The Kolkata Bench of the Income Tax Appellate Tribunal ( ITAT ) held that disallowance under section 14A of the Income Tax Act should be made only on exempt income-yielding investments. The tribunal directed the Assessing Officer to recalculate.
EIH Limited (assessee) filed income tax returns for the assessment year 2018-19. The assessment of the assessee for the assessment year 2018-19 was completed on 28.02.2022 and several additions were made by the assessing officer (AO). Aggrieved by the order, the assessee raised this issue in the Dispute resolution panel(DRP).
The Dispute Resolution Panel reiterated the order issued by the AO. The AO disallowed an amount of Rs. 50,51,380 and stated that there was no necessity for exempt income. Aggrieved by the order, the assessee preferred an appeal to ITAT.
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The Counsel for the assessee contended that disallowance under section 14A should be made only on exempt income-yielding investments which was also upheld in Williamson Financial Services Ltd case. The counsel also argued that in the own assessee’s case, it was held that disallowance should be restricted to dividend-yielding investments.
On the other hand, the counsel for revenue relied on the findings of DRP’s order and also cited the circular of the Central Board of Direct Taxation (CBDT) that there was no necessity to have exempt income for disallowance under section 14A of the Income Tax Act.
The two-member bench comprising Rajpal Yadav (Vice president), and Sanjay AwasthiI (Accountant member) accepted the contention of the assessee’s counsel and decided the matter referencing cases such as Williamson Financial Services Ltd, Avantha Realty Ltd, Era Infrastructure (India) Ltd where it was held that any disallowance u/s 14A of the Act read with Rule 8D made only on investments yielding exempt income.
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So, the Tribunal directed the Assessing Officer to recalculate disallowance under Section 14A of the Income Tax Act by noting that only exempt income-yielding investments. The appeal was partly allowed.
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