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No section 14A disallowance if there is no exempt income: ITAT grants relief to Tata Sky [Read Order]

ITAT - disallowance - Tata Sky - Taxscan

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench while upholding the order of CIT(A) held that if there is no exempt income then no disallowance of expenditure under section 14A of the Act can be made.

The assessee, Tata Sky Limited has given a discount on the sale of Set-top Boxes and Recharge Coupon Vouchers, which is referred to as a primary discount.

During the year under consideration, the assessee has invested in various investments which yield exempt income. Further, the assessee has not made suo moto disallowance of expenditure incurred in relation to exempt income under section 14A of the Income Tax Act, 1961.

The AO has disallowed interest expenses and other expenses by invoking Rule 8D(2)(ii)and (iii) on the ground that although the assessee has debited huge interest expenses and other administrative expenses, but failed to disallow expenses relatable to exempt income.

CIT(A) after considering relevant facts has deleted the addition made by the AO towards the disallowance of expenses under section 14A of the Act.

It is the case of the assessee that during the year under consideration it has not earned any exempt income and hence, the question of disallowance of expenses under section 14A of the Act does not arise.

The Tribunal took into consideration the decision of the Bombay High court in the case of Ballarpur Industries Ltd. wherein it was held that when there is no exempt income then no disallowance of expenses under section 14A of the Income Tax Act, 1961 can be made.

The two-member bench headed by the Vice President Mahaveer Singh held that there is no exempt income earned for the year, then disallowance contemplated under section 14A of the Act cannot be pressed into. Since there is no exempt income for the year, the disallowance of expenditure contemplated under section 14A of the Act cannot be made.

“The CIT(A) after considering relevant facts has rightly deleted the addition made by the AO towards disallowance of expenses under section 14A of the Act. There is no error in the findings of the learned CIT(A). Hence, we are inclined to uphold the findings of the learned CIT(A) and dismissed appeal filed by the Revenue,” the ITAT said.

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