Case Law Details
Emerson Electric Company (India) Pvt. Ltd. Vs Addl. Commissioner of Income Tax National Faceless Appeal Centre (ITAT Mumbai)
ITAT Mumbai held that since the assessee has not earned any dividend income from its equity investment during the year disallowance of expenditure under section 14A of the Income Tax Act read with Rule 8D of the Income Tax Rules is not sustainable.
Facts- The assessee is engaged in the business of developing and exporting software, providing engineering services and IT enabled services, and manufacturing of horns and electric motors for elevator application.
Notably, AO vide draft assessment order, observed that though the assessee has not earned any exempt income from such dividends, it remains a fact that such investments are long-term investments and the basic purpose of equity investments is to increase the stake in companies and therefore being claimant of the profits of the said companies by way of dividends. It was further observed that equity investments made by the assessee being long-term investments, they do not necessarily result into dividend every year. Accordingly, the AO computed the disallowance of Rs.75,18,750, under section 14A read with Rule 8D. The learned DRP vide its directions rejected the objections filed by the assessee. In conformity with the learned DRP’s directions, the AO passed the impugned final assessment order. Being aggrieved, the assessee has preferred the present appeal.
Conclusion- Held that during the year the assessee received no dividend income from its investments. The aforesaid fact has also not been disputed by the Revenue. We find that the Hon’ble Delhi High Court in Cheminvest Ltd. v. CIT has held that section 14A will not apply if no exempt income is received or receivable during the relevant previous year. Since, in the present case, the assessee has not earned any dividend income, therefore, respectfully following the aforesaid judicial pronouncements, disallowance of expenditure under section 14A read with Rule 8D is not sustainable.
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