AO adds Rs. 64.88 lakh Expenditure u/s 14A citing Business nature: ITAT deletes addition due to Expenditure spent not exclusively for Business [Read Order]
The tribunal observed that there was no requirement in law that every expenditure must result in profit
![AO adds Rs. 64.88 lakh Expenditure u/s 14A citing Business nature: ITAT deletes addition due to Expenditure spent not exclusively for Business [Read Order]](https://www.taxscan.in/wp-content/uploads/2025/03/ITAT-ITAT-Lucknow-Section-14A-of-Income-Tax-Act-ITAT-on-business-expenditure-TAXSCAN.jpg "AO adds Rs. 64.88 lakh Expenditure u/s 14A citing Business nature: ITAT deletes addition due to Expenditure spent not exclusively for Business [Read Order]")
The Lucknow Bench of the Income Tax Appellate Tribunal (ITAT) has deleted the disallowance of Rs. 64.88 lakh made by the Assessing Officer (AO) under Section 14A of the Income Tax Act, citing that expenditure was not spent exclusively for business. JIL Information Technology Ltd. (assessee), a software company engaged in exports, incurred an expenditure of Rs. 64.88 lakhs as retainership...
The Lucknow Bench of the Income Tax Appellate Tribunal (ITAT) has deleted the disallowance of Rs. 64.88 lakh made by the Assessing Officer (AO) under Section 14A of the Income Tax Act, citing that expenditure was not spent exclusively for business.
JIL Information Technology Ltd. (assessee), a software company engaged in exports, incurred an expenditure of Rs. 64.88 lakhs as retainership fees to foreign marketing agents ASP Services LLC and Tekorigin LLC for business development in the U.S.
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The Assessing Officer (AO) disallowed the entire amount citing that the expenditure was related to exempt income. The AO also observed that the expenditure was not genuine.
Aggrieved by the assessment order, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) upheld the AO’s disallowance and dismissed the appeal of the assessee. Aggrieved by CIT(A)’s order, the assessee filed an appeal before the ITAT.
The counsel for the assessee argued that Section 14A applies only when there is exempt income. The counsel also highlighted that the no exempt income was earned by the assessee, therefore no disallowance can be made under section 14A of the Income Tax Act.
The counsel for the assessee further argued that the expenditure was genuine and it was backed by agreements, invoices, and tax deductions.
The counsel for the revenue argued that the expenditure was excessive compared to revenue, and supported the assessment order of the AO.
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The two-member bench, comprising Shri Kul Bharat (Vice President) and Shri Anadee Nath Misshra (Accountant Member) observed that no exempt income was earned by the assessee.
The tribunal also observed that there was no requirement in law that every expenditure must result in profit. The tribunal further observed that the expenditure must be expended wholly and exclusively for the purposes of business.
Therefore, the tribunal directed the AO to delete the addition of Rs. 64.88 lakh. Thereby the appeal of the assessee was partly allowed.
To Read the full text of the Order CLICK HERE
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