Disallowance u/s 14A IT Act shall not be made when no exempt Income is earned by Assessee [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai bench, held that the disallowance under Section 14A of the Income Tax Act, 1961, should not be made since there is no exempt income earned by the assessee. The assessee, Dcom Systems Limited, engaged in the business of manufacturing and trading of metal equipment. After filing the return of income, the case was selected for scrutiny. During the scrutiny proceedings, the AO made a disallowance u/s. 14A r.w. Rule 8D of Rs. 29,85,830/- and assessed the total income as Rs. 2,38,16,658/-.

Aggrieved, the assessee filed a further appeal before the CIT(A), who allowed the appeal. Therefore, the revenue filed another appeal before the tribunal. During the proceedings, no one appeared for the assessee. Neeju Gupta, Counsel for Revenue, relied upon the decision of Delhi special bench in the case of Cheminvest Ltd. and submitted that for the purpose of disallowance under Section 14A of the Income Tax Act, there is no requirement that actual income needs to be earned.

The tribunal observed that the assessee has not received any dividend income against the investments made by it. Therefore, the bench upheld the decision of CIT(A).

After reviewing the facts and records, the two-member bench of Annapurna Gupta (Accountant Member) and T.R. Senthil Kumar (Judicial Member) concluded that no disallowance under Section 14A of the Income Tax Act should be made since there is no exempt income earned by the assessee.

Therefore, the bench dismissed the appeal of the revenue.

To Read the full text of the Order CLICK HERE

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