2025 (1) TMI 167 - AT - Income Tax

No disallowance under Section 14A read with Rule 8D when assessee earned no exempt income during relevant year

DCIT, Circle-7, Pune Versus John Deere India Private Limited

ITAT PUNE dismissed Revenue's appeal regarding addition under Section 14A read with Rule 8D. The assessee had not received any exempt income during the ... Addition u/s 14A r.w.r. 8D - no exempt income is earned - HELD THAT:- Since admittedly the assessee has not received any exempt income during this year, therefore, respectfully following the above decision passed by the Jurisdictional Tribunal [2024 (10) TMI 479 - ITAT PUNE] & in absence of any adverse material brought on record by the revenue, we are of the considered opinion that no addition is called for u/s 14A r.w. Rule 8D of the IT Rules. We therefore do not find any infirmity in the order passed by Ld. CIT(A). Accordingly, the same is upheld. Appeal filed by the Revenue is dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe primary legal issue in this case revolves around the applicability of Section 14A of the Income Tax Act, 1961, read with Rule 8D of the Income Tax Rules, 1962. Specifically, the court considered whether disallowance under Section 14A is warranted when no exempt income is earned during the relevant assessment year.2. ISSUE-WISE DETAILED ANALYSIS- Relevant legal framework and precedents:The case primarily concerns the interpretation of Section 14A of the Income Tax Act, which deals with the disallowance of expenditure incurred in relation to income that does not form part of the total income. Rule 8D provides the method for determining the amount of expenditure to be disallowed. The relevant precedents include the Supreme Court judgment in CIT vs. Chettinad Logistics Pvt. Ltd., which held that no disallowance under Section 14A is permissible if no exempt income is earned during the assessment year.- Court's interpretation and reasoning:The court interpreted Section 14A in conjunction with the precedents set by higher courts, emphasizing that the disallowance under Section 14A is not applicable in the absence of exempt income. The court relied heavily on the Supreme Court's decision in Chettinad Logistics, which clarified that the purpose of Section 14A is to disallow expenses related to exempt income, and if no such income is present, the section cannot be invoked.- Key evidence and findings:The key evidence presented was the financial records of the assessee, which showed that the investments were made from the assessee's own funds and that no exempt income, such as dividends, was earned during the assessment year. The CIT(A) found that the assessee had sufficient interest-free funds to cover the investments, negating the need for disallowance under Section 14A.- Application of law to facts:The Tribunal applied the legal principles from the Chettinad Logistics case to the facts at hand, concluding that since the assessee did not earn any exempt income during the relevant year, the disallowance under Section 14A was not justified. The Tribunal also noted that the investments were made from the assessee's own funds, further supporting the non-applicability of Section 14A.- Treatment of competing arguments:The Revenue argued for the disallowance under Section 14A, relying on the Assessing Officer's application of Rule 8D. However, the Tribunal found that the Revenue did not provide any material evidence to counter the assessee's claim of having sufficient own funds and the absence of exempt income. The Tribunal upheld the CIT(A)'s decision, which was consistent with prior decisions in the assessee's own case for earlier assessment years.- Conclusions:The Tribunal concluded that no disallowance under Section 14A was warranted as the assessee did not earn any exempt income during the assessment year. The Tribunal dismissed the Revenue's appeal and upheld the CIT(A)'s order deleting the disallowance.3. SIGNIFICANT HOLDINGS- Preserve verbatim quotes of crucial legal reasoning:'In absence of any exempt income, no disallowance can be made u/s 14A of the Act.'- Core principles established:The core principle established is that Section 14A cannot be invoked in the absence of exempt income. The Tribunal reinforced the precedent that the purpose of Section 14A is to disallow expenses related to exempt income, and if no such income is present, the section is inapplicable.- Final determinations on each issue:The Tribunal determined that the CIT(A) correctly deleted the disallowance under Section 14A, as the assessee did not earn any exempt income during the assessment year. The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s order.