The Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) held that no disallowances under Section 14A of the Income Tax Act, 1961 shall be made in the absence of any exempt income.
The issue is related to the disallowance of expenditure incurred for the purpose of earning exempt income in terms of provisions of Section 14A of the Income Tax Act. The assessee had repeatedly contended that it had not earned exempt income during the year, therefore, no disallowance needs to be made.
The Commissioner of Income Tax (Appeal) [CIT(A)] has confirmed the addition relying upon the CBDT Circular No.5/2014 wherein it was clarified that disallowance of expenditure under Section 14A of the Income Tax Act is to be made even in the absence of any exempt income earned in a particular year.
The jurisdictional High Court in the case of CIT Vs. Corrtech Energy P.Ltd., (2014) 45 taxmann.com 116 (Guj) has held that in the absence of any exempt income earned, there is no case for making any disallowance of expenses under Section 14A of the Income Tax Act.
The Finance Act, 2022 had amended Section 14A of the Income Tax Act by inserting a non-obstinate clause and an Explanation after the proviso providing for disallowance of expenses even in the absence of any exempt income earned.
The Two-member bench comprising of Annapurna Gupta (Accountant member) and Madhumita Roy (Judicial member) held that in the absence of any exempt income, there is no case for making disallowance under Section 14A of the Income Tax Act.
Thus, the appeal of the assessee was allowed.
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