DY. COMMISSIONER OF INCOME TAX, CIRCLE-2(1), HYDERABAD vs. KSK ELECTRICITY FINANCING INDIA PRIVATE LIMITED, HYDERABAD

Both these appeals filed by the Revenue are directed against the separate orders of CIT(A) – 2, both dated 22/03/2019, Hyderabad for AY 2014-15 & 2016-17.

To dispose of these appeals, we refer to the facts in AY 2014- 15. The only effective issue to be decided in this appeal is, as to whether the ld. CIT(A) was justified in upholding the disallowance u/s 14A read with rule 8D of the IT Rules.

We have heard the rival submissions and perused the material available on record.

We find that the assessee is a company engaged in the business of financing, acquiring and owning power generation projects. In view of the huge investments made by the assessee, the 2 & 801/Hyd/19 KSK Electricity Financing India Pvt. Ltd., Hyd. ld. AO show-caused the assessee as to why disallowance u/s 14A of the Act should not be made in accordance with rule 8D(2) of the Rules in respect of interest on borrowed funds and towards disallowance of administrative expenses. We find that the assessee had relied before the ld. AO that it had not been derived any exempt income from investments made and accordingly, it had not made any disallowance of expenses u/s 14A of the Act. The assessee also pleaded that the provisions of section 14A would not be applicable in the instant case in the absence of exempt income.

The ld. CIT(A) deleted the disallowance by appreciating the contention of the assessee that since there was no exempt income, provisions of section 14A would not come into operation. The ld. CIT(A) also placed reliance on the decision of this Tribunal in the case of DCIT Vs. Maheswari Mega Ventures Ltd., Hyderabad in dated 03/02/2017 in support of his decision.

Aggrieved, the revenue is in appeal before us.

We find that the law is now very well settled that when there is no exempt income derived by the assessee from the investments made, provisions of section 14A of the Act would not come into operation at all. Reliance in this regard is placed on the decision of Hon’ble Delhi High Court in the case of Joint Investments Pvt. Ltd. Vs. CIT reported in 372 ITR 694. Similar views were taken by various High Courts in the following decisions:

Respectfully following the aforesaid decisions, we do not find any infirmity in the order of ld. CIT(A) in deleting the disallowance made by the AO u/s 14A of the Act. Accordingly, we uphold the order of CIT(A) and dismiss the grounds raised by the revenue in this regard.

In the result, both the appeals of the revenue are dismissed. Pronounced in the open Court on 4th September, 2020.