2019 (6) TMI 599 - AT - Income Tax

Tribunal dismisses Revenue's appeal on section 14A addition under Income Tax Act

The Tribunal upheld the order of the CIT(A) and dismissed the Revenue's appeal regarding the addition under section 14A of the Income Tax Act. The ... Disallowance u/s 14A r.w.r. 8D - expenditure incurred for earning of tax exempt income - HELD THAT:- It is an undisputed fact that the assessee has not earned tax exempt income during the year. We find that the issue is now squarely covered by the various decisions of the Hon'ble High Courts. Even the different Hon'ble High Courts of the country have been unanimous to hold that no disallowance is attracted u/s 14A in case the assessee has not earned any income not forming part of the total income See WINSOME TEXTILE INDUSTRIES LTD. [2009 (8) TMI 220 - PUNJAB AND HARYANA HIGH COURT], M/S LAKHANI MARKETING INCL [2014 (7) TMI 44 - PUNJAB AND HARYANA HIGH COURT] and CHEMINVEST LIMITED [2015 (9) TMI 238 - DELHI HIGH COURT] - decided in favour of assessee Issues:Appeal against CIT(A) order deleting addition under section 14A of the Income Tax Act.Analysis:The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) I, Ludhiana, challenging the deletion of an addition made by the Assessing Officer under section 14A of the Income Tax Act related to the disallowance of Rs. 2,14,68,549 for expenditure incurred for earning tax-exempt income. The Counsel for the assessee argued that no exempt income was earned from the investments in subsidiary companies, as evidenced by the profit and loss account, and no dividend income was received during the relevant year. The Counsel relied on case laws and the decision of the Jurisdictional High Court, emphasizing that section 14A cannot be applied without actual receipt of exempt income for the assessment year.The Departmental Representative supported the Assessing Officer's order but failed to challenge the factual findings of the CIT(A). The Tribunal noted that the assessee did not earn any tax-exempt income during the relevant year, which was an undisputed fact. Referring to various decisions of High Courts, including the Punjab and Haryana High Court, the Tribunal held that no disallowance under section 14A is warranted if the assessee did not earn any income not forming part of the total income. The Tribunal cited precedents from different High Courts affirming this principle, such as the Delhi High Court and the Gujarat High Court, among others.Consequently, since the assessee did not generate any tax-exempt income, the Tribunal concluded that no disallowance under section 14A should be imposed. The Tribunal upheld the order of the CIT(A) and dismissed the Revenue's appeal. The judgment was delivered on June 3, 2019, and the appeal of the Revenue was allowed.