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2024 (7) TMI 1484 - AT - Income TaxDisallowance u/s 14A - assessee has not received any exempt income - HELD THAT - The settled legal position is that no disallowance u/s 14A is called for where there is no exempt income earned during the year. We note that the Ld. CIT(A) has failed to consider the submissions made by the assessee and dismissed the appeal in a very casual manner. Addition confirmed by the Ld. CIT(A) is not justified and cannot be sustained. In view of the fact that no disallowance is called for where there is no exempt income. As decided in R. M Commercial Pvt .Ltd. 2022 (2) TMI 1456 - CALCUTTA HIGH COURT no disallowance u/s 14A is called for as the assessee has not received any exempt income during the year. Accordingly we set aside the order of Ld. CIT(A) and direct the AO to delete the addition. Appeal of the assessee is allowed.
Issues:
Appeal against addition under section 14A of the Act. Analysis: The appeal was filed against the addition of Rs. 28,93,440/- by the Assessing Officer under section 14A of the Income Tax Act. The Assessing Officer observed that the assessee had investments amounting to Rs. 28,93,444/- as on 31.03.2017 and had not provided details of the income derived from these investments despite notices issued under section 142(1) of the Act. The AO added the sum to the assessee's income after issuing a show cause notice regarding the computation of income at 1% of the total investment. The Commissioner of Income Tax (Appeals) upheld the addition, noting that the assessee did not respond to the AO's notice and failed to provide supporting details during the appellate proceedings. During the appeal at the ITAT Kolkata, it was noted that the AO made the addition on a notional basis without substantive reasoning. The ITAT emphasized that any addition or estimation must be based on reasoned grounds, not conjectures. It was highlighted that section 14A disallowance is not applicable if the assessee did not earn any exempt income from the investments. The ITAT found that the assessee had submitted detailed replies online, stating no exempt income was earned during the year and no expenses were incurred for earning exempt income. The ITAT referenced a decision of the Hon'ble Calcutta High Court to support its position that no disallowance under section 14A is warranted when no exempt income is earned. The ITAT concluded that the addition confirmed by the CIT(A) was unjustified and directed the AO to delete the addition, ultimately allowing the appeal of the assessee. The ITAT's decision was based on the principle that no disallowance under section 14A is necessary when no exempt income is earned. The ITAT criticized the CIT(A) for dismissing the appeal without considering the submissions made by the assessee, highlighting that the assessee had provided detailed responses indicating the absence of exempt income. The ITAT's decision was influenced by the legal precedent set by the Calcutta High Court, reinforcing the position that disallowance under section 14A is not warranted in cases where no exempt income is received. The ITAT set aside the CIT(A)'s order and instructed the AO to remove the addition from the assessee's income, ultimately ruling in favor of the assessee.
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