No disallowance shall be made u/s 14A r.w.r 8D I.T Rule if assessee not earned any exempt income  previous year relevant to assessment year: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT) Delhi bench held that no disallowance  should be made Under Section 14A read with section 8D of Income Tax Rule if the assessee did not earn any exempt income in previous year relevant to assessment year.

Assessee, OJAS Industries Pvt. Ltd is a residential corporate entity.During the assessment proceedings AO on perusing the Balance Sheet of the assessee for the year ending 31.03.2017, noticed that the assessee had made noncurrent investments.

AO issued a show-cause notice to the assessee seeking an explanation as to why the disallowance under Section 14A r.w.r 8D should not be made in respect of the investments made, which may in future give rise to exempt income.

The Assessee furnished its reply objecting to the proposed disallowance, however, rejecting the submissions of the assessee, the Assessing Officer proceeded to compute disallowance in terms of Rule 8D(2)(iii) for an amount of Rs.92,94,564/-.

Aggrieved by the order, the assessee filed an appeal  before the Commissioner of Income Tax Appeals [CIT(A)], who dismissed  the appeal. Therefore the assessee filed another appeal before the tribunal.

During the proceedings no one is appeared for the assessee therefore the by considering the written submission of the assessee it was stated that in the previous year relevant to assessment year under dispute, the assessee had not earned any exempt income.

The AO disallowance made under Section 14A r.w. Rule 8D only on the reasoning that certain investments made by assessee are capable of yielding exempt income in future.

Smita Singh, Counsel for Revenue supported the decision of the assessing officer.

After considering  the facts submitted by both parties, the two member bench of Pradip Kumar Kedia (Accountant Member) and Saktijit Dey (Vice-President)  observed that the assessee has not earned any exempt income in a particular assessment year. Therefore it was held that no disallowance under Section 14A r.w. Rule 8D can be made merely because certain investments made by assessee may give rise to exempt income in future.

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