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2023 (8) TMI 433 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - Disallowance of expenditure incurred on earning exempt income - AO has recorded a finding that assessee has no exempt income during this year, but he disallowed the expenditure on the ground that on the investment in business, in future the assessee will earn tax-free income, thus expenditure attributable to tax-free anticipated income deserves to be disallowed u/s 14A r.w.r. 8D - HELD THAT - We are of the view that this view of the AO is contrary to the judgment of M/s. Era Infrastructure Limited 2022 (7) TMI 1093 - DELHI HIGH COURT . The Hon ble Delhi High Court has considered the latest amendment brought in section 14A by way of Finance Act, 2022 and thereafter held that if an assessee has no tax-free income, then no expenditure would be disallowed to it. We allow this ground of appeal for the assessment year and delete the disallowance. Appeal of the assessee is allowed.
Issues involved: Appeal against disallowance under section 14A of the Income Tax Act for assessment year 2016-17.
Summary: The appeal was filed by the assessee against the order of the ld. Commissioner of Income Tax (Appeals) for assessment year 2016-17, which confirmed the disallowance under section 14A of the Act despite the assessee not earning any dividend income during the year. The assessee, engaged in the trading of oxygen gas, filed its return of income for the assessment year 2016-17. The case underwent scrutiny assessment due to a search and seizure operation conducted by the Directorate of Income Tax. The total income of the assessee was determined, including a disallowance under section 14A read with Rule 8D of the Income Tax Act. The assessee appealed to the ld. CIT(Appeals) who upheld the disallowance, leading to the appeal before the Tribunal. The disallowance was made by the ld. Assessing Officer under section 14A read with Rule 8D of the Income Tax Act, based on the anticipation of tax-free income in future years despite the assessee not having any exempt income during the relevant year. However, the Tribunal found this view contrary to a judgment of the Hon'ble Delhi High Court in a specific case, which held that if an assessee has no tax-free income, no expenditure should be disallowed. Citing this judgment, the Tribunal allowed the appeal and deleted the disallowance. In conclusion, the Tribunal allowed the appeal of the assessee, setting aside the disallowance under section 14A of the Income Tax Act for the assessment year 2016-17.
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