ACIT Vs Raheja Universal Pvt. Ltd (ITAT Mumbai)
Section 14A Disallowance Capped at Exempt Income; Principal Loan Write-off to Wholly-Owned Subsidiary Allowed as Bad Debt – ITAT Mumbai
The Mumbai Bench of the ITAT disposed of the Revenue’s appeal and the assessee’s cross-objection for AY 2018-19 in the case of Raheja Universal Pvt. Ltd., upholding the relief granted by the CIT(A) on all major issues.
On Section 14A, the Tribunal affirmed that disallowance cannot exceed the exempt income actually earned during the year. Where dividend income was nominal, the disallowance was rightly restricted to that amount. The ITAT reiterated that the Explanation to section 14A inserted by the Finance Act, 2022 is prospective and cannot be applied retrospectively. It also accepted that no disallowance is warranted in respect of share of profit/loss from a partnership firm, which operates under a separate statutory mechanism.
On bad debt under section 36(1)(vii) read with section 36(2), the Tribunal upheld the allowability of ₹9 crore being the principal amount of loan written off in respect of a wholly-owned subsidiary. It held that once interest on the same loan had been consistently offered to tax in earlier years, the statutory condition of section 36(2) stood satisfied. The principal and interest form part of the same debt and cannot be artificially segregated. The Tribunal relied on binding precedents, including Shreyas S. Morakhia and Pudumjee Pulp & Paper Mills Ltd., to hold that if any part of the debt has been taken into account in computing income, deduction of the entire debt written off is permissible.
Consequently, the Revenue’s grounds challenging (i) restriction of section 14A disallowance, and (ii) allowance of principal loan write-off were dismissed. The order of the CIT(A) was upheld in full.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
