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TMI Blog2025 (1) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the business of providing data processing and related services to its Associated Enterprises (herein after, the 'AE'). It provides software access to the subscribers Amadeus Products and Computer Database within India, Bangladesh and Nepal. The core activity of the assessee is to provide connectivity to the system by creation/modification/up-gradation of computer programmes online through Data Processing Center to its AE. The Transfer Pricing Officer (TPO)/AO has held that the assessee, by incurring substantial expenditure on Advertisement, Marketing & Promotion, has benefitted its AE by creating marketing in tangible. However, the AE has not suitably compensated the assessee. In the draft assessment order, the AO proposed protective addition of INR 146,700,000 applying bright line test method and substantive addition of INR 157,440,000. Further, the AO also proposed the disallowance of expenditure of INR 37,034,806 under section 14A of the Act r.w.r. 8D of the I. T. Rules. Aggrieved with the AO's draft order, the assessee raised the matter before the Dispute Resolution Penal (hereinafter, the 'DRP'). However, the DRP upheld the finding of the AO. Consequentially, the final a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidered for the purpose of apportionment 6. In case own funds are more than the investments no disallowance on account of Interest is to be made 7. Position accepted in earlier years need to be followed in subsequent years 8. Disallowance is to be restricted to exempt income 9. Dominant purpose of investment is irrelevant 10. The basis on which disallowance is to be determined in the case of shares held as stock-in-trade. The Panel further takes a cognizance that the mandate of Sec- 14A is to prevent claims for deduction of expenditure in relation to income which does not form part of the total income of the assessee. It is enacted to ensure that only expenses incurred in respect of earning taxable income are allowed. The basic principle of taxation is to tax net income which applies even for the purposes of Sec-14A and expenses towards non- taxable income must be excluded. Once a proximate cause for disallowance is established - which is the relationship of the expenditure with income which does not form part of the total income - a disallowance has to be effected. The Panel also takes a note that in the recent judgment vide order dated-09-09-2021 in THE SUPREME COUR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 14A of the Act. Emphasizing on the fact that the assessee was not having any income which were not includable in Total Income being exempted from tax, it was argued by the Ld. AR that the disallowance under section 14A of the Act could not be done in the present case. Further, it was also submitted that the assessee had made strategic investments, in its AEs/subsidiaries, out of its own fund and nothing from the borrowed fund. Hence, disallowance of interest under section 14A of the Act thereon did not arise. 4.2 The Ld. AR placed reliance on various decisions; such as, UTI Bank Ltd. [2022] 142 taxmann.com 136/289 Taxman 238 (SC), Shapoorji Pallonji & Co. Ltd. [2022] 141 taxmann.com 509/288 Taxman 661 (SC); South Indian Bank Ltd. [2021] 130 taxmann.com 178/283 Taxman 178 (SC),Maxopp Investments Ltd. v. CIT [2018] 402 ITR 640/254 Taxman 325/91 taxmann.com 154 (SC), etc. He submitted that the broad principles laid down in all such cases were found mentioned in the DRP's order. However, the DRP did not adhere to those while issuing directions to the AO. He drew our attention to the above highlighted portion on page 12 of the DRP's order. 4.3 Vide ground No.10 and 10.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of disallowance made by the assessee as per accounts maintained by him are not correct. The order of the DRP has reiterated, in bold letters, the findings of the Hon'ble Supreme Court on page 12 of its order, which are self-explanatory. The finding that 'the disallowance is to be restricted to exempt income' means that the disallowance cannot be done if there is no exempt income. Admittedly, there was NO EXEMPT INCOME. We are of the considered view that if there is no exempt income, no disallowance under section 14A of the Act can be made upto AY 2021-22. However, after insertion of Explanation to section 14A of the Act from AY 2022-23, the disallowance under section 14A of the Act relating to exempt income can be made even though no exempt income was earned during the relevant year. Therefore, following the reasoning given in the decisions of the Hon'ble Supreme Court in the cases cited on page 12 of the DRP's order, we are of the considered view that no disallowance under section 14A of the Act is called for. Therefore, we delete the disallowance of INR 37,034,806/- made under section 14A of the Act. Consequently, the ground No. 9 & 9.2 are allowed as above. 8. Vide ground No.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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