The Income Tax Appellate Tribunal (ITAT), Mumbai bench held that no disallowance should be made under Section 14A of the Income Tax Act, 1961, when assessees have their own funds exceeding investments earning exempt income. The bench granted relief to Macrotech Developers.
Macrotech Developers Limited, engaged in real estate, construction, and development, revised its return to declare Nil income after setting off all brought forward losses. Subsequently, it was selected for scrutiny. During scrutiny, the Assessing Officer (AO) noted the claimed dividend income of Rs. 11,91,27,112/- as exempt income.
The AO requested details of exempt income and related expenditures, as no disallowance under section 14A was made in the return. The assessee argued that their own funds surpass investments earning exempt income, justifying no disallowance.
Disregarding the assessee’s claim, the AO made disallowance under section 14A.
The assessee appealed to the CIT(A), who allowed it. The revenue filed a second appeal before the tribunal. During proceedings, Niraj Sheth argued that the AO considered all investments, not just tax-free income earners, while Samuel Pitta supported the lower authorities’ decision.
The Tribunal noted that the assessee’s investments were funded by their own funds. When own funds exceed investments, no disallowance is justified towards operating costs.
The two-member bench, consisting of Ms. Padmavathy S (Accountant Member) and Kuldip Singh (Judicial Member), concluded that no disallowance should be made under Section 14A of the Income Tax Act, 1961. The bench dismissed the revenue’s appeal.
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