2020 (12) TMI 290 - AT - Income Tax

Tribunal dismisses Revenue's appeal in Section 14A case, citing need for actual expenditure and exempt income presence.

The Tribunal, in a case involving an appeal against the deletion of an addition made under Section 14A read with Rule 8D of the Income Tax Act, dismissed ... Disallowance u/s 14A read with Rule 8D - assessee has incurred huge expenses in relation to the huge investments in shares and mutual funds - HELD THAT:- It is clear from the records that that there was no exempt income attributable in the hands of the assessee. Therefore, applying Section 14A read with Rule 8D is not appropriate on part of Assessing Officer. CIT(A) rightly held that no expenditure can be disallowed against Nil exempt income and this view is also supported by the decision of the Jurisdictional High Court of Delhi in case of CIT Vs. Holcim India Pvt. Ltd. [2014 (9) TMI 434 - DELHI HIGH COURT] and Chemnvest Investment Ltd.[2015 (9) TMI 238 - DELHI HIGH COURT]. The Hon’ble Apex Court has clearly set out in Maxopp Investment Ltd.[2018 (3) TMI 805 - SUPREME COURT] that the expenditure should be actually incurred and there should be exempt income. But in assessee case there is a clear finding by Assessing Officer as well as by the CIT(A) that there is no exempt income. Therefore, the appeal of the Revenue is dismissed. Issues Involved:Appeal against deletion of addition made on account of disallowance u/s 14A read with Rule 8D of the Act by CIT(A) for Assessment Year 2013-14.Analysis:1. Background and Assessment Proceedings:The appellant, a Non-Banking Financial Institution, filed its return of income declaring a loss and claiming a refund. The Assessing Officer completed assessment proceedings and determined the loss after adjustments. The appellant then filed an appeal before the CIT(A) challenging the assessment order.2. Disallowance under Section 14A and Rule 8D:The main issue in the appeal was the addition of a significant amount on account of disallowance under Section 14A read with Rule 8D of the Income Tax Act. The Revenue contended that the CIT(A) erred in deleting this addition, arguing that the appellant had incurred substantial expenses related to investments in shares and mutual funds. The Revenue relied on the decision of the Supreme Court in the case of Maxopp Investment Ltd. vs. CIT.3. Arguments and Legal Precedents:The Revenue, represented by the Ld. DR, emphasized the expenses incurred by the appellant and the legal requirement for disallowance under Section 14A. In response, the Ld. AR for the appellant referred to the absence of exempt income during the assessment year and cited judgments from the Hon'ble Delhi High Court to support the position that no expenditure should be disallowed against nil exempt income.4. Decision and Reasoning:After considering the arguments and reviewing the case records, the Tribunal found that there was no exempt income attributable to the appellant. Consequently, the Tribunal agreed with the CIT(A) that applying Section 14A read with Rule 8D was not appropriate in this case. The Tribunal also noted the requirement for actual expenditure and the presence of exempt income, as outlined by the Supreme Court in the Maxopp Investment Ltd. case. Since there was no exempt income in the appellant's case, the appeal of the Revenue was dismissed.5. Final Outcome:The Tribunal pronounced the order on August 27, 2020, dismissing the appeal of the Revenue. The decision highlighted the importance of actual expenditure and the existence of exempt income in determining the applicability of disallowance under Section 14A read with Rule 8D of the Income Tax Act.