Disallowance u/s 14A of Income Tax Act should not Exceed Exempt Income of Assessment Year: ITAT Upholds Deletion of Disallowance [Read Order]

The Delhi bench of Income Tax Appellate Tribunal (ITAT) held that the disallowance should not exceed the exempt income of that year and upheld the decision of Commissioner of Income Tax (Appeals) [CIT(A)] of deletion of the disallowance made by invoking the provision of Section 14A of the Income Tax Act,1961.

The assessee company Jaypee Infra Ventures is engaged in the business of design, engineering, software development and consultancy of real estate business. The assessee filed its return of income declaring loss of Rs.60,47,99,035 under normal provision and book profit of Rs.190,41,07,999 was filed by the assessee company electronically.

The AO made disallowance under Section 14A of the Income Tax Act of Rs.9,68,85,199 and had made other additions related to difference in Form 26AS and Profit & Loss Account amounting to Rs. 63,307 and disallowance of prior period expenses amounting to Rs.2,80,170.

Aggrieved by the order, the assessee has filed an appeal before CIT(A), who after considering the submissions, partly allowed the appeal of the assessee, thereby, deleted the disallowance made by invoking the provision of Section 14A of the Income Tax Act and sustained the addition of Rs.2,80,170  related to prior period expenses.

The Revenue filed an appeal before the ITAT and the Departmental Representative opposed the decision of CIT(A) and supported the assessment order of the AO.

The assessee submitted that the CIT(A) has correctly directed to reduce the subject amount of interest because disallowance under Section 14A of the Income Tax Act is to be made in respect of expenses attributable to exempt income and not the taxable income.

The Bench comprising of Kul Bharat, Judicial Member and M. Balaganesh, Accountant Member relied on the decision of Supreme court in PCIT vs Caraf Builders & Constructions (P.) Ltd that, “he disallowance should not exceed the exempt income of that year”, and on the observation of High court in Pr. CIT v. Bharti Overseas (P.) Ltd.

Thus, the Tribunal do not see any infirmity in the direction of CIT(A) therefore upheld the deletion of disallowance of Rs.9,68,85,199 made under Section 14A of the Income Tax Act.

To Read the full text of the Order CLICK HERE

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