ITO, NEW DELHI vs. M/S HERO MANAGEMENT SERVICES LTD.,, NEW DELHI

The present appeal has been filed by the revenue against the orders of the ld. CIT(A)-44, New Delhi dated 16.08.2016.

All the grounds relates to deletion of the disallowance made by the Assessing Officer u/s 14A of the Income Tax Act, 1961.

The short issue involved in the case is that whether any disallowance is allowable in the absence of earning of exempt income?

Brief facts of the case are that the assessee invested Rs.75.72 crores in the equity shares and received dividend income of Rs.Nil during the year under consideration. The Hero Management Services Ltd. Assessing Officer has disallowed an amount of Rs.2.87 crores u/s 14A of the Income Tax Act, 1961. The ld. CIT (A) has deleted the addition based on the judgment of Hon’ble Jurisdictional High Court in the case of Cheminvest Ltd. Vs CIT 378 ITR 33.

Aggrieved the revenue filed appeal before us.

The issue of disallowance of expenses u/s 14A relating to income not includable in the total income of the assessee has been dealt in various cases by the Tribunal and the High Courts wherein it was held that no disallowance is warranted in cases where no exempt income has been earned by the assessee. For the sake of ready reference, the relevant portion of the order of the Hon’ble Jurisdictional High Court in the case of Cheminvest Ltd. Vs CIT 378 ITR 33 (Del.) is reproduced below: “Turning to the central question that arises for consideration, the Court finds that the complete answer is provided by the decision of this Court in CIT v. Holcim India (P.) Ltd. [2015] 57 taxmann.com 28. In that case a similar question arose, viz., whether the ITAT was justified in deleting the disallowance under Section 14A of the Act when no dividend income had been earned by the assessee in the relevant assessment year? The Court referred to the decision of this Court in Maxopp Investment Ltd.'s case (supra) and to the decision of the Special Bench of the ITAT in this very case i.e. Cheminvest Ltd. v. ITO [2009] 121 ITD 318. The Court also referred to three decisions of different High Courts which have decided the issue against Revenue. The first was the decision in CIT v. Lakhani Marketing Inc. [2014] 226 Taxman 45/49 taxmann.com 257 of Hero Management Services Ltd. the High Court of Punjab and Haryana which in turn referred to two earlier decisions of the same Court in CIT v. Hero Cycles Ltd. [2010] 323 ITR 518/189 Taxman 50 and CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204. The second was of the Gujarat High Court in CIT v. Corrtech Energy (P.) Ltd. [2014] 223 Taxman 130/45 taxmann.com 116 and the third of the Allahabad High Court in CIT v. Shivam Motors (P.) Ltd. [2015] 230 Taxman 63/55 taxmann.com 262. These three decisions reiterated the position that when an assessee had not earned any taxable income in the relevant AY in question "corresponding expenditure could not be worked out for disallowance."

Hence, following the established judicial pronouncement, we hereby decline to interfere with the order of the ld. CIT (A) in deleting the disallowance made by the Assessing Officer in the absence of claim of any exempt income.