TMI Blog2014 (5) TMI 592X X X X Extracts X X X X X X X X Extracts X X X X ..... 2000 which eventually was resolved and the liability was crystallized only when the subsequent agreement dated 12 April 2007 was made – Decided against Revenue. Disallowance u/s 14A of the Act – Difference of opinion – Held that:- Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, 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 - what Section 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction - the assessee had not earned any tax free income - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT(A) in deleting the disallowance of Rs.2,03,752/- u/s. 14A ignoring the fact that there is difference of opinion of various courts on the view taken by the ITAT that in the absence of tax free income, no disallowance u/s 14A is permissible. The assessee is a dealer of Tata Motors for the territory of Bilaspur and surrounding districts. The vehicles of the Company were being supplied to the assessee on credit of 45 days. The assessee would make payment to the Company when the sale proceeds were realised. Eventually the balance due and outstanding remained unpaid. On 30 March 2000, an agreement was entered into by which a financial arrangement was made between the assessee, Tata Motors Ltd. (TML) and a Company by the name of Nis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orrower has requested the Lender to grant relief and concessions as set out hereinunder: (i) to reduce interest rate @6% per annum on reducing balance method with effect from 1st April, 2000. (ii) All the payments made after 1st April 2000 against the Finance Facilities to adjust against principal amount. (iii) To waive penal/additional interest. (iv) To accept the repayment in Revised Monthly Installments ( RMIs ) towards repayment of the outstanding dues in 36 monthly installments of Rs.10,94,000/- each with effect from April 2007 till March 2010, and (v) The liability in respect of the accrued interest @6% p.a. due and payable on the revised principal amount of Rs.229.32 lacs for the period starting from 1st April, 2000 ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... till 2007 when a fresh agreement was entered into on 12 April 2007. The CIT(A) held that liability to pay interest was crystallized only upon the execution of the agreement on 12 April 2007. This view has been affirmed by the Tribunal which has observed as follows: 12. Turning to the facts of the case, we find that in the instant case the liability was not statutory liability. Admittedly, it was a contractual liability. Though it accrued at the time of execution of first agreement through which loan was obtained by the assessee but that liability was disputed by the assessee by raising a dispute with regard to rate of interest through various correspondences and auditors notes attached to the balance sheet. Finally the dispute was resol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owever, the issue as regards the payment of interest remained unresolved because though the contractual agreement stipulated interest of 12% per annum, the assessee had disputed this amount consistently and no interest was paid. Eventually, it was only on the execution of a supplementary agreement on 12 April 2007 that the liability to pay interest @6% per annum was agreed upon and in pursuance whereof, the assessee debited an amount of Rs.1.72 crores towards interest in the year in question. In this view of the matter, we do not find any reason to interfere with the order of the Tribunal. The judgment of the Supreme Court in Rotork Controls India P. Ltd. Vs. Commissioner of Income Tax1 upon which reliance was placed by the learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A provides is that if there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding expenditure could not be worked out for disallowance. The view of the CIT(A), which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the disallowance of Rs.2,03,752/- made by the Assessing Officer was in order. No substantial question of law would hence arise. For these reasons, we are of the view that the appeal by the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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