The Income Tax Appellate Tribunal (ITAT) Ahmedabad bench held that disallowance under Section 14A of the Income Tax Act, 1961 should not be made ,if assessee not earned any exempt income during financial year. Therefore, the bench quashed the revision order passed by the Principle commissioner of Income Tax.
Assessee, Baghban Packaging LLP filed the appeal against the order passed by the Principal Commissioner of Income-Tax under Section 263 of the Income-Tax Act.
Aggrieved by the order, the assessee filed an appeal before the tribunal.
Aseem L. Thakkar, counsel for the assessee submitted that the assessee’s case had been selected for “limited scrutiny” for the purpose of scrutinizing the expenses debited to the Profit and Loss account for earning exempt income
The issue had been thoroughly examined by the Assessing Officer and noting that no exempt income had been earned by the assessee, Thus in absence of exempt income during the financial year there is no need to disallowance, the assessee submitted.
Sudhendu Das, Counsel for the revenue, submitted that as per the CBDT circular No No.05/2014 dated 11.02.2014, even if no exempt income was earned by the assessee from the investment in a particular year, provisions of Section 14A r.w.r.8D are applicable in that year.
However, the AO failed to make any inquiry with regard to disallowance to be made u/s 14A of the Income Tax Act and claim was allowed in the same.
The tribunal during the proceedings observed that the circulars issued by the CBDT are binding on their officers only to the extent that they are not in contradiction to the judicial interpretation of provisions of law. Circulars could not override express provisions of law as interpreted by the Courts.
Further where no exempt income is earned by the assessee there is no case for making any disallowance under Section 14A of the Income Tax Act.
After considering the facts submitted by both parties, the two member bench of Annapurna Gupta, (Accountant Member) and Madhumita Roy, (Judicial Member) quashed the revision order passed by the PCIT allowing the appeal filed by the assessee.
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