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Facts
The Revenue appealed an order by the CIT(A) deleting an addition of Rs. 5,57,26,060/- made under Section 14A. The assessee had made investments in mutual funds, bonds, and equity shares yielding exempt income, but no disallowance was made by the assessee. The AO made the disallowance by applying average investment.
Held
The Tribunal held that the assessee had not incurred any expenses in relation to earning the exempt income. The CIT(A)'s finding that no disallowance was required was upheld, and the Revenue's appeal was dismissed.
Key Issues
Whether disallowance under Section 14A is permissible when the assessee claims no expenses were incurred for earning exempt income and investments were made from own funds, not borrowed funds.
Sections Cited
14A, 250, 143(2), 142(1)
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Income Tax Appellate Tribunal, “D” BENCH,KOLKATA
vs. M/s Techno Electric & Engineering Company Limited, C-218 Cir-1, Sector-63, Gautam Buddha Nagar, Noida (UP) – 201307 ................................ Respondent [PAN: AAJCS4414Q] Appearances by: Assessee represented by : Soumitra Choudhury, Advocate Department represented by : Sanat Kumar Raha, CIT(DR) Date of concluding the hearing : 08.12.2025 Date of pronouncing the order : 23.12.2025 O R D E R Per Rajesh Kumar, AM
The present appeal filed by the revenuearise from order dated 27.01.2025passed u/s 250 of the Income Tax Act, 1961 (hereafter “the Act”) by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi[hereafter “the Ld.CIT(A)].
At the outset, we observe from the appeal folder that the appeal of the revenue is barred by limitation by 150 days for which the condonation petition has been filed. After perusing the contents of the application, we find that the delay is attributable to obtaining sanction/approval from various authorities. Therefore, the reasons cited by the Revenue being
The issue raised by the assessee is against the order of Ld. CIT(A) deleting the addition of Rs. 5,57,26,060/- u/s 14A of the Act.
The facts in brief are that the assessee filed return of income on 19.06.2017. The case of the assessee was selected for scrutiny and notice u/s 143(2) and 142(1) of the Act along with questionnaire were duly issued and served upon the assessee. During the course of assessment proceedings the assessee furnished all the documents and evidences as called for by the AO in support of its claim. The AO noticed from the evidences filed by the assessee that assessee company has made investment in Mutual Funds, bonds, equity shares which has yielded exempt income of Rs. 11,64,80,280/- and has not made any disallowance u/s 14A of the Act. Accordingly, the AO computed disallowance at Rs. 5,57,26,060/- by applying one of the average investments.
In the appellate proceedings, the Ld. CIT(A) deleted the addition by observing held as under:
“6. Ground no. 1 is relating to disallowance of Rs.5,57,26,060/- u/s, 14A of the Act. The facts of the case are that the appellant is engaged in business of engineering and operations and maintenance in electricity value chain having 3 segments of generation, transmission and distribution. As part of the business, the appellant deployed capital in setting up renewable power business through formation of special purpose vehicles as per the government requirement. The SPVs are either the subsidiaries or associated companies or joint venture entities. The appellant had meagre loans at the beginning of the PY and at the end of PY the appellant's loans were NIL. The appellant has also submitted that no loan funds were utilized for making the investments. The investments made in SPVs are subsidiaries and other current investments were yielding taxable income and thus are not subject matter of disallowance under section 14A of the Act. The SPVs were having their own infrastructure to manage their respective entities. 6.1 The appellant has received dividend of Rs. 11.6480 Crores from one of its fully owned subsidiary M/s. Simran Wind Project Limited. In the said company, the appellant has made an investment of Rs.430.60 Crore as on 31.03.2017. The investment has been made by the appellant out of its own funds as appellant was having a net worth of Rs.717.66 Crore as on 01.04.2016. Hence, it was pleaded that disallowance of interest on borrowed funds cannot be made. Reliance was placed on the decision of CIT Vs. Reliance Utilities and Power Limited 178 Techno Electric & Engineering Company Ltd. Taxmann 135 (Bombay) and Hon'ble Supreme Court in the case of CIT Vs. Walfort Share and Stockbrokers 233 CTR 42 (SC). 6.2 It was further pleaded that the AO has not properly associated the nature of business as well as the investments made by the appellant and has applied the provisions of section 14A read with Rule 8D mechanically. Reliance was placed on the decision of Hon'ble Supreme Court in the case of Maxopp Investment Limited Vs. CIT 91 Taxmann.com 154 (SC). The appellant also relied upon the decision of Hon'ble Punjab and Haryana High Court in the case of CIT Vs. Hero Cycles Limited reported in 323 ITR 518 (P&H). In the said case, the Hon'ble High Court held that when there is no evidence to show that interest bearing funds were invested in investments which had generated exempt income in the form of dividend, 6.3 The appellant also relied upon the decision of Hon'ble ITAT Chennai Bench in the case of DCIT Vs. Amalgamation Limited reported in 82 Taxmann.com 312. In the said case, Hon'ble ITAT held that the investments made by the assessee in its subsidiary are not to be reckoned for disallowance u/s. 14A read with Rule 8D. 6.4 Thus, considering all the above facts of the case that the appellant has not invested the funds in its subsidiaries out of borrowed funds, there are no expenses incurred by the appellant and as the appellant has not earned any exempt income other than from its subsidiary companies and in view of the fact that the dividend received from the subsidiary companies should not be reckoned for disallowance u/s. 14A of the Act, the AO is directed to delete the disallowance made u/s. 14A of the Act of Rs.5,57,26,060/-. Ground no. 1 is allowed.”
The Ld. CIT(A) has given a finding the fact that no disallowance is required as the assessee has not incurred any expenses in relation to exempt income which was charged to the Profit & Loss Account.
After hearing the rival contention and perusing the material available on record. We find that the assessee has earned exempt income of Rs. 11,64,80,280/- by way of dividend. However, no expenses u/s 14A of the Act were disallowed by the assessee. We note that the Ld. CIT(A) in the appellate proceeding recorded a finding that the assessee has not incurred any expenses in relation to earning exempt income which were charged to Profit & Loss Account. The Ld. DR could not controvert the finding of the Ld. CIT(A) on this issue during the course of hearing. Consequently, we uphold the order of Ld. CIT(A) by dismissing the appeal of the Revenue.