Disallowance u/s 14A against Expenses for Exempt Income, Not Taxable Income

DCIT Vs Jaypee Infra Ventures (ITAT Delhi)

ITAT Delhi held that disallowance u/s 14A of the Act is made in respect of expenses attributable to exempt income and not the taxable income. Further, the disallowance u/s 14A of the Income Tax Act should not exceed the exempt income of that year.

Facts- The assessee company is engaged in the business of design, engineering, software development and consultancy of real estate business. The case was selected for scrutiny assessment under CASS. Statutory notice u/s 143(2) of the Act was issued and duly served upon the assessee. AO while framing the assessment, invoked the provision of section 14A of the Act on the basis that the assessee failed to establish nexus between the investment made and interest free funds available with the assessee. The AO made disallowance u/s 14A of the Act of Rs.17,46,28,410/- and after giving set off of the disallowance made by the assessee itself of Rs.7,77,43,211/- made addition of difference amounting to Rs.9,68,85, 199/-.

Aggrieved against this, the assessee has preferred the appeal before CIT(A), who after considering the submissions, partly allowed the appeal of the assessee , thereby, deleted the disallowance made by invoking the provision of section 14A of the Act.

Aggrieved against the order of Ld.CIT(A), the Revenue preferred appeal before the Tribunal.

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