No disallowance u/s 14A in absence of exempt income
CA Ayushi Goyal | May 17, 2022 |
No disallowance u/s 14A in absence of exempt income
The issue in this appeal of the assessee is regard to the order of CIT(A) confirming the disallowance made by the Assessong Officer (AO) u/s 14A r.w. Rule 8D of the Income Tax Act (The Act).
In this case, assessee had shown ₹.63,50,57,077/- as investment which were exempt income yielding investments. However, the assessee had not attributed any portion of expenditure debited to the profit and loss account towards earning of exempt income. After recording satisfaction and considering the submissions of the assessee, the AO determined the expenditure attributable to earning of exempt income under section 14A of the Act r.w. Rule 8D of ₹.31,75,285/-, disallowed and brought to tax. On appeal, the ld. CIT(A) confirmed the disallowance made by the AO.
On being aggrieved, the assessee preferred appeal before the Tribunal. Before the tribunal, ld. Counsel submitted that assessee had not earned any exempt income in the assessment year under appeal and therefore, the AO cannot make any disallowance under section 14A of the Act in view of the decision of the Hon’ble Jurisdictional High Court in the case Redington India Limited v. ACIT [2017] 77 Taxmann.com 257 (Mad) and prayed for deleting the addition made under section 14A of the Act. On the other hand, the ld. DR strongly support the order of the ld. CIT(A). ITAT observed that the assessee had investments to the extent of ₹.63,50,57,077/- which were exempt income yielding investments. By applying section 14A r.w. Rule 8D, the AO determined the expenditure attributable to earning of exempt income under section 14A of the Act r.w. Rule 8D of ₹.31,75,285/- and disallowed. Admittedly, the assessee had not earned any exempt income during the assessment year under consideration.
The contention of the assessee is that when there was no exempt income earned, there was no question of expenditure required to be disallowed in view of the decision in the case of Redington India Ltd. v. ACIT (supra).
ITAT in its order stated that in view of the above facts and binding decision of the Hon’ble Jurisdictional High Court in the case of Redington India Ltd. v. ACIT (supra), the disallowance made by the AO under section 14A of the Act is deleted.
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