M. M. POONJIAJI SPICES LTD.,MUMBAI vs. DCIT CIR. 4(2), MUMBAI

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ITA 5123/MUM/2016Status: DisposedITAT Mumbai30 November 2017AY 2011-123 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that Section 14A disallowance cannot be made in the absence of any exempt income earned or receivable by the assessee. Following judicial precedents, the order of the CIT(A) was set aside.

What were the facts?

The Assessing Officer disallowed Rs. 3,13,997 under Section 14A read with Rule 8D, citing a CBDT circular, even though the assessee earned no exempt income. The CIT(A) upheld this disallowance.

What were the issues?

Whether disallowance under Section 14A read with Rule 8D is permissible when the assessee has not earned any exempt income during the assessment year.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Cases cited in this judgment(2)Show list

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Income Tax Appellate Tribunal, MUMBAI BENCH “H” MUMBAI

Before: SHRI SAKTIJIT DEY & SHRI N.K. PRADHAN

For Appellant: Mr. Rajesh S. Shah, AR
Hearing: 27/11/2017Pronounced: 30/11/2017

ORDER PER N.K. PRADHAN, A.M. This is an appeal filed by the assessee. The relevant assessment year is 2011-12. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-9, Mumbai and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).

2.

The issue in the present case falls in a narrow compass. The issue is whether the Assessing Officer (AO) can make a disallowance u/s 14A M/s M.M. Poonjiaji Spices Ltd. r.w. Rule 8D of Income Tax Rules, 1962 when the assessee has not earned any exempt income during the year under consideration.

3.

Briefly stated, the facts of the case are that the AO made a disallowance of Rs.3,13,997/- u/s 14A r.w. Rule 8D relying on the CBDT Circular No. 5/2014 dated 11.02.2014 stating that disallowance of expenditure can be made under the above section and Rule even where taxpayer in a particular year has not earned any exempt income.

4.

In appeal, the Ld. CIT(A) has confirmed the said disallowance made by the AO.

5.

Before us, the Ld. counsel of the assessee submits that the assessee-company has not earned any income from the partnership firms during the year which can be claimed as exempt income. Therefore, no disallowance can be made u/s 14A.

6.

On the other hand, the Ld. DR relies on the order of the Ld. CIT(A). Reliance is also placed by him on the CBDT Circular mentioned above.

7.

We have heard the rival submissions and perused the relevant materials on record. The issue whether disallowance u/s 14A r.w. Rule 8D can be made in a case when there is no exempt income is no longer res integra. In the case of CIT v. Shivam Motors (P) Ltd. (2015) 55 taxmann.com 262 (All), it has been held that in absence of any tax free income earned by the assessee, disallowance u/s 14A could not be made. In a similar vein, it has been held in Cheminvest Ltd. v. CIT (2015) 61 taxmann.com 118 (Del) that section 14A will not apply if no exempt income is received or receivable during the relevant previous year.

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