ITAT Delhi Held that Section 14A of Income Tax Act,1961 cannot be invoked, where no regular activities were undertaken by the Assessee in respect of the investments to earn exempt income and no change in the investments during the year?
Brief Facts of the Case:
The assessee company is engaged in the business of transmission of power, telecom and consultancy. It filed its return of income on 22.09.2009 showing NIL income. MAT was paid on book profit under Section 115JB of the Income Tax Act, 1961. The return was revised by the company to claim the credit of TDS not claimed in the original return of income. The case was selected for scrutiny under CASS and accordingly notice under Section 143(2) of the Act was issued. During the course of scrutiny assessment proceedings, the AO found out that the assessee had made investment in the shares, securities and advances and has also received dividend as well as interest income from tax free bonds and advances. The assessee has so motu disallowed the expenses in respect of exempted income. However, the AO made the disallowance of the expenditure attributable to the income not forming part of the total income as per the provisions of Section 14A of the Income Tax Act, 1961 read with rule 8D. On making an appeal to the CIT(A), the orders of the AO were upheld. Aggrieved by which, the assessee is in appeal before the ITAT.
Held by ITAT:
The assessee received dividend incomes. From the annual accounts of the assessee company, it is observed that there is no change in the investments during the year. The dividend received from the companies has been credited to the bank account. Also, there is no regular activities were undertaken by the Assessee in respect of the investments to earn income there from. Therefore, there was no basis for the AO to hold that the expenditure as disclosed by the Assessee towards earning exempt income was insufficient. The appeal of the assessee was allowed.