Cheminvest Limited Vs Commissioner of Income Tax (Delhi High Court)
Brief – Delhi High Court held in the case of Cheminvest Ltd. v. CIT that No disallowance u/s 14A can be made in a year in which no exempt income has been earned or received by the assessee. Section 14A of Income Tax Act, 1961 does not apply to shares bought for strategic purposes.
Facts of the case:
- The Appellant is engaged in the business of making investment in shares and accepting/granting of loans.
- The Assessee is one of the co-promoters of Max India Ltd.
- In the AY in question, the Appellant borrowed funds on which interest expenditure of Rs.1,21,03,367/- was incurred.
- The factual assertion of the Appellant, which has not been controverted, is that in the relevant AY no dividend income was earned by the Appellant from the amount invested in various shares.
- For the AY in question, the Appellant filed a return of income declaring a loss of Rs.13,84,086/-.
- This case was picked up for scrutiny and the Assessing Officer (AO) completed the assessment under Section 143(3) of the Act disallowing Rs.97,87,570/- out of the total expenditure incurred during the year under Section 14A of the Act.
- The reason recorded by the AO for this disallowance was that the borrowed funds were utilized for the purpose of purchase of shares for the purpose to earn dividend income which is exempted under section 10(33) of the Act and thus, not forming a part of the total income, and therefore the interest paid thereon had to be disallowed under Section 14A.
Issue put before Delhi High Court:
“Whether disallowance under Section 14A of the Act can be made in a year in which no exempt income has been earned or received by the Assessee?”
Contentions of Appellant:
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