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Tribunal orders deletion of disallowance under Income Tax Act, no tax-exempt income earned. Appeal allowed The Tribunal ordered the Assessing Officer to delete the disallowance made under section 14A of the Income Tax Act as the assessee did not earn any ...
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Tribunal orders deletion of disallowance under Income Tax Act, no tax-exempt income earned. Appeal allowed
The Tribunal ordered the Assessing Officer to delete the disallowance made under section 14A of the Income Tax Act as the assessee did not earn any tax-exempt income during the year. The appeal was allowed, overturning the Commissioner of Income Tax (Appeals) decision, with the Tribunal emphasizing that the assessee's agreement to disallowance during assessment proceedings did not prevent them from challenging it on legal grounds.
Issues: Disallowance under section 14A of the Income Tax Act read with Rule 8D for expenditure incurred for earning tax exempt income.
Analysis: 1. The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of &8377; 67,955 under section 14A of the Income Tax Act. The Assessing Officer disallowed the expenditure as the assessee had investments generating tax-exempt income. The CIT(A) upheld this disallowance.
2. The assessee contended that no tax-exempt income was earned during the year, citing various High Court decisions supporting this argument. The High Courts unanimously held that disallowance under section 14A is not applicable if no income forming part of the total income is earned. Since the assessee did not earn any tax-exempt income, the disallowance under section 14A was deemed inapplicable.
3. The Departmental Representative argued that the assessee had agreed to the disallowance during assessment proceedings, but the Tribunal was not convinced. The Tribunal held that the assessee's agreement under a mistaken belief does not prevent them from challenging the disallowance in an appeal if legally not liable to pay tax on the addition made by the Assessing Officer.
4. Consequently, the Tribunal ordered the Assessing Officer to delete the disallowance made under section 14A of the Income Tax Act. The appeal of the assessee was allowed, and the order was pronounced in the Open Court on 30.5.2019.
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