The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has held that expenses incurred in relation to exempt income are not deductible under Section 14A of the Income Tax Act, 1961 (the Act) and dismissed the appeal filed by the assessee against the order of the Assessing Officer (AO) disallowing the expenses incurred by the assessee in relation to the exempt income received by it from the partnership firm.
The Assessee, M/s. Vishal Diamonds Pvt. Ltd., a company involved in equity share investment, received exempt income of Rs. 91,39,137/- in 2018-19. However, the Assessing Officer disallowed expenses under Section 14A of the Act, preventing deductions for income not part of total income. The assessee appealed to the Income Tax Appellate Tribunal (ITAT).
The assessee argued that its expenses were not related to exempt income but rather business activities. They also argued that the partnership firm’s profit was already taxed, so the income received was not taxable in their hands.
The assessee argued that its expenses were not related to exempt income but rather business activities. They also argued that the partnership firm’s profit was already taxed, so the income received was not taxable in their hands.
The Tribunal observed that the assessee, an equity share investment company, received exempt income from a partnership firm in 2018-19. However, the assessee argued that expenses were related to its overall business activities and that the partnership firm’s profit was already taxed.
The Two Bench Members comprising Karitha Rajagopal (Judicial Member) and S. Rifatur Rahman (Accountant Member) dismissed the assessee’s appeal and upheld the AO’s order disallowing expenses related to exempt income from a partnership firm and ruled that the assessee’s business model is solely to earn exempt income, and any expenses incurred will be considered for such income.
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