2023 (7) TMI 378 - AT - Income Tax

Disallowance u/s 14A - earning of exempt income - HELD THAT - There is no dispute that during the year under consideration the assessee has earned nil exempt income. The Hon ble High Court of Delhi in the case of Delhi International Airport Private Limited 2022 (10) TMI 300 - DELHI HIGH COURT has held that sec 14A would not be applicable if no exempt income was received or receivable during the previous year. Also see Era Infrastructure India Limited 2022 (7) TMI 1093 - DELHI HIGH COURT - Decided in favour of assessee.

Summary

Issues involved:
The issues involved in the judgment are disallowance u/s 14A r.w.r 8D for an assessee with nil exempt income and the interpretation of relevant legal provisions and judicial decisions in this regard.

Disallowance u/s 14A r.w.r 8D for assessee with nil exempt income:
The appellant raised grievances against the disallowance of Rs 1,37,40,250 made by the Assessing Officer u/s 14A r.w.r 8D, despite having no exempt income during the assessment year. The appellant argued that no disallowance should be made in the absence of exempt income, citing decisions of the Delhi High Court and Madras High Court supporting this stance. The appellant also highlighted the insertion of an Explanation to Section 14A in the Finance Act, 2022, clarifying that the amendment applies from a specific date. The appellant contended that the disallowance exceeded the actual expenses claimed, contrary to Rule 8D. The Tribunal noted that the assessee indeed had nil exempt income during the relevant year, as per judicial precedents. Relying on decisions of the Delhi High Court, the Tribunal directed the Assessing Officer to delete the disallowance, thereby allowing the appeal of the assessee.

Facts of the case:
The assessee company, engaged in manufacturing Ferro alloys and trading steel products, held noncurrent investments in non-convertible cumulative redeemable preference shares. The Assessing Officer observed that the assessee had significant investments to earn exempt income but had not made any disallowance u/s 14A. Consequently, the AO computed a disallowance of Rs. 1,37,40,250 u/s 14A r.w.r. 8D. The matter was taken to the CIT(A) by the assessee, where the appeal was unsuccessful. During the proceedings before the Tribunal, it was emphasized that the assessee had no exempt income, and therefore, no disallowance should be applicable. The DR supported the AO's findings, leading to a detailed consideration by the Tribunal.

This judgment by the Appellate Tribunal ITAT Delhi addressed the issue of disallowance u/s 14A r.w.r 8D for an assessee with nil exempt income. The Tribunal, drawing on relevant legal provisions and judicial decisions, ruled in favor of the assessee, directing the deletion of the disallowance made by the Assessing Officer.