DCIT CC-II, FARIDABAD vs. SRS REAL INFRASTRUCTURE LTD., FARIDABAD

The sum and substance of the grievance of the revenue is that the CIT(A) erred in deleting the disallowance made by the AO u/s.14A of the Act by holding that if the tax exempt income is not actually earned during the year no disallowance can be made.

Briefly stated the facts of the case are that the assessee company is engaged in the business of Real Estate. The return for the year under consideration was selected for limited scrutiny.

During the course of the scrutiny assessment proceedings the AO noticed that the assessee has made certain investment and, therefore, was asked to explain as to why disallowance u/s.14A of the Act should not be made in view of investment which is related to exempt income. In its reply the assessee explained that the investments have been made from own funds and not interest bearing fund. The assessee also pointed out that it has not earned any exempt income during the year. The AO dismissed the contention of the assessee and computed the disallowance u/s.14A and made addition of Rs.6,93,69,972/-.

The assessee agitated the matter before the CIT(A) and vehemently contended that no exempt income earned during the year and, therefore, no disallowance need to be made u/s.14A of the Act. The CIT(A) was convinced with the contention of the assessee and deleted the additions made by the AO.

Before us the DR strongly supported the findings of the AO.

We have carefully perused the orders of the authorities below. The undisputed fact is that the assessee has not earned any exempt income during the year under consideration, therefore, it is a settled proposition of law that no disallowance can be made u/s. 14A of the Act if there is no exempt income.

We, therefore, decline to interfere with the findings of the CIT(A), the appeal filed by the revenue is dismissed.

Decision announced in the open court on 22.06.2022.