INCOME TAX ACT, 1961

Section 14A Rule 8D(2)(ii)/(iii)

Disallowance under section 14A - Expenditure against exempt income - No exempt income earned, i.e., dividend income not earned -

Assessee, during the year, had made investments in shares and securities. However, no dividend was earned therefrom. The AO, in the course of the assessment proceedings noted from the Annexure to Independent Auditor's Report (Column-xvii) that the assessee used funds raised on short term basis for long term investments. As such, he invoked the provisions of section 14A read with rule 8D(2) and computed substainable disallowance. CIT(A) deleted the addition holding that in absence of exempted income, expenditure in terms of section 14A cannot be disallowed.Held: Tribunal noted that it was an admitted fact that the assessee company had not earned any dividend income during the year in respect of investments made as per the audited accounts. Since no exempt income was earned by the assessee, therefore, there should not be any disallowance on account of section 14A. Since the assessee does not have any exempt income, therefore, no disallowance is warranted. That being so, Tribunal declined to interfere in the order passed by the CIT(A), his order on this issue, was upheld and ground raised by the revenue was dismissed.

Followed:CIT v. Holcim India (P) Ltd. in ITA No. 486/2014, Chemnivest v. CIT-VI, ITA 749/2014 Order, dated 2-9-2015 and Redington India (P) Ltd. v. Asstt. CIT (2017) 392 ITR 633 (Mad) : 2017 TaxPub(DT) 345 (Mad-HC).

REFERRED : CIT v. RKBK Fiscal Services (P) Ltd. (2013) 358 ITR 228 (Cal) : 2014 TaxPub(DT) 1666 (Cal-HC) and REI Agro Ltd. (2013) 144 ITD 141 (Kol-Trib) : 2013 TaxPub(DT) 2256 (Kol-Trib).

FAVOUR : In assessee's favour.

A.Y. : 2015-16

INCOME TAX ACT, 1961

Section 56(2)(viib)

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