2021 (7) TMI 670 - AT - Income Tax

Tribunal upholds CIT(A)'s decision on disallowance under section 14A

The Tribunal upheld the Commissioner of Income Tax (Appeals)' decision to delete the disallowance under section 14A of the Income Tax Act due to the ... Disallowance u/s. 14A - assessee has made certain investments in shares and since those investments have yielded or may yield income in the form of dividend, long term capital gain etc, which does not found part of income of the assessee and therefore the expenditure was required to be disallowed under the provisions of Section 14A - CIT-A deleted the addition - HELD THAT:- We find that CIT(A) deleted the addition made by AO u/s. 14A by observing the fact that no dividend income has been earned by the assessee during the year under consideration and in the absence of any dividend income, the disallowance u/s. 14A is not called for. CIT(A) had also relied on the decision rendered by the Hon'ble Delhi High Court in the case of Cheminvest Ltd. [2015 (9) TMI 238 - DELHI HIGH COURT] and Taikisha Engineering India Ltd. [2014 (12) TMI 482 - DELHI HIGH COURT] As before us, no fallacy in the findings of CIT(A) has been pointed out by the Revenue nor Revenue has placed on record any contrary binding decision in its support. In such a situation, we find no reason to interfere with the order of CIT(A), thus the grounds of Revenue are dismissed. Issues:1. Disallowance under section 14A of the Income Tax Act.2. Interpretation of legal requirements for application of section 14A.3. Nexus between expenditure and earning of exempt income.4. Consideration of legislative intent and legal principles.5. Justification for disallowance under section 14A without exempt income.6. Admissibility of appeal grounds alteration.Analysis:1. The appeal pertained to the disallowance made by the Assessing Officer (AO) under section 14A of the Income Tax Act, relating to the Assessment Year 2012-13. The AO disallowed an amount of Rs. 2,57,35,700 under section 14A, as the assessee had made investments that could yield exempt income like dividends and long-term capital gains. The Commissioner of Income Tax (Appeals) (CIT(A)) later deleted this disallowance, citing the absence of any dividend income earned by the assessee during the relevant year.2. The Revenue contended that the CIT(A) erred in deleting the disallowance under section 14A, questioning the legal requirement for the application of this section concerning the purpose of making investments and earning tax-exempt income. The CIT(A) based the deletion of the disallowance on the absence of any dividend income earned by the assessee, supported by previous court decisions.3. The issue of the nexus between the expenditure incurred and the earning of exempt income under section 14A was raised. The Revenue argued that the CIT(A) did not consider the legislative intent behind introducing section 14A and failed to uphold the disallowance. However, the CIT(A) justified the deletion of the disallowance by emphasizing the absence of exempt income and relying on legal principles regarding the allowability of expenditure.4. The Revenue further contended that the CIT(A) did not consider the legal principle that expenditure under the Act is not conditional upon the earning of income, citing a Supreme Court decision. The CIT(A), in support of his decision, referenced judgments by the Hon'ble Delhi High Court, emphasizing the absence of exempt income as a basis for not making the disallowance under section 14A.5. During the hearing, the Revenue failed to point out any fallacy in the CIT(A)'s findings or provide contrary binding decisions. Consequently, the Tribunal found no reason to interfere with the CIT(A)'s order and dismissed the grounds raised by the Revenue, upholding the deletion of the disallowance under section 14A due to the absence of dividend income.6. The Tribunal dismissed the appeal of the Revenue, affirming the decision of the CIT(A) to delete the disallowance under section 14A based on the absence of exempt income during the relevant assessment year. The order was pronounced on 08.07.2021, with no alterations to the grounds of appeal allowed.