Sreeleathers Limited Vs DCIT (ITAT Kolkata)
ITAT Kolkata held that no disallowance u/s 14A r.w. Rule 8D can be made where Assessee has not earned any exempt income during the year.
AO had made a disallowance of ₹47.43 lakh despite Assessee’s submission that no dividend or exempt income was earned & that investments were in taxable debt mutual funds. CIT(A) upheld the addition relying on CBDT Circular No. 5/2014.
Tribunal noted that the amendment to Section 14A by Finance Act, 2022 introducing a non obstante clause & Explanation is prospective from AY 2022-23, as held in PCIT v. Era Infrastructure (India) Ltd. (Delhi HC). Referring also to Ashika Global Securities Ltd., Shalimar Pellet Feeds Ltd., & Avantha Realty Ltd., the Bench held that if no exempt income is earned, disallowance u/s 14A cannot be sustained. The appeal of the Assessee was accordingly allowed in full.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
The present appeal is directed at the instance of assessee against the order of ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 10th July, 2024 passed for assessment year 2017-18.
2. The facts in brief are that the assessee is a Company, which filed its return of income electronically on 30.10.2017 declaring total income of Rs.20,85,66,570/-. The case was selected for limited scrutiny (CASS) assessment as per existing norms. Accordingly notices under section 143(2) of the Income Tax Act, 1961 was issued and served through the departmental ITBA portal on 16.08.2018. Notices under section 142(1) of the Act and letters were issued to the assessee company for submission of documents through departmental ITBA portal. From the record, it is seen that the assessee had not suo moto disallowed any sum under section 14A in its computation of total income. However, the assessee is engaged in activities of investment, income from which is exempt in nature. The resources of assessee company are expended for carrying on such investing activities, either directly or indirectly. The assessee submitted that no exempt income was earned during the financial year 2016-17 and the same no expenses relating to the exempt income is charged to profit & loss account. It further submitted that the investments are made in debt mutual fund which does not attract 14A. The assessee failed to appreciate that the expenditure incurred on such activities are not dependent on the amount of exempt income received. There is difference in income from sale of debt mutual fund and income from debt mutual fund. Ld. Assessing Officer determined the disallowance under section 14A of the Act at Rs.47,43,027/- read with Rule 8D and added back to the total income of the assessee. Finally, ld. Assessing Officer assessed the total income of the assessee under section 143(3) of the Income Tax Act at Rs.21,33,09,597/-. On being aggrieved, the assessee preferred an appeal before the ld. CIT(Appeals).
