No disallowance U/s. 14A unless Assessee earns exempt Income during relevant previous year

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 31^stMarch 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:^–

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