2021 (4) TMI 727 - AT - Income Tax

Disallowance u/s 14A - as per assessee no exempt income was earned by the assessee company and the action is unjustified and unwarranted - HELD THAT - We find that in the case of PCIT-6 v. Kohinoor Project (P.) Ltd., 2020 (1) TMI 1161 - BOMBAY HIGH COURT in unequivocal terms had concluded that section 14A would not apply if no exempt income was received or was receivable by the assessee during the relevant previous years. Also, a similar view had been taken by the Hon'ble High Court in the case of PCIT v. Red Chillies Entertainment (P.) Ltd., 2019 (8) TMI 1490 - BOMBAY HIGH COURT Accordingly, in the backdrop of the fact that the no exempt income was received or was receivable by the assessee during the year in question i.e. A.Y. 2010-11, we agree with the claim of the Ld.A.R that no disallowance u/s. 14A was called for in the hands of the assessee.- Decided in favour of assessee.

Summary

Issues:
Appeal against order by Ld. CIT(A) for AY 2010-11, 2011-12, and 2012-13 regarding disallowance u/s. 14A of the Income Tax Act.

Analysis:
1. The appeals by the assessee challenged the order by Ld. CIT(A) confirming the disallowance made by the Assessing Officer u/s. 14A of the Income Tax Act for AY 2010-11, 2011-12, and 2012-13.
2. The Assessing Officer initially disallowed a specific amount under section 14A, which was further modified after the matter was taken to the ITAT. The ITAT directed the AO to re-examine the issue based on the documents provided by the assessee.
3. In the appeal for AY 2010-11, the Ld.CIT(A) vacated part of the disallowance made by the AO under section 14A and reworked the average value of investments. The Ld.CIT(A) also concluded that no adjustment could be made to the book profits under section 115JB in relation to the disallowance u/s. 14A.
4. The Authorized Representative for the assessee argued that as no exempt income was received during the relevant year, no disallowance u/s. 14A should be made. The Departmental Representative admitted that no exempt income was earned by the assessee.
5. The ITAT referred to judgments by the Hon'ble Bombay High Court and agreed with the claim that no disallowance u/s. 14A was warranted if no exempt income was received or receivable. The ITAT set aside the order of Ld.CIT(A) and vacated the disallowance made by the AO u/s. 14A.
6. The ITAT applied the same reasoning to the appeals for AY 2011-12 and 2012-13, thereby allowing all appeals filed by the assessee for the mentioned assessment years.

This detailed analysis of the judgment highlights the issues involved, the arguments presented by both parties, the legal interpretations made by the ITAT, and the final decision taken in favor of the assessee based on the absence of any exempt income during the relevant years.