Shiva Pharmachem Ltd Vs DCIT (ITAT Ahmedabad)
Introduction: The case of Shiva Pharmachem Ltd vs. DCIT was brought before the Income Tax Appellate Tribunal (ITAT) Ahmedabad, addressing issues related to disallowances under section 14A of the Income Tax Act, 1961, Deduction under section 36(1)(va) for delayed deposit of employee’s contribution to PF and disallowances of Interest paid under section 201(1A) of Income Tax Act for late deposit of TDS.
No section 14A Disallowance Without Exempt Income
The appeal filed by Shiva Pharmachem Ltd challenged the order of the Commissioner of Income-Tax (Appeals) [CIT(A)] regarding disallowance under section 14A of the Act for the assessment year 2017-18. The main ground of dispute was whether disallowance could be made under section 14A in the absence of any exempt income earned during the year.
The assessee argued that since no exempt income was earned, the provisions of section 14A were not applicable. This argument was supported by the jurisdictional High Court’s decision in CIT vs. Corrtech Energy P.Ltd., which held that disallowance isn’t warranted without any exempt income.
The CIT(A), however, relied on a CBDT Circular and upheld the disallowance, leading to the appeal. The ITAT acknowledged the CBDT Circular but referred to the jurisdictional High Court’s decision as binding. Additionally, the ITAT noted the subsequent amendment to section 14A through the Finance Act, 2022, indicating prospective application and supporting the jurisdictional High Court’s interpretation.
