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Facts
The assessee, engaged in wind energy business, did not earn exempt income but had a voluntary disallowance u/s.14A. The AO disallowed 1% of investment in a subsidiary company, leading to an addition. The CIT(A) confirmed this addition.
Held
The Tribunal noted that the assessee had not earned any exempt income. Relying on High Court and coordinate bench decisions, it held that disallowance u/s.14A cannot be made when no exempt income is earned.
Key Issues
Whether disallowance u/s.14A of the Act can be made when the assessee has not earned any exempt income.
Sections Cited
14A
AI-generated summary — verify with the full judgment below
The assessee has filed this appeal challenging the order dt.24-07-2024 passed by the Ld. Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [„Ld.CIT(A)‟] and it relates to AY. 2018-19. The only issue urged in this appeal relates to addition made by the AOu/s.14A of the Income Tax Act, 1961 („the Act‟).
The assessee is engaged in the business of generation of wind energy and dealing in power generation equipment. During the year under consideration, the assessee did not earn any exempt income. However, it has voluntarily disallowed a sum of Rs.1,13,000/- u/s.14A of the Act. The AO noticed that the assessee has made investment in his subsidiary-company to the tune of Rs. 2,26,00,000/-. Accordingly, he computed disallowanceu/s.14A of the Act @1% of the value of the investment, which worked out to Rs. 2,26,000/-. Accordingly, the AO made addition of the difference amount of Rs. 1,13,000/- [i.e., Rs. 2,26,000/- (-) Rs. 1,13,000/-]to the total income of the assessee. The Ld.CIT(A) also confirmed the same.
The Ld.AR placed reliance on the decision rendered by theCo- ordinate Bench of the Tribunalin the case of Prime Property Development Corporation Ltd., vs. ACIT [2024] (159 taxmann.com 1581) (Mumbai – Trib.) and submitted that the disallowanceu/s.14A of the Act is not required to be made when the assessee has not earned any exempt income. Accordingly, the Ld.ARsubmitted that the additionof Rs. 1,13,000/- made by the AO may kindly be deleted.
We heard the Ld.DR and perused the record.The undisputed fact would remain that the assessee has not earned any exempt income. The Hon‟ble Madras High Court in the case of CIT vs. Chettinad Logistics (P.) Ltd., (2017) [80 taxmann.com 221] has held that the disallowanceu/s.14A of the Actcannot be made when the assessee has not earned any exempt income. The above said decision was followed by the Co-ordinate Bench of the Tribunalin the case ofPrime Property Development Corporation Ltd., (supra). Accordingly, we find merit in the contentions of the Ld.AR. Accordingly, we set aside the order passed by the Ld.CIT(A) and direct the AO to delete the addition of Rs. 1,13,000/- made by the AO u/s.14A of the Act.
In the result, the appeal of the assessee is allowed.