Disallowance u/s 14A was invalid in absence of Exempt Income

DCIT Vs John Deere India Private Limited (ITAT Pune)

Conclusion: Disallowance under Section 14A  was invalid due to the absence of exempt income and no material or evidence was submitted by the AO to show that any expenditure had been incurred on the activity, which had resulted in exempt income.

Held: Assessee-company was involved in manufacturing tractors, agricultural equipment, and spare parts, also operated a technology center providing IT and engineering services to Deer Associates. It filed its income tax return declaring a total income of Rs. 591,28,97,560. During assessment procedures, AO noted that assessee invested in a subsidiary firm with tax-exempt income. AO issued an SCN asking assessee why the disallowance u/s 14A read with rule 8D should not be made. AO who was not satisfied with the reply made an addition of Rs. 3.65 crores under Section 14 A. Assessee appealed against the impugned order of AO before CIT(A) and contended that no disallowance could be made as the assessee had not received any dividend income. CIT(A) deleted the addition made by AO by noting that the disallowance under Section 14A cannot be made when the investments were made out of the assessee’s own funds and no interest expenditure was incurred. CIT(A) further observed that no material or evidence was submitted by the AO to show that any expenditure had been incurred on the activity, which had resulted in non-taxable income. On appeal before Tribunal. It was held that since admittedly assessee hasd not received any exempt income during this year, therefore, respectfully following the decision passed by the Jurisdictional Tribunal & in absence of any adverse material brought on record by the revenue, no addition was called for u/s 14 r.w. Rule 8D of the IT Rules.