Relief to Toyota India: ITAT deletes Disallowance u/s 14A [Read Order]

The Income Tax Appellate Tribunal (ITAT), Bangalore Bench, has recently, in an appeal filed before it by Toyota Tsusho India P. Ltd., while deleting the disallowance under section 14A, held that if the assessee has not earned any exempt income during the year under consideration no disallowance is warranted as per the provisions of section14A of the Income Tax Act ,1962.

The aforesaid observation was made by the Tribunal when an appeal was preferred before it by Toyota Tsucho India P. Ltd., as against the order of the National Faceless Assessement Centre, Delhi [NFAC] passed u/s.143(3) r.w.s.144(13) of the Income Tax Act 1962 (the Act) dated 11.2.2022 for the assessment year 2017-18.

The assessee having raised its ground of appeal pertaining to TP adjustment and disallowance u/s. 14A of theAct, the assessee’s claim was that had the directions of the DRP been considered by the AO/TPO, then the amount of TP adjustment would have undergone change and the revised TP adjustment would have been included in the final assessment order.

The assesse further added that the TP adjustment being retained in the final assessment order at the same figure as in the draft assessment order, the final assessment order is not in accordance with the directions of the DRP and thus, is liable to be quashed,while on the other hand, the DR relied on the orders of the lower authorities.

“We heard the rival submissions and perused the material on record. The assessee is contending the disallowance made u/s.14A on the following grounds:

• That the assessee has not earned any exempt income
• That the investments are out of own funds
• That the assessee has not incurred any specific expenditure towards investments.

And we further notice that the AO has made the disallowance on the basis that the investment could potentially earn income which substantiates the contention of the assessee that in the year under consideration the assessee has not earned any exempt income.”, the bench observed.

“The Hon'ble Delhi High Court in the case of Era Infrastructure (India) Ltd ., has considered the issue of disallowance u/s.14A when there is no exempt income and held that no disallowance under section 14A of the Act could be made if no exempt income was earned by the assesse”, adding to its observation, the Tribunal said.

Thus, drawing its conclusion while deleting the disallowance u/s 14A and thereby allowing the assessee’s appeal, it ruled:

“Considering the fact that the assessee has not earned any exempt income during the year under consideration and respectfully following the decision of the Hon’ble Delhi High Court in the case of Era Infrastructure India Ltd, we hold that no disallowance is warranted u/s.14A and delete the disallowance made in this regard.”

To Read the full text of the Order CLICK HERE

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