M/S. MOD COMMODEAL PVT. LTD.,KOLKATA vs. A.C.I.T., CIRCLE - 3(1), KOLKATA, KOLKATA
What did the Tribunal hold?
The Tribunal held that disallowance under Section 14A is not permissible if the assessee has not earned any exempt income in the relevant assessment year. This decision followed a High Court judgment on the matter.
What were the facts?
The assessee company, engaged in trading oxygen gas, had its income determined after a disallowance under Section 14A. The Assessing Officer disallowed expenditure based on anticipated future tax-free income, even though no such income was earned in the current year.
What were the issues?
Whether expenditure can be disallowed under Section 14A when no exempt income has been earned by the assessee in the assessment year.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘SMC’ BENCH, KOLKATA
Before: Dr. Manish Borad & Shri Sonjoy Sarma
Per Dr. Manish Borad, Accountant Member:- This appeal at the instance of assessee for assessment year 2016-17 is directed against the order of ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 30.01.2023, which is arising out of the order under section 143(3) of Assessment Year: 2016-2017 M/s. Mod Commodeal Pvt. Limited the Income Tax Act on 19.12.2018 framed by ld. ACIT, Circle-3(1), Kolkata.
The sole grievance of the assessee is that both the lower authorities erred in confirming the disallowance under section 14A of the Act considering the fact that the assessee has not earned any dividend income during the year. The fact, that the assessee has not earned any dividend income, stands uncontroverted by the ld. D.R.
Brief facts of the case are that the assessee-company was engaged in the business of trading of oxygen gas during the year and filed its return of income for the assessment year 2016-17 on 04.01.2017 declaring total income at Rs.7,06,442/- under normal provision. The case was selected for manual scrutiny vide CBDT Instruction No. 05/2017 dated 07.07.2017. The case was selected for scrutiny assessment and a search and seizure operation was conducted under section 132(1) by the Directorate of Income Tax (Investigation), Gauhati in Adhunik Cement Group on 11.03.2016. On the basis of the return and copy of accounts and materials collected during the course of assessment proceedings, the total income of the assessee was determined at Rs.5,83,709/- inter alia making the disallowance of a sum of Rs.5,83,709/- under section 14A read with Rule 8D of the Income Tax Act. Being aggrieved, the assessee went in appeal before the ld. CIT(Appeals). The ld. CIT(Appeals) upheld the order Assessment Year: 2016-2017 M/s. Mod Commodeal Pvt. Limited of the ld. Assessing Officer. Being not satisfied, the assessee is in appeal before the Tribunal.
We have heard the rival contentions and gone through the material placed before us. The disallowance has been made under section 14A read with Rule 8D of the Income Tax Act. A perusal of the assessment order would suggest that the ld. Assessing Officer has recorded a finding that assessee has no exempt income during this year, but he disallowed the expenditure on the ground that on the investment in business, in future the assessee will earn tax-free income, thus the ld. Assessing Officer was of the opinion that the expenditure attributable to tax-free anticipated income deserves to be disallowed under section 14A read with Rule 8D of the Income Tax Act. He has observed that though in this year, the assessee has no tax-free income but in future years it will earn some income. Hence he calculated the disallowance.
On due consideration of the above facts and circumstances, we are of the view that this view of the ld. Assessing Officer is contrary to the judgment of the Hon’ble Delhi High Court in the case of Pr. Commissioner of Income Tax –vs.- M/s. Era Infrastructure Limited in of 2022. This decision has come on 20th July, 2022. The Hon’ble Delhi High Court has considered the latest amendment brought in section 14A by way of Finance Act, 2022 and thereafter held that if an assessee 3 Assessment Year: 2016-2017 M/s. Mod Commodeal Pvt. Limited has no tax-free income, then no expenditure would be disallowed to it. Following this judgment, we allow this ground of appeal for the assessment year and delete the disallowance.
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