The Pune Bench of the Income Tax Appellate Tribunal (ITAT) held that the disallowance under Section 14A of the Income Tax Act, 1961, was invalid due to the absence of exempt income.
The revenue has appealed against the order passed by the Commissioner of Income Tax Appeal for the assessment year 2015-16.
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In this case, the assessee is a company that is involved in manufacturing tractors, agricultural equipment, and spare parts, also operates 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, the Assessing Officer (AO) noted that the assessee invested in a subsidiary firm with tax-exempt income. The AO issued an SCN asking the assessee why the disallowance u/s 14A read with rule 8D should not be made. The AO who was not satisfied with the reply made an addition of Rs. 3.65 crores under Section 14 A of the Income Tax Act, 1961.
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The assessee appealed against the impugned order of the AO before the CIT(A) and contended that no disallowance could be made as the assessee had not received any dividend income.
The CIT(A) deleted the addition made by the 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. The CIT(A) observed that the appellant had sufficient funds available in its accounts, and the appellant has not earned any exempt income.
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The 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 has resulted in non-taxable income.
Before the ITAT, the assessee’s counsel relied on the order of the CIT(A) and also relied on the order of ITAT for the assessee’s own case for the AY 2016-17 in which the revenues appeal was dismissed by the Tribunal on similar facts and grounds.
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The ITAT, after going through the judgement of the coordinate bench in the assessee’s own case found no infirmity in the order of the CIT(A) as the department brought no contrary material in record, and thus the addition under section 14A was deleted.
The bench upheld the order of the CIT(A) deleting the disallowance made by the Assessing Officer.
The Pune ITAT, comprising R. K. Panda (Vice President) and Vinay Bhamore (Judicial Member) dismissed the revenue’s appeal.
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