THE DY. CIT, ANAND CIRCLE, ANAND vs. M/S. ANUPAM INDUSTRIES LTD., ANAND

The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)-4, Vadodara (‘CIT(A)’ in short), dated 09.03.2018 arising in the penalty order dated 18.12.2017 passed by the Assessing Officer [M/s. Anupam Industries Ltd. Vs. DCIT] A.Y. 2015-16 - 2 - (AO) under s. 143(3) of the Income Tax Act, 1961 (the Act); concerning A.Y. 2015-16.

As per its grounds of appeal, the Revenue has challenged the action of the CIT(A) for granting relief out of disallowance of expenses under s.14A read with Rule 8D of the Income Tax Rules.

We have heard the rival submission on the issue. It was pointed out on behalf of the assessee that the assessee has not earned any exempt income during the year under review. It is the case of the assessee that in the absence of any exempt income the provisions of Section 14A of the Act could not be invoked. We find merit in the aforesaid plea of the assessee. Various Courts have held that Section 14A of the Act disallowance cannot be kicked when there was no exempt income earned by the assessee as is the case in the present appeals. Hon’ble Delhi High Court in PCIT vs IL&FS Energy Development Company Ltd. (2017) 84 Taxman.com 186(Delhi) and the Hon’ble Madras High Court in CIT v. Chettinad Logistics (P.) Limited (2017) 80 taxmann.com 221(Madras) have expressed a clear disagreement with CBDT Circular and held that where there is no exempt income in relevant year there cannot be a disallowance of expenditure under s.14A of the Act. Similar proposition has been laid down by the Hon’ble Gujarat High Court in the case of Corrtech Energy (P.) Ltd (2014) 45 taxmann.com. 116 (Guj) and Pr.CIT vs. India Gelatine and Chemicals Ltd. (2016) 66 taxmann.com 356 (Guj). The aforesaid judicial fiat was reiterated by the Hon’ble Delhi High Court in the case of Joint Investments Pvt. Ltd. vs. CIT reported in 372 ITR 692 (Delhi) wherein Hon’ble Delhi High Court has categorically ruled that disallowance under s.14A of the Act cannot exceed the amount of tax exempt income. Notably, the SLP filed against the decision of Hon’ble Madras High Court in Chettinad [M/s. Anupam Industries Ltd. Vs. DCIT] A.Y. 2015-16 - 3 - Logistics (supra) has been dismissed by Hon’ble Supreme Court in CIT vs. Chettinad Logistics (P.) Ltd. (2018) 95 taxmann.com 250 (SC). Hence, in conformity with the judicial precedents, we find substantial merit in the conclusion drawn by the CIT(A) which essentially holds that Section 14A of the Act can be triggered only if assessee seeks to square off expenditure against the income which does not form part of total income under the Act and Section 14A of the Act cannot be invoked where no exempt income was earned in the relevant assessment years. Thus, without going into other aspect of contentions, in consonance with the judicial precedents, we do not see any infirmity in the conclusion drawn by the CIT(A) for non- applicability of Section 14A of the Act in the facts of the case.

In the result, appeal of the Revenue is dismissed.