Disallowance u/s 14A of the Income Tax Act cannot Exceed Exempt Income: ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that disallowance under Section 14A of the Income Tax Act, 1961 could not exceed the exempted limit.

The assessee, PTC India Financial Services Ltd was a Non-Banking Financial Company (NBFC). It was promoted by PTC India Ltd and was engaged in the business of making principal investments in and providing financial solutions for companies with projects across the energy value chain, generation and distribution of electricity. The case of the assessee was selected for scrutiny under CASS.

The AO holding that the assessee had computed some disallowance by some internal method of its own and AO held that the method could not be altered as per the convenience of the assessee and AO held that the proper method was prescribed under Rule 8D if Section 14A of the Income Tax Act was applicable, therefore, AO recorded his dissatisfaction with disallowance made by the assessee.

The Commissioner of Income Tax (CIT (A)) sustained the addition made by the AO on account of foreign exchange loss and also partly sustained the disallowance made under Section 14A of the Income Tax Act.

Salil Kapoor appeared on behalf of the assessee and T. Kipgen, appeared on behalf of the revenue.

The two-member Bench of Shamim Yahya, (Accountant Member) And Anubhav Sharma, (Judicial Member) allowed the appeal filed by the assessee observing that the AO had mechanically applied the formula given in Rule 8D, hence he found that AO had computed the disallowance which was far in excess of the exempt income disclosed by the assessee which was not logically or prudently possible.

Referring to the decision in Joint Investment (P) Ltd. vs. CIT, aa the Bench held that disallowance under Section 14A of the Income Tax Act could not exceed the exempt income.

To Read the full text of the Order CLICK HERE

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