The Mumbai Bench of Income Tax Appellate Tribunal (ITAT)allowed the appeal of the assessee in the disallowance of expenses under Section 14A of Income tax Act,1961, finding that no exempt income was earned during the year and thus the disallowance made by the Assessing Officer (AO) was not justified.
Mudaliar and Sons Hotels Pvt. Ltd.,appellant-assessee,filed its return of income for the year on November 30, 2013, declaring no income. The return was selected for scrutiny, and statutory notices were issued and complied with. The AO noted that the assessee earned income solely from interest on inter-corporate loans and claimed expenses of Rs. 2,49,05,027/-, including employee benefits, finance costs, depreciation, and other expenses.
The assessee treated the entire interest income as “Income from Other Sources” and claimed interest expenses under Section 57 of the Act. The remaining expenses were partly disallowed, including depreciation and other expenses, leaving Rs. 50,05,240/- under “Profit and Gains of Business or Profession.”
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
The AO disallowed the remaining expenses, finding them not wholly for business purposes, as no business income was declared. Additionally, an investment of Rs.14,47,89,975/- for exempt dividend income was noted, leading to a disallowance of Rs.46,69,792/- under Rule 8D and section 14A of the Act. The Commissioner of Income Tax(Appeals)[CIT(A)] upheld the disallowance made by the AO in the appeal filed by the assessee.
The assessee appealed before the tribunal.
Read More: Disallowance u/s 14A of Income Tax Act only covers Expense Regarding Exempt Income: ITAT
The two member bench comprising Sunil Kumar Singh (Judicial Member) and Om Prakash(Accountant Member) heard the parties’ submissions and reviewed the records. It was found that no exempt income was earned in the year.
The appellate tribunal also referred to the Delhi High Court’s ruling in Era Infrastructure (India) Ltd., which stated that the amendment to section 14A by the Finance Act, 2022, was prospective and not applicable for the assessment year in question. As no exempt income was earned, the disallowance made by the AO was not upheld.
Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here
As a result, the appeal filed by the assessee was allowed.
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