As a relief to United Breweries, the Bangalore bench of the Income Tax Appellate Tribunal ( ITAT ) has held that disallowance under section 14A of the Income Tax Act,1961 is restricted to exempt income earned by the assessee.
The assessee is engaged in the business of manufacturing and sale of beer under different brands like “Kingfisher” and “UB”. The return of income was filed on 30.11.2012 declaring total income at `Nil’ under the regular provisions of the Income-tax Act and book profit of Rs.245,93,47,150 u/s 115JB of the Income Tax Act.
The return wasrevised on 07.02.2014 and the total income of Rs.132,92,94,900 was declared after the set off of losses of Rs.84,49,20,104.The assessment was completed u/s 143(3) r.w.s. 92CA of the Income Tax Act vide order dated 31.03.2016 with certain disallowances/additions to the returned income of the assessee
The A.O. also made an addition of Rs.140.49 crore and treated the amount transferred to UBL Trust to the assessee as “long-term capital gain” and assessed the same to tax. The A.O. raised the demand of Rs.80,38,85,646 (including interest) in the said assessment order. The CIT(A) vide the impugned order dated 20.12.2017partly allowed the appeal.
The assessee had earned a dividend income of Rs.19,00,000 in the previous year relevant to the impugned AY 2012-13 and claimed the same as exempt under section 10(34) of the Income Tax Act. The AO in the impugned assessment order has made disallowance of Rs.1,31,50,663 under section 14A of the Income Tax Act by invoking the provisions of Rule 8D of the Income-tax Rules, 1962 (“Rules”). The AO rejected the contention of the assessee that it had not incurred any expenditure about income not includible in total income.
The CIT(A) provided partial relief and held that disallowance under section 14A is not called for on the value of fresh investment of Rs.6 lakhs made by the assessee during the year. As regards the earlier investment of Rs.2541 lakhs, the CIT(A) upheld the order of the AO disallowing the expenses relatable to the investment as per Rule 8D.
The assessee contended that the disallowance under section 14A of the Income Tax Act cannot exceed the exempt income earned.
It was viewed that the co-ordinate Bench of the Tribunal in the assessee’s case held that the disallowance should be restricted to the amount of exempt income earned by the assessee.
In light of the decision of the Tribunal in the assessee’s case for the assessment year 2013-2014,a Coram comprising of Shri George George K, JM &Ms Padmavathy S, AMheld that the disallowance should be restricted to the amount of exempt income earned by the assessee.
Further observed that the amendment to section 14A of the Income Tax Act, which states that disallowance u/s 14A of the Income Tax Act is to have resorted, whether the assessee earns exempt income or not is only prospective and does apply to the relevant assessment year. The appeal was allowed.
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