INCOME TAX ACT, 1961

Section 14A Rule 8D Sections 36(iii) & 57(iii)

Disallowance under section 14A - No exempt income earned - Interest expenditure neither disallowable under section 36(1)(iii) nor under section 57(iii) -

Assessee-company was incorporated on 22-12-2009 and was noted by the assessing officer in the assessment order that it was engaged in the business of providing consultancy relating to investment, acquiring, holding, procuring, purchasing of all types of securities. AO observed that, firstly, interest expense was not related to business as assessee company was not an NBFC and hence was neither allowable under section 36(1)(iii) nor under section 57(iii). Thereafter, he made total disallowance of Rs. 25,30,80,822 under section 14A. CIT(A) deleted the addition.Held: Admittedly, the assessee does not have any exempt income except source of income and also there was no dividend income received during the year. Disallowance under section 14A will not apply if there was no exempt income. It was an admitted fact that no dividend income had been earned by the assessee neither in this year nor in the subsequent years. No disallowance under section 14A could be made. Moreover, the Tribunal in assessee's own case had held that the 'interest income' and 'interest expenditure' were directly linked to the business of the assessee. Thus, when there was a direct nexus between the direct earning and direct investment, no disallowance under section 36(1)(iii) can be made. In so far as section 57(iii) is concerned, admittedly it was not in dispute that the 'interest expenditure' had been assessed as 'business income', therefore, no disallowance under section 57(iii) can be made.

Followed:Cheminvest Ltd. v. CIT (2015) 378 ITR 33 (Del) : 2015 TaxPub(DT) 3520 (Del-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2012-13

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