Can the CIT(A) apply the provisions of Section 14A of the Income Tax Act if the assessee does not have any exempt income?

IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCHES “B” : HYDERABAD
(THROUGH VIDEO CONFERENCE)

BEFORE SHRI S.S.GODARA, JUDICIAL MEMBER
AND
SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER

I.T.A. No. 129/HYD/2019
Assessment Year: 2015-16

The Deputy Commissioner
of Income Tax,
Circle-3(2),
HYDERABAD
[PAN: AAMCS0598Q]
(Appellant) 

Vs

Soma Infrastructure
Private Limited,
HYDERABAD
(Respondent)

For Revenue : Shri B.Bala Krishna, DR
For Assessee : Shri Mohd. Afzal, AR

Date of Hearing : 07-06-2021
Date of Pronouncement : 18-06-2021

O R D E R

PER S.S.GODARA, J.M. :

This Revenue’s appeal for AY.2015-16 arises from the CIT(A)-3, Hyderabad’s order dated 14-11-2018 passed in case No.0180/DCIT-3(2)/Hyd/CIT(A)-3/2017-18, in proceedings u/s.143(3) of the Income Tax Act, 1961 [in short, ‘the Act’].

Heard both the parties. Case file perused.

2. The Revenue has raised the following substantive grounds in the instant appeal:

“1. The Ld.CIT(A) erred both in law and on facts of the case.

2. On the facts and circumstances of the case and in law, the Ld.CIT(A) erred in applying rule 8D of the Income Tax Rules, r.w. Sec.14A of Income Tax Act although the assessee did not have any income exempt under the IT Act. The provisions of Sec.14A apply only if thee is exempt income u/s.10 of the IT Act which is not the case here. 

3. The Ld.CIT(A) erred in holding that Sec 14A is not applicable in this case ignoring the decision of Apex Court’s ruling in the case of CIT Vs. Rajendra Prasad Moody (115 ITR 519) and the Board Circular No.5 of 2014.

4. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) was correct in holding that in absence of earning of exempt income during the previous year, no disallowance of expenditure incurred is permissible under section 14A of the Act r/w Rule 8D of the IT rules, 1962?”

3. At the outset, learned authorised representative submitted that since there is no dividend income earned in the relevant previous year, the CIT(A)’s order deleting the impugned disallowance may be upheld. In this connection, he relied on the following case law:

i. CIT Vs. Chettinad Logistics Pvt. Ltd., [80 taxmann.com 221] (Madras);

ii. CIT Vs. Corrtech Energy Pvt. Ltd., [223 Taxman 130] (Guj);

iii. Cheminvest Ltd., Vs. CIT (2015) [378 ITR 33] (Del) Their lordships hold that Section 14A read with Rule 8D applies only in relation to an assessee’s exempt income and not otherwise. We therefore sustain the CIT(A)’s order under challenge deleting the impugned Section 14A r.w. rule 8D disallowance.

4. This Revenue’s appeal is dismissed in above terms.

Order pronounced in the open court on 18th June, 2021

 Sd/-                                                Sd/-
 (LAXMI PRASAD SAHU)             (S.S.GODARA)
 ACCOUNTANT MEMBER             JUDICIAL MEMBER 

Hyderabad, Dated: 18-06-2021 

Copy to :
1.The Dy.Commissioner of Income Tax, Circle-3(2),Hyderabad.
2.M/s.Soma Infrastructure Private Limited,
8-2-623/15/1/1, 14 Avenue, Road No.10, Banjara Hills,Hyderabad.
3.CIT(Appeals)-3, Hyderabad.
4.Pr.CIT-3, Hyderabad.
5.D.R. ITAT, Hyderabad.
6.Guard File.