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Facts
The assessee challenged the disallowance of Rs. 26.83 lakhs made under section 14A of the Income Tax Act for AY 2017-18. The Assessing Officer (AO) disallowed the amount by applying Rule 8D, as the assessee had investments in mutual funds, NCDs, and shares of subsidiary companies but did not offer any exempt income. The CIT(A) upheld the AO's order.
Held
The Delhi High Court in the case of Era Infrastructure (India) Ltd. held that disallowance under section 14A is not required if no exempt income is earned. The amendment making it mandatory even without exempt income was held to be prospective. Following this precedent, the tribunal found the disallowance not justified.
Key Issues
Whether disallowance under Section 14A is to be made when no exempt income has been earned by the assessee, applying the decision of the Hon'ble Delhi High Court in Era Infrastructure (India) Ltd.
Sections Cited
14A, Rule 8D
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, MUMBAI “C” BENCH : MUMBAI
Before: SHRI B.R. BASKARAN & SHRI ANIKESH BANERJEE
The assessee has filed this appeal challenging the order dt. 01-05-2024 passed by the learned Commissioner of Income Tax (Appeals)-NFAC, Delhi (in short „Ld.CIT(A)‟) and it relates to AY. 2017- 18. The only issue adjudicated by the assessee in this appeal relates to the disallowance of Rs.26.83 lakhs made by the AO u/s. 14A of the Income Tax Act, 1961 („the Act‟).
2. During the assessment proceedings, the AO noticed that the assessee has held investments to the tune of Rs. 59.32 crores in mutual funds, NCD and shares of subsidiary companies. The assessee did not make any disallowance u/s. 14A of the Act. When questioned about the same, the assessee submitted that it has not received any exempt income and hence, disallowance u/s. 14A of the Act is not called for. The AO did not accept the above said contention of the assessee and accordingly, he computed the disallowance u/s. 14A of the Act by applying Rule 8D of the Income Tax Rules, 1962 („the Rules‟) at Rs. 26,83,414/-.
In the appellate proceedings, Ld.CIT(A) confirmed the same and hence, the assessee has filed this appeal before the Tribunal.
We heard the parties and perused the record. The Ld.AR submitted that the Hon‟ble Delhi High Court in the case of Era Infrastructure (India) Ltd., (2022) 448 ITR674 has held that disallowance u/s. 14A of the Act is not required to be made when the assessee has not earned any exempt income. It was further held that theamendment brought out by the Statute in Section 14A of the Act w.e.f. 01-04-2022, making the disallowance u/s.14A of the Act mandatory even if exempt income is not earned has been held to be prospective in nature by Hon‟ble Delhi High Court in the above said case.Accordingly, Ld.AR submitted that the additionmade by the tax authorities is not justified.
We heard the Ld.DR and perused the record. Since the assessee has not earned any exempt incomeduring the year under consideration, the disallowance u/s.14A of the Act is not required to be made as per the decision of the Hon‟ble Delhi High Court in the case of Era Infrastructure (India) Ltd., (supra). Respectfully following the said decision of the Hon‟ble Delhi High Court, we set aside the order passed
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 9th August, 2024.