S. 14A has relevance in the Absence of Exempted Income: ITAT Hyderabad [Read Order]


In DCIT v. M/s Maheswari Mega Ventures Ltd, the division bench of the ITAT Hyderabad ruled that section 14A of the Income Tax Act cannot be invoked in a case where the assessee has no exempted income in the relevant assessment year.

Recently, a similar view was taken by the Madras High Court in M/s Redington (India) Ltd v. ACIT wherein the Court held that s.14A is not applicable if there is no exempted income.

The assessee company, engaged in the business of construction and real estate. The AO while completing assessment against the assessee disallowed an amount ofRs. 3,78,875/- under section l4A read with Rule 8D, by finding that the assessee invested huge amounts as share capital in different companies out of borrowed funds and interest of Rs. 69,07,096/- was debited as interest on these loans.

Before the ITAT, the assessee took the following contentions, firstly, the said investments were not made during the year under consideration and were accumulated over a period of time, secondly, in the absence of any exempted Income, the provisions of 14A cannot be invoked and thirdly, they have reserves of around 603.48 crores as against the investments of Rs. 7.27 crores made. It was therefore contended that s. 14A cannot be invoked without proving the nexus between the loans obtained and the investments.

Allowing the contentions, the bench noted that “as per the P & L account and balance sheet submitted before us, the assessee had not earned any exempt income. The provisions of section 14A will be applied to find the expenditure relating to exempt income. In the absence of such exempt income, no expenditure can be disallowed in relation to exempt income.”

Read the full text of the order below.