Section 14A not apply when there is no dividend income: ITAT Hyderabad

ACIT Vs V Lycos Internet Ltd. (ITAT Hyderabad)

ITAT Hyderabad held that disallowance under section 14A of the Income Tax Act is rightly deleted by CIT(A) since assessee has not earned any dividend income. Thus, when there is no dividend income, the provisions of section 14A are not applicable.

Facts- Department has preferred the present appeal mainly contesting that CIT(A) has erred in deleting addition under section 14A of the Income Tax Act on the ground that no exempt income was earned by the assessee.

Conclusion- Held that all the investments are in the foreign based subsidiaries and the dividend income, if any, is taxable and not exempt u/s 10(34) of the I.T. Act, 1961. Therefore, the disallowance to the extent of these investments in the foreign subsidiaries cannot be made u/s 14A of the I.T. Act, 1961. The only investment in the Indian company is made by the assessee in the preceding year and not during the year under consideration and therefore, when there is no dividend income for the year under consideration, the provisions of section 14A are not applicable. Hence, in view of the various judgments on this point including the decision of the Hon’ble Delhi High Court in the case of Cheminvest Ltd (2015) 378 ITR 33 (Del.) as well as the judgment of the Hon’ble Punjab & Haryana High Court in the case of CIT vs. Hero Cycles Ltd (2010) 323 ITR 518 (P&H), no disallowance u/s 14A is called for when the assessee has not earned any dividend income during the year under consideration. Accordingly, in view of the facts as discussed above, we do not find any error or illegality in the impugned order of the learned CIT (A) qua on this issue. The same is upheld.