2022 (4) TMI 663 - AT - Income Tax

Disallowance u/s 14A - expenditure incurred for exempt income - HELD THAT - As decided in M/s. Leena Kasbekar 2017 (8) TMI 845 - ITAT MUMBAI we find that in the absence of any direct nexus between the expenditure claimed against the exempt income, the AO cannot invoke the provisions of Section 14A read with Rule 8D of the Income Tax Rules, 1962. This finding is squarely applicable on the issue before us. Therefore, since no expenditure has been claimed to reduce any tax liability, there remains no basis to make any disallowance of expenditure against exempt income. We, therefore, delete the disallowance u/s 14A. - Appeal of assessee allowed.

Summary

Issues involved: Disallowance under section 14A of the Income Tax Act, 1961.

Detailed Analysis:

1. The appeal was filed by the assessee against the order of the Commissioner of Income-tax (Appeals) related to the Assessment Year 2017-18. The primary grievance raised by the assessee was the disallowance under section 14A of the Act amounting to ?1,66,690.

2. The Tribunal examined the grounds of appeal and noted that the only issue raised was the disallowance under section 14A. The assessee contended that no expenditure had been claimed against the exempt income, specifically in the categories of income from 'salary' and 'other sources', while for 'capital gain', taxes had already been paid without any claimed expenditure.

3. Referring to a previous decision by a co-ordinate Bench in Mumbai, the Tribunal emphasized the requirement of establishing a direct nexus between claimed expenditure and exempt income before invoking section 14A. The case highlighted that in the absence of such a nexus, the assessing officer cannot disallow expenditure under section 14A read with Rule 8D of the Income Tax Rules, 1962.

4. Based on the above precedent and the facts of the current case where no expenditure was claimed to reduce tax liability, the Tribunal concluded that there was no basis for the disallowance of expenditure against exempt income. Consequently, the disallowance under section 14A of the Act amounting to ?1,66,690 was deleted, and the grounds raised by the assessee were allowed.

5. In the final decision, dated March 3, 2022, the Tribunal allowed the appeal of the assessee, thereby resolving the issue of disallowance under section 14A in favor of the assessee.