TaxTMI 
TaxTMI 
2021 (5) TMI 240
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....to be made when the assessee not earned any exempt income which is contrary to CBDT Circular No.5/2014 which clarifies that the Rule 8D r.w.s. 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income? 3. Whether on the facts and circumstances of the case and in Jan', the Ld. CIT(A) was rig/it in deleting the disallowance of Rs. 3,00,40,824/- made u/s 14A r.w. Rule 8D without appreciating the fact that the amount of disallowance u/s.14A of the l.T. Act, 1961 has to be computed as per Rule SD of I.T. Rules, 2962 when the computation of the assessee was not found to be correct and as held in the order of the Hon'ble Bombay High Court in the case of MIs. Godrej & Boyce Manufacturing Co. Ltd.? 4. The appellant prays that the order of CIT(A) on the above grounds be set aside and that of Assessing Officer be restored. 5. The appellant craves leave to amend, alter, delete or add grounds which may be necessary." 3. The brief facts of the case are that the assessee filed its return of income on 20.09.2012 declaring total loss to the tune of Rs. 2,89,87,445/- for the A.Y.2012-13.....
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..... Placing reliance on the Bombay High Court decision in the case of M/s Godrej & Boyce Mfg. Co. Ltd, Mumbai, the assessee's plea for no disallowance u/s HA was rejected by the Assessing Officer. The AO invoked provisions of section 14A r.w. Rule 8D and accordingly an amount of Rs. 2,98,75,181/- was disallowed under Rule 8D2(ii) and Rs. 1,74,643/- under Rule 8D2(iii). The total disallowance u/s 14A of the Act worked out to Rs. 3,00,49,824/-. 4.3 The appellant has provided elaborate arguments in the submission. The main arguments of the appellant are as follows. "The AO, based on incorrect surmises and wrong apprehension of facts, erred in making the disallowance of Rs. 30,049,824/- u/s 14A A. Disallowance u/s 14A cannot be made in the absence of exempt income i.e. disallowance cannot exceed the exempt income earned by the assessee B. Correctness of the claim of the Appellant - Not refuted by the AO/Dissatisfaction not recorded by the AO: C. Incorrect observations / assumptions of the AO which form the basis of disallowance u/s 14A r.w.r. Rule 8D D). Principle of Res Judicata - Assessee's own case We here-in-below discuss ....
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....4.4 - The fact that, the assessee was not having any exempt income during the year under consideration is undisputed one. The AO has noted in the assessment order that the assesse has not earned any exempt income from the said investment during the year under consideration. The core issue required to be decided is about the validity of the disallowance under section 14A of the Act, when there was no exempt income during the year. There are catena of decisions wherein it was held that no disallowance u/s. 14A r.w. Rule 8D can be made when the assessee has not earned any exempt income. The decisions include three decisions of Bombay High Court. The said decisions are enumerated below:- 1. In the case of PCIT Vs Rivian International Nit Ltd, ITA No.693 of 2015 (2017-TIOL-2575-HC-MUM-IT), the Hon'ble High Court of Bombay has held as tinder: "We have given careful consideration to the submissions. On facts, it appears from the impugned judgment that the assessee had made investment in shares of closely held companies which did not declare any dividend. On facts, there is no dispute that the assessee has not earned any exempt income during the year under co....
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....e decision of the Delhi High Court in the case of CIT Vs. Holcim India (P.) Ltd. (2015) 57 Taxman.com 28 2014TI0L- I 586-HC-DEL-IT and decision in the case of CIT Vs. Shivam Motors (P.) Ltd. (2015)230 Taxman 0063 2014-TIOL-754-HC-ALL-IT has held that iffor the relevant Assessment Year, Assessee has not earned any tax free income, the corresponding expenditure incurred cannot be taken into consideration for dis-allowance. 5. In view of the fact that, the Revenue is not challenging the above finding of the Tribunal on the above issue the questions as framed for our consideration by the Revenue become academic. Therefore, none of the question give rise to any substantial questions of law in the context of the present facts." 3. Same view was taken by the Hon'ble Bombay High Court in the case of POT Vs Ballarpur Industries Ltd (ITA No. 51/2016) (Bombay HC, Nagpur bench). 4.5 Besides, there are many other decisions wherein it was held that disallowance u/s. 14A cannot be made when there is no exempt income. The decisions are listed below: (i) Cheminvest Ltd. v. ITO [2009] 378 ITR 33 (Delhi 11C). (ii) CIT vs Corrtech energy privat....