INCOME TAX ACT, 1961

Section 14A read with rule 8D

Disallowance under section 14A - Expenditure - Against exempt income - Applicability of provision--No exempt income derived in relevant previous year

Revenue filed appeal against the order of CIT(A) deleting the disallowance made by AO by relying on the decision in the case of DCIT v. Maheshwari Mega Ventures Ltd., ITA No. 367/Hyd/2013, dt. 3-2-2017 : 2017 TaxPub(DT) 0497 (Hyd-Trib) observing that the assessee had not earned any dividend income during year on such investments, therefore, no disallowance was warranted in the case of the assessee. Held: It is settled position of law that the provisions of section 14A can be applied to quantify the expenses in relation to exempt income. Rule 8D can be applied only when there is difficulty in finding the expenditure relating to exempt income. In the case under consideration, it was found that the assessee had not derived any exempt income in the relevant previous year so as to attract section 14A read with rule 8D as per case law Cheminvest Ltd. [(2015) 378 ITR 33 (Del) : 2015 TaxPub(DT) 3520 (Del-HC)], Chettinad Logistics Private Ltd. [2017 TaxPub(DT) 1144 (Mad-HC)] and CIT v. Corrteck Engineering Pvt. Ltd. [2014 TaxPub(DT) 2072 (Guj-HC)]. It was, however made clear that AO shall be at liberty to examine the assessee's financials along with source of investments in the year in which they yield exempt income. Thus, appeal of the revenue was allowed for statistical purposes.

Followed:Cheminvest Ltd. [(2015) 378 ITR 33 (Del) : 2015 TaxPub(DT) 3520 (Del-HC)], Chettinad Logistics Private Ltd. [2017 TaxPub(DT) 1144 (Mad-HC)] and CIT v. Corrteck Engineering Pvt. Ltd. [2014 TaxPub(DT) 2072 (Guj-HC)].