2022 (9) TMI 977 - AT - Income Tax

Disallowance u/s. 14A r.w.r. 8D - Expenditure incurred on earning exempt income - HELD THAT - As per the ratio laid down in the case of PCIT Vs. M/s. Era Infrastructure (I) Ltd 2022 (7) TMI 1093 - DELHI HIGH COURT that no disallowance is to be made u/s. 14A of the Act in case the assessee has not earned any tax free income/exempt income during the year from such investments made by it. This ratio has also been followed by the Tribunal in the case Babul Fiscal Services P.Ltd 2022 (9) TMI 98 - ITAT KOLKATA . Respectfully following the same, hold that since in the instant case also undisputedly there is no exempt income earned by the assessee, the ld.AO was not justified in making disallowance u/s. 14A r.w.r 8D. Therefore, set aside the finding of the ld. CIT(A) and delete the impugned addition made by the ld.AO u/s. 14A of the Act and allow ground nos. 1 to 4 raised by the assessee.

Summary

Issues:
1. Time-barred appeal
2. Ex parte adjudication due to non-appearance of assessee
3. Disallowance u/s. 14A of the Income Tax Act, 1961

Time-barred Appeal:
The appeal filed by the assessee for A.Y. 2014-15 was found to be time-barred by 26 days. However, considering the shortness of the delay and the larger interest of justice, the delay was condoned, and the appeal was admitted for adjudication.

Ex Parte Adjudication:
Despite the absence of the assessee during the hearing, the appeal was adjudicated ex parte based on the material available on record and with the assistance of the ld. DR. The notice of hearing sent to the assessee was returned unserved twice, leading to the decision to proceed ex parte.

Disallowance u/s. 14A of the Income Tax Act:
The assessee contested the disallowance made by the ld. AO under section 14A of the Act. The contention was that the disallowance should be restricted to the amount of exempt income claimed under section 10(34) of the Act. The Tribunal noted that no exempt income was earned by the assessee during the relevant year. Citing precedents, including a Delhi High Court case, it was held that no disallowance should be made under section 14A if no tax-exempt income was earned. Consequently, the Tribunal set aside the finding of the ld. CIT(A) and deleted the disallowance made by the ld. AO under section 14A, allowing the grounds raised by the assessee.

In conclusion, the Tribunal allowed the appeal of the assessee concerning the disallowance under section 14A of the Income Tax Act, 1961, as no exempt income was earned during the relevant year. The delay in filing the appeal was condoned, and the ex parte adjudication was conducted due to the non-appearance of the assessee during the hearing.