ITAT followed Delhi High Court in Cheminvest and held that, unless during the relevant previous year, assessee earns any exempt income no disallowance under section 14A r/w rule 8D can be made.
1. Assessee has challenged the disallowance of Rs. 33,91,821 under section 14A r/w rule 8D.
2. Brief facts are, during the assessment proceedings, the Assessing Officer after verifying the balance sheet for the impugned assessment year noticed that the assessee had made investment in shares amounting to Rs. 12,50,57,300, as on 31stMarch 2009, and opening balance was Rs. 1,51,57,300. He further noticed that assessee has claimed interest expenditure on loan amounting to Rs. 2,92,80,083. He, therefore, called upon the assessee to explain why disallowance under section 14A r/w rule 8D should not be made as the investment in shares would yield exempt income. In response to the query, it was submitted by the assessee that as no expenditure was incurred for earning tax free income, no disallowance under section 14A can be Th Assessing Officer, however, was not convinced with the explanation of the assessee and proceeded to disallow an amount of Rs. 33,91,821 under section 14A r/w rule 8D. The disallowance was also confirmed by the learned Commissioner (Appeals).
3. Learned Authorised Representative submitted, during the relevant previous year, assessee has not earned any exempt income, hence, no disallowance under section 14A r/w rule 8D can be made. Further, it was submitted by him, entire investment of ` 11 crore in the shares of Knight Riders Sports Pvt. Ltd., was out of interest free funds borrowed from Shri Shah Rukh Khan and no interest bearing borrowed funds were utilised by the assessee. Therefore, as there is no interest expenditure incurred by the assessee on account of investment in shares, no disallowance under section 14A can be made. For such proposition, learned Authorised Representative relied upon following decisions:–
i) CIT v/s Delite Enterprises, ITA no.110 of 2009, dated 26thFebruary 2009;
ii) Chemin vest Ltd. v/s CIT, [215] 378 itr 33 (Del.);
iii) CIT v/s Winsome Textile Industries Ltd., [2009] 319 ITR 204 (P&H);
iv) CIT v/s Corrtech Energy P. Ltd., [2015] 372 ITR 97 (Guj.);
v) CIT v/s Holcim India Pvt. Ltd., [2014] 272 CTR 282 (Del.);
vi) CIT v/s Shivam Motors P. Ltd., [2014 272 CTR 277 (All.);
vii) CIT v/s Lakhani Marketing Incl., [2014] 272 CTR 265 (P&H).
4. Learned Departmental Representative on the other hand relied upon the decision of the learned Commissioner (Appeals) and the Assessing Officer.
5. We have considered the submissions of the parties and perused the material available on record in the light of the decisions relied upon. On a perusal of the assessment order, we do not find any observations by the Assessing Officer to the effect that during the relevant previous years, assessee had earned / claimed any exempt income. It is the assertion of the learned Authorised Representative before us that assessee has not earned any exempt income during the previous year relevant to the assessment year under dispute. As held by the Hon’ble Delhi High Court in Cheminvest (supra), unless during the relevant previous year, assessee earns any exempt income no disallowance under section 14A r/w rule 8D can be made. Therefore, applying the ratio laid down by the Hon’ble Delhi High Court as aforesaid, we hold that no disallowance under section 14A r/w rule 8D can be made in case assessee had not earned any exempt income during the relevant previous year. Therefore, we direct the Assessing Officer to verify this aspect and if it is found that the assessee has not earned any exempt income during the relevant previous year, no disallowance under section 14A can be made. In view of our aforesaid observation, there is no need to deal with the alternative contention of the assessee that the investment in shares since was made out of interest free funds available with the assessee, no disallowance under section 14A can be made out of the interest expenditure.
