The Mumbai bench of Income Tax Appellate Tribunal( ITAT) held that the disallowance under section 14A of Income Tax Act,1961 cannot exceeds the limit of exempted income.
Anant Raj Limited, the respondent assessee
explained that the earned dividend income which was claimed as exempt for the year under consideration. The assessing officer had computed the disallowance under section 14A of Income Tax Act, in accordance with Rule 8D to the amount and added to the total income of the assessee.
The revenue appealed against the order passed by the commissioner for directing the assessing officer to restrict the disallowance not to exceeds the limit of exempted income.
Manoj Kumar Sinha, the counsel for the assessee contended that the explanation introduced to Section 14A of Income Tax Act with the Finance Act 2022 was prospective in nature and therefore, no disallowance could be made under section 14A of Income Tax Act when no exempt income is earned prior to assessment year 2022- 23 and disallowance cannot exceed the amount of exempt income earned.
Sudesh Garg, the counsel for the revenue contended that after referring explanation inserted by Finance Act 2022 to Section 14A of Income Tax Act shall apply whether or not exempt income had accrued, arisen or received and the provisions of the amended Section was applicable retrospectively.
The two member bench comprising of Vikas Awasthy( Judicial ) and Amarjit Singh( Accountant) held that the disallowance under section 14Aof Income Tax Act cannot exceed the amount of exempt income earned during the year while dismissing the appeal filed by the revenue.
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