Case Law Details
Brief of the Case
ITAT Mumbai held in the case of M/s Krishna Knitwear Technologies Ltd. & M/s Krishna Lifestyle Technologies Ltd. vs. DCIT/ACIT that it is not in dispute that assessee has not earned any dividend income or any kind of exempt income from the investments made. The Hon’ble Delhi High Court in the case of Cheminvest Ltd. 378 ITR 33 has held that the decision of the Supreme Court in Rajendra Prasad Moody [1978] 115 ITR 519 was rendered in the context of allowability of deduction under Section 57(iii), where the expression used is ‘for the purpose of making or earning such income’. On other hand section 14A contains the expression ‘in relation to income which does not form part of the total income’. The said decision cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed u/s 14A. Thus, respectfully following the ratio laid down by the Hon’ble Delhi High Court, no disallowance u/s 14A is called for, once there is no exempt income received or receivable by the assessee.
Facts of the Case
In the case of M/s Krishna technology Ltd., the AO has worked out the disallowance of Rs. 74,44,794/- out of interest expenditure and Rs. 8,52,630/- on account of indirect expenditure after taking 0.5% of the average investment. In the case of Krishna Lifestyle Technologies Ltd, the AO has disallowed Rs. 1,37,22,383/- out of interest expenditure and Rs. 1,70,14,940/- being 0.5% on the average investment by invoking the provisions of section 14 r. w. Rule 8D.
Contention of the Assessee
The ld counsel of the assessee submitted that in both the cases, the assessee has not earned any exempt income, therefore, there is no question of disallowance under section 14A. This view is duly supported by the decision of Hon’ble Delhi High Court in the case of Cheminvest Ltd vs CIT, reported in 378 ITR 33 wherein, the Hon’ble High Court held that, if the assessee has not earned any exempt income, then no disallowance under section 14A can be made.
Contention of the Revenue
The ld counsel of the revenue submitted that there is a Board Circular No.5 of 2014 dated 11.02.2014, wherein the Board has clarified that, the expenses which are relatable to earning of exempt income would be considered for disallowance irrespective of the fact that, whether any income has been earned during the financial year or not. He also filed a copy of decision of the ITAT dated 31st July, 2014 in the case of Double Dot Financial Ltd. vs DCIT, reported in [2014] 40 taxman.com 291 (Mum Trib), wherein the Tribunal has upheld the disallowance and stated that, even if no exempt income has resulted to the assessee, then also disallowance under section 14A can be made.
Held by CIT (A)
The CIT (A) has directed the AO to exclude the amount of interest paid on cash credit amount, then accordingly, directed to re-compute the disallowance. So far as indirect expenditure is concerned which was disallowed by adopting 0.5% of the average investment under Rule 8D (2)(iii), the same was confirmed.
Held by ITAT
ITAT held that it is not in dispute that assessee has not earned any dividend income or any kind of exempt income from the investments made. The Hon’ble Delhi High Court in the case of Cheminvest Ltd. 378 ITR 33 after discussing the entire law on this point including the decision of Hon’ble Supreme Court in the case of CIT vs Rajendra Prasad Moody, [1978] 115 ITR 519 has held that the decision of the Supreme Court in Rajendra Prasad Moody was rendered in the context of allowability of deduction under Section 57(iii), where the expression used is ‘for the purpose of making or earning such income’. On other hand section 14A contains the expression ‘in relation to income which does not form part of the total income’. The said decision cannot be used in the reverse to contend that even if no income has been received, the expenditure incurred can be disallowed. Thus, respectfully following the ratio laid down by the Hon’ble Delhi High Court in the case of Cheminvest Ltd. 378 ITR 33, no disallowance u/s 14A is called for, once there is no exempt income received or receivable by the assessee.
Accordingly appeals of the assessee allowed.
