Emmvee Photovoltaic Power Limited Vs ITO (ITAT Bangalore)
No Exempt Income = No U/s 14A Disallowance – ITAT Bangalore Reaffirms Settled Law
The Bangalore ITAT deleted the disallowance of ₹34.64 lakh made under Section 14A r.w. Rule 8D, holding that in the absence of exempt income, no disallowance can be made.
The AO had invoked Section 14A merely because the assessee had made investments in subsidiaries capable of yielding exempt income, even though no exempt income was actually earned during the year. The CIT(A) upheld the disallowance relying on CBDT Circular No. 5/2014.
However, the Tribunal held:
- The existence of exempt income is a pre-condition for invoking Section 14A.
- Section 14A is a machinery provision, which fails when there is no exempt income.
- Binding Karnataka High Court judgment (PCIT vs. Nam Estates Pvt Ltd) clearly supports the assessee.
The ITAT further clarified that:
- CBDT Circular cannot override judicial precedents.
- The Supreme Court ruling in Maxopp Investment Ltd. is distinguishable, as it dealt with cases where exempt income actually existed.
Accordingly, the Tribunal held that no nexus or apportionment arises when there is no exempt income at all, and hence the entire disallowance was unsustainable.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
