No disallowance u/s 14A & Rule 8D can be made if the assessee does not have tax-free income & no claim for exemption is sought
In AY 2009-10, the assessee had investments in tax-free securities on which it had earned no income. It claimed that as there was no tax-free income, no disallowance u/s 14A read with Rule 8D could be made. However, the AO & CIT(A) rejected the claim. On appeal, the Tribunal accepted the claim by relying on CIT vs. Winsome Textile Industries Ltd 319 ITR 204 (P&H) and held that as the assessee had not claimed any exemption, no disallowance u/s 14A & Rule 8D could be made. On appeal by the department to the High Court HELD dismissing the appeal:
Sub-section (1) of s. 14A provides that for the purpose of computing total income under chapter IV of the Act, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the present case, the Tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the Tribunal held that disallowance u/s 14A of the Act could not be made. The Tribunal relied on the decision of the P&H High Court in case of CIT vs. Winsome Textile Industries Ltd 319 ITR 204 (P&H) where it was held that s. 14A could have no application to a case where the assessee did not make any claim for exemption. We do not find any question of law arising, Tax Appeal is therefore dismissed.
To read complete text of judgement, click here cortech_14A_no_income-Guj HC
The same view is taken in :
(i) Shivam Motors (Allahabad High Court) &
(ii) M/s. Delite Enterprises (Bombay High Court).
The contrary view in Cheminvest 121 ITD 318 (Delhi) (SB) is no longer good law.