Relief to Reliance Life Sciences: ITAT deletes Disallowance of Expenditure incurred in relation to Income Exempted from Tax [Read Order]

In a major relief to Reliance Life Sciences, the Mumbai Bench of Income Tax Appellate Tribunal (ITAT) deleted the Disallowance of Expenditure incurred in relation to Income Exempted from Tax.

The assessee, Reliance Life Sciences Pvt. Ltd. is a Private Limited Company and leading in all life science initiatives such as pharmaceuticals and is engaged in the business of Scientific R&D in Biotechnology, etc. The assessee filed its return of income on 29th November 2014, declaring total loss at Rs.88,99,83,213. The Assessing Officer during the assessment proceedings observed that the assessee has made an investment in equity shares, which might yield exempted dividend income in the future. He noticed that certain expenses relatable to such investments made have not been voluntarily disallowed by the assessee in its computation of income. He further noticed that the assessee might earn substantial exempt income by way of long-term capital gains on the sale of shares and dividend income.

Since the assessee might earn exempt income and has incurred expenditure that might be relatable to such exempt income, the assessee was asked to furnish clarification regarding disallowance u/s. 14A and was asked to furnish working in accordance with the manner laid down in Rule 8D.

The Assessing Officer considering the submissions of the assessee and other provisions of the Act as well relying upon certain case laws computed the disallowance under section 14A of the Act in accordance with the provisions of rule 8D, held that the assessee has not claimed any expenditure of administrative nature and there is no expenditure directly relatable to earning of exempt income. He held that the entire expenditure claimed is on account of interest only and hence the disallowance is required to be made in accordance with rule 8D(2)(ii) being proportionate interest on the average value of investments. Accordingly, an amount of Rs.95,91,605, was added to the total income of the assessee. However, the CIT(A) deleted the disallowance made by the Assessing Officer.

The coram headed by the Vice President, Mahavir Singh, and Accountant Member S. Rifaur Rehman while considering the precedents ruled that if there is no exempt income there cannot be any disallowance and directed the Assessing Officer to delete the disallowance made under section 14A of the Act.

To Read the full text of the Order CLICK HERE

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