PCIT Vs Kohinoor Project Pvt. Ltd (Bombay High Court)
Bombay High Court Affirms: No Section 14A Disallowance Without Actual Exempt Income
Mumbai, [Current Date]: In a significant pronouncement for corporate taxpayers, the Bombay High Court has affirmed a crucial principle regarding the applicability of Section 14A of the Income Tax Act, 1961. The High Court, in the case of PCIT-6 Vs Kohinoor Project Pvt. Ltd., dismissed an appeal by the revenue, holding that no disallowance under Section 14A, read with Rule 8D, can be made for expenditure incurred in relation to earning exempt income if the assessee has, in fact, not earned any exempt income during the relevant financial year. This decision provides clarity and relief to entities making investments that could yield exempt income but do not do so in a particular year.
The case pertains to the Assessment Year 2008-09, for which Kohinoor Project Pvt. Ltd. (the assessee) had declared a total loss of Rs. (-) 10,16,33,795/-. During scrutiny assessment, the Assessing Officer (AO) observed that the assessee had made a substantial investment of Rs. 7.90 Crores in shares of Kohinoor CTNL Infrastructure Co. Ltd., categorizing it as a “strategic investment” expected to yield future benefits. Despite the undisputed fact that the assessee had earned no exempt income whatsoever for the relevant previous year, the AO proceeded to make a disallowance of Rs. 6,95,98,750/- under Section 14A of the Act, presuming expenditure incurred to earn future exempt income.
