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TMI Blog2017 (11) TMI 1953X X X X Extracts X X X X X X X X Extracts X X X X ..... venience. 2. The assessee has raised common grounds of appeal for both the assessment years. For the sake of brevity, grounds of appeal raised by the assessee for AY 2012-13 are reproduced below:_ 1. "On the facts and circumstances of the case, the Ld. Comm. Of Income Tax (Appeals) legally erred in confirming the act ion of the Assessing Officer for the disallowance made u/s 14A at Rs. 2,88,93,452/- of the Act. 2. On the facts and circumstances of the case, the Ld. Comm. Of Income Tax (Appeals) further erred in not appreciating the fact that the investments are made for the strategic purposes in - the associate and group companies to take over the control/management and no disallowance u/s 14A is applicable on the said investments." 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... years 2010-11 and 2011-12 in ITA No.5786 & 5787/Mum/2014 dated 26-07-2016. The co-ordinate bench, after considering the relevant provisions held that when there is no exempt income of whatsoever from the investment, then the question of disallowance of expenditure u/s 14A by invoking Rule 8D does not arise. 5. The Ld.DR on the other hand, strongly supported the order of the CIT(A). The Ld.DR further submitted that whether there is an exempt income or not once, there is investment in earning exempt income, the AO is bound to work out the disallowance in respect of expenditure directly attributable to earning of exempt income and administrative and other expenses as per the provisions of Rule 8D. The Ld.DR further submitted that the CBDT, vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that no exempt income whatsoever has been earned by the assessee during the year. The AO has made disallowance under section 14A after following the decision of ITAT Special Bench in Cheminvest Ltd. However, this decision of Special Bench has been specifically turned down / reversed by Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs CIT, reported in 2015] 378 JTR 33 (Del), wherein the Hon'ble High Court has, opined that, if no exempt income has been earned by the assessee in the relevant assessment year then, no disallowance should be made. The relevant observation of the Hon'ble High Court , reversing the decision of the Special Bench read', as under:- 19. In light of the clear exposition of the law in Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he applicability of s. 57(iii) and that purpose must be making or earning of income. s. 57(iii) does not require that this purpose must be fulfilled in order to qualify the expenditure for deduction. It does not say that the expenditure shall be deductible only if any income is made or earned. There is in fact nothing in the language of S. 57(iii) to suggest that the purpose for which the expenditure is made should fructify into any benefit .by way of return in the shape of income. The plain natural construction of the language of S. 57(iii) irresistibly leads to the conclusion that to bring a case within the section, it is not necessary that any income should in fact have been earned as a result of the expenditure." 21. There is merit in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n" does not form part of the total income" in Section 14A of the Act envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year". 6. Thus, respectfully following the aforesaid decision of Hon'ble Dehi High Court we hold that, no disallowance undersection 14A can be made, because there is no exempt income during the year and accordingly, the provisions of section 14A(1) will not get triggered. Accordingly, the grounds raised by the. assessee are allowed. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t provisions observed that the window for disallowance was indicated in section 14A and was only to the extent of disallowing expenditure incurred by the assessee in relation to the tax exempt income. This proportion or portion of the exempt income surely cannot swallow the entire amount. Therefore, considering the decision of Hon'ble Delhi High Court in the case of Chemivest Ltd vs CIT (supra), we are of the view that disallowance u/s 14A cannot exceed the exempt income. In this case, the assessee has exempt income of Rs. 30,524 as against which the AO has disallowed Rs. 2,43,49,537. Therefore, we direct the AO to restrict disallowance u/s 14A to the extent of exempt income earned by the assessee. 9. In the result, appeal filed by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X
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