TMI Blog2018 (5) TMI 509X X X X Extracts X X X X X X X X Extracts X X X X ..... the Commissioner of Income-Tax (Appeals)[CIT(A)]-1, Guntur vide ITA No.03/2016-17/CIT(A-1)/GNT dated 21.12.2017 for the assessment year 2013-14. 2. All the grounds of appeal in this case are related to the addition made by the Assessing Officer(AO) U/S 14A r.w.r.8D of income tax act. In this case, the assessee filed return of income declaring total income of ₹ 19,27,290/-. The case was selected for scrutiny and during the assessment proceedings, the AO found that the assessee made investment of ₹ 8,02,00,000/- in M/s Vasantha Industries Ltd. (formerly known as M/s Vasantha Spinners Ltd.,). The AO also found that the assessee has taken secured loan from Kotak Mahindra Bank to the extent of ₹ 18,67,59,851/- and claimed e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income that was exempt. Hence, the CIT(A) held that no disallowance is called for and accordingly deleted the addition. 4. Aggrieved by the order of the Ld.CIT(A), the revenue is in appeal before this Tribunal. During the appeal hearing, the Ld.DR argued that though during the year under consideration, the assessee has not received any income which does not form part of total income, but the assessee made the investments which yields exempt income i.e. dividend and long term capital gains. Hence, argued that the AO has rightly made the disallowance which required to be upheld. Per contra, the Ld.AR relied on the decision of ITAT Hyderabad Bench in ITA No.343/Hyd/2017 in assessee s own case for the assessment year 2012-13 and argued that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the relevant financial year, there cannot be any disallowance u/s 14A of the IT Act. For the sake of ready reference, the relevant para is reproduced hereunder: 6. Having regard to the rival contentions and the material on record, we find that the provisions of section 14A are applicable to expenditure which has been incurred for earning of exempt income irrespective of whether the investment is for business or non business purposes. Business income of certain business entities such as 10% EOU's or industries set up in free trade zones etc., are fully exempt from tax and any expenditure incurred for earning of such income is to be disallowed u/s 14 incurred for earning of exempt income irrespective of whether the investment is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17 M/s Vasantha Traders, Hyderabad. Section 14A was inserted providing that no deduction shall be allowable in respect of expenditure incurred in relation to the earning of income exempt from taxation. The Supreme Court in the judgment in the case of CIT v. Walfort Share Stock Brokers (P.) Ltd. [2010] 326 ITR 1/192 Taxman 211 has observed that section 14A desires to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail of the tax incentive by way of an exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income. The provision thus is clearly relatable to the earning of actual income and not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, by application of the matching concept, in year where there is no exempt income, there cannot be a disallowance of expenditure in relation to such assumed income. The language of section 14A(1)should be read in that context and such that it advances the scheme of the Act rather than distort it. [Para 15] In conclusion, the provisions of section 14A, read with rule 8D of the rules cannot be made applicable in a vacuum i.e. in the absence of exempt income. The question of law are answered in favour of the assessee and against the department and the appeal allowed. [Para 16] We find that the facts of the case before us are similar to the facts before the Hon'ble Madras High Court in the case of Redington (India) Ltd (cited ..... X X X X Extracts X X X X X X X X Extracts X X X X
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