Sec. 14A of Income Tax Act, 1961—Expenditure incurred in relation to income not included in total income —No disallowance of expenditure u/s 14A is warranted when there is no exempt income received by tax-payer

Facts: The issue agitated by Revenue before the Bench in its appeal filed with Tribunal is with respect to disallowance by AO of expenditure incurred in relation to earning of an exempt income by invoking provisions of Section 14A read with Rule 8D(2)(iii) to the tune of Rs. 4,02,500/-, which disallowance on first appeal filed by assessee with CIT(A) stood deleted by CIT(A) on the ground that the assessee has not received any exempt income during the year under consideration. Since no exempt income was received by assessee during the year under consideration, CIT(A) was pleased to delete entire disallowance of expenditure to the tune of Rs. 4,02,500/- as was made by the A.O. Being aggrieved of which, Revenue went on appeal before Tribunal.

Held, that it is an admitted position now between rival parties that the assessee has not earned/received any dividend income during the year under consideration and hence, no exemption of income was sought to be claimed by assessee in the return of income filed by it with Revenue. We have also observed that although in the assessment order, the A.O. has stated that the assessee has earned dividend income but the learned CIT(A) after perusal of the audited financial statement filed by assessee company, had observed that the A.O. has wrongly treated ‘interest earned on deposits with the Bank’ as ‘dividend income’ and a categorical finding is given by learned CIT(A) that the assessee did not received any exempt income during the year under consideration. This finding of CIT(A) that the assessee has not earned/received any exempt income during the year under consideration has not been challenged/rebutted by Revenue before the tribunal, neither in the grounds of appeal raised by Revenue before the tribunal nor by learned DR before the Bench during the course of hearing of this appeal. Thus, keeping in view of the factual position as is emanating from the records that the assessee has not received/earned any exempt income during the year under consideration, we are of considered view that no disallowance of expenditure being incurred in relation to earning of an exempt income by invoking provisions of Section 14A is warranted in this case. - DEPUTY CIT V/s REPCO HOME FINANCE PVT. LTD. - [2020] 26 ITCD Online 085 (ITAT-CHENNAI)