Section 14A disallowance under Rule 8D not applicable where no exempt income arose; deletion confirmed on appeal.

The central issue was whether a disallowance under Section 14A, computed by the AO under Rule 8D, was sustainable where the assessee held investments but received no exempt income in the year. Applying the statutory scheme and Circular No. 5/2014, the appellate authority concluded that Rule 8D disallowance is not warranted in absence of exempt income; the CIT(A) deleted the disallowance and that deletion was upheld on appeal, with the Revenue's challenge dismissed.

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Issues: Whether the deletion of disallowance of Rs. 5,00,00,000 made by the Assessing Officer under Section 14A read with Rule 8D of the Income-tax Rules, 1962, in respect of investments made by the assessee for assessment year 2018-19, was correctly sustained by the Commissioner of Income Tax (Appeals).

Analysis: The issue engages the statutory framework governing disallowance of expenditure in relation to exempt income, specifically Section 14A of the Income-tax Act, 1961 and the computation methodology prescribed by Rule 8D of the Income-tax Rules, 1962, as well as the relevant administrative guidance in Circular No. 5/2014 dated 11.02.2014. The factual matrix shows the assessee held investments during the relevant year but did not receive any exempt income in that year. Established principle under the cited statutory and administrative framework is that where no exempt income is received or receivable in the relevant period, no disallowance under Section 14A is warranted; the appellate authority applied that principle in allowing relief to the assessee and deleted the disallowance computed by the Assessing Officer under Rule 8D.

Conclusion: The deletion of the Section 14A disallowance by the Commissioner of Income Tax (Appeals) is upheld; the Revenue's appeal is dismissed and the disallowance of Rs. 5,00,00,000 is not sustained.

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