DCIT, CHENNAI vs. ORCHID HEALTHCARE P LTD., CHENNAI

This appeal of the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) – 3, Chennai, dated 31.01.2017 and pertains to assessment year 2012-13.

The only issue arises for consideration is disallowance made by the Assessing Officer under Section 14A of the Income-tax Act, 1961 (in short 'the Act').

Shri S. Nataraja, the Ld. Departmental Representative, submitted that the CIT(Appeals) placed his reliance on the judgment of Madras High Court in Redington (India) Ltd. v. Addl. CIT (2017) 77 taxmann.com 257. In the case of Redington (India) Ltd. (supra), according to the Ld. D.R., the High Court held that when there was no exempted income, there cannot be any disallowance for the expenditure. In the present case, there was a dividend income which was exempted from taxation, therefore, the judgment of Madras High Court in Redington (India) Ltd. (supra) is not applicable to the facts of the case. Hence, according to the Ld. D.R., the CIT(Appeals) is not justified in allowing the claim of the assessee.

On the contrary, Sh. B. Ramakrishnan, the Ld. representative for the assessee, submitted that no doubt, the assessee earned dividend income of `1,10,99,331/-. The Assessing Officer computed the disallowance at `4,19,38,494/-. The assessee claimed before the Assessing Officer that the investment was made from non-interest bearing funds available with the assessee, therefore, there cannot be any disallowance under Section 14A of the Act. The assessee, in fact, according to the Ld. representative, has not incurred any expenditure at all. Since the assessee has invested only its own funds, there cannot be any disallowance under Section 14A of the Act. Inspite of that, according to the Ld. representative, the CIT(Appeals) directed the Assessing Officer to restrict the disallowance only to the extent of dividend income. This is what the Madras High Court held in Redington (India) Ltd. (supra).

We have considered the rival submissions on either side and perused the relevant material available on record. The Madras High Court in Redington (India) Ltd. (supra) found that there cannot be any disallowance of expenditure in case no exempted income was earned. In the very same judgment, the Madras High Court found that the disallowance cannot be exceeded to the exempted income earned by the assessee. In the case before us, the CIT(Appeals) directed the Assessing Officer to restrict the disallowance only to the extent of dividend income earned by the assessee. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.

In the result, the appeal filed by the Revenue is dismissed.