Advocate Akhilesh Kumar Sah
McDonald’s India case: Section 14A of the Income-tax Act, 1961 will not apply if no exempt income has been received or receivable during the previous year in question
Recently, before Delhi ITAT, McDonald’s India Pvt. Ltd. vs. Addl. CIT [ITA No.1426/Del/2014, A.Y.: 2009-10, decided on 30.01.2018], following grounds were raised, amongst others, in the appeal:
After hearing both the sides, the learned Members of the ITAT, Delhi found that AO made disallowance of Rs.1,59,60,691/- by invoking the provisions of section 14A read with(r.w.) Rule 8D on the ground that the assessee has made huge investment of Rs.317.79 crores. Rejecting the explanation of the assessee that no dividend income has been received by the assessee during the year and, therefore, no addition could have been made, the AO, relying on various decisions disallowed an amount of Rs.1,59,60,691/-. It was the submission of the counsel for the assessee that in absence of any dividend income received by the assessee during the captioned A.Y., no disallowance could have been made under section 14A r.w. Rule 8D. the learned Members of the ITAT found merit in the above argument of the counsel for the assessee. The Hon’ble Delhi High Court in the case of Cheminvest Limited vs. CITreported in 61 taxmann.com 118 has held that section 14A will not apply if no exempt income has been received or receivable during the relevant previous year. Since in the instant case, it is an admitted fact that no exempt income has been received by the assessee during the impugned assessment year, therefore, in view of the decision of the Hon’ble Delhi High Court in the case of Cheminvest Limited (supra) and in the absence of any contrary material brought to notice by the DR, the learned Members of the ITAT held that no disallowance under section 14A of the Act is called for.