TaxTMI 
TaxTMI 
2015 (3) TMI 192
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....come Tax (Appeals) deleted the disallowance holding that assessee has not derived income out of investments and investments are made from his own source which did not suffer any interest. The Commissioner of Income Tax (Appeals) also observed that Assessing Officer should have excluded share application money from the working of the qualifying amount. Therefore Commissioner of Income Tax (Appeals) following the ratio of the decision in the case of Hero Cycles Ltd. (320 ITR 518) deleted the disallowance made under section 14A of the Act. 3. Departmental Representative relying on the decision of the Special Bench of the Tribunal in the case of Cheminvest Ltd.. Vs. ITO (121 ITD 318) submits that even if the assessee has not earned any exempt income, still disallowance under section 14A read with Rule 8D has to be made and it is mandatory. Departmental Representative also places reliance on Circular No.5/2014 dated 11.2.2014 issued by CBDT and submits that even in the case of the assessee not receiving any exempt income during the financial year still the disallowance under section 14A has to be made. Counsel for the assessee submits that assessee has not received any exempt income ....
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.....14A is permissible." 6. The High Court while answering the said question held as under:- "As regards the second question, Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A), which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of Rs. 2,03,752/- made by the Assessing Officer was in order." 7. The Gujarat High Court in the case of CIT Vs. Corrtech Energy Pvt.Ltd.(supra) held as under:- "We have given our thoughtful cons....
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....t context. In the present case, admittedly the assessee did not make any claim for exemption. In such a situation section 14A could have no application." 5. We do not find any question of law arising, Tax appeal is therefore dismissed." 8. The Hon'ble Bombay High Court in the case of CIT Vs. Delite Enterprises(supra) held as under:- "The Revenue is in appeal on the following questions:- "Whether on the facts and in the circumstance of the case and in law the Hon'ble Tribunal was right in deleting the disallowance made by the Assessing Officer of interest paid by the Assessee Company on borrowed funds amounting to Rs. 241.10 lakhs overlooking the fact that the borrowed funds were used by the Assessee Company to invest in the Capital of another Partnership Firm and since profits derived by the Assessee Company from a Partnership firm were exempt from tax u/s. 10(2A) of the Income-tax Act, the interest expense related to such tax free profits is to be disallowed u/s.14A of the Income Tax Act? (B) Whether on the facts and in the circumstance of the case and in law the Hon'ble Tribunal was right in holding that the Assessing Officer cannot ....
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....unless and until, there is receipt of exempted income for the concerned assessment years (dividend from shares), we are of the view, Section 14A of the Act cannot be invoked. In this appeal, the revenue has not dispelled the findings of the CIT(A), nor the statement of the assessee before AO that assessee is not in receipt of any dividend income and hence according to us, the Assessing Officer has erred in invoking Section 14A of the Act, to disallow various interest payments on capital account, security deposits and unsecured loans. This conclusion of ours finds support in the decision of Bombay Bench of the Tribunal in the case of Joint Commissioner of Income Tax v. Holland Equipment Co. B.V. reported in (2005) 3 SOT 810 (Mumbai) and the relevant portion of the order of the Bombay Bench of the Tribunal is reproduced below:- 'Regarding application of Section 14A of the Act, the contention of the learned Department Representative has to be rejected on the face of it inasmuch as the entire income of the assessee is taxable under the Act. Section 14A is applicable only when any part of the income is not to be included in the total income of the assessee and the expenditu....