Bangalore the Income Tax Appellate Tribunal (ITAT) has held that the disallowance u/s 14 A rws 8D of the Income Tax Act,1961 is not permissible when the assessee does not have exempt Income.
M/s. Acropetal Technologies Pvt. Ltd., the assessee is in the business of manufacturing and export of software. The assessee filed the return of income for AY 2013-14 on 17.3.2014 by declaring an income of Rs.8,67,63,830 and the return for AY 2014-15 on 12.9.2014 declaring an income of NIL. The AO made the disallowances u/s. 14A r.w. Rule 8D, addition towards foreign exchange gain, disallowance of expenses for setting up of office and onsite project expenses without TDS disallowed u/s. 40(a)(i) of the Income Tax Act,1961.
The CIT(Appeals) gave partial relief to the assessee by deleting the disallowances made u/s. 14A and section 40(a)(i). The revenue is in an appeal against the order of the CIT(Appeals).
The AO noticed during the course of the assessment that the assessee has made certain investments the income from which is exempt from tax and has not worked out any disallowance towards income from investments exempt under the Income Tax Act.
It was submitted by the assessee before the AO that during the year under consideration, it does not have any exempt income and therefore no disallowance u/s. 14A is warranted. Further submitted that the investments are strategic investments specialized in the areas of Income Tax & ITeS in the process of acquiring a major stake in those companies to have a business interest. The CIT(A) allowed the appeal in favour of the assessee.
In Contra, the revenue supported the order of the AO and contended that the explanation inserted to section 14A is clarificatory in nature and therefore even if the assessee does not have exempt income the AO is right in invoking the provisions of section 14A.
Shri N V Vasudevan, vice president and Ms Padmavathy S, accountant member observed that when there is no exempt income, no disallowance can be made u/s. 14A and deleted the addition made by the AO u/s. 14A for both assessment years while dismissing the appeal of the revenue.
The appellant was represented by Ms Sunaina Bhatia, Advocate and the respondent was represented by Shri V S Chakrapani.
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