2022 (7) TMI 485 - AT - Income Tax

Tribunal upholds CIT(A) decision on Revenue's appeal, no disallowance under Section 14A required.

DCIT, Circle - 25 (2) New Delhi Versus Transcend Infrastructure Pvt. Ltd.

The Tribunal upheld the CIT(A)'s decision, dismissing the Revenue's appeal. As the assessee did not earn any exempt income during the relevant assessment ... Disallowance u/s 14A - CIT(A) while deleting the addition made by the AO has noted that assessee has not earned any exempt income during the year under consideration - HELD THAT:- Revenue has not placed any material on record to demonstrate that the findings of the CIT(A) that assessee has not earned any exempt income is factually incorrect. We further find that CIT(A) while deleting the addition had relied on the decision of Jurisdictional High Court in the case of Cheminvest Ltd. [2015 (9) TMI 238 - DELHI HIGH COURT] AND IL & FS Energy Development [2017 (8) TMI 732 - DELHI HIGH COURT] As held that the expression 'does not form part of the total income' in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year. As far as reliance placed by Revenue on CBDT Circular dated 11.02.2014 is concerned, we find that Hon'ble Delhi High Court in the case of IL & FS Energy Development Co. Ltd.(supra) has held that the CBDT Circular dated 11th May 2014 cannot override the expressed provisions of Section 14A read with Rule 8D. Further the decisions relied upon in written submissions made by Learned DR are not applicable to the present facts. Considering the totality of the aforesaid facts, we find no reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed. Issues Involved:1. Disallowance under Section 14A of the Income Tax Act.2. Applicability of CBDT Circular No. 5/2014.Detailed Analysis:1. Disallowance under Section 14A of the Income Tax Act:The primary issue revolves around the disallowance of Rs. 11,37,85,368/- under Section 14A of the Income Tax Act, 1961. The Assessing Officer (AO) had made this disallowance based on the assessee's investment in equity shares, applying Rule 8D. The AO contended that the assessee had not disallowed any expenditure in relation to the exempt income, thereby invoking Section 14A.The Commissioner of Income Tax (Appeals) [CIT(A)], however, deleted the disallowance. CIT(A) noted that the assessee had not earned any exempt income during the relevant assessment year. CIT(A) relied on various judicial precedents, including the decision of the Jurisdictional High Court in CIT vs. I.P. Support Services India (P) Ltd., which held that the invocation of Section 14A is not automatic and requires the AO's satisfaction that the voluntary disallowance made by the assessee is unreasonable. CIT(A) further cited the case of Cheminvest Ltd. vs. CIT, where it was held that if no exempt income is earned, no disallowance under Section 14A is warranted.2. Applicability of CBDT Circular No. 5/2014:The Revenue, represented by the CIT-D.R., argued that even if no exempt income is earned, disallowance under Section 14A can still be made, relying on CBDT Circular No. 5/2014. The Circular clarifies that disallowance can be made even if no exempt income is earned during the financial year.However, the Tribunal noted that the Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs. CIT had held that Section 14A envisages actual receipt of income not includible in the total income during the relevant previous year. The Tribunal also referred to the decision in IL & FS Energy Development vs. PCIT, where it was held that the CBDT Circular cannot override the express provisions of Section 14A read with Rule 8D.Conclusion:The Tribunal upheld the order of CIT(A), dismissing the Revenue's appeal. It was concluded that since the assessee had not earned any exempt income during the relevant assessment year, no disallowance under Section 14A was warranted. The Tribunal found no reason to interfere with the CIT(A)'s order, which was based on established judicial precedents and the factual matrix of the case.Final Order:The appeal of the Revenue was dismissed, and the order was pronounced in the open court on 29.06.2022.