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2022 (12) TMI 159 - AT - Income TaxDisallowance u/s 14A - No receipt of exempt income during the relevant assessment year - HELD THAT - Admittedly, for the relevant year, the assessee was not in receipt of any exempt income on the investments made by it. When the assessee is not in receipt of any exempt income, no disallowance u/s 14A is warranted. Disallowance u/s 43B(f) - provision made in earlier years - disallowance should have been restricted to the amount claimed in the profit and loss account - HELD THAT - On a perusal of the orders of the A.O. and the CIT(A), it is seen that the assessee had not taken this contention before them. Therefore, in the interest of justice and equity, the matter is restored to the files of the A.O. The A.O. shall consider the claim of the assessee and shall take a decision in accordance with law. It is ordered accordingly. Appeal filed by the assessee is partly allowed.
Issues Involved:
1. Disallowance of Rs.6,66,499 under Section 14A of the Income Tax Act. 2. Disallowance of Rs.10,15,393 under Section 43B(f) of the Income Tax Act. Issue-wise Detailed Analysis: Disallowance under Section 14A of the Income Tax Act (Rs.6,66,499): The Assessing Officer (A.O.) disallowed Rs.6,66,499 by invoking Section 14A of the Income Tax Act, based on CBDT Circular No.5 of 2014, rejecting the assessee's plea that no disallowance was warranted since no exempt income was received during the relevant year. The CIT(A) upheld the A.O.'s decision. The assessee contended before the ITAT that disallowance under Section 14A is not applicable when no exempt income is earned during the year, citing judicial pronouncements from Principal CIT v. IL & FS Energy Development Co. Ltd. [399 ITR 483 (Delhi)], Chem Invest Ltd. v. CIT [378 ITR 33 (Delhi)], Redington India Ltd. v. Addl.CIT (392 ITR 633), and ITAT Cochin Bench in ITO v. Kerala Ayurveda Ltd. (ITA No.506/Coch/2016). The Departmental Representative supported the orders of the A.O. and CIT(A). The ITAT, after hearing both parties and reviewing the material, concluded that since the assessee did not receive any exempt income during the relevant year, no disallowance under Section 14A is warranted. The ITAT relied on the same judicial pronouncements cited by the assessee and added the judgment in PCIT v. Novell Software Development (India) Pvt. Ltd. [2021] 434 ITR 154 (Karnataka). The ITAT also noted that the Finance Act 2022 amended Section 14A, stating that disallowance can be made irrespective of receipt of exempt income, but the Delhi High Court in Pr.CIT v. M/s. Era Infrastructure (India) Ltd. (ITA 204/2022) clarified that this amendment is prospective, applicable from assessment year 2022-2023 onwards. In light of these judicial pronouncements, the ITAT held that no disallowance under Section 14A is called for since the assessee was not in receipt of exempt income during the relevant assessment year. Consequently, grounds 2 and 3 were allowed. Disallowance under Section 43B(f) of the Income Tax Act (Rs.10,15,393): The A.O. disallowed Rs.10,15,393 under Section 43B(f) based on the judgment of the Kerala High Court in South Indian Bank Limited v. CIT [363 ITR 111]. The CIT(A) confirmed this disallowance. The assessee argued before the Tribunal that the disallowance should be restricted to Rs.5,73,740, contending that only Rs.6,08,591 was debited to the Profit and Loss Account for the year and Rs.34,851 was paid during the year against the provision made in earlier years. The ITAT noted that this contention was not raised before the A.O. or the CIT(A). Therefore, in the interest of justice, the matter was remanded to the A.O. to consider the assessee's claim and make a decision in accordance with the law. Conclusion: The ITAT partly allowed the appeal filed by the assessee. The disallowance under Section 14A was overturned, while the issue under Section 43B(f) was remanded to the A.O. for reconsideration. The order was pronounced on August 3, 2022.
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