TaxTMI 
TaxTMI 
TaxTMI 
2015 (1) TMI 1103
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....d unquoted equity shares. He required the assessee to explain as to why disallowance in terms of provisions of Rule 8D may not be made for addition u/s 14A of the Act. The assessee vide letter dated 4.10.2011 submitted to the AO as under: "The company has made investments in the unquoted shares of its subsidiaries companies which are wholly owned subsidiaries. Hence there is no expenditure required to be incurred to invest in wholly owned subsidiaries. The company had also invested a small sum of Rs. 20,000/- in purchase of shares of a quoted company but that investment was made long back and has been written off in the books as its market value is nil. Hence no income on such investment would accrue to the company and therefore no disallowance is called for u/s 14A." 3. The AO, however, did not find merit in the submissions of the assessee and made a disallowance of Rs. 5,83,124/- by observing that the disallowance u/s 14A is to be made even if no income has resulted or earned by the assessee in the year under consideration. The reliance was placed on the decision of the ITAT Special Bench, New Delhi in the case of M/s Cheminvest Ltd. in ITA No. 87/Del/2008. 4. Being aggrieved ....
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....the provisions of Rule 8D aggregate of all the three disallowance have to be made. He also observed that the contention of the assessee that no disallowance can be made since no exempt income had been earned does not hold good in view of the decision of the ITAT Special Bench Delhi in the case of M/s Chem Invest Ltd. in ITA No. 87/Del/2008 which clearly held that disallowance u/s 14A of the Act has to be made even if no exempt income has been earned by the assessee. He, therefore, confirmed the disallowance made by the AO. 7. Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submissions made before the authorities below and further submitted that as there was no dividend income received by the assessee, the provisions of section 14A of the Act were not applicable and no disallowance was called for. It was further stated that there should have been a positive income for making the disallowance u/s 14A of the Act r.w. Rule 8D of the Income Tax Rules, 1962. The reliance was placed on the following case laws: CIT Vs M/s Lakhani Marketing Incl., in ITA No. 970/2008 (O&M) order dated 02.04.2014 Hon'ble P & H High Court CIT Vs Holcim India (P) Ltd. in ITA N....
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....section 14A of the Act to disallow various interest payments. On a similar issue their lordships of the Hon'ble Punjab High Court in the case of CIT Vs M/s Lakhani Marketing Incl. in ITA No. 970/2008 vide order dated 02.04.2014 observed at paras 9 to 11 as under: "9. The CIT(A) vide order dated 24.6.2004, Annexure A.II recorded as under:- "7.2 Keeping in view the above facts and circumstances of the case it is held that the AO was not correct in applying section 14A of the IT Act in disallowing the expenditure on account of interest amounting to Rs. 46,91,684/-. It was incumbent on the AO to establish a nexus between the expenditure incurred and the income which was exempt under the Act. Facts clearly do not support the action of the AO. Disallowance is accordingly deleted. The AO is directed to recompute the income accordingly." 10. Vide order dated 16.5.2008, Annexure A.III, the Tribunal on appeal by the revenue while upholding the finding recorded by the CIT(A) noticed as under:- "We have heard rival submissions and have perused the material on record. From the reading of section 14A of the Act, it is clear that before making any disallowance the following conditions are to ....
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.... concerning assessment year 2000-01 and 2001-02 and hence the decision of CIT (A) in deleting the disallowance of interest by invoking section 14A of the Act is correct and in accordance with law." 11. In view of the aforesaid findings, which could not be shown to be erroneous, the plea of the revenue cannot be accepted. Further, this Court in Hero Cycles Limited's case (supra) recorded as under:- "5. In view of finding reproduced above, it is clear that the expenditure on interest was set off against the income from interest and the investments in the share and funds were out of the dividend proceeds. In view of this finding of fact, disallowance under section 14A was not sustainable. Whether, in a given situation, any expenditure was incurred which was to be disallowed, is a question of fact. The contention of the revenue that directly or indirectly some expenditure is always incurred which must be disallowed under section 14A and the impact of expenditure so incurred cannot be allowed to be set off against the business income which may nullify the mandate of section 14A, cannot be accepted. Disallowance under section 14A requires finding of incurring of expenditure; where it i....