TaxTMI 
TaxTMI 
2018 (11) TMI 1057
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....s observed: "4. Having heard both the sides and perused the relevant material on record, we find that the legal position is no more res integra in view of the judgment of the Hon'ble jurisdictional High Court in the case Cheminvest Ltd vs. CIT (2015) 378 ITR 33 (Del), wherein it has been held that if there is no exempt income, there can be no question of making any disallowance u/s 14A. Similar view has been taken by the Hon'ble jurisdictional High Court in CIT vs. Holcim India P. Ltd. (2014) 90CCH 081-Del-HC. In view of these binding precedents providing for not making any disallowance u/s 14A in the absence of any exempt income, we hold in principle that no disallowance be made in case of Nil exempt income." 4. The impugned order and reasoning follows the judgment of the Delhi High Court in Cheminvest Ltd. Vs. Commissioner of Income-tax IV [2015] 378 ITR 33 (Delhi) and Commissioner of Income-tax -IV Vs. Holcim India Pvt. Ltd. (2014) 272 CTR 282 (Delhi). Similar view has been taken by several High Court including the Punjab & Haryana High Court in Commissioner of Income-tax, Faridabad Vs. Lakhani Inc. ITA No.970/2008 decided on 2nd April, 2014, the Gujarat High Court in ....
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....enditure would not be allowed. This decision did not directly examine and answer the issue in question i.e. whether any disallowance under Section 14A can be made when the assessee has not earned any exempt income during the year in question. 8. The decision in the case of Maxopp Investment Ltd. (Supra) is significant and does answer the question in issue. This decision does not support the Revenue as the Assessing Officer in the case of Maxopp Investment Ltd. (Supra) had himself restricted the disallowance to the extent of exempt income. After referring to Walford Share and Stock Brokers P. Ltd. (Supra) it was held- "Axiomatically, it is that expenditure alone which has been incurred in relation to the income which is includable in total income that has to be disallowed. If an expenditure incurred has no causal connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is exempted from tax, and such expenditure would be allowed as business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to be treated as part of the total income." ....
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.... to hold that Section 14A cannot be invoked when no exempt income was earned. The second decision is of the Gujarat High Court in Commissioner of Income Tax-I Vs. Corrtech Energy (P.) Ltd. [2014] 223 Taxmann 130 (Guj.). The third decision is of the Allahabad High Court in Income Tax Appeal No. 88 of 2014, Commissioner of Income Tax (Ii) Kanpur, Vs. M/s. Shivam Motors (P) Ltd. decided on 05.05.2014. In the said decision it has been held: "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), ....
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....ot only where exempted income is 'included' in the total income, but also where exempt income is 'includable' in total income. 8. He relied upon a Circular issued by the Central Board of Direct taxes in Circular No. 5 of 2014 dated 11.2.2014 to the effect that section 14A was intended to cover even those situations whether there is a possibility of exempt income being earned in future. The Circular, at paragraph 4, states that it is not necessary for exempt income to have been included in the income of a particular year for the disallowance to be triggered. According to the Learned Standing Counsel, the provisions of section 14A are made applicable, in terms of sub-section (1) thereof to income 'under the act and not 'of the year' and a disallowance under section 14A r.w. Rule 8D can thus be effected even in a situation where a tax payer has not earned any taxable income in a particular year. 9. We are unable to subscribe to the aforesaid view. The provisions of section 14A were inserted as a response to the judgments of the Supreme Court in Commissioner of Income tax v. Maharashtra Sugar Mills Limited [1971] 82 ITR 452 and Rajasthan State Warehous....