M/S. SRI VINAYAK FINCON PVT. LTD,KOLKATA vs. ITO, WARD-7(3), KOLKATA

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ITA 205/KOL/2023Status: DisposedITAT Kolkata23 May 2023AY 2013-144 pages

In favour of the assessee: the assessee's appeal was allowed. From the AI summary of this appeal.

AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that if an assessee has no tax-free income, no expenditure can be disallowed under Section 14A. This decision followed the judgment of the Delhi High Court in the case of Pr. Commissioner of Income Tax vs. M/s. Era Infrastructure Limited.

What were the facts?

The Assessing Officer disallowed expenditure under Section 14A read with Rule 8D, even though the assessee had no exempt income in the assessment years. The disallowance was based on the AO's belief that the assessee would earn tax-free income in future.

What were the issues?

Whether expenditure can be disallowed under Section 14A when the assessee has no exempt income in the current assessment year, even if future exempt income is anticipated.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘B’ BENCH, KOLKATA

Before: Shri Rajpal Yadav, Vice- & Shri Rajesh Kumar

Per Shri Rajpal Yadav, Vice-President (KZ):- The present two appeals are directed at the instance of assessee against the separate orders of ld. Commissioner of Income Tax (Appeals), National Faceless 1 & 206/KOL/2023 A.Ys. 2013-2014 & 2014-2015 M/s. Sri Vinayak Fincon Pvt. Limited Appeal Centre (NFAC), Delhi both dated 19th January, 2023 passed for assessment years 2013-14 and 2014-15.

2.

In both these years, the assessee has raised two grounds of appeal. However, Ground No. 2 is a general ground of appeal, hence it does not call for recording of any finding in both the years.

1.

3. In Ground No. 1, the grievance of the assessee is that the ld. CIT(Appeals) has erred in confirming the addition of Rs.47,928/- and Rs.57,028/- in A.Y. 2013-14 and 2014-15 respectively. Both these disallowances have been made under section 14A read with Rule 8D of the Income Tax Act.

4. With the assistance of ld. Representatives, we have gone through the record carefully. A perusal of paragraph 4 of the assessment order would suggest that the ld. Assessing Officer has recorded a finding in both the years that assessee has no exempt income during these years, but he disallowed the expenditure on the ground that on these investments, 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 to the assessee under section 14A read with Rule 8D of the Income Tax Act. He has observed that though in these & 206/KOL/2023 A.Ys. 2013-2014 & 2014-2015 M/s. Sri Vinayak Fincon Pvt. Limited years, the assessee has no tax-free income but in future years it will earn some income. Hence he calculated the disallowance.

5.

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 has no tax-free income, then no expenditure would be disallowed to it. Following this judgment, we allow this ground of appeal for both the years and delete the disallowances.

6.

In the result, both the appeals of the assessee are allowed. Order pronounced in the open Court on May 23, 2023.

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