The Mumbai Bench of the Income Tax Appellate Tribunal( ITAT ) held that there is no application of Section 14A Income Tax Act, if no exempt income received or receivable during relevant previous year,
During the course of assessment proceedings, the assessee, Keystone Realtors Pvt Ltd was asked to show cause why the disallowance under section 14A of the Income Tax Act be not made. In response, assessee submitted that it has already disallowed Rs. 7 lakhs under section 14A of the Income Tax Act for the year under consideration.
However, in absence of any details of the expenses disallowed by the assessee under section 14A of the Income Tax Act and the basis of computing the above disallowance, the AO vide order passed under section 143(3) of the Income Tax Act made the disallowance of Rs. 54 lakhs under section 14A r/w Rule 8D. TheCIT(A) vide impugned order dismissed the appeal filed by the assessee on this issue. Being aggrieved, the assessee is in appeal before the Tribunal.
The Authorised Representative submitted that during the year no dividend income was earned by the assessee. The Departmental Representative vehemently relying upon the orders passed by the lower authorities submitted that the assessee has suo moto made disallowance under section 14A of the Income Tax Act and it indicates that the assessee believes that some expenditure is attributable to the income which does not form part of the total income.
The DR also submitted that in view of amendment by the Finance Act, 2022, section 14A of the Income Tax Act is applicable even if no dividend income has accrued in the year under consideration.
From the financial statement of the assessee, it is evident that no dividend income was earned by the assessee during the year under consideration. The aforesaid fact has also not been disputed by the Revenue.
However, the Revenue has placed reliance upon the recent amendment Finance Act, 2022, whereby non-obstante clause and explanation have been inserted in section 14A of the Income Tax Act to the effect that section shall apply even if no exempt income has accrued or arisen or has been received during the year.
A Coram comprising Prashant Maharshi, Accountant Member and Sandeep Singh Karhail, Judicial Member placed reliance on the judgment in Cheminvest Ltd. v. CIT wherein, it was held that “Section 14A of the Income Tax Act will not apply if no exempt income is received or receivable during the relevant previous year. Therefore, respectfully following the aforesaid decision, the AO is directed to delete the disallowance made under section 14A of the Income Tax Act read with Rule 8D.”
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